20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2018

OR

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

For the transition period from to

OR

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

Date of event requiring this shell company report

Commission file number 001-38177

CLEMENTIA PHARMACEUTICALS INC.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Canada

(Jurisdiction of incorporation or organization)

1000 de la Gauchetière West, Suite 1200

Montreal, Quebec, Canada H3B 4W5

(Address of principal executive offices)

Steve Forte, Chief Financial Officer, Clementia Pharmaceuticals Inc.,

1000 de la Gauchetière West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Tel: (514) 940-3600

(Name, telephone, email and/or facsimile number and address of Company contact person)

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

Title of each class	Name of each exchange on which registered
Common Shares, no par value	The Nasdaq Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report: At December 31, 2018, 37,864,068 common shares were issued and outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes x No

Note-checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

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

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨ Emerging growth company x

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board x Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 ¨ Item 18

If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

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TABLE OF CONTENTS

GENERAL	6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	7
PART I	10
Item 1.     Identity of Directors, Senior Management and Advisors	10
Item 2.    Officer Statistics and Expected Timetable	10
Item 3.     Key Information	10
A.   Selected Financial Data	10
B.   Capitalization and Indebtedness	11
C.   Reasons for the Offer and Use of Proceeds	11
D.   Risk Factors	12
Item 4.     Information on the Company	54
A.   History and Development of the Company	56
B.   Business Overview	56
C.   Organizational Structure	78
D.   Property, Plant and Equipment	78
Item 4a.    Unresolved Staff Comments	79
Item 5.    Operating and Financial Review and Prospects	79
A.    Operating Results	79
B.   Liquidity and Capital Resources	86
C.   Research and development, patents and licenses, etc.	92
D.   Trend Information	92
E.   Off-balance Sheet Arrangements	92
F.   Tabular disclosure of Contractual Obligations	93
G.   Safe Harbor	94
Item 6.    Directors, Senior Management and Employees	94
A.   Directors and Senior Management	94
B.   Compensation	98
C.   Board Practices	115
D.   Employees	118

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E.   Share Ownership	119
Item 7.    Major Shareholders and Related Party Transactions	120
A.   Major Shareholders	120
B.   Related Party Transactions	122
C.   Interests of Experts and Counsel	122
Item 8.    Financial Information	122
A.   Consolidated Statements and Other Financial Information	122
B.   Significant Changes	123
Item 9.    The Offer and Listing	123
A.   Offer and Listing Details	123
B.   Plan of Distribution	124
C.   Markets	124
D.   Selling Shareholders	124
E.   Dilution	124
F.   Expenses of the Issue	124
Item 10.   Additional Information	124
A.   Share Capital	124
B.   Memorandum and Articles of Association	126
C.   Material Contracts	129
D.   Exchange Controls	130
E.   Taxation	131
F.   Dividends and Paying Agents	141
G.   Statement by Experts	141
H.   Documents on Display	141
I.   Subsidiary Information	141
Item 11.   Qualitative and Quantitative Disclosure About Market Risks	142
Item 12.   Description of Securities Other Than Equity Securities	142
A.   Debt securities	142
B.   Warrants and Rights	142
C.   Other Securities	143
D.   American Depositary Shares	143
PART II	143
Item 13.     Defaults, Dividend, Arrearages and Delinquencies	143

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Item 14.    Material Modifications to the Rights of Security Holders and Use of Proceeds	143
Item 15.    Controls and Procedures	143
Item 16.    [Reserved]	144
Item 16A.    Audit Committee Financial Expert	144
Item 16B.    Code of Ethics	144
Item 16C.    Principal Accountant Fees and Services	145
Item 16D.    Exemptions from the Listing Standards for Audit Committees	145
Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers	145
Item 16F.    Change in Registrant’s Certifying Accountant	146
Item 16G.    Corporate Governance	146
Item 16H.    Mine Safety Disclosure	146
Item 17.    Financial Statements	146
Item 18.    Financial Statements	146
Item 19.    EXHIBITS	147

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GENERAL

Clementia is a clinical-stage biopharmaceutical company innovating treatments for people with ultra-rare bone disorders, including Fibrodysplasia Ossificans Progressiva (FOP) and Multiple Osteochondromas (MO), as well as other diseases.

In August 2017, the Company completed its initial public offering (IPO) and issued 9,191,000 common shares at $15 per share, including the underwriters’ over-allotment option, for total gross proceeds of approximately $137.9 million. The Company’s common shares are listed and traded on the Nasdaq Global Select Market under the symbol CMTA.

Immediately prior to the IPO, the Company amended its articles of incorporation to effect an 11.99-for-1 stock split of all of its common shares. The stock split became effective on July 19, 2017 and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in this Annual Report have been retrospectively adjusted to reflect this stock-split.

On August 7, 2017, the Company amended and restated its articles. The Company is since then authorized to issue an unlimited number of common shares, without nominal or par value, and an unlimited number of preferred shares issuable in series, without nominal or par value.

In October 2018, the Company completed a follow-on offering and issued 6,095,000 common shares at $13.25 per share, for total gross proceeds of $80,758,750.

In October 2018, the Company also filed an At-The-Market (ATM) offering prospectus for $40,000,000 of additional common shares for a period of 24 months. The ATM allows the Company to sell common shares having an aggregate offering price of up to $40,000,000 from time to time at prevailing market prices. The underwriters’ commission will be 3% of the amount of funds raised. There were no draws on this ATM offering prospectus as at the date of this Form 20-F.

On February 24, 2019, the Company entered into an agreement (the Arrangement Agreement) with Ipsen S.A. (Ipsen), a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and a wholly-owned subsidiary of Ipsen (the Purchaser, and together with Ipsen, the Purchaser Parties), pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of US$25.00 per share in cash upfront, plus a contingent value right (CVR) of US$6.00 per share related to the MO indication for a total transaction value of up to US$1.31 billion (Plan of Arrangement). Completion of the transaction is anticipated to occur in the second quarter of 2019, subject to satisfaction or waiver of all closing conditions. As of the date of this Form 20-F, the arrangement (the Arrangement) contemplated in the Arrangement Agreement has not yet been approved or completed.

All references in this Annual Report to “the Company”, “Clementia”, “we”, “us”, or “our” refer to Clementia Pharmaceuticals Inc. and the subsidiaries through which it conducts its business unless otherwise indicated.

Unless otherwise indicated, all references to “dollars” or the use of the symbol “$” are to U.S. dollars, the Company’s functional currency, and all references to “Canadian dollars” or “C$” are to Canadian dollars. Unless otherwise specified, all financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F 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 Annual Report include, but are not limited to, statements with respect to:

• plans, timing and outcome of the Plan of Arrangement;

• our ability to achieve profitability in the future;

• our projected financial position and estimated cash burn rate;

• our expectations about the timing of achieving milestones and the cost of our development programs;

• our observations and expectations regarding the efficacy of palovarotene and the potential benefits to patients;

• our requirements for, and the ability to obtain, future funding on favorable terms or at all;

• our projections regarding the timely and successful completion of studies and trials and availability of results from such studies and trials;

• our expectations about palovarotene’s safety and efficacy;

• our expectations regarding our ability to arrange for the manufacturing of our products and technologies;

• our expectations regarding the progress, and the successful and timely completion, of the various stages of the regulatory approval process;

• our plans to market, sell and distribute our products and technologies;

• our expectations regarding the acceptance of our products and technologies by the market;

• our ability to retain and access appropriate staff, management and expert advisers;

• 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

• our strategy with respect to the protection of our intellectual property.

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All forward-looking statements reflect our belief 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. Factors which could cause future outcomes to differ materially from those set forth in the forward-looking statements include, but are not limited to:

• the risks that a condition to closing the Plan of Arrangement may not be satisfied;

• our ability to generate revenue and become profitable;

• the ability to obtain, on satisfactory terms or at all, the financing required to support operations, development, clinical trials and commercialization of products;

• the risks related to our heavy reliance on palovarotene, our only current product candidate;

• the risks of delays and inability to complete clinical trials due to difficulties enrolling patients;

• the risks associated with the development of palovarotene and any future product candidate, including the demonstration of efficacy and safety;

• the risks related to clinical trials including the risk of negative results, potential delays, cost overruns and potential adverse events or unacceptable side effects;

• the risks of reliance on third-parties for the planning, conduct and monitoring of clinical trials and for the manufacture of clinical drug supplies and drug product;

• potential changes in regulatory requirements, and delays or negative outcomes from the regulatory approval process;

• our ability to successfully compete in our targeted markets, including the risk that competing therapies could emerge;

• the risks related to healthcare reimbursement policies and potential healthcare reform;

• our heavy dependence on licensed intellectual property, including our ability to source and maintain licenses from third-party owners;

• our ability to adequately protect proprietary information, trade secrets and technology from competitors;

• the risk of patent or other intellectual property related litigation;

• risks related to changes in patent laws and their interpretations;

• risks related to our ability to manage the expansion of the size and scope of our Company, including risks associated with international operations;

• the potential for product liability claims; and

• our ability to attract, retain and motivate key personnel.

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The above are further and more fully described under Item 3D of this Annual Report entitled “Risk Factors.” Although the forward-looking statements contained in this Annual Report 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 Annual Report 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 applicable securities legislation.

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PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Officer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The following tables present our selected financial data for the periods and as of the dates indicated and have been derived from the audited consolidated financial statements of the Company. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. You should read these tables in conjunction with our audited consolidated financial statements and accompanying notes thereto included in Item 18 of this Annual Report and Item 5 “Operating and Financial Review and Prospects” section of this Annual Report. Unless otherwise indicated, all references to “dollars” or the use of the symbol “$” are to United States dollars, the Company’s functional currency.

Our historical results are not necessarily indicative of the results that should be expected in any future period.

All of our operations are continuing operations.

Consolidated statements of operations data

Year ended December 31,	2018			2017			2016			2015			2014
	(in thousands, except share and per share data)
Expenses
Research and development	$	43,904		$	27,406		$	16,852		$	14,396		$	7,797
Tax credits		(1,039	)		(1,237	)		(139	)		(165	)		(214	)
		42,865			26,169			16,713			14,231			7,583
General and administrative		16,492			9,287			3,406			5,479			2,266
Interest income		(2,358	)		(1,082	)		(399	)		(109	)		(19	)
Financial expenses		161			80,438			37,646			56,140			2,364
Income tax expense		966			643			146			156			95
Net loss and comprehensive loss	$	(58,126	)	$	(115,455	)	$	(57,512	)	$	(75,897	)	$	(12,289	)
Net loss per share, basic and diluted	$	(1.78	)	$	(7.93	)	$	(24.46	)	$	(33.06	)	$	(5.70	)
Weighted average number of shares outstanding, basic and diluted		32,714,234			14,560,482			2,351,347			2,295,402			2,156,689

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Consolidated statements of financial position data

As at December 31,	2018		2017		2016			2015			2014
	(in thousands, except share and per share data)
Cash and short-term investments	$	169,973	$	66,230	$	39,434		$	58,107		$	5,504
Long-term investments		-		75,000		-			-			-
Working capital		161,727		64,183		36,101			55,569			4,885
Total assets		176,844		148,425		41,557			60,657			8,000
Preferred shares and embedded derivative liabilities		-		-		185,706			147,981			21,598
Total liabilities		12,412		6,719		190,229			151,992			23,653
Total shareholders’ equity (deficit)		164,432		141,707		(148,672	)		(91,335	)		(15,652	)
Number of common shares outstanding		37,864,068		31,717,584		2,351,347			2,351,347			2,115,959
Dividends paid on common shares(1)	$	-	$	-	$	-		$	-		$	-

⁽¹⁾ The Company has never declared or paid dividends since inception and does not expect to do so in the foreseeable future.

⁽²⁾ Working capital is determined by deducting current liabilities from current assets.

Exchange rate data

The following table sets forth, for the periods indicated, the high, low, average and end of period noon rates of exchange for one U.S. dollar, expressed in Canadian dollars, published by the Bank of Canada during the respective periods.

Year ended December 31,	2018		2017		2016		2015
Highest noon rate during the period	$	1.3642	$	1.3743	$	1.4589	$	1.3990
Lowest noon rate during the period	$	1.2288	$	1.2128	$	1.2544	$	1.1728
Average noon spot rate for the period	$	1.2957	$	1.2986	$	1.3248	$	1.2787
Noon rate at the end of the period	$	1.3642	$	1.2545	$	1.3427	$	1.3840

On March 28, 2019, the Bank of Canada indicative rate of exchange was $1.00 = C$1.3429.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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D. Risk Factors

Our business involves a high degree of risk. Please carefully consider the risks we describe below in additional to the other information set forth elsewhere in this annual report and our other filings with the SEC. These material risks could adversely affect our business, financial condition and results of operations. See “Cautionary Note Regarding Forward-Looking Statements”.

Risks Related To Our Financial Position and Need For Capital

We are a clinical stage biopharmaceutical company with a limited operating history and have not generated any revenue from product sales. We have incurred significant operating losses and negative operating cash flows since our inception and anticipate that we will incur continued losses for the foreseeable future.

We are a clinical stage company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We were incorporated in November 2010. Our operations to date have been limited primarily to organizing and staffing our Company, raising capital and conducting research and development activities for palovarotene and other product candidates. We have never generated any revenue from product sales. We have not obtained regulatory approvals for palovarotene or any other product candidate.

We have funded our operations to date primarily through proceeds from our IPO and other public offerings, as well as issuances of redeemable convertible preferred stock. From our inception through December 31, 2018, we received gross proceeds of $137.9 million from our IPO, $80.8 million from our follow-on offering, and $102.2 million from the sale of our convertible and redeemable preferred shares. As of December 31, 2018, our cash and short-term investments were $170.0 million. We have incurred net losses in each year since our inception. Our net losses were $58.1, $115.5, $57.5, $75.9 and $12.3 million for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively, and our negative operating cash flows were $49.1, $35.6, $18.8, $17.6 and $9.7 million for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively. The majority of our operating losses have resulted from non-cash financing charges incurred in connection with the accounting for our preferred shares and embedded derivatives from 2014 to 2017, as well as costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our accumulated deficit and working capital. In addition, if we obtain marketing approval for palovarotene or any other product candidate, we will incur significant sales, marketing and outsourced-manufacturing expenses. We will also continue to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from palovarotene or any other product candidate and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval of, and begin to sell, palovarotene. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

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• initiate and successfully complete clinical trials that meet their clinical endpoints;

• initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for palovarotene or any other product candidates;

• commercialize palovarotene or any other product candidates, if approved, by developing a sales force or entering into collaborations with third parties; and

• achieve market acceptance of palovarotene or any other product candidates in the medical community and with third-party payors.

Absent our entering into a collaboration or partnership agreement, we expect to incur significant sales and marketing costs as we prepare to commercialize palovarotene or any other product candidates. Even if we initiate and successfully complete pivotal clinical trials of palovarotene or any other product candidates, and any such product candidate is approved for commercial sale, and despite expending these costs, our product candidate may not be a commercially successful drug. We may not achieve profitability soon after generating product sales, if ever. If we are unable to generate product revenue, we will not become profitable and may be unable to continue operations without continued funding.

We expect to need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We are currently advancing palovarotene through clinical development. Developing our product candidates is expensive, and we expect our research and development and commercialization expenses to increase substantially in connection with our ongoing activities, particularly as we advance palovarotene in clinical trials. Depending on the status of regulatory approval or, if approved, commercialization of palovarotene or any other product candidates, as well as the progress we make in selling palovarotene or any other product candidates, we will require additional capital to fund operating needs thereafter. We may also need to raise additional funds sooner if we choose to pursue additional indications and/or geographies for palovarotene or any other product candidates or otherwise expand more rapidly than we presently anticipate.

As of December 31, 2018, our cash and short-term investments were $170.0 million. We expect that our existing cash and short-term investments will be sufficient to fund our operating expenses for at least the next twelve months following December 31, 2018. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to fund operations until profitability is achieved, if ever. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize palovarotene or any other product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

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Risks Related to Product Development, Regulatory Approval and Commercialization

We depend heavily on the success of our only current product candidate, palovarotene, for which as of the date of this Annual Report, we have completed a Phase 2 clinical trial, and have initiated a Phase 3 trial in FOP and initiated a Phase 2 clinical trial in MO. We cannot be certain that we will be able to develop, obtain regulatory approval of, or successfully commercialize palovarotene for FOP, MO or any other indication.

We currently have no drug products for sale and may never be able to successfully develop drug products. We have invested the vast majority of our efforts and resources into the development of our only current product candidate, palovarotene, for the treatment of FOP and MO. Our business thus depends heavily on the successful non-clinical and clinical development, regulatory approval and commercialization of palovarotene, for which we have initiated, or are preparing to initiate clinical trials for the treatment of FOP and MO.

Palovarotene will require substantial additional clinical development, testing and regulatory approval before we may be permitted to commence its commercialization. The clinical trials of our product candidate are, and the manufacturing and marketing of our product candidate will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and, if approved, market this or any other product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through clinical trials that the applicable product candidate is safe and effective for use for the target indication. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. This process can take many years and may include post-marketing studies and surveillance, which may require the expenditure of substantial resources beyond the proceeds we raised in our IPO. Of the large number of drugs in development in the United States at any time, only a small percentage will successfully complete the U.S. Food and Drug Administration (FDA) regulatory approval process and will be commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development and clinical trials, we cannot assure you that our product candidate will be successfully developed or commercialized.

We are not permitted to market our product candidate in the United States until we receive approval of a new drug application (NDA) from the FDA, or market in any foreign countries until we receive the requisite approval from such countries. We recently met with the FDA and the agency agreed that we may submit our NDA for palovarotene based on our Phase 2 results in FOP. There is no guarantee that our NDA submission will be accepted for filing, or that palovarotene will be approved on the basis of these results. We will also meet with regulatory agencies in other countries to determine if our existing data is sufficient for filing. There is no guarantee that our Phase 2 results will be sufficient for filing in international markets. We also have an ongoing Phase 3 clinical trial to study a chronic and episodic regimen of palovarotene in patients with FOP. There is no guarantee that this trial will be successful or that the FDA will accept a supplemental NDA (sNDA) for this additional regimen. We have initiated a Phase 2 trial using palovarotene for the treatment of MO. While the FDA has recommended that we conduct a Phase 2 trial to inform the optimal dose and the appropriate choice of endpoints in MO followed by a Phase 3 trial, we believe that this Phase 2 study may, if it provides statistically strong evidence of an important clinical benefit, be sufficient for us to submit an NDA for palovarotene for MO. However, there is no guarantee that we will not be required to perform an additional pivotal trial of palovarotene in MO in order to gain approval. Moreover, the FDA has stated their preference for a Phase 2 trial followed by a Phase 3 trial. We cannot be certain that the FDA will not require that we conduct additional pivotal trials before we can submit an NDA for palovarotene for any indication.

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The FDA may require that we conduct additional toxicity studies and may also require us to conduct additional non-clinical studies before submitting an NDA for palovarotene.

Obtaining approval of an NDA is a complex, lengthy, expensive and uncertain process, and the FDA may delay, limit or deny approval of our product candidate for many reasons, including, among others:

• we may not be able to demonstrate that palovarotene or any other product candidate is safe and effective in treating FOP to the satisfaction of the FDA;

• the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;

• the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;

• the FDA may require that we conduct non-clinical studies and additional clinical trials;

• the FDA may not approve the formulation, labeling or specifications of palovarotene or any other product candidate;

• the contract research organizations (CROs) that we retain to conduct our non-clinical studies and clinical trials may take actions outside of our control that adversely impact such studies or trials;

• the FDA may find the data from non-clinical studies and clinical trials insufficient to demonstrate that palovarotene or any other product candidate’s clinical and other benefits outweigh its safety risks;

• the FDA may disagree with our interpretation of data from our non-clinical studies or clinical trials;

• the FDA may not accept some or all of the data generated at our non-clinical studies and clinical trial sites;

• if our NDA, if and when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, non-clinical studies or additional clinical trials, limitations on approved labeling or distribution and use restrictions;

• the FDA may determine that the manufacturing processes or facilities of third-party manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacturing Practices (cGMPs); or

• the FDA may change its approval policies or adopt new regulations.

Any of these factors and others, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market palovarotene or any other product candidate. Any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

The number of patients suffering from FOP and MO is small and has not been established with precision. If the actual number of patients with FOP or MO is smaller than we anticipate, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development of palovarotene or any other product candidate, and if palovarotene or any other product candidate is approved, our revenue and ability to achieve profitability may be materially adversely affected.

There is no precise method of establishing the actual number of patients with FOP or MO in any geography over any time period. We estimate that the number of individuals affected by FOP is approximately 1.3 individuals per million lives globally and the number of individuals affected by MO is approximately 20 individuals per million lives worldwide. If we are not able to identify and recruit a sufficient number of FOP or MO patients, we will have difficulty completing our clinical trials. Because the estimated number of patients is so small, and particularly if the actual number of patients with FOP or MO is lower than we believe, we may be adversely affected.

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Further, if palovarotene or any other product candidate is approved, the markets for FOP or MO could be smaller than we anticipate, which could limit our ability to achieve profitability.

If serious adverse events or unacceptable side effects are identified during the development of palovarotene or at any other time, we may need to delay, limit or terminate our clinical development activities, and such adverse events or unacceptable side effects may negatively impact the regulatory approval and commercial profile of palovarotene, and have other significant negative consequences.

Clinical trials by their nature utilize a sample of the potential patient population. Accordingly, any rare and severe side effects of palovarotene may be uncovered only in later stages of our product development activities or only in subsequent trials that we may conduct. Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented their further development. We have observed an increase in specific mucocutaneous side effects when higher doses of palovarotene are administered. These included dry skin, skin exfoliation, erythema (redness) generalized or localized pruritus (or itchiness), excoriation (or skin abrasion), rash and alopecia (or hair loss). These mucocutaneous side-effects may have required dose de-escalations. We are evaluating in our Phase 3 trial a chronic dosing regimen for a duration that will support lifetime chronic dosing of palovarotene and as a result, the severity of side effects observed to date may increase and new side effects may emerge. Since palovarotene is a retinoid and therefore a teratogen, women who are or expect to become pregnant will not be able to take palovarotene and major fetal abnormalities may occur if it is taken, as any fetus that is exposed can be affected. Moreover, the development of palovarotene or any other product candidate may cause certain undesirable side effects in certain patient populations or have characteristics that are unexpected, and we may need to abandon development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, any of which could adversely affect our business, prospects, financial condition and results of operations.

Further, it is possible that rare and severe side effects of palovarotene or any other product candidate may only be uncovered after palovarotene or any other product candidate receives marketing approval. This would result in a number of potentially significant negative consequences, including:

• regulatory authorities may withdraw or limit their approval of such product candidate;

• regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; for example, palovarotene, like all retinoids, is a teratogen and its labeling will communicate that it must not be taken by pregnant women or women who may become pregnant;

• we may be required to change the way such product candidate is distributed or administered, conduct additional clinical trials or change the labeling of the product candidate;

• we may be subject to regulatory investigations and government enforcement actions;

• we may decide to remove such product candidate from the marketplace;

• we could be sued and held liable for injury caused to individuals exposed to or taking our product candidate; or

• our reputation may suffer.

We believe that any of such events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing palovarotene or any other product candidate and significantly impact our ability to successfully commercialize palovarotene or any other product candidate and generate revenues.

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Results from early clinical trials of palovarotene or any other product candidate are not necessarily predictive of the results of later nonclinical studies and clinical trials of palovarotene or any other product candidate. If later clinical trials are not successful, we will not be able to successfully develop, obtain regulatory approval for and commercialize palovarotene or any other product candidate.

Any trends we observe and results we obtain from our early clinical trials of palovarotene or any other product candidate may not necessarily be predictive of the results from later clinical trials. For example, as is common with Phase 2 trials, particularly with the first clinical trials to be conducted in a patient population, we explored numerous endpoints and analyzed the data from our Phase 2 clinical trials of palovarotene in a number of ways. Product candidates such as palovarotene in Phase 3 clinical trials may fail to demonstrate sufficient efficacy despite having progressed through initial clinical trials, even if certain analyses of primary or secondary endpoints or cross-study comparisons of pooled results in those early trials showed trends toward efficacy. Much of the data we present on the use of palovarotene for the treatment of FOP is drawn from the results of multiple clinical trials which have been pooled and then analyzed. While we believe this data is useful in informing the design of future clinical trials in palovarotene, cross-study comparisons of pooled results involve the inherent bias of post-hoc manipulation of data and choice of analytical methods, as well as methodological issues surrounding heterogeneity among studies contributing to the analyses; therefore, it is important to view such results in light of the totality of all available information, such as individual study results on pre-specified analyses of endpoints. Prior to obtaining approval for palovarotene, the results of our registration trials may have to demonstrate statistically significant improvements. Also, our later-stage clinical trials could differ in significant ways from our Phase 2 clinical trials of palovarotene, which may cause the outcome of these later-stage trials to differ from our earlier stage clinical trials. These differences may include changes to inclusion and exclusion criteria, efficacy endpoints and statistical design. For example, our Phase 3 clinical trial in FOP has implemented a chronic dosing regimen with increased dosing in the case of flare-ups and a primary endpoint of new HO volume as measured by whole body CT scans (WCTBs). This dosing regimen and primary endpoint of annualized change in new HO volume is different from those of our PVO-1A-201 study (‘201 study) and Part A of our PVO-1A-202 study (‘202 study), and different from the data we present herein on the use of palovarotene for the treatment of FOP; this Phase 3 primary endpoint is a continuous variable rather than a discrete, responder analysis, as was performed in our ‘201 study and Part A of our ‘202 study. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, non-clinical findings made while clinical trials were underway or safety or efficacy observations made in non-clinical studies and clinical trials, including previously unreported adverse events. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in non-clinical studies and clinical trials nonetheless failed to obtain FDA approval. If we fail to produce positive results in our clinical trials of palovarotene or any other product candidate, the development timeline and regulatory approval and commercialization prospects for palovarotene or any other product candidate, and, correspondingly, our business and financial prospects, would be materially adversely affected.

Failures or delays in the commencement or completion of our planned clinical trials of palovarotene or any other product candidate could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

Successful completion of our clinical trials is a prerequisite to submitting an NDA to the FDA and, consequently, the ultimate approval and commercial marketing of palovarotene. We have completed one Phase 2 trial which will form the basis of our NDA for palovarotene submission in 2019, we have initiated a Phase 3 trial which may expand the labeling for palovarotene in FOP, we have initiated one Phase 2 clinical trial in MO in April of 2018 and we initiated a Phase 1 trial of an ophthalmic formulation of palovarotene in October of 2018; however, we do not know if these trials or any future clinical trials will begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:

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• the FDA may deny permission to proceed with our planned clinical trials or any other clinical trials we may initiate, or may place a clinical trial on hold;

• delays in filing or obtaining permission to proceed under additional investigational new drug applications (INDs) that may be required;

• delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

• inadequate quantity or quality of palovarotene or any other product candidate or other materials necessary to conduct clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;

• difficulties obtaining Institutional Review Board (IRB) approval to conduct a clinical trial at a prospective site or sites;

• challenges in recruiting and enrolling patients to participate in clinical trials, including the small size of the patient population, acute nature of the flare-ups in and chronic nature of the disease FOP, the proximity of patients to trial sites, eligibility criteria for the clinical trial, the nature of the clinical trial protocol and competition from other clinical trial programs for similar indications;

• severe or unexpected drug-related side effects experienced by patients in a clinical trial;

• delays in validating any endpoints utilized in a clinical trial that we may choose to use, particularly any clinical outcome measures, such as the FOP-Physical Function Questionnaire that we have developed;

• the FDA may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials;

• reports from non-clinical or clinical testing of other FOP and MO treatments that raise safety or efficacy concerns; and

• difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trials, lack of efficacy, side effects, personal issues or loss of interest.

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a clinical trial, a data and safety monitoring board, overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including, among others:

• failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

• inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a clinical hold;

• unforeseen safety issues, adverse side effects or lack of effectiveness;

• changes in government regulations or administrative actions;

• problems with clinical supply materials; and

• lack of adequate funding to continue clinical trials.

Product development costs for palovarotene for FOP, MO or for any other future indications we may pursue or for any other product candidates we may develop in the future will increase if we have delays in testing, or if we need to perform more or larger clinical studies than planned. If we experience delays in completion of any of our clinical trials, or if we, the FDA, other regulatory authorities, IRBs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of palovarotene for any indication, its commercial prospects may be harmed and our ability to generate product revenues will be delayed, if we are able to generate product revenue at all. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial or even withdrawal of regulatory approval of palovarotene for any indication. In addition, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of palovarotene could be significantly reduced.

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We have never submitted an NDA before, and may be unable to do so for palovarotene.

The successful submission of an NDA is a complicated process. We have limited experience in preparing and submitting regulatory filings and have not submitted an NDA before. Consequently, we may be unable to successfully and efficiently execute and complete these planned clinical trials in a way that leads to NDA submission and approval of palovarotene. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of drug candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent or delay commercialization of palovarotene.

Potential changes in regulatory requirements, FDA guidance or unanticipated events during clinical trials of palovarotene or any other product candidate may result in changes to clinical trial protocols or additional non-clinical studies and clinical trial requirements, which could result in increased costs to us and could delay our development timeline.

Changes in regulatory requirements, FDA guidance or unanticipated events during our clinical trials may force us to amend clinical trial protocols or cause the FDA to impose new or additional clinical trial requirements. For example, based on our discussions with the FDA, the FDA has indicated that new HO volume is a clinically meaningful outcome for our clinical trials for palovarotene in FOP. However, there can be no assurance that the FDA may not later determine that mean new HO volume does not qualify as a clinically meaningful endpoint for our clinical trials for palovarotene. Further, we have had discussions with the FDA regarding endpoints related to our Phase 2 clinical trial in MO and we cannot be certain that the proposed study design will be acceptable to the FDA or that additional clinical studies will not be required. We have not yet discussed with the FDA our clinical trial for surgical release in FOP.

Amendments or changes to our clinical trial protocols would require resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of clinical trials. If we experience delays completing, or if we terminate, any of our clinical trials, or if we are required to conduct non-clinical studies or additional clinical trials, the commercial prospects for palovarotene and any other product candidate may be harmed and our ability to generate product revenue will be delayed, if we are able to generate product revenue at all.

We rely, and expect that we will continue to rely, on third parties to conduct clinical trials for palovarotene and any other product candidate. If these third parties do not successfully carry out their contractual duties or fail to meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize palovarotene and any other product candidate and our business could be substantially harmed.

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We do not have the ability to independently conduct clinical trials. We rely on universities, contract laboratories and other third parties, such as CROs, to conduct clinical trials on palovarotene and any other product candidate. We enter into agreements with third-party CROs to provide monitors for and to manage data for our ongoing clinical trials. We rely heavily on these parties for execution of clinical trials for palovarotene and any other product candidate and control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these clinical trials and the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may, among other things:

• have staffing difficulties;

• fail to comply with contractual obligations;

• experience regulatory compliance issues;

• undergo changes in priorities or become financially distressed; or

• form relationships with other entities, some of which may be our competitors.

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific requirements and standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with regulations and guidelines, including current Good Clinical Practices (cGCPs) for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials. These regulations and standards are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces cGCPs regulations and standards through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with product candidates produced under cGMPs regulations and will require a large number of test patients. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties.

Although we design our clinical trials for palovarotene and will do so for any future product candidate, CROs conduct all of the clinical trials. As a result, many important aspects of our drug development programs are outside of our direct control. In addition, the CROs may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements, but we remain responsible and are subject to enforcement action that may include civil penalties up to and including criminal prosecution for any violations of FDA laws and regulations during the conduct of our clinical trials. If the CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization of palovarotene and any other product candidates may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these CROs devote to our program or our clinical products. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize palovarotene and any other product candidate. As a result, we believe that our financial results and the commercial prospects for palovarotene and any other product candidate in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

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Sales of counterfeit palovarotene or unauthorized sales of palovarotene may have a material adverse effect on our revenues, business, results of operations and damage our brand and reputation.

Palovarotene may become subject to competition from counterfeit pharmaceutical products, which are pharmaceutical products sold under the same or very similar brand names and/or having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert sales from genuine products, often are of lower cost, often are of lower quality (having different ingredients or formulations, for example), and have the potential to damage the reputation for quality and effectiveness of the genuine product.

Obtaining regulatory approval for palovarotene is a complex and lengthy process. If during the period while the regulatory approval is pending illegal sales of counterfeit palovarotene begin, consumers may buy such counterfeit palovarotene, which could have an adverse impact on our revenues, business and results of operations. In addition, if illegal sales of counterfeit palovarotene result in adverse side effects to consumers, we may be associated with any negative publicity resulting from such incidents.

Although pharmaceutical regulation control and enforcement systems throughout the world have been increasingly active in policing counterfeit pharmaceuticals, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our product candidate.

Further, we are aware that third parties are manufacturing unauthorized palovarotene for research use, and it is possible that unauthorized sales of palovarotene may be made through such channels without our knowledge.

The existence and any increase in production or sales of counterfeit palovarotene or unauthorized palovarotene could negatively impact our revenues, brand reputation, business and results of operations.

We rely completely on one third-party supplier to manufacture the active pharmaceutical ingredient (API) for palovarotene and another third-party supplier to manufacture final drug product, and we intend to rely on third parties to produce non-clinical, clinical and commercial supplies of any future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinical drug supply of palovarotene, or any future product candidates, for use in the conduct of our non-clinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. We currently have the API for palovarotene manufactured by one supplier and final drug product supplied by another supplier. At this time, we have not identified secondary sources of clinical supplies of palovarotene and identifying an additional manufacturer would require significant delay and likely significant additional cost.

The facilities used by contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product will generally be required to complete a pre-approval inspection by the FDA and other comparable foreign regulatory agencies to assess compliance with applicable requirements, including cGMPs, after we submit our NDA or relevant foreign regulatory submission to the applicable regulatory agency.

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We do not control the manufacturing process of, and are completely dependent on, our contract supplier to comply with cGMPs for manufacture of the API for our clinical trials, and upon another supplier for manufacture of final drug product. These manufacturers must successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or applicable foreign regulatory agencies. In addition, although we have no direct control over these manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel, we are responsible for ensuring that our materials and product candidates are manufactured in accordance with cGMPs. Furthermore, these manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to satisfy the regulatory requirements for the production of those materials and products may affect the status of their facilities generally. If the FDA or an applicable foreign regulatory agency determines now or in the future that these facilities for the manufacture of our product candidate are noncompliant, any pending NDAs or other applications for marketing authorization may not be approved until the facilities have a compliance status that is acceptable to the FDA or an applicable foreign regulatory agency. In such case, we may need to find alternative manufacturing facilities, which would adversely impact our ability to develop, obtain regulatory approval for or market palovarotene and any future product candidate. Our reliance on these manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

We do not have long-term supply agreements in place with any party, and each batch of palovarotene is individually contracted under a quality and supply agreement. If we engage new contractors, such contractors must complete an inspection by the FDA and other applicable foreign regulatory agencies. We plan to continue to rely upon the same manufacturers and, potentially, collaboration partners to manufacture commercial quantities of palovarotene, if approved.

If we are unable to obtain the supplies we need at a reasonable price or on a timely basis, it could have a material adverse effect on our ability to complete the development of palovarotene or, if we obtain regulatory approval for palovarotene, to properly commercialize it.

Even though we have obtained orphan drug designation for palovarotene as a treatment for FOP and MO, there may be limits to the regulatory exclusivity afforded by such designation.

Even though we obtained orphan drug designation in July 2014 for palovarotene for the treatment of FOP by the FDA and the EMA, and in November 2017 for palovarotene for the treatment of MO by the FDA, there are limitations to exclusivity afforded by such designation. In the United States, the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full NDA to market the same drug for the same orphan indication, except in very limited circumstances, including when the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs such as palovarotene, the FDA defines “same drug” as a drug that contains the same active moiety and is intended for the same use as the drug in question. To obtain orphan drug exclusivity for a drug that shares the same active moiety as an already approved drug, it must be demonstrated to the FDA that the drug is safer or more effective than the approved orphan designated drug, or that it makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition or if another drug with the same active moiety is determined to be safer, more effective, or represents a major contribution to patient care.

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In Europe, orphan drugs may be able to obtain ten years of marketing exclusivity and up to an additional two years on the basis of qualifying pediatric studies. However, orphan exclusivity may be reduced to six years if the drug no longer satisfies the original designation criteria. Additionally, a marketing authorization holder may lose its orphan exclusivity if it consents to a second orphan drug application or cannot supply enough drug. Orphan drug exclusivity also can be lost when a second applicant demonstrates its drug is “clinically superior” to the original orphan drug.

Even though we have obtained Fast Track Designation from the FDA for palovarotene for the treatment of FOP, it may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that palovarotene will receive marketing approval.

If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply to the FDA for Fast Track Designation. Even though we have obtained Fast Track Designation for palovarotene for the treatment of FOP, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program. Many drugs that have received Fast Track Designation have failed to obtain approval.

Even though we have obtained Breakthrough Therapy Designation from the FDA for palovarotene for the treatment of FOP, it may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that palovarotene will receive marketing approval.

The Breakthrough Therapy Designation is intended to expedite the development and review of products that treat serious or life-threatening conditions where “preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation of a product candidate as a Breakthrough Therapy provides potential benefits that include but are not limited to more frequent meetings with the FDA to discuss the development plan for the product candidate and ensure collection of appropriate data needed to support approval; more frequent written correspondence from the FDA about such things as the design of the proposed clinical trials; guidance on an efficient drug development program; organization commitment involving senior managers; and eligibility for rolling review and priority review. Breakthrough Therapy Designation does not change the standards for product approval. Even though we have obtained Breakthrough Therapy Designation for palovarotene for the treatment of FOP, we may not experience a faster development process, review or approval compared to conventional FDA procedures. Many drugs that have received Breakthrough Therapy Designation have failed to obtain approval.

Even though we have obtained a Rare Pediatric Disease designation from the FDA for palovarotene for the treatment of FOP, it does not guarantee that the NDA for the product will qualify for a priority review voucher upon approval, and it does not lead to a faster development or regulatory review process, or increase the likelihood that any of our product candidates will receive marketing approval.

Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying NDA for the treatment of a rare pediatric disease, the sponsor of such an application would be awarded a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent NDA or BLA (Biologic License Application). In February 2019, the FDA notified us that we obtained Rare Pediatric Disease designation for palovarotene for the treatment of patients with FOP. If a product candidate is designated before October 1, 2020, as is the case with palovarotene, the sponsor of a qualifying NDA for such a product is eligible to receive a voucher if the NDA is approved before October 1, 2022. However, there is no guarantee that any of our product candidates will be approved by that date, or at all, and, therefore, we may not be in a position to obtain a priority review voucher prior to expiration of the program, unless Congress further reauthorizes the program. Additionally, designation of a drug for a rare pediatric disease does not guarantee that an NDA will meet the other eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Finally, a Rare Pediatric Disease designation does not lead to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.

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Expanded access studies may provide safety or efficacy data that differ from controlled clinical trials and could delay or limit approval.

Expanded access studies are uncontrolled, either carried out by individual investigators or under company-sponsored protocols, and may not be conducted in strict compliance with cGCPs or in identical patient populations to those studied in controlled studies, all of which can lead to a treatment effect which may differ from that in controlled trials. In addition, these studies provide only anecdotal evidence of efficacy for regulatory review, are not designed to be aggregated or reported as study results, and may provide highly variable information in light of the small number of patients.

Expanded access programs provide supportive safety information for regulatory review, and this safety information, including adverse events and any safety signals observed, will be reviewed as part of any palovarotene NDA we may submit. Any adverse events or reactions experienced by subjects in the expanded access program may be attributed to palovarotene and may delay or limit our ability to obtain regulatory approval with labeling that we consider desirable, or at all.

Even if we receive marketing approval for palovarotene in the United States, we may never receive regulatory approval to market palovarotene outside of the United States.

We have selected markets outside of the United States, including but not limited to parts of Europe, Asia, South America and Canada, where we intend to seek regulatory approval to market palovarotene. In order to market any product outside of the United States, however, we must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of any such other country. Approval procedures vary among countries and can involve additional product candidate testing and additional administrative review periods. The time required to obtain approvals in other countries might differ from that required to obtain FDA approval. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries outside of the United States, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining this approval can result in substantial delays in bringing products to market in such countries. Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or other setback in obtaining such approval would impair our ability to market palovarotene in such foreign markets. Any such impairment would reduce the size of our potential market, which could have a material adverse impact on our business, results of operations and prospects.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell palovarotene or any other product candidate, we may not be able to generate any revenue.

We do not currently have an infrastructure for the sales, marketing and distribution of pharmaceutical products. In order to market palovarotene or any other product candidate, if approved by the FDA or any other regulatory body, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, or if we are unable to do so on commercially reasonable terms, our business, results of operations, financial condition and prospects will be materially adversely affected.

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Even if we receive marketing approval for palovarotene or any other product candidate, our product candidate may not achieve broad market acceptance, which would limit the revenue that we generate from its sales.

The commercial success of palovarotene or any other product candidate, if approved by the FDA or other applicable regulatory authorities, will depend upon the awareness and acceptance of palovarotene or any other product candidate among the medical community, including physicians, patients and healthcare payors. Market acceptance of palovarotene or any other product candidate, if approved, will depend on a number of factors, including, among others:

• the efficacy of palovarotene or any other product candidate as demonstrated in clinical trials;

• limitations or warnings contained in the labeling approved for palovarotene or any other product candidate by the FDA or other applicable regulatory authorities, including that palovarotene, like all retinoids, is a teratogen and must not be taken by pregnant women or women who may become pregnant;

• the clinical indications for which palovarotene or any other product candidate is approved;

• availability of alternative treatments already approved or expected to be commercially launched in the near future;

• the potential and perceived advantages of palovarotene or any other product candidate over current treatment options or alternative treatments, including future alternative treatments;

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

• the strength of marketing and distribution support and timing of market introduction of competitive products;

• publicity concerning our product or any competing products and treatments;

• pricing and cost effectiveness;

• the effectiveness of our sales and marketing strategies;

• our ability to increase awareness of palovarotene or any other product candidate through marketing efforts;

• our ability to obtain sufficient third-party coverage or reimbursement; or

• the willingness of patients to pay out-of-pocket in the absence of third-party coverage.

If palovarotene or any other product candidate is approved but does not achieve an adequate level of acceptance by patients, physicians and payors, we may not generate sufficient revenue from palovarotene or any other product candidate to become or remain profitable. Before granting reimbursement approval, healthcare payors may require us to demonstrate that palovarotene or any other product candidate, in addition to treating its intended target indication, also provides incremental health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of palovarotene and any other product candidate may require significant resources and may have limited or no success.

If we obtain approval to commercialize palovarotene or any other product candidate outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

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If palovarotene or any other product candidate is approved for commercialization, we may enter into agreements with third parties to market it outside of the United States. We expect that we will be subject to additional risks related to entering into international business relationships, including:

• different regulatory requirements for drug approvals in foreign countries;

• reduced protection for intellectual property rights;

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

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

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

• foreign taxes, including withholding of payroll taxes;

• foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, or other obligations incidental to doing business in another country;

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

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

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

Even if we receive marketing approval for palovarotene or any other product candidate, we may still face future development and regulatory difficulties.

Even if we receive marketing approval for palovarotene or any other product candidate, regulatory authorities may still impose significant restrictions on palovarotene or any other product candidate, indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies. Palovarotene and any other product candidate will also be subject to ongoing FDA requirements governing the labeling, packaging, storage and promotion of the product as well as record keeping, submission of safety and other post-market information, and prohibitions regarding the promotion of off-label uses.

The FDA has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a Risk Evaluation and Mitigation Strategy. Any Risk Evaluation and Mitigation Strategy required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue. Further, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, and we could be subject to significant liability if, for example, physicians prescribe palovarotene to their patients in a manner that is inconsistent with the approved label and we are found to have promoted such off-label uses.

Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with palovarotene or any other product candidate, such as adverse events of unanticipated severity or frequency, or problems with the facility where our product candidate is manufactured, a regulatory agency may impose restrictions or penalties on our product candidate, the manufacturer or us, including requiring withdrawal of our product candidate from the market or suspension of manufacturing.

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The occurrence of any regulatory penalty may inhibit or preclude our ability to commercialize palovarotene and any other future product candidates we may develop which in turn would inhibit or preclude our ability to generate revenue.

Competing therapies could emerge, adversely affecting our opportunity to generate revenue from the sale of our product candidate.

The biopharmaceuticals industry is highly competitive. There are many public and private biopharmaceutical companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to palovarotene or any other product candidate or address similar markets. We believe it is probable that the number of companies seeking to develop products and therapies similar to our product will increase. Gene therapy, cell therapy and other approaches may also emerge for the treatment of any of the disease areas in which we focus.

Currently, there are no therapies that have been specifically approved for treatment of FOP. However, products approved for other indications, for example, corticosteroids and non-steroidal anti-inflammatory drugs, are used off-label to manage FOP symptoms during flare-ups, though none of these medications has been shown to prevent HO. Further, we are aware that Regeneron Pharmaceuticals Inc. is conducting a Phase 2 clinical trial in adults with FOP. Blueprint Medicines Corporation, BioCryst Pharmaceuticals, Keros Therapeutics and La Jolla Pharmaceutical Company are each in early stages of development of therapies for the treatment of FOP. See Item 4B, “Business Overview” for a more detailed discussion.

Many of our potential competitors, alone or with their strategic partners, could have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

We may not be able to establish collaborations, and, if we are able to establish collaborations, we may not be able to establish them on commercially reasonable terms, which could result in alterations or delays of our development and commercialization plans.

Our drug development program and the potential commercialization of palovarotene and any other product candidate will require substantial additional cash to fund expenses. We may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of palovarotene and any other product candidate. We may be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

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Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate, reduce or delay its development program, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidate or bring it to market and generate product revenue.

In addition, any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

We may not be successful in potential future efforts to identify or discover additional product candidates or we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

The success of our business depends primarily upon our ability to identify, develop and commercialize products. Although palovarotene is in clinical development, our research programs may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.

Because we have limited financial and management resources, we are currently focused on our FOP and MO programs. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

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If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.

We are subject to healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Although we do not currently have any products on the market, once we begin commercializing our product, we may be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of our product candidate, if approved. Our future arrangements with third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidate, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

• The federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.

• The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.

• The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

• The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

• The federal transparency requirements, sometimes referred to as the "Sunshine Act," under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report on an annual basis to the Department of Health and Human Services information related to transfers of value to physicians and teaching hospitals and physician ownership and investment interests. Effective January 1, 2022, manufacturers will also be required to report on payments or transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives.

• Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.

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Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could substantially disrupt our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, was enacted, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things, imposed reporting requirements on manufacturers related to drug samples and financial relationships with physicians and teaching hospitals, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and established a Medicare Part D coverage gap discount program. The healthcare regulatory environment in the U.S. is still in flux, and judicial challenges and legislative initiatives to modify, limit, or repeal the Affordable Care Act continue, and may increase in light of the change in administration following the 2016 U.S. presidential election. For example, a recent Executive Order signed by the U.S. President directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of provisions of the Affordable Care Act that would impose a fiscal or regulatory burden on individuals and certain entities to the maximum extent permitted by law. In addition, the future implementation of the Affordable Care Act is not assured. By way of example, in January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the Affordable Care Act. The Budget Resolution is not a law; however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the Affordable Care Act. Congress has also proposed and may in the future propose legislation to replace elements of the Affordable Care Act that are repealed. We cannot predict the impact on our business of changes to current laws and regulations. However, any changes that lower reimbursements for products for which we may obtain regulatory approval, or that impose administrative and financial burdens on us, could adversely affect our business.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. These changes include, among others, aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, starting in 2013. We expect that additional state and federal healthcare reform measures will be adopted in the future, which may alter or completely replace the existing healthcare financing structure. Any of these reform measures could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for any such product candidate that we may have developed or additional pricing pressures on our business. Similar initiatives and legislations may come into force in other jurisdictions as well, such as in the different countries of the European Union, where price ceilings and rebate systems are essential parts of the reimbursement of medicinal products. Some of these systems are being adapted on a regular or irregular basis to further reduce drug prices.

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Even if approved, reimbursement policies could limit our ability to sell palovarotene and any other product candidate.

Market acceptance and sales of palovarotene and any other product candidate will depend on reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels for those medications. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure what the level of reimbursement will be for palovarotene and any future product candidate and, if any reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, palovarotene and any other product candidate. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize palovarotene and any other product candidate. In some foreign countries, particularly in Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate with other available therapies. If reimbursement for our product candidate is unavailable in any country in which we seek reimbursement, limited in scope or amount, conditioned upon our completion of additional clinical trials, or set at unsatisfactory levels, our operating results could be materially adversely affected.

Risks Related To Our Intellectual Property Rights

We are heavily dependent on licensed intellectual property. If we were to lose our rights to licensed intellectual property, we would not be able to continue developing or commercializing palovarotene or any other product candidate, if approved. If we breach any of the agreements under which we license the use, development and commercialization rights to palovarotene or any other product candidate or technology from third parties or if certain insolvency events were to occur, we could lose license rights that are important to our business.

We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our business and we may need to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that any future license agreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license. Our business could suffer, for example, if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. See Item 4B “Business Overview” for a description of our existing license agreements, which includes a description of the termination provisions of each such agreement.

As we have done previously, we may need to obtain licenses from third parties to advance our research or allow commercialization of palovarotene or any other product candidates, and we cannot provide any assurances that third-party patents do not exist that might be enforced against palovarotene or any other product candidates or future products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.

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Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:

• the scope of rights granted under the license agreement and other interpretation-related issues;

• whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

• our right to sublicense patent and other rights to third parties under collaborative development relationships;

• our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and

• the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We may enter into additional licenses to third-party intellectual property that are necessary or useful to our business. Our current licenses and any future licenses that we may enter into impose various royalty payments, milestones, diligence and other obligations on us. If we fail to comply with any of our obligations under a current or future license agreement, such licensor may allege that we have breached our license agreement and may accordingly seek to terminate our license with them. In addition, future licensors may decide to terminate any such license at will. Termination of any of our current or future licenses could result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop and commercialize palovarotene or any other product candidate, if approved, as well as harm our competitive business position and our business prospects. Moreover, our current or future licenses may provide for a reversion to the licensor of our rights in regulatory filings or other intellectual property or data that we regard as our own in the event the license terminates under certain circumstances, such as due to breach.

In addition, if our current or future licensors fail to abide by the terms of the applicable license, if the licensors fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms, if at all, our business could suffer.

Moreover, our licensors under current licenses retain and our licensors under future licenses may retain certain rights and obligations. For example, the licensor may retain control over patent prosecution and maintenance under a license agreement, in which case we may not be able to adequately influence patent prosecution or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. Similarly, the licensor may retain the sole right or a first right to enforce the licensed patents against infringement, in which case we may not be able to adequately influence or may be delayed in enforcing certain licensed patents.

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Some intellectual property that we have licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for U.S. industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-U.S. manufacturers.

Some of the intellectual property rights we have licensed may have been generated through the use of U.S. government funding and may therefore be subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act). Moreover, intellectual property that we may own or license in the future may be subject to the applicable provisions of the Bayh-Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we fail, or the applicable licensor fails, to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us, or the applicable licensor, to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.

We currently do not plan to apply for U.S. government funding, but if we do, and we discover compounds or drug candidates as a result of such funding, intellectual property rights to such discoveries may be subject to the applicable provisions of the Bayh-Dole Act.

If we are unable to adequately protect our proprietary technologies, or obtain and maintain issued in-licensed patents that are sufficient to protect palovarotene or any future product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

Our commercial success will depend in part on our success in obtaining and maintaining issued owned and in-licensed patents and other intellectual property rights in the United States and elsewhere and protecting our proprietary technologies. We will seek to protect our proprietary position by filing patent applications in the United States and abroad related to our business plans. We also rely on trade secrets that protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. If we do not adequately protect our intellectual property and proprietary technologies, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.

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We cannot provide any assurances that any of our in-licensed patents have, or that any of our pending owned or in-licensed patent applications will mature into issued patents that include claims with a scope sufficient to protect palovarotene or any other product candidate, any additional features we develop for palovarotene or any other product candidate, or any new products or otherwise provide any competitive advantage. Other parties may have developed technologies that may be related or competitive to our approach and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our owned or in-licensed patent applications, either by claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. Such third-party patent positions may limit or even eliminate our ability to obtain patent protection for certain inventions.

The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we have or may obtain cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated, or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, ex parte re-examination, or inter partes review proceedings, supplemental examination and challenges in district court. Patents may be subjected to opposition, post-grant review, or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize palovarotene or any other product candidate.

Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may be interpreted in a manner adverse to our interests, or not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if an issued patent is held to be valid and enforceable, it may be interpreted in a manner adverse to our interests, or competitors may be able to design around any patents that we may own or in-license, such as through the use of pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. Moreover, the life of a patent and the term of any protection it may provide is limited. Given the period of time it takes to bring a drug to market, it is possible that some of our patent rights will expire or be near the end of their term before we obtain approval to sell palovarotene or any other product candidate, if such approval is obtained. For example, a U.S. patent licensed from F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. (Roche) claiming palovarotene as a composition of matter has a statutory expiration date in 2021, without extensions or adjustments.

We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries, such as China. If these developments were to occur, they could have a material adverse effect on our sales.

Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. Any litigation to enforce or defend our in-licensed patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

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In addition, proceedings to enforce or defend our owned or in-licensed patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our owned or in-licensed patents, if and when issued, that cover or which we believe cover palovarotene or any other product candidate (including any method of use) are invalidated or found unenforceable or interpreted in a manner adverse to our interests, such as to not cover the relevant product candidate, our financial position and results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered palovarotene or any other product candidate, our financial position and results of operations would also be materially and adversely impacted.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

• any of our in-licensed patents or pending owned or in-licensed patent applications, if issued, will include claims having a scope sufficient to protect palovarotene or any other product candidates;

• any of our pending owned or in-licensed patent applications will issue as patents at all;

• we will be able to successfully commercialize palovarotene or any other product candidate, if approved, before our relevant in-licensed patents expire;

• our licensors were the first to make the inventions covered by each of our in-licensed patents, and we or our licensors were the first to make the inventions covered by each of our pending owned or in-licensed patent applications;

• we or our licensors were the first to file patent applications for these inventions;

• others will not develop similar or alternative technologies that do not infringe our in-licensed patents, or our owned or in-licensed patent applications, if issued;

• others will not use pre-existing technology to effectively compete against us;

• any of our in-licensed patents, if issued, will be found to ultimately be valid and enforceable;

• any patents issued to us or our licensors will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

• we will develop additional proprietary technologies or product candidates that are separately patentable; or

• that our commercial activities or products will not infringe upon the patents or proprietary rights of others.

We rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.

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We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing palovarotene or any other product candidates, if approved.

Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third parties. We cannot assure you that our business, products and methods do not or will not infringe the patents or other intellectual property rights of third parties.

The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that palovarotene or any other product candidate or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. As we continue to develop and, if approved, commercialize palovarotene or any future product candidates, competitors may claim that our technology infringes their intellectual property rights as part of business strategies designed to impede our successful commercialization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of palovarotene or any other product candidate. Because patent applications can take many years to issue, third parties may have currently pending patent applications which may later result in issued patents that palovarotene or any other product candidate may infringe, or which such third parties claim are infringed by our technologies. Moreover, we may fail to identify relevant third-party patents or patent applications, or we may incorrectly conclude that the claims of an issued patent were not relevant to our activities.

The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidate, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced to take a license. In addition, if any such claim were successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing palovarotene or any other product candidate.

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. If we are unable to avoid infringing the patent rights of others, we may be required or may choose to seek a license, defend an infringement action or challenge the validity of the patents in court, or redesign our product. Patent litigation is costly and time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, intellectual property litigation or claims could force us to do one or more of the following:

• cease developing, selling or otherwise commercializing palovarotene or any other product candidate;

• pay substantial damages for past use of the asserted intellectual property;

• obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and

• in the case of trademark claims, redesign or rename palovarotene or any other product candidate to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.

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Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition and prospects.

We may be subject to claims challenging the inventorship or ownership of our owned or in-licensed patents and other intellectual property.

We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, inventorship disputes may arise from conflicting obligations of consultants or others who are involved in developing palovarotene or any other product candidates.

Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. The owners of intellectual property in-licensed to us could also face such claims. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we or our licensors are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection, including patents licensed from third parties, depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The U.S. Patent and Trademark Office (U.S. PTO), and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

If we or our licensors fail to maintain the patents and patent applications covering or otherwise protecting our product candidates, it could materially harm our business. In addition, to the extent that we have responsibility for taking any action related to the prosecution or maintenance of patents or patent applications in-licensed from a third party, any failure on our part to maintain the in-licensed intellectual property could jeopardize our rights under the relevant license and may expose us to liability.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Even if the patent applications we own or license are issued, competitors may infringe these patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put our patents or our licensors’ patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

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Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares.

Issued patents covering palovarotene or any other product candidate could be found invalid or unenforceable if challenged in court.

If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering palovarotene or any other product candidate, the defendant could counterclaim that the patent covering palovarotene or any other product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace.

Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g. opposition proceedings. Such proceedings could result in revocation or amendment of our patents or our licensors’ patents in such a way that they no longer cover palovarotene or any other product candidate or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on palovarotene or any other product candidate. Such a loss of patent protection would have a material adverse impact on our business.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those offered in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.

Competitors may use our technologies in jurisdictions where we do not have, or where we do not pursue and obtain, patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

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Further, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Moreover, proceedings to enforce our patent rights, or those of our licensors or partners, in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our in-licensed patents, or any patents that we may own in the future, at risk of being invalidated or interpreted narrowly, could put our owned or in-licensed patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent term and obtaining data exclusivity for our product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of palovarotene or any other product candidate, one or more of the U.S. patents we may own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a restoration of patent term for one patent of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our ability to generate revenues could be materially adversely affected.

Changes in either U.S. or foreign patent law or interpretation of such laws could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and it therefore is costly, time-consuming and inherently uncertain. In addition, on September 16, 2011, the Leahy-Smith America Invents Act (AIA), was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.

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An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the U.S. PTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the U.S. PTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in U.S. PTO proceedings compared to the evidentiary standard in United States federal court, a third party could potentially provide evidence in a U.S. PTO proceeding sufficient for the U.S. PTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the U.S. PTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the United States Congress, the federal courts, the U.S. PTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing in-licensed patents and patents that we might obtain in the future.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Some of our employees have been previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities.

Although we are not aware of any claims currently pending against us, we may be subject to claims that we or our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. We may be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person’s obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our current and future product candidates, which would materially adversely affect our commercial development efforts.

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General Company-Related Risks

We will need to develop and expand the size and scope of our Company, and we may encounter difficulties in managing this development and expansion, which could disrupt our operations.

As of December 31, 2018, we had 45 full-time employees and in connection with operating as a public company and advancing our growth plans, we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of palovarotene and any other product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our Company.

We have limited experience operating internationally, are subject to a number of risks associated with our international activities and operations and may not be successful in our efforts to expand internationally.

We have collaboration, clinical trial and other relationships outside the United States, but we currently have limited operations outside of the United States and Canada. In order to meet our long-term goals, we would need to grow our international operations significantly. Consequently, we are and will continue to be subject to additional risks related to operating in foreign countries, including:

• the fact that we have limited experience operating our business internationally;

• local, economic and political conditions, including inflation, geopolitical events, such as war and terrorism, foreign currency fluctuations and exchange risks, which could result in increased or unpredictable operating expenses and reduced revenues and other obligations incident to doing business in, or with a company located in, another country;

• our customers’ ability to obtain reimbursement for palovarotene or any other product candidate in foreign markets, and unexpected changes in reimbursement and pricing requirements, tariffs, trade barriers and regulatory requirements;

• different medical practices and customs in foreign countries affecting acceptance in the marketplace;

• longer lead times for shipping and longer accounts receivable collection times;

• the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute;

• reduced protection of intellectual property rights in some foreign countries or the existence of additional potentially relevant third-party intellectual property rights; and

• compliance with foreign or U.S. laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, accounting requirements, anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our licensees, distributors, manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such foreign or U.S. laws.

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We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.

The use of our product candidates in clinical trials and the sale of our product candidates, if approved, exposes us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with our product candidates. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, including as a result of interactions with alcohol or other drugs, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subject to product liability claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things:

• withdrawal of patients from our clinical trials;

• substantial monetary awards to patients or other claimants;

• decreased demand for our product candidates or any future product candidates following marketing approval, if obtained;

• damage to our reputation and exposure to adverse publicity;

• increased FDA warnings on product labels;

• litigation costs;

• distraction of management’s attention from our primary business;

• loss of revenue; and

• the inability to successfully commercialize our product candidates or any future product candidates, if approved.

We maintain product liability and clinical trial insurance coverage in the U.S., Canada, United Kingdom (UK), France, Italy, Argentina, Spain, Germany, Belgium, the Netherlands, Sweden, Japan, Turkey, Brazil and Australia for our clinical trials with annual aggregate coverage limits in varying amounts up to $20 million. Nevertheless, our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses, including if insurance coverage becomes increasingly expensive. If and when we obtain marketing approval for our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may not be able to obtain this product liability insurance on commercially reasonable terms. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and financial resources. A product liability claim or series of claims brought against us could cause our stock price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, business and prospects could be materially adversely affected.

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel, including qualified accounting and financial personnel with appropriate public company experience.

We are highly dependent on the principal members of our executive team listed in Item 6A “Directors and Senior Management” located elsewhere in this document, the loss of whose services may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit key executives or the loss of the services of any executive or key employee might impede the progress of our development and commercialization objectives.

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Further, as a newly public company, we may need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and maintain such personnel. Even if we are able to hire appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their employment and the indirect

consequences related to the diversion of management resources from product development efforts.

We incur increased costs as a result of operating as a public company, and our management team will be required to devote substantial time to compliance initiatives.

As a public company, and particularly after we are no longer an “emerging growth company,” we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the U.S. Securities and Exchange Commission (SEC) and The Nasdaq Global Select Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.

After we are no longer an emerging growth company, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), we will be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To maintain compliance with Section 404, we will continue to be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal and external resources to continue assessing and documenting the adequacy of internal control over financial reporting pursuant to the Committee of Sponsoring Organizations of the Treadway Commission 2013, continue steps to improve control processes as appropriate, continue to validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.

Changes in our effective income tax rate could adversely affect our results of operations.

We are subject to income taxes in the Unites States and Canada and may be subject to income taxes in various foreign jurisdictions in the future, and our domestic and foreign tax liabilities are largely dependent upon the distribution of pre-tax earnings among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, the accounting for stock options and other share-based compensation, changes in accounting standards, future levels of research and development spending, changes in the mix and level of pre-tax earnings by taxing jurisdiction, the outcome of examinations by the U.S. Internal Revenue Service, Canadian Revenue Agency and related provincial tax authorities, and other jurisdictions, the accuracy of our estimates for unrecognized tax benefits, the realization of deferred tax assets, or by changes to our ownership or capital structure. The impact on our income tax provision resulting from the above-mentioned factors and others may be significant and could adversely affect our results of operations.

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Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the Code) a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (NOLs) to offset future taxable income. Similarly, where control of a corporation has been acquired by a person or group of persons, subsection 111(5) of the Canadian Income Tax Act (Canadian Tax Act), and equivalent provincial income tax legislation restrict the corporation’s ability to carry forward noncapital losses from preceding taxation years. We have not performed a detailed analysis to determine whether an ownership change under Section 382 of the Internal Revenue Code or an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act has occurred after each of our previous issuances of common shares, preferred shares and convertible debt. In addition, if we undergo an ownership change or acquisition of control, our ability to utilize NOLs and non-capital losses could be limited by Section 382 of the Internal Revenue Code and subsection 111(5) of the Canadian Tax Act. As of December 31, 2018, we had Canadian federal and provincial net operating loss carry forwards of $136.1 million and $134.5 million, respectively, and unused federal tax credits of $1.7 million, all of which are set to expire over time to 2038. We also had Canadian federal and provincial research and development expenditure pools of $9.8 million and $11.3 million, respectively, without time limitations. We also had US unused orphan drug tax credits of $4.0 million as at December 31, 2018, which are set to expire over time to 2038 and Massachusetts R&D tax credits of $1.1 million, which are set to expire in 2038. The U.S. Tax Cuts and Jobs Act of 2017 generally reduced the amount of the orphan drug tax credit available in the U.S. and further limited the ability of taxpayers to claim such credit with respect to the costs of testing outside the United States. In addition, future changes in our share ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code or an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act. Furthermore, our ability to utilize NOLs, credits and non-capital losses of companies that we may acquire in the future may be subject to limitations.

We may become a “controlled foreign corporation,” which may have adverse U.S. federal income tax consequences for a U.S. investor that owns substantial amounts of our common shares.

Although we believe we qualified as a controlled foreign corporation (CFC) in prior years, based on our current ownership structure, we do not believe we are currently a CFC for U.S. federal income tax purposes for the taxable year ending December 31, 2018. Given our ownership concentration, however, it is possible we could become a CFC if U.S. persons, each of whom own, directly or indirectly, including through non-U.S. persons (or is considered to own under applicable constructive ownership rules of the Code), 10% or more of the total combined voting power of all our classes of stock entitled to vote (U.S. Shareholders), together own more than 50% of the total vote or value of our stock. In such case, U.S. Shareholders may be subject to current U.S. federal income tax on certain types of income (generally passive income) regardless of whether corresponding cash distributions are made by us. In addition, gains recognized by U.S. Shareholders on the sale of our common shares may be reclassified, in whole or in part, as a dividend. The treatment of dividends paid or deemed paid by CFCs to certain U.S. persons has changed under the U.S. Tax Cuts and Jobs Act of 2017 and the CFC rules remain complex. Investors are urged to consult their own tax advisors regarding the possible application of the CFC rules in their particular circumstances. See the section entitled “Material U.S. Federal Income Tax Considerations—Controlled Foreign Corporation Considerations” under Item 10E “Taxation”.

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Transfer pricing rules may adversely affect our income tax expense.

Many of the jurisdictions in which we will conduct business have detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm’s length pricing principles. Contemporaneous documentation must exist to support this pricing. The taxation authorities in these jurisdictions could challenge our arm’s length related party transfer pricing policies. International transfer pricing is an area of taxation that depends heavily on the underlying facts and circumstances and generally involves a significant degree of judgment. If any of these taxation authorities are successful in challenging our transfer pricing policies, our income tax expense may be adversely affected and we could also be subjected to interest and penalty charges. Any increase in our income tax expense and related interest and penalties could have a significant impact on our future earnings and future cash flows.

Our deductions and credits in respect of scientific research and experimental development expenditures may be challenged by the Canadian tax authorities.

The Canadian taxation authorities may not necessarily agree with our determinations of the expenses and tax credits claimed by us, including research and development expenses and related tax credits. If the Canadian taxation authorities successfully challenge such expenses or the correctness of such income tax credits claimed, our operating results could be materially adversely affected. Furthermore, if the Canadian taxation authorities reduce the tax credit either by reducing the rate of the credit or the eligibility of some research and development expenses in the future, our operating results will be materially adversely affected.

Our orphan drug tax credits may be challenged by the U.S. tax authorities.

The U.S. taxation authorities may not necessarily agree with our determinations of the tax credits claimed by us, including our orphan drug tax credits. If the U.S. taxation authorities successfully challenge such tax credits claimed, our operating results could be materially adversely affected. Furthermore, if the U.S. taxation authorities further reduce the tax credit either by reducing the rate of the credit or the eligibility of certain clinical testing expenses in the future, our operating results will be materially adversely affected. As part of the 2017 U.S. tax reform, the orphan drug tax credit has been reduced from 50% to 25% of qualified clinical testing expenses for the tax year beginning January 1, 2018 and further limited the ability of taxpayers to claim such credit with respect to the costs of testing outside the United States. This rate reduction and other changes will decrease our future U.S. orphan drug tax credits available to be claimed.

We are likely a “passive foreign investment company,” which may have adverse U.S. federal income tax consequences for U.S. investors.

U.S. investors should be aware that we believe that we qualified as a passive foreign investment company (PFIC) for our taxable year ended December 31, 2018. We can give no assurance that we will not continue to be a PFIC for the taxable year-ended December 31, 2019. If we are a PFIC for any taxable year during a U.S. investor’s holding period of our common shares, a U.S. investor 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 (not capital gain) earned over the U.S. investor’s holding period of our common shares, and to pay applicable taxes on such ordinary income as well as an interest charge on the gain or distribution as if the resulting taxes had been earned (and resulting tax due) ratably over the holding period. A U.S. investor may make certain elections (such as a “mark-to-market” election or a “qualified electing fund” election) to mitigate certain of the adverse U.S. federal income tax consequences of owning PFIC stock, but such elections have their own set of consequences and may not be available in certain circumstances. The PFIC rules are complex and they and any available elections may have a significant effect on U.S. investors. U.S. investors are urged to consult their own tax advisors regarding all aspects of the PFIC rules that may be applicable. See the section entitled “Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations” under Item 10E “Taxation”.

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We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising products or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

Risks Related To Our Common Shares

Market volatility may affect our stock price and the value of your investment.

The market price for securities of biotechnology companies generally are likely to be volatile. In addition, the market price of our common shares may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:

• plans for, progress of or results from non-clinical studies and clinical trials of palovarotene and any other product candidates;

• the FDA’s approval of or failure to approve palovarotene or any other product candidate;

• announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our competitors;

• the success or failure of other FOP or MO therapies;

• regulatory or legal developments in the United States and other countries;

• failure of palovarotene or any other product candidates, if approved, to achieve commercial success;

• fluctuations in stock market prices and trading volumes of similar companies;

• general market conditions and overall fluctuations in U.S. equity markets;

• variations in our operating results;

• changes in our financial guidance or securities analysts’ estimates of our financial performance;

• changes in accounting principles;

• our ability to raise additional capital and the terms on which we can raise it;

• sales of large blocks of our common shares, including sales by our executive officers, directors and significant stockholders;

• additions or departures of key personnel;

• discussion of us or our stock price by the press and by online investor communities; and

• other risks and uncertainties described in these risk factors.

We are an “emerging growth company,” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we have chosen to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If we continue to choose not to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, our auditors will not be required to attest to the effectiveness of our internal control over financial reporting. As a result, investors may become less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we continue to choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, investors will have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. 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 stock price may be more volatile.

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As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to domestic U.S. issuers, which may limit the information publicly available to our shareholders, and we may lose such status in the future.

As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Securities and Exchange Act of 1934 (Exchange Act) and therefore there may be less publicly available information about us than if we were a U.S. 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. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our shares. Furthermore, as a foreign private issuer, we may take advantage of certain provisions in the Nasdaq listing rules that allow us to follow Canadian law for certain governance matters.

We may also lose our status as a foreign private issuer. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2019. We would lose our foreign private issuer status if, for example, more than 50% of our common shares are directly or indirectly held by residents of the United States on June 30, 2019 and we fail to meet additional requirements necessary to maintain our foreign private issuer status. More than 50% of our common shares are currently held by U.S. shareholders. We nonetheless currently meet the definition of a foreign private issuer as we have determined that a majority of our executive officers and directors are not, for purposes of this test, U.S. citizens or U.S. residents, a majority of our assets are not located in the U.S. and our business is administered principally in Canada. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2020, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of The Nasdaq Global Select Market. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange. These expenses will relate to, among other things, the obligation to prepare our financial information in accordance with U.S. generally accepted accounting principles in the future.

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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.

We had two material weaknesses in internal controls over financial reporting identified as of December 31, 2016 prior to our IPO, which were subsequently remediated or became not applicable.

Despite our efforts to maintain effective internal controls or due to the possibility of material weaknesses being identified, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

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, subject to the Canada Business Corporations Act (CBCA), 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.

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.

In addition, provisions in the CBCA and in our articles of incorporation and by-laws, as amended and restated in connection with our IPO, may have the effect of delaying or preventing changes in our management, including provisions that:

• require that any action to be taken by our shareholders be effected at a duly called annual or special meeting and not by written consent;

• establish an advance notice procedure for shareholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

• prohibit cumulative voting in the election of directors; and

• require the approval of our board of directors and of our shareholders to amend our by-laws and the approval of our board of directors or the holders of a supermajority of our outstanding share capital to amend the provisions of our articles of incorporation.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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Our executive officers, directors, principal stockholders and their affiliates continue to exercise significant control over our Company, which limits your ability to influence corporate matters and could delay or prevent a change in corporate control.

The existing holdings of our executive officers, directors, principal stockholders and their affiliates, including OrbiMed Private Investments IV, LP (OrbiMed), BDC Capital Inc. (BDC), and New Enterprise Associates, Inc. (NEA) and its affiliates represent beneficial ownership, in the aggregate, of a majority of our outstanding common shares. As a result, these stockholders, if they act together, will have significant influence over our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their common shares for substantially less than the current trading price of the common shares and these stockholders may have interests, with respect to their common shares, that are different from other investors and the concentration of voting power among these stockholders may have an adverse effect on the price of our common shares. In addition, this concentration of ownership might adversely affect the market price of our common shares by:

• delaying, deferring or preventing a change of control of us;

• impeding a merger, consolidation, takeover or other business combination involving us; or

• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

See Item 7 “Major Shareholders and Related Party Transactions” in this Annual Report for more information regarding the ownership of our outstanding common shares by our executive officers, directors, principal stockholders and their affiliates.

Limitations on the ability to acquire and hold our common shares may be imposed under the Hart-Scott Rodino Act, the Competition Act (Canada) and other applicable antitrust legislation.

Limitations on the ability to acquire and hold our common shares may be imposed under the Hart-Scott Rodino Act, the Competition Act (Canada) and other applicable antitrust legislation. Such legislation generally permits the relevant governmental authority to review any acquisition of control over or of a significant interest in us, and grants the authority to challenge or prevent an acquisition on the basis that it would, or would be likely to, result in a substantial prevention or lessening of competition. In addition, the Investment Canada Act subjects an “acquisition of control” of a “Canadian business” (as those terms are defined therein) by a non-Canadian to governmental review if the book value of the Canadian business’ assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be of net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive our shareholders of the opportunity to sell their common shares at a control premium.

Future sales and issuances of our common shares or rights to purchase common shares, including pursuant to additional financings or our equity incentive plans could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common shares, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common shares, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

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The terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or palovarotene or any other product candidate or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

Moreover, pursuant to the stock option plan, our board of directors are authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under the 2017 Omnibus Plan will automatically increase by an annual amount to be added the first day of each fiscal year, subject to the ability of our board of directors to take action to reduce the size of the increase in any given year. On January 1, 2019, the number of shares available for future grant under the 2017 Omnibus Plan was automatically increased by 1,514,563. However, the increased number of shares available for issuance under the stock option plan has not been registered as at the date of this Annual Report. If our board of directors elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

We may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

We are governed by the corporate laws of Canada which in some cases have a different effect on shareholders than the corporate laws of Delaware.

We are governed by the CBCA, and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deferring or discouraging another party from acquiring control of our Company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the CBCA and Delaware General Corporation Law (DGCL), that may have the greatest such effect include but are not limited to the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our articles) the CBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally only requires a majority vote; and (ii) under the CBCA a holder of 5% or more of our common shares can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL.

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U.S. civil liabilities may not be enforceable against us, our directors, our officers or certain experts named in this Annual Report.

We are governed by the CBCA and our principal place of business is in Canada. Many of our directors and officers, as well as certain experts named herein, reside outside of the U.S., and all or a substantial portion of their assets as well as all or a substantial portion of our assets are located outside the U.S. As a result, it may be difficult for investors to effect service of process within the U.S. upon us and such directors, officers and experts or to enforce judgments obtained against us or such persons, in U.S. courts, in any action, including actions predicated upon the civil liability provisions of U.S. federal securities laws or any other laws of the U.S. Additionally, rights predicated solely upon civil liability provisions of U.S. federal securities laws or any other laws of the U.S. may not be enforceable in original actions, or actions to enforce

judgments obtained in U.S. courts, brought in Canadian courts, including courts in the Province of Quebec.

We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common shares.

We have never declared or paid any cash dividend on our common shares and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings, if materialized, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in our common shares will depend upon any future appreciation in their value. There is no guarantee that our common shares will appreciate in value or even maintain the price at which you purchased them.

If securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market, our stock price and trading volume could decline.

The trading market for our common share will be influenced by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. While we currently have research coverage by securities and industry analysts, there is no guarantee that we will be maintain such research coverage. If no or few securities or industry analysts cover our Company, the trading price and volume of our stock would likely be negatively impacted. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, or provides more favorable relative recommendations about our competitors, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

Risks Relating to the Plan of Arrangement

Completion of the Arrangement is subject to several conditions that must be satisfied or waived.

The completion of the Arrangement is subject to a number of conditions precedent, some of which are outside of the control of the Company and the Purchaser Parties, including approval of the shareholders and the granting of the Final Order by the Superior Court of Québec pursuant to section 192 of the CBCA. In addition, the completion of the Arrangement by the Purchaser Parties is conditional on, among other things, dissent rights not having been exercised by the holders of more than 10% of the issued and outstanding shares and no Material Adverse Effect (as defined in the Arrangement Agreement) having occurred since the date of the Arrangement Agreement. There can be no certainty, nor can the Company or the Purchaser Parties provide any assurance, that these conditions will be waived or satisfied or, if satisfied, when they will be satisfied. Moreover, a substantial delay in obtaining satisfactory approvals could result in the Arrangement not being completed. If the Arrangement is not completed for any reason, there are risks that the announcement of the Arrangement and the dedication of substantial resources of the Company to the completion thereof could have a negative impact on the Company's current business relationships and could have a material adverse effect on the current and future operations, financial condition and prospects of the Company. In addition, failure to complete the Arrangement for any reason could materially negatively impact the trading price of the shares. If the Arrangement is not completed and the board of directors decides to seek an alternative transaction, there can be no assurance that it will be able to find a party willing to pay consideration for the shares that is equivalent to, or more attractive than, the consideration payable pursuant to the Arrangement.

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The Arrangement Agreement may be terminated in certain circumstances, in which case an alternative transaction may not be available.

Each of the Company, the Purchaser and Ipsen has the right to terminate the Arrangement Agreement in certain circumstances. Accordingly, there is no certainty that the Arrangement Agreement will not be terminated by the Company, the Purchaser or Ipsen before the completion of the Arrangement. Failure to complete the Arrangement could materially negatively impact the trading price of the shares. If the Arrangement Agreement is terminated, there is no guarantee that equivalent or greater purchase prices for the shares will be available from an alternative party.

The Company will incur costs and may have to pay a termination fee or an expense reimbursement fee.

Certain costs relating to the Arrangement, such as legal, accounting and certain financial advisor fees, must be paid by the Company even if the Arrangement is not completed. If the Arrangement is not completed for certain reasons, the Company may also be required to pay the termination fee of $35,000,000 or an expense reimbursement fee of $4,000,000 to the Purchaser. If the Company is required to pay the termination fee or the expense reimbursement fee under the Arrangement Agreement, the financial condition and ability of the Company to fund current operations could be materially adversely affected.

The termination fee may discourage other parties from proposing a significant business transaction with the Company.

Under the Arrangement, the Company is required to pay the termination fee in the event that the Arrangement Agreement is terminated in circumstances related to a possible alternative transaction to the Arrangement. The termination fee may discourage other parties from attempting to propose a business transaction, even if such a transaction could provide better value to shareholders than the Arrangement.

Shareholders will no longer hold an interest in the Company following the Arrangement.

Following the Arrangement, shareholders will no longer hold any of the shares and shareholders will forego any future increase in value that might result from future growth and the potential achievement of the Company's long-term plans.

The Company's business relationships may be subject to disruption due to uncertainty associated with the Arrangement.

Parties with which the Company currently does business or may do business in the future may experience uncertainty associated with the Arrangement, including with respect to current or future business relationships with the Company or the Purchaser Parties. Such uncertainty could have a material and adverse effect on the business, financial condition, results of operations or prospects of the Company.

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While the Arrangement is pending, the Company is restricted from taking certain actions.

The Arrangement Agreement restricts the Company from taking specified actions until the Arrangement is completed without the consent of the Purchaser. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the Arrangement.

Interests of Certain Persons in the Arrangement.

Certain directors and officers of the Company may have interests in the Arrangement that may be different from, or in addition to, the interests of shareholders.

Clementia may be the target of legal claims, securities class action, derivative lawsuits and other claims.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into an agreement to be acquired. Third parties may also attempt to bring claims against Clementia seeking to restrain the Arrangement or seeking monetary compensation or other redress, which could delay or prevent consummation of the Arrangement. Even if the lawsuits are without merit or unsuccessful, defending against these claims can result in substantial costs and divert management time and resources.

Risks Relating to the CVRs

Holders of CVRs may never receive a payment in respect of the CVRs.

The entitlement to payment resulting from the CVRs will be reduced to nil if the milestone set out in the CVR Agreement (Milestone) is not achieved. There can be no guarantee that the Milestone will be achieved. If the Milestone is not achieved, the associated payment will never be made. No payment will be made in respect of the Milestone if the Milestone is not achieved on or prior to December 31, 2024. Even if the FDA accepts the submission an NDA for palovarotene as developed under IND 135403 based on the results of the phase II/III Clinical Trials which were being conducted by the Company as of the date of the Arrangement Agreement for the treatment of MO, there can be no guarantee that it will do so on or prior to December 31, 2024. In addition, no payment will be made in respect of the Milestone if any additional phase II or phase III clinical trial (other than any post-approval trial) is required for the submission of the NDA, and there can be no guarantee that no such additional phase II or phase III clinical trial (other than any post-approval trial) will be required.

CVRs may not be assigned or transferred except in very limited circumstances, limiting the ability for CVR holders to monetize the CVRs.

The CVRs will not be listed on any securities exchange and may not be transferred, pledged, encumbered or in any other manner transferred or disposed of, in whole or in part other than (i) upon the death of a holder, by will or intestacy; (ii) pursuant to a court order; (iii) by operation of law (including by consolidation or merger) or without consideration in connection with the dissolution, liquidation or termination of any corporation, limited liability company, partnership or other entity; (iv) in the case of CVRs held through book-entry or other similar nominee form, from a nominee to the beneficial owner and, if applicable, through an intermediary, to the extent allowable by the Depository Trust Company (DTC); or (v) pursuant to a CVR holder's right to abandon a CVR or the deemed acquisition of CVRs by the Purchaser or the Company in connection with the repayment of the after-tax proceeds attributable to options granted by the Company to certain key employees on February 18, 2019. This means that a CVR holder may not have any ability to recognize the value of any payment to be made in accordance with the CVR Agreement prior to the receipt of such a payment, if any.

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Any payments in respect of the CVRs under the guarantee rank at parity with Ipsen's other unsecured indebtedness.

Ipsen has guaranteed the CVR payouts contemplated by the CVR Agreement. This guarantee represents an unsecured obligation of Ipsen and will rank equally in right of payment to all existing and future unsecured indebtedness of Ipsen. Any CVR payout under the guarantee will effectively be subordinated in right of payment to all of Ipsen's secured obligations to the extent of the collateral securing such obligations. In the event of a shortfall of funds after payment is made on such secured obligations, CVR holders will not receive the full CVR payout they may otherwise have been entitled to.

The treatment of CVRs for Canadian federal income tax purposes is unclear.

The Canadian federal income tax consequences to a shareholder in respect of the receipt of CVRs and the payments thereunder, and the reporting of amounts in respect thereof for Canadian federal income tax purposes, are not entirely clear. Shareholders are urged to consult their own tax advisors regarding the consequences to them of the receipt of CVRs and the payments thereunder.

The treatment of CVRs for U.S. federal income tax purposes is unclear.

There is no legal authority directly addressing the U.S. federal income tax treatment of CVRs received pursuant to the Arrangement. Accordingly, the amount, timing and character of any gain, income or loss with respect to the CVRs are uncertain. U.S. Holders should consult their tax advisors concerning the recognition of income, gain or loss, if any, resulting from the receipt of a CVR or the receipt of any payment in respect of a CVR.

Item 4. Information on the Company

A. History and Development of the Company

Clementia Pharmaceuticals Inc. was incorporated under the CBCA on November 5, 2010. The principal executive offices of Clementia Pharmaceuticals Inc. are currently located at 1000 de la Gauchetière West, Montreal, Quebec, Canada H3B 4W5. Our telephone number is (514) 940-3600.

Clementia Pharmaceuticals Inc. has two wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc., which was incorporated in the state of Delaware, with a registered office located at 275 Grove Street, Suite 2-400, Auburndale, Massachusetts 02466 USA, and Clementia Pharmaceuticals France SARL, which was incorporated in France, with a registered office located at 4 Rue De Marivaux, 75002 Paris, France.

On April 10, 2013, the Company closed a $22.5 million Class A financing led by OrbiMed, with a participation from an existing investor, BDC. On October 7, 2014, the Company secured an additional $10.2 million from its current investors to support the development of its lead compound palovarotene for the treatment of FOP thus bringing the total amount raised in the Class A financing to $32.7 million.

On June 22, 2015, the Company entered into a Class B share subscription agreement with new and existing investors and completed a $60 million round of financing to further support the ongoing development of its lead compound palovarotene for the treatment of FOP.

On March 16, 2017, the Company completed a $10 million Class C financing with a new investor.

In July 2017, the Company amended its articles of incorporation to effect a 11.99-for-1 stock-split of all of the Company’s outstanding shares. The stock-split became effective on July 19, 2017 and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in this Annual Report have been retrospectively adjusted to reflect this stock-split for all periods presented.

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In August 2017, immediately prior to its IPO, all of the outstanding Class A, B and C redeemable convertible preferred shares were converted on a one-for-one basis into 20,076,224 common shares of the Company. In connection therewith, in the third quarter of 2017 the Company i) included the original stated capital of the preferred shares in share capital, ii) included the excess of the total carrying value of the preferred shares and the embedded derivative liabilities over the original stated capital of the preferred shares in contributed surplus and iii) eliminated the contributed surplus created by the conversion of the preferred shares into common shares and recorded a corresponding reduction in deficit (as resolved by the Company’s board of directors).

On August 7, 2017, the Company amended and restated its articles so that the Company is authorized to issue an unlimited number of common shares, without nominal or par value, and an unlimited number of preferred shares issuable in series, without nominal or par value.

In August 2017, the Company completed its IPO and issued 9,191,000 common shares at $15 per share, including the underwriters’ over-allotment option, for total gross proceeds of approximately $137.9 million. The Company’s common shares are listed and traded on the Nasdaq Global Select Market under the symbol CMTA.

In October 2018, the Company completed a follow-on offering and issued 6,095,000 common shares at $13.25 per share, including the underwriters’ over-allotment option, for total gross proceeds of approximately $80.8 million.

In October 2018, the Company also filed an At-The-Market (ATM) offering prospectus for $40 million of additional common shares for a period of 24 months. The ATM allows the Company to sell common shares, having an aggregate offering price of up to $40 million, from time to time at prevailing market rates. The underwriters’ commission will be 3% of the amount of funds raised. There were no draws on this ATM offering prospectus as of the date of this Form 20-F.

A description of the Company’s principal capital expenditures and acquisitions of material assets can be found in our management’s discussion and analysis (MD&A) and in the notes to our financial statements included elsewhere in this Annual Report.

Plan of Arrangement

On February 24, 2019, the Company entered into an agreement with Ipsen, a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and the Purchaser, pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of US$25.00 per share in cash upfront, plus a contingent value right (CVR) of US$6.00 per share related to the MO indication for a total transaction value of up to US$1.31 billion.

Completion of the transaction is anticipated to occur in the second quarter of 2019, subject to satisfaction or waiver of all closing conditions. The acquisition is expected to proceed by way of a court-approved plan of arrangement pursuant to the CBCA and will require, at the special meeting of Clementia shareholders expected to be held on April 9, 2019, the approval of at least 66 2/3% of the votes cast by Clementia’s shareholders present in person or represented by proxy as well as the approval of a majority of the votes cast by Clementia’s disinterested shareholders present in person or represented by proxy. A proxy circular relating to the special meeting of shareholders of Clementia and containing further details regarding the Arrangement and the Arrangement Agreement has been mailed to Clementia’s shareholders and made available on SEDAR and EDGAR.

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In addition to shareholders’ and court approvals, the Arrangement is also subject to other customary closing conditions. The Arrangement Agreement is subject to customary “fiduciary out” provisions, and a right in favor of Ipsen to match any superior proposal. A termination fee of $35 million is payable to Ipsen in certain specific circumstances, including if it fails to exercise its right to match in the context of a superior proposal supported by Clementia.

The estimated fees, costs and expenses of the Company in connection with the Plan of Arrangement contemplated including, without limitation, financial advisors’ fees, filing fees, legal and accounting fees, proxy solicitation fees and printing and mailing costs, but excluding payments made by the Company pursuant to the Plan of Arrangement in respect of outstanding stock options and DSUs, are anticipated to be approximately $25.7 million.

As of the date of this Form 20-F, the Arrangement contemplated in the agreement has not yet been approved or completed. Refer to “Risk Factors” above.

B. Business Overview

Overview

We are a clinical-stage biopharmaceutical company innovating treatments for people with ultra-rare bone disorders and other diseases. Our lead product candidate, palovarotene, is an oral small molecule that binds and activates retinoic acid receptor gamma (an RARγ agonist) and has shown potent activity in preventing abnormal new bone formation as well as scar tissue formation (or fibrosis) in a variety of tissues. We are developing palovarotene for the treatment of Fibrodysplasia Ossificans Progressiva (FOP) and Multiple Osteochondromas (MO), as well as other diseases. For FOP, we are preparing for a New Drug Application (NDA), which we intend to submit to the U.S. Food and Drug Administration (FDA) in the second half of 2019, and subject to approval, a U.S. commercial launch in mid-2020. We also completed enrollment in our Phase 3 MOVE trial in FOP in August 2018 with two interim data read-outs planned in 2019. For MO, we enrolled the first patient in our Phase 2 clinical trial in April 2018, and we expect an interim data read-out in 2020. We believe that, if approved in FOP or MO, palovarotene could become the standard of care in either or both of these indications.

FOP is an ultra-rare, chronic and severely disabling disease of abnormal bone formation, or heterotopic ossification (HO). A 2011 Nature Medicine paper showed that palovarotene potently inhibited HO in animal models of FOP. As a result, we exclusively in-licensed palovarotene from Roche to form the basis of Clementia, and we have also secured additional IP related to palovarotene. FOP is characterized by painful, recurrent episodes of soft tissue swelling (flare-ups) that result in bone formation in areas of the body where bone is not normally present, such as muscles, tendons and ligaments. Recurrent flare-ups and new bone formation progressively restrict movement by locking joints, leading to cumulative loss of function, disability and early death. FOP is caused by a mutation of the bone morphogenetic protein (BMP) Type I receptor or ACVR1 (also known as ALK2) that leads to excess BMP signaling and new bone formation. We estimate that the prevalence of FOP is approximately 1.3 individuals per million lives, or approximately 9,000 globally. As of October 2016, there were known to be 800 diagnosed FOP patients worldwide. There are currently no approved medical treatment options to prevent the formation of heterotopic bone in FOP. However, the FDA recently agreed with us that our available Phase 2 data on the treatment of flare-ups with episodic palovarotene dosing would support an NDA submission for palovarotene for the prevention of HO associated with flare-up symptoms in patients with FOP. We held a pre-NDA meeting with the FDA in the February 2019, and we continue to expect to submit our NDA in the second half of 2019. Our ongoing Phase 3 MOVE Trial, which is evaluating a chronic daily dosing in addition to the episodic flare-up dosing, will continue and is expected to report final results in 2020 with two planned interim read-outs in 2019. We believe that, if successful, the data from the MOVE Trial may provide the basis for a supplemental NDA for an additional treatment regimen option for patients with FOP.

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MO, also called multiple hereditary exostoses, is an ultra-rare genetic disease of new bone formation in children which, like FOP, is mediated by excess BMP signaling. Patients with MO develop multiple benign bone tumors, also known as osteochondromas (OCs) or exostoses, on bones. We estimate that MO affects approximately 20 individuals per million lives, or approximately 150,000 globally, which is approximately 15 times greater than that of FOP. Patients suffer from substantial morbidities that worsen over time until they reach skeletal maturity. We have generated pre-clinical data demonstrating that palovarotene inhibits the number of OCs by approximately 80% in an animal model of MO as compared to vehicle-treated animals. Based on our knowledge of the safety and tolerability profile of palovarotene and our pre-clinical animal model data, we initiated a global, placebo-controlled Phase 2 study (the MO-Ped Trial) of palovarotene in MO. We expect to report results for this trial in 2021 with a planned interim read-out in 2020.

We also believe that RARγ agonists have great potential as inhibitors of BMP signaling in other indications. Palovarotene has been shown to exert multiple effects in various tissues including in ocular tissues, where RARγ agonists generally demonstrate anti-fibrotic properties. Pre-clinical proof-of-concept studies in dry eye disease that we conducted show that an eye drop formulation of palovarotene can potently increase tear production and decrease corneal damage. In October 2018, we initiated and enrolled the first subject in a Phase 1 trial being conducted in Canada that will evaluate the safety, tolerability, and pharmacokinetic profile of single and multiple ascending doses of palovarotene ophthalmic solution in healthy volunteers. This trial was completed in February 2019 and final results are pending, but based on preliminary top line results, we expect to utilize the data obtained in this study to inform the design of a proof of concept efficacy trial evaluating palovarotene in dry eye disease, which is expected to begin in 2019. We are also focused on developing other RARγ agonists that we have in-licensed from Galderma. We are currently in the process of characterizing these second generation RARγ agonists in animal models.

In July 2014, the FDA granted Orphan Drug Designation for palovarotene as a treatment for FOP, and in November 2014, we were granted orphan drug status in the EU. Orphan Drug Designation by the FDA allows for seven years of market exclusivity in the U.S. upon approval of the drug for the indication for which it was designated except in certain limited circumstances. In Europe, marketing authorization for an orphan drug generally leads to a ten-year period of market exclusivity. In November 2014, we received Fast Track Designation from the FDA, which allows for more frequent interactions with the FDA during the drug development and review process. In July 2017, the FDA granted Breakthrough Therapy Designation to palovarotene for the prevention of HO in patients with FOP, which allows for intensive guidance on efficient drug development, organizational commitment involving senior management, and rolling review of our application. Also, in February 2019, the FDA granted Rare Pediatric Disease Designation to palovarotene for the treatment of FOP. The Rare Pediatric Disease Designation is an essential element for obtaining a Rare Pediatric Disease Voucher (PRV). The company plans to request a PRV in the NDA submission for palovarotene for the treatment of FOP, and the FDA will determine whether to grant the PRV. The PRV Program is intended to encourage development of therapies to prevent and treat rare pediatric diseases. The PRV can be redeemed to receive a priority review of a subsequent marketing application or sold to a third party. In November 2017, the FDA granted Orphan Drug Designation for palovarotene as a treatment for MO, and in May 2018, the EMA granted Orphan Drug Designation for palovarotene for the treatment of MO.

Our Programs

Our programs currently focus on diseases involving tissue transformation via retinoic acid receptors (RARs). RARs are expressed in a variety of tissues and are involved in the growth, shape and maintenance of tissues (morphogenesis). In particular, the RARγ receptor sub-type is expressed in cells that produce cartilage and plays a role in biological pathways responsible for endochondral bone formation (the process of new bone formation which occurs via cartilage formation). RARγ is also present in multiple other cells and tissues where it mediates the growth and differentiation of specific cell types, including those involved in fibrosis.

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Our lead product candidate, palovarotene, is a RARγ selective agonist that has shown potent activity in preventing chondrogenesis (cartilage formation) as well as fibrosis in a variety of tissues. RARγ agonists, such as palovarotene, are thought to exert their action on bone formation through regulation of the BMP pathway. RARγ receptors are expressed in chondrogenic cells and chondrocytes and repress certain genes even in the absence of ligand. BMPs are part of the transforming growth factor 13 (TGF-13) family of extracellular signaling proteins. They regulate various cellular activities including differentiation and proliferation and are particularly involved in fibrosis. BMP signaling induces the complete pathway of endochondral bone formation during embryonic development and skeletal formation in children.

Mechanism of Action

 

As illustrated, the BMP pathway begins with the binding of any of several extracellular BMP ligands such as BMP 2, 4, 7 and 9 to the BMP receptor which is membrane-bound. The receptor is comprised of two BMP Type II subunits and two BMP Type I subunits (also known as ACVR1 or ALK2), which when activated by ligands, recruit, bind and phosphorylate cytoplasmic signal transduction proteins called Smads 1/5/8. When Smads 1/5/8 become phosphorylated, they are able to bind to Smad 4, which together travel to the nucleus where they regulate the transcription of many genes including all those necessary for new bone formation.

Our lead indication, FOP, is caused by excess BMP signaling and is an example of the inappropriate activation of this pathway.

Approximately 97% of patients with FOP have the R206H mutation in the ALK2 receptor which is believed to make the receptor overactive both on its own and in the presence of ligands. The mutated, overactive receptor leads to excess phosphorylation of Smads 1/5/8 and enhanced signals to the nucleus to form heterotopic bone. The result is that the abnormal gene sends signals to the body’s muscles and soft tissues instructing the muscles to repair themselves by forming bone rather than muscle or scar tissue. RARγ agonists reduce the level of phosphorylated Smads 1/5/8 and the overall protein levels of Smads 1/5/8 and thereby repress excess BMP signaling.

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Our second indication, MO, is also a disease believed to be mediated by excess BMP signaling. In this case, mutations in the Ext1 and Ext2 genes are believed to cause decreases in the heparan sulfate chains on proteoglycans and indirectly cause local increases in BMP at the surface of certain cells. Cell surface heparan sulfate is believed to act as a kind of reservoir for growth factors including BMP and their absence has been shown to result in local increases in BMP signaling and intracellular phosphorylated Smad levels. Since palovarotene has been shown to act directly on this pathway in FOP, we hypothesize that palovarotene could also be a potential treatment in MO.

Palovarotene’s unique mechanism of action confers upon it the ability to repress bone formation and fibrosis and is potentially suited to a variety of indications beyond those currently in development.

We believe that RARγ agonists, such as palovarotene, have the potential for therapeutic use in a broad range of conditions, including diseases like FOP and MO that involve pathological bone formation as well as other indications characterized by excessive fibrosis or scarring such as dry eye disease.

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The following table summarizes our development programs:

Palovarotene for FOP

In 2014, we initiated the first ever Phase 2 study in FOP and since then have tested multiple dosing regimens evaluating multiple imaging and functional endpoints in approximately 150 individuals. The outcomes observed at 12 weeks following episodic palovarotene treatment were recently presented at ASBMR 2018. In these studies, 92 palovarotene-treated flare-ups in 62 patients across three different dosing regimens were evaluated compared to 46 placebo or untreated flare-ups in 41 patients from the Company’s natural history study. Patients treated with palovarotene at the time of a flare-up demonstrated a greater than 70% reduction in mean new HO volume at 12 weeks compared to the untreated group. Further, the reduction in mean new HO volume among patients treated with the episodic 20/10 mg dosing regimen (20 mg for 4 weeks starting at the time of a flare-up followed by 10 mg for 8 weeks) was statistically significant (p=0.02). Palovarotene was generally well tolerated across all dosing regimens of the Phase 2 clinical program. There were dose-related increases in retinoid-associated adverse events (AEs) with most being mild or moderate in severity, and only one patient discontinued participation in the study because of an AE.

In recent interactions between Clementia and the FDA, including a Type B meeting held as part of palovarotene’s Breakthrough Therapy Designation, the FDA has agreed that available data would support filing of an NDA for palovarotene for the prevention of HO associated with flare up symptoms in patients with FOP. Following the completion of standard non-clinical, clinical pharmacology and CMC studies to be agreed upon with the agency, we plan to submit an NDA in the second half of 2019 to seek approval of the palovarotene 20/10 mg episodic dosing regimen. If successful, we could be ready for commercial launch in the U.S. in the first half of 2020.

Our Phase 3 MOVE Trial is evaluating a chronic dosing regimen of palovarotene in FOP (5 mg daily) with increased episodic doses during flare-ups (20 mg for four weeks followed by 10 mg for eight weeks). The primary endpoint of the MOVE Trial is the annualized change in new HO volume as assessed by low-dose whole body CT scans (WBCTs), compared to untreated patients from the natural history study, which is being used as the external control and is described below. The MOVE Trial is fully enrolled, and we expect to report full data in 2020 with interim read-outs in 2019 and 2020. If successful, we plan to submit a supplemental New Drug Application (sNDA) for the combination dosing regimen that includes both chronic dosing and episodic dosing at time of flare-ups.

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In parallel with our interventional trials, we have also completed enrollment in a first of its kind natural history study with 114 patients worldwide to characterize the progression of FOP across numerous outcomes. This study is tracking new HO formation across the body using WBCTs as well as other measures of mobility and functional impairment. Cross-sectional data indicates a strong correlation between losses in physical function with age and with total body volume of HO and functional outcomes. The findings of this study have been instrumental in establishing that HO is a clinically meaningful endpoint in FOP.

Palovarotene for MO

We have generated pre-clinical data demonstrating that palovarotene inhibits the number of OCs by approximately 90% in an animal model of MO as compared to vehicle-treated animals. We initiated patient enrollment in a global, placebo-controlled Phase 2 study (the MO-Ped Trial) of palovarotene in MO in April 2018 and expect to complete enrollment in mid- 2019. The MO-Ped Trial will enroll up to 240 patients at approximately 25-30 clinical sites worldwide, comprised of pediatric patients from 2 to 14 years of age, to assess palovarotene’s effect on osteochondroma formation and other related outcomes. We expect to report clinical data for this Phase 2 trial in 2021 with an interim read-out in the first half of 2020.

Palovarotene for Dry Eye Disease

Palovarotene has been shown to exert multiple effects in various tissues including in ocular tissues, where RARγ agonists generally demonstrate anti-fibrotic properties. As a result, we have conducted pre-clinical proof-of-concept studies in dry eye disease that show that an eye drop formulation of palovarotene can potently increase tear production and decrease corneal damage. Following the completion of these studies and IND-enabling toxicity studies of an ophthalmologic formulation, we began a Phase 1 clinical trial in Canada in October 2018 in healthy volunteers to evaluate the safety of palovarotene eye drops as a potential treatment for dry eye disease. This study has been completed and final results are pending, but based on top line data, we expect to submit an IND to FDA and advance our eye drop formulation into a proof of concept efficacy trial evaluating palovarotene in dry eye disease, which is expected to begin in 2019.

Other RARγ Agonists

We are also developing other RARγ agonists in-licensed from Galderma in other indications involving fibrosis. Should these studies be successful, we plan to initiate the pre-IND activities necessary to initiate clinical trials in these new indications.

Our Strategy

We strive to become a leading fully-integrated biopharmaceutical company that innovates and commercializes new treatments for people with ultra-rare bone disorders and other diseases. We are rapidly developing our lead product candidate, palovarotene, to treat FOP and MO as well as other diseases. To achieve our goals, we are executing the following strategy:

Obtain regulatory approval for our lead product candidate, palovarotene, in FOP. We believe that our recent interactions with the FDA suggest a path to NDA submission in the second half of 2019. We believe that, if successful, this NDA may lead to FDA approval of palovarotene to treat children and adults with FOP using an episodic treatment regimen at the time of a flare-up. We also believe that if the NDA is accepted, we may receive priority review and be in a position to launch commercial sales in the first half of 2020. Our Phase 3 MOVE Trial, if successful, may substantially form the basis of an sNDA for an additional dosing regimen, one which includes a chronic daily administration of palovarotene in addition to flare-up-based episodic treatment. We also expect to engage in regulatory discussions for palovarotene approval in Europe and Japan starting next year.

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Complete development and obtain regulatory approval for palovarotene in MO. We believe that the positive Phase 2 results we have generated with palovarotene in FOP along with the pre-clinical data demonstrating proof-of-concept in an animal model of MO suggest that palovarotene may also demonstrate biological activity in the ongoing Phase 2 MO-Ped Trial in MO. Enrollment in this trial was initiated in April 2018 and we expect to be fully enrolled by mid-2019. If successful, we believe this trial could potentially serve as a single pivotal study and could form the basis of FDA approval of palovarotene for MO. We expect to submit for worldwide regulatory approvals of palovarotene in MO including in the United States, Europe and Japan after generating the relevant clinical data, for which we expect data read outs in 2020 and 2021, respectively.

Independently commercialize palovarotene and improve patient care in FOP and MO. We intend to establish our own commercial organization and have begun to develop a global commercial plan. Our plan includes establishing the sales, marketing and reimbursement functions required to commercialize palovarotene in global markets. In response to requests from the patient community, we are evaluating mechanisms for allowing access to palovarotene in advance of regulatory approval in those jurisdictions where this is permitted by the applicable laws.

Advance the development of an eye drop formulation of palovarotene for Dry Eye Disease. We initiated a Phase 1 clinical trial in October 2018 to evaluate the safety, tolerability, and pharmacokinetic profile of single and multiple ascending doses of palovarotene ophthalmic solution in healthy volunteers. This trial was completed in February 2019 and based on top line data, we will submit an IND to the FDA and advance our eye drop formulation into a proof of concept efficacy trial evaluating palovarotene in dry eye disease, which is expected to begin in 2019.

Expand our RARγ agonists platform. We are also investigating other RARγ agonists in-licensed from Galderma in other indications involving fibrosis. Should these studies be successful, we plan to initiate the pre-IND activities for these other RARgamma agonists necessary to initiate clinical trials in these new indications.

Evaluate opportunities to expand our leadership in FOP and other areas of expertise. As the leaders in FOP drug development, we intend to maintain this leadership via collaborations with others who have programs which may enhance functional outcomes in persons with FOP. We may also selectively form collaborative alliances to expand our capabilities and product offerings into new therapeutic areas and potentially accelerate commercialization in select geographic markets. Additionally, we may pursue the acquisition or in-licensing of product candidates, particularly in our core focus area of rare bone diseases.

Our Team

We have assembled a team of highly skilled and experienced employees, directors and consultants with broad capabilities in drug discovery, development, regulation and commercialization and particular expertise in orphan diseases. A majority of our employees possess advanced scientific degrees. Our management team has substantial industry experience in the orphan disease space with a successful track record of developing and commercializing drug candidates. Our board members include the former CEOs and the former CCO of companies that developed Yescarta®, Gattex®, Natpara® and Strensiq®, the latter two drugs indicated for the treatment of rare bone diseases. We continue to leverage this specialized expertise and experience to rapidly pursue the development and commercialization of palovarotene in multiple indications.

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Manufacturing

Palovarotene drug substance synthesis was originally developed and optimized by Roche. Clementia further optimized this synthesis route due to the availability of novel chemistries. Our drug substance is currently manufactured by one manufacturer. It has demonstrated greater than two years stability under ambient conditions protected from light. Our drug product consists of a hard-shell capsule, which can be opened by patients and sprinkled on food for those with locked jaws and pediatric subjects. Multiple dosage strengths are available to account for all potential doses administered in the clinic, including for weight-based dosing in children. We monitor stability of our drug substance and drug product according to ICH compliant stability programs.

Competition

Currently, there are no therapies that have been specifically approved for the treatment of FOP. To our knowledge, palovarotene is the only orally available RARγ agonist that has been clinically tested in FOP. However, products approved for other indications, for example, corticosteroids and non-steroidal anti-inflammatory drugs, are used off-label to manage FOP symptoms during flare-ups. None of these medications has been shown to prevent HO.

Regeneron Pharmaceuticals Inc. has completed a Phase 1 trial in Belgium with an antibody against Activin A. As an antibody, it is administered via intravenous infusion. Regeneron is currently enrolling a Phase 2 clinical trial in adult FOP patients.

Blueprint Medicines Corporation, Keros Therapeutics, La Jolla Pharmaceutical Company and BioCryst Pharmaceuticals Inc. have disclosed ALK2 inhibitors in development for FOP. To our knowledge, these kinase inhibitors being developed for FOP are at the pre-clinical stage, but Phase 1 trials are planned for this year. A number of academic groups are also pursuing ALK2 kinase inhibitors and to our knowledge, these are also at the pre-clinical stage in FOP.

Regeneron Pharmaceuticals Inc. and La Jolla Pharmaceutical Company have been granted orphan drug designation for their respective approaches in FOP.

GRI Bio Inc. is developing an RARγ selective agonist, GRI-0621, in a Phase 2 clinical trial in chronic liver disease in South Africa.

License Agreements

We have entered into exclusive license agreements to help support our development efforts.

Roche Agreement

In January 2013, we entered into a license agreement with Roche for the composition of matter of palovarotene, for which we have the worldwide rights to develop and commercialize. We are obligated to pay Roche certain clinical/regulatory/sales milestones and royalties on products developed from this technology. Termination of our license agreement with Roche would have a material adverse impact on our ability to develop and commercialize palovarotene.

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Pursuant to the terms of the agreement, we were granted the exclusive worldwide right to research, develop, make, have made, use, sell, have sold, offer for sale and import palovarotene, any other compounds covered by certain Roche patents, and any pharmaceutical or therapeutic products containing either palovarotene or such other licensed compounds, for all human pharmaceutical uses and indications. Additionally, Roche transferred to us certain regulatory information on the licensed compounds, including palovarotene, pursuant to the license agreement.

The Roche license also grants us a right to sublicense our licensed rights to third parties, provided each sublicensee enters into a written agreement with us with terms consistent with our agreement with Roche.

The license agreement requires us to use commercially reasonable efforts to develop, obtain regulatory approval of, and commercialize a product containing palovarotene. The license agreement includes commitments to pay Roche (i) a total of $1.0 million in milestone payments upon the achievement of certain clinical milestones, (ii) up to a total of $11.0 million in milestone payments upon the achievement of certain regulatory milestones in connection with the three clinical trial programs currently underway with an additional $1 million in milestone payments upon the achievement of certain regulatory milestones in connection with each subsequent indication, if any, and (iii) up to a total of $37.5 million in milestone payments upon the achievement of certain sales milestones. We achieved the clinical milestone in December 2017 and paid Roche the $1.0 million milestone in January 2018. With the Company planning to file a new drug application with the FDA for palovarotene in FOP in the second half of 2019, the Company expects to incur a $2 million regulatory milestone. The agreement also requires us to pay Roche a royalty rate in the low teens based on net sales of products containing palovarotene or the other licensed compounds during the royalty term. The Roche agreement provides that the royalty rate will be adjusted significantly downward on a country-by-country basis if generic versions of the licensed products are introduced and sold in the relevant country and the sale of such generic versions have a certain impact on our net sales. Under the agreement, we are also required to pay any consideration owed to third parties related to such third parties’ intellectual property rights covering the licensed technology, though such payments may be at least partially offset by a reduction in royalties payable to Roche.

The Roche Agreement will expire on a licensed product-by-product and country-by-country basis upon the later of (i) the date of expiration of the last to expire patent having a valid claim relating to such licensed product in a particular country, or (ii) 10 years after the first commercial sale of a licensed product in such country. Either party may terminate the agreement for the material breach or insolvency of the other party. In the event the agreement is terminated by Roche for our material breach or insolvency, the rights and licenses granted to us under the agreement would terminate. In addition, upon termination under certain circumstances, rights in regulatory filings and certain other intellectual property may revert to Roche. Termination of our rights under the Roche license would have a material adverse effect on us.

The Roche Agreement was amended in 2018 so that Clementia will reimburse Roche for the maintenance of certain Roche Patents. All other terms of the agreement are unchanged.

Thomas Jefferson University (TJU) Agreement

In February 2014, we entered into a license agreement with TJU to use palovarotene for treating muscle tissue damage. We are obligated to pay TJU certain clinical/regulatory/sales milestones and royalties on the sales of certain licensed products and processes. Termination of our license agreement with TJU would have a material adverse impact on our ability to develop and commercialize palovarotene in its current

formulation.

Pursuant to the terms of the agreement, we were granted the exclusive worldwide right to make and have made, to use and have used, to sell and have sold, to offer for sale, to import, to export, to research, develop and improve upon methods for muscle repair and regeneration comprising administering therapeutically effective amounts of RAR agonists (such as palovarotene) for treating muscle tissue damage. The TJU license also grants us a right to sublicense our licensed rights to third parties, provided that our license from TJU is exclusive at the time of the granting of the sublicense and that each sublicensee enters into a written agreement with us with terms consistent with our agreement with TJU.

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The license agreement requires us to use commercially reasonable diligent efforts to effect introduction of a product containing palovarotene into the commercial market as soon as practicable. At any time after three (3) years from the effective date of the TJU license, TJU may terminate the agreement or render the license non-exclusive if, in TJU’s reasonable judgment, the progress reports provided by us substantially demonstrate our failure to satisfy certain diligence obligations.

The agreement requires us to make a total of $0.1 million in milestone payments upon the achievement of certain clinical milestones and a total of $0.25 million in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product or licensed process that meets the relevant milestones. We achieved the clinical milestone and paid TJU the $0.1 million milestone in December 2017. The agreement also requires us to pay TJU a low single digit royalty rate on the amount of total net sales of licensed products or licensed processes during the term of the agreement. We must also pay TJU a low double-digit royalty rate on the amount of non-royalty sub-license income we receive from a sub-licensee if we sub-license our license under the TJU agreement and we receive a revenue stream under the sub-license. Under the agreement, non-royalty sublicense income shall include the amount paid to us by a sublicensee pursuant to the sublicense, including but not limited to license fees, milestone payments and the fair market value in cash of any non-cash consideration of any kind for such sublicense.

The term of the license agreement remains in effect until the last patent or patent application containing a valid claim in the patent rights under the license have expired or been abandoned. Either party may terminate the agreement for the material breach or insolvency of the other party. In the event the agreement is terminated by TJU for our material breach or insolvency or on account of their determination that our progress reports substantially demonstrate that we neither used commercially reasonable efforts to put the licensed subject matter into commercial use and/or are not keeping it reasonably available to the public, nor engaged in research, development, manufacturing, marketing or sublicensing activity to achieve the above, the rights and licenses granted to us under the agreement would terminate. Termination of our rights under the TJU license would have a material adverse effect on us.

Upon the expiration of the TJU patent portfolio, our license agreement with, and our license payment obligations to, TJU will terminate and we will have a fully-paid, royalty-free, sublicensable license.

Yamaguchi University Agreement

In April 2015, we entered into a license agreement with Yamaguchi University for a patent family titled “Therapeutic agent for keratoconjunctive disorders” and a patent family titled “Inhibitor for Retinochoroidal disorders.” We are obligated to pay Yamaguchi University certain clinical/regulatory milestones and royalties on sales of certain licensed products and processes. Termination of our license agreement with Yamaguchi University would have a material adverse impact on our ability to develop and commercialize palovarotene for the treatment of certain ocular disorders.

Pursuant to the terms of the agreement, we were granted the exclusive worldwide right to make and have made, to use and have used, to sell and have sold, to offer for sale, to import, to export, to research, develop and improve upon therapeutic agents for keratoconjunctive disorders and related patents. The Yamaguchi University license also grants us a right to sublicense our licensed rights to third parties, provided each sublicensee enters into a written agreement with us with terms consistent with our agreement with Yamaguchi University.

The agreement requires us to use commercially reasonable efforts to effect introduction of the licensed products into the commercial market as soon as practicable. The agreement requires us to make a total of $0.075 million in milestone payments upon the achievement of certain clinical milestones and a total of $0.15 million in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product that meets the relevant milestones. The agreement also requires us to pay Yamaguchi University a low single digit royalty rate on the amount of total net sales of licensed products during the term of the agreement. We also have a royalty buy-out option pursuant to which we can terminate at any time in our sole discretion our obligation to pay royalties and make milestone payments, as well as our reporting obligations, in exchange for a one-time payment to Yamaguchi University.

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The Yamaguchi University agreement will expire on a licensed product-by-product and country-by-country basis upon the later of (i) the date of expiration of the last to expire patent having a valid claim relating to such licensed product in a particular country, or (ii) 10 years after the first commercial sale of a licensed product in such country. Yamaguchi University can terminate the agreement for our material breach or insolvency. In the event the agreement is terminated by Yamaguchi University for our material breach or insolvency, the rights and licenses granted to us under the agreement would terminate. We can terminate the license agreement upon 90 days’ notice.

Galderma Agreement

In March 2017, we exercised our option to enter into an exclusive license agreement with Galderma for certain retinoic acid receptor gamma agonists compounds. In accordance with this agreement, we have paid a one-time license fee of $1 million, which was recorded as an intangible asset. We are committed to make certain future payments based on the successful achievement of specific development and commercialization milestones related to the licensed Galderma compounds.

Pursuant to the terms of the agreement, we have been granted an exclusive worldwide right in certain fields and subject to certain exceptions, to (i) develop, make and use the retinoic acid receptor gamma agonists compounds in order to research, develop, manufacture and commercialize products that incorporate such compounds and (ii) research, develop, manufacture and commercialize such products. The Galderma license also grants us a right to sublicense our licensed rights to third parties, provided that, in case of (i), each sublicensee shall enter into a written agreement with Galderma, and, in case of (ii), we will not be relieved from our obligations under the agreement with Galderma and will secure all covenants, obligations, and rights of the sublicensee.

The license agreement requires us to use commercially reasonable efforts to develop at least one of the compounds as well as to commercialize the products incorporating the compounds. The agreement requires us to pay Galderma a total of $2.0 million in milestone payments upon the achievement of certain clinical milestones and up to a total of $25.5 million in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first product that meets the relevant milestones. The agreement also requires us to pay Galderma a single digit royalty rate that varies based on the amount of total worldwide net sales of licensed products during the term of the agreement (including a royalty on the net sales by sublicensees).

The license agreement will remain in effect as long as we develop or commercialize the licensed product. Either party has a right to terminate the agreement for the material breach or insolvency of the other party. Termination by Galderma for our material breach or insolvency causes termination of the rights and licenses that are granted to us under the agreement. We have the right to terminate the agreement upon 90 days prior written notice to Galderma both without cause and because of our decision to discontinue development or commercialization.

In December 2018 the license agreement was amended to further expand Clementia’s rights to additional fields and to grant Clementia additional time to evaluate the compounds. Following the amendment Clementia will manage the patent portfolio relating to the Galderma compounds at its expense.

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Intellectual Property

We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture, and any other aspects of inventions that are commercially important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

We plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, formulations and methods of treatment created or identified from our ongoing development of our product candidates. Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position. We seek to obtain domestic and international patent protection, and endeavor to promptly file patent applications for new commercially valuable inventions.

The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict whether the patent applications we or our strategic partners are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors.

Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the U.S. PTO, to determine priority of invention.

Clementia Licensed Intellectual Property

We have exclusively licensed patents claiming palovarotene as a composition of matter from Roche (the Roche patent portfolio), which has a statutory expiration date in 2021. We have an exclusive worldwide license to patents claiming the use of palovarotene for treating muscle tissue damage from TJU (the TJU patent portfolio), which has a statutory expiration date in 2031. We have an exclusive worldwide license to patents claiming the use of certain RARγ agonists, including palovarotene, for treating keratoconjunctive disorders and claiming the use of palovarotene for treating retinochoroidal disorders from Yamaguchi University (the Yamaguchi University patent portfolio), which have a statutory expiration date in 2033 or 2034.

The licensed Galderma RARγ agonists include lead compounds from four distinct structural families. Two families are claimed in recently filed patent applications; one with an expected statutory patent expiry date of February 2037 and a second with an expected statutory patent expiry date of December 2035. The third family includes lead compounds that have not been publicly disclosed, nor has any patent specifically claiming these compounds been filed. The fourth structural family includes lead compounds that are disclosed in expired Galderma patents.

The Roche patent portfolio includes granted patents in over 45 countries, including the United States, Canada and the primary countries of the European Union (26 countries). The Roche patent portfolio includes a United States patent that is scheduled to expire in 2021, without taking into account any potential patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Roche patent portfolio includes a European patent, validated in numerous European jurisdictions, that has a statutory expiration date in 2021, absent any adjustments or extensions.

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The TJU patent portfolio includes granted patents issued in the United States, Australia, Japan, New Zealand and South Africa, and pending patent applications in Brazil, Canada, China, Europe, the United States, and other countries. The TJU patent portfolio includes a United States patent that has a statutory expiration date in 2031, without taking into account any potential patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The TJU patent portfolio includes a European patent application that, if granted, would have a statutory expiration date in 2031, absent any adjustments, extensions or supplementary protections.

The Yamaguchi University patent portfolio includes granted U.S. patents and patent applications pending in Canada, China, Europe, Japan, the United States, and other countries.

Clementia Owned Intellectual Property

Pending patent applications filed by and assigned to Clementia:

• National phase applications corresponding to Patent Cooperation Treaty (PCT) application (filed June 2017) with claims directed to therapeutic treatment regimens for treating heterotopic ossification in FOP using palovarotene including in the U.S., Europe, Canada, Japan, China, South Korea, Australia and Mexico;

• Patent Cooperation Treaty (PCT) application (filed November 2017) with claims directed to the use of RARγ agonists, including palovarotene, for treating MO; and

• Patent Cooperation Treaty (PCT) application (filed December 2018) with claims directed to therapeutic treatment regiments and combination therapies for treating heterotopic ossification or preventing flare-ups in FOP using palovarotene (assignment to Clementia in process).

Government Regulation

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (the FDC Act) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

Pharmaceutical product development for a new product or certain changes to an approved product in the U.S. typically involves pre-clinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well- controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.

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Pre-clinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (GCP), an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an IRB for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multi-center trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

Pursuant to the 21st Century Cures Act, the manufacturer of an investigational drug for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, currently exceeding $2,580,000 for Fiscal Year 2019. Under an approved NDA, the applicant is also subject to an annual program fee, currently exceeding $300,000 for each prescription product. These fees typically increase annually. An NDA for a drug that has been designated as an orphan drug is not subject to an application fee, unless the NDA includes an indication for other than a rare disease or condition. Additionally, an approved orphan-designated drug is exempt from the annual program fee if the applicant and its affiliates had less than $50 million in gross worldwide revenue during the previous year.

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The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Most such applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post- approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

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Pediatric Information

Under the Pediatric Research Equity Act (PREA), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA generally does not apply to a drug for an indication for which orphan designation has been granted; however, beginning in 2020, PREA will apply to NDAs for orphan-designated drugs if the drug is molecularly targeted cancer product intended for the treatment of an adult cancer and is directed at a molecular target that FDA has determined is substantially relevant to the growth or progression of a pediatric cancer. The Best Pharmaceuticals for Children Act (BPCA) provides NDA holders a six-month extension of any exclusivity—patent or non-patent—for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

Fast Track Designation and Accelerated Approval

FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. Under the fast track program and FDA’s accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.

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In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by FDA.

In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with FDA, FDA may initiate review of sections of a fast track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Breakthrough Therapy Designation

FDA is also required to expedite the development and review of the application for approval of drugs that are intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request.

Rare Pediatric Disease Priority Review Voucher Program

Under the Rare Pediatric Disease Priority Review Voucher program, FDA may award a priority review voucher to the sponsor of an approved marketing application for a product that treats or prevents a rare pediatric disease. The voucher entitles the sponsor to priority review of one subsequent marketing application.

A voucher may be awarded only for an approved rare pediatric disease product application. A rare pediatric disease product application is an NDA for a product that treats or prevents a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years; in general, the disease must affect fewer than 200,000 such individuals in the U.S.; the NDA must be deemed eligible for priority review; the NDA must not seek approval for a different adult indication (i.e., for a different disease/condition); the product must not contain an active ingredient that has been previously approved by FDA; and the NDA must rely on clinical data derived from studies examining a pediatric population such that the approved product can be adequately labeled for the pediatric population. Before NDA approval, FDA may designate a product in development as a product for a rare pediatric disease, but such designation is not required to receive a voucher.

To receive a rare pediatric disease priority review voucher, a sponsor must notify FDA, upon submission of the NDA, of its intent to request a voucher. If FDA determines that the NDA is a rare pediatric disease product application, and if the NDA is approved, FDA will award the sponsor of the NDA a voucher upon approval of the NDA. FDA may revoke a rare pediatric disease priority review voucher if the product for which it was awarded is not marketed in the U.S. within 365 days of the product’s approval.

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The voucher, which is transferable to another sponsor, may be submitted with a subsequent NDA or BLA and entitles the holder to priority review of the accompanying NDA or BLA. The sponsor submitting the priority review voucher must notify FDA of its intent to submit the voucher with the NDA or BLA at least 90 days prior to submission of the NDA or BLA and must pay a priority review user fee in addition to any other required user fee ($2,457,140 in Fiscal Year 2019). FDA must take action on an NDA or BLA under priority review within six months of receipt of the NDA or BLA.

The Rare Pediatric Disease Priority Review Voucher program was reauthorized in the 21st Century Cures Act, allowing a product that is designated as a product for a rare pediatric disease prior to October 1, 2020 to be eligible to receive a rare pediatric disease priority review voucher upon approval of a qualifying NDA prior to October 1, 2022.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.

Post-Approval Requirements

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

AE reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

The Hatch-Waxman Act

Orange Book Listing

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (ANDA). An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

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The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carve out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

Exclusivity

Upon NDA approval of a new chemical entity (NCE), which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which FDA cannot approval an ANDA for a generic drug that includes the change. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.

Patent Term Extension

After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval up to a maximum of five years). The time can be shortened if FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years and only one patent may be extended.

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

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Anti-Kickback, False Claims Laws

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain general business and marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims statutes and other statutes pertaining to healthcare fraud and abuse. The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (PPACA) amended the intent element of the federal statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to commit a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws, including the federal civil False Claims Act, prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Additionally, PPACA amended the federal Anti-Kickback Statute such that a violation of that statute can serve as a basis for liability under the federal False Claims Act. The majority of states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services.

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Other Federal and State Regulatory Requirements

Pursuant to PPACA, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that requires manufacturers of prescription drugs to collect and report information on certain payments or transfers of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family members. The reports must be submitted on an annual basis and the reported data are posted in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties. Effective January 1, 2022, we will also be required to report on transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives.

In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies and their outcomes. Some states require the reporting of certain pricing information, including information pertaining to and justifying price increases, or prohibit prescription drug price gouging. In addition, states such as California, Connecticut, Nevada, Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. Additional jurisdictions, such as the City of Chicago and the District of Columbia, require pharmaceutical sales representatives to be licensed and meet continuing education requirements. Several additional states are considering similar proposals. Compliance with these laws is difficult and time-consuming, and companies that do not comply with these state laws face civil penalties.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act (HITECH), and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes specified requirements on certain types of people and entities relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, contractual damages, reputation harm, and diminished profits or future earnings, any of which could adversely affect our ability to operate our business and our financial results.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

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European Union Drug Development

In the European Union, our future products may also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority (NCA), and one or more Ethics Committees (ECs). Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation is currently undergoing a revision process mainly aimed at harmonizing and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing their transparency.

European Union Drug Review and Approval

In the European Economic Area, (EEA), (which is comprised of the 27 Member States of the European Union (excluding Croatia) plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization (MA). There are two types of marketing authorizations:

The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use (CHMP), of the European Medicines Agency (EMA), and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State. The competent authority of the Reference Member State prepares a draft assessment report, a draft summary of the product characteristics (SPC) and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the Reference Member State, the product is subsequently granted a national MA in all the Member States (i.e., in the Reference Member State and the Member States Concerned).

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Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

Rest of the World Regulation

For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases the clinical trials must be conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Healthcare Payor Reimbursement

Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the United States no uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor by payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

C. Organizational Structure

We were incorporated under the CBCA on November 5, 2010. We have two wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc., which is incorporated in the state of Delaware, and Clementia Pharmaceuticals France SARL, which is incorporate in France.

D. Property, Plant and Equipment

We lease our office space, which consists of approximately 19,950 square feet, in Montreal, Quebec, Canada. We also lease office space, which currently consists of approximately 2,850 square feet, in Newton, Massachusetts, USA. This lease will expire in 2019 and we have entered into a new lease for office space as of May 2019, which will consist of approximately 9,075 square feet, in Newton, Massachusetts, US.

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Item 4a. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

The following was prepared by management with information available as at March 28, 2019 and should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 and notes thereto, included under Item 18 of this Annual Report.

The Company’s Annual Report and additional information regarding Clementia is available on our website at www.clementiapharma.com or at www.sec.gov or on www.sedar.com.

A. Operating Results

Revenue

We have not generated any revenues from product sales since our inception and do not expect to generate any significant revenues from the sale of products in the near future. If our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for our product candidates, we may generate revenue from those product candidates.

Research and development expenses

Research and development (R&D) expenses consist primarily of costs associated with our product research and development efforts, and predominantly include:

· personnel costs, including salaries, benefits, bonuses, stock-based compensation expenses and related travel for employees engaged in scientific research and development functions;

· expenses incurred under agreements with contract research organizations, or CROs and investigative sites that conduct our clinical and non-clinical studies;

· expenses associated with manufacturing clinical study materials and developing external manufacturing capabilities;

· costs of outside consultants, including their fees and related travel expenses;

· other expenses related to non-clinical studies and expenses related to regulatory activities; and

· milestone payments made under our third-party licensing agreements.

Research and development costs are generally expensed as incurred unless they meet specific criteria for recognition as internally-generated intangible assets as per IFRS. We have not recognized any internally-generated intangible asset to date.

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Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We have been focused on developing palovarotene, our product candidate for the treatment of patients with FOP and MO. Our research and development expenses consist principally of external costs, such as start-up fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical and non-clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not allocate personnel-related costs, depreciation or other indirect costs to specific programs, as they are deployed across various projects under development and, as such, are separately classified as personnel and other expenses.

The following table summarizes our research and development expenses by program before tax credits:

	Years ended December 31,
	2018		2017*		2016*
	(in thousands)
Palovarotene for FOP R&D expenses	$	19,316	$	13,579	$	11,422
Palovarotene for MO R&D expenses		6,495		2,847		369
Palovarotene for ocular R&D expenses		1,864		1,609		229
Manufacturing of palovarotene		6,881		3,070		1,592
Other R&D expenses		922		532		149
Total direct R&D expenses		35,478		21,637		13,761
Personnel-related costs		7,157		4,476		2,353
Facility and other expenses		1,269		1,293		738
Total personnel, facility and other expenses		8,426		5,769		3,091
Total research and development expenses	$	43,904	$	27,406	$	16,852

*Certain amounts have been reclassified for presentation purposes.

Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. From inception through December 31, 2018, we incurred approximately $112 million in research and development expenses. We expect that our research and development expenses will continue to increase in the foreseeable future as we pursue later stages of clinical development of our product candidates.

We cannot determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, including:

· the scope, rate of progress, and expense of our ongoing clinical studies as well as any additional clinical studies and other research and development activities;

· future clinical study results;

· uncertainties in clinical study enrollment rate or design;

· significant and changing government regulation; and

· the timing and receipt of any regulatory approvals.

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical studies, significant additional time and financial resources could be required for the completion of clinical development.

General and administrative expenses

General and administrative expenses consist primarily of personnel costs, including salaries, related benefits, bonuses, stock-based compensation and travel expenses for our executive, finance, commercial, business and corporate development and other administrative functions. General and administrative expenses also include facilities and other expenses, including rent, depreciation, maintenance of facilities, information technology infrastructure and security, insurance and supplies; and professional fees for accounting, tax and legal services, including legal expenses to pursue patent protection of our intellectual property, as well as pre-commercial related activities.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the anticipated growth in our research and development activities and the potential commercialization of our product candidates. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with our public listing on The Nasdaq Global Select Market and SEC requirements, director and officer insurance premiums, and investor relations costs. Additionally, if and when we believe a regulatory approval of palovarotene or any other product candidate appears likely, we anticipate an increase in personnel and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of palovarotene or any other product candidate.

Interest income and financial expenses (income)

Interest income consists of interest earned on our cash and investments. Our interest income has increased during the second half of 2017 due largely to current interest rates earned on the net proceeds from our August 2017 IPO and October 2018 follow-on offering.

Financial expenses (income) consist mainly of losses on the re-measurement of embedded derivatives at fair value at each reporting date, accretion expense and foreign exchange gains and losses. Accretion expense consists of accreted interest expense related to our Class A, Class B and Class C redeemable convertible preferred shares to bring the debt components of our preferred shares back to their face value over time. Our IPO, which was completed in August 2017, resulted in the conversion of all classes of our preferred shares on a one-for-one basis into common shares and as such, gains or losses on the re-measurement of embedded derivatives at fair value and accretion expense have ceased during the third quarter of 2017. Foreign exchange gains and losses consist of the realized and unrealized net gains and losses from holding cash in foreign currency and foreign currency-denominated other current assets and accounts payable.

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Comparison of the three-months ended December 31, 2018 and 2017

The following table summarizes our results of operations for the three-months ended December 31, 2018 and 2017:

Three-month periods ended December 31,	2018			2017			Increase (decrease)
	(in thousands)
Expenses:
Research and development expenses	$	14,779		$	10,592		$	4,187
Tax credits		(320	)		(1,025	)		705
		14,459			9,567			4,892
General and administrative expenses		5,287			2,408			2,879
Interest income		(736	)		(578	)		(158	)
Financial expenses (income)		90			(3	)		93
Income tax expense		250			395			(145	)
Net loss and comprehensive loss	$	(19,350	)	$	(11,789	)	$	(7,561	)

Research and development expenses

Research and development expenses were $14.8 million for the three-month period ended December 31, 2018, compared to $10.6 million for the three-month period ended December 31, 2017. The $4.2 million increase was primarily due to:

• $3.5 million net increase in clinical studies and CRO related activities as a result of ongoing costs in the MOVE study and the MO-Ped study and the initiation of the dry eye study, partially offset by lower ongoing costs in the Phase II open-label extension study in FOP;

• $1.9 million increase in manufacturing activities in order to meet clinical supply requirements of the MOVE and MO-Ped trials, as well as the dry eye study;

• $0.6 million increase in personnel related expenses in support of increased development activities;

• $1.1 million decrease in milestone payments to licensors upon achievement of clinical milestones;

• $0.9 million decrease in pre-clinical research activities for ocular studies and other potential indications; and

• $0.2 million increase in other expenses in support of increased development activities.

Tax credits

Tax credits were $0.3 million for the three-month period ended December 31, 2018, compared to $1.0 million for the three-month period ended December 31, 2017. The decrease in tax credits is due to estimated orphan drug tax credits receivable as a result of direct research and developments activities undertaken from 2014 to 2017 previously unclaimed by the Company and recorded in the fourth quarter of 2017.

General and administrative expenses

General and administrative expenses were $5.3 million for the three-month period ended December 31, 2018, compared to $2.4 million for the three-month period ended December 31, 2017. The increase of $2.9 million in expenses was primarily due to a $0.5 million increase in non-cash share-based compensation expense, a $0.7 million increase in pre-commercial marketing activities as projects were undertaken in 2018, a $0.7 million increase in personnel costs to support the growth of the Company, as well as a $1.0 million increase in other general and administrative support activities.

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Interest income

Interest income was $0.7 million for the three-month period ended December 31, 2018, compared to $0.6 million for the three-month period ended December 31, 2017. The increase in interest income relates to higher returns on higher operating cash balances, partially offset by lower interest on lower invested balances as investments matured.

Financial expenses (income)

Financial expense was $0.1 million for the three-month period ended December 31, 2018, compared to financial income of close to nil three-month period ended December 31, 2017. The $0.1 million increase in financial expenses was largely the result of foreign exchange losses as a result of fluctuations in foreign exchange rates.

Income tax expense

Income tax expense was $0.3 million for the three-month period ended December 31, 2018, compared to $0.4 million for the three-month period ended December 31, 2017. The decrease in income tax expense relates to lower taxable income in the United States.

Comparison of the twelve-months ended December 31, 2018 and 2017

The following table summarizes our results of operations for the twelve-month periods ended December 31, 2018 and 2017:

Twelve-month periods ended December 31,	2018			2017			Increase (decrease)
	(in thousands)
Expenses:
Research and development expenses	$	43,904		$	27,406		$	16,498
Tax credits		(1,039	)		(1,237	)		198
		42,865			26,169			16,696
General and administrative expenses		16,492			9,287			7,205
Interest income		(2,358	)		(1,082	)		(1,276	)
Financial expenses (income)		161			80,438			(80,277	)
Income tax expense		966			643			323
Net loss and comprehensive loss	$	(58,126	)	$	(115,455	)	$	57,329

Research and development expenses

Research and development expenses were $43.9 million for the year ended December 31, 2018, compared to $27.4 million for the year ended December 31, 2017. The $16.5 million increase was primarily due to:

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• $11.6 million net increase in clinical studies and CRO related activities as a result of ongoing costs in the MOVE study and the MO-Ped study and the initiation of the dry eye study, partially offset by lower ongoing costs in the natural history study in FOP;

• $3.8 million increase in manufacturing activities in order to meet clinical supply requirements of the MOVE , MO-Ped and dry eye trials;

• $1.7 million increase in personnel related expenses in support of increased development activities;

• $0.8 million increase in non-cash share-based compensation expense as a result of a option grants throughout the period;

• $0.2 million increase in other expenses in support of increased development activities;

• $1.1 million decrease in milestone payments to licensors upon achievement of clinical milestones; and

• $0.5 million net decrease in pre-clinical research activities for MO studies and ocular studies, partially offset by higher activities in other potential indications.

Tax credits

Tax credits were $1.0 million for the twelve-month period ended December 31, 2018, compared to $1.2 million for the twelve-month period ended December 31, 2017. The decrease in tax credits reflects estimated orphan drug tax credits receivable as a result of direct research and developments activities undertaken from 2014 to 2017 previously unclaimed by the Company and recorded in 2017.

General and administrative expenses

General and administrative expenses were $16.5 million for the twelve-month period ended December 31, 2018, compared to $9.3 million for the twelve-month period ended December 31, 2017. The increase of $7.2 million in expenses was primarily due to a $1.6 million increase in personnel cost, $1.9 million increase in non-cash share-based compensation, a $3.0 million increase in pre-commercial activities and a $0.7 million increase in other general and administrative support activities.

Interest income

Interest income was $2.4 million for the twelve-month period ended December 31, 2018, compared to $1.1 million for the twelve-month period ended December 30, 2017. The increase in interest income relates to higher invested balances as a result of our IPO proceeds.

Financial expenses

Financial expenses were $0.2 million for the twelve-month period ended December 31, 2018, compared to $80.4 million for the twelve-month period ended December 31, 2017. The $80.2 million decrease in financial expenses was primarily due to the re-measurement at fair value of the embedded derivative in our preferred shares in 2017, which resulted in a non-recurring loss of $77.9 million, and accretion expense on our preferred shares in 2017, which resulted in a non-recurring loss of $2.5 million. With the completion of our IPO in August 2017, all classes of our preferred shares have been converted on a one-for-one basis into common shares and as such, gains or losses on the re-measurement of embedded derivatives at fair value and accretion expense were eliminated going forward.

Income tax expense

Income tax expense was $1.0 million for the year ended December 31, 2018, compared to $0.6 million for the year ended December 31, 2017. The increase in income tax expense relates to higher taxable income in the United States.

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Comparison of the twelve-months ended December 31, 2017 and 2016

The following table summarizes our results of operations for the twelve-month periods ended December 31, 2017 and 2016:

Twelve-month periods ended December 31,	2017			2016			Increase (decrease)
	(in thousands)
Expenses:
Research and development expenses	$	27,406		$	16,852		$	10,554
Tax credits		(1,237	)		(139	)		(1,098	)
		26,169			16,713			9,456
General and administrative expenses		9,287			3,406			5,881
Interest income		(1,082	)		(399	)		(683	)
Financial expenses (income)		80,438			37,646			42,792
Income tax expense		643			146			497
Net loss and comprehensive loss	$	(115,455	)	$	(57,512	)	$	57,943

Research and development expenses

Research and development expenses were $27.4 million for the twelve-month period ended December 31, 2017, compared to $16.9 million for the twelve-month period ended December 31, 2016. The $10.6 million increase was primarily due to:

• $4.3 million net increase in clinical studies and CRO related activities as a result of initiating the MOVE study and preparatory activities for the MO-Ped study, partially offset by the completion of the Phase 2 clinical trial in FOP;

• $1.1 million increase in milestone payments to licensors upon achievement of clinical milestones;

• $1.1 million increase in pre-clinical research activities for ocular studies and other potential indications;

• $1.5 million increase in personnel related expenses in support of increased development activities;

• $1.5 million increase in manufacturing activities in order to meet clinical supply requirements of the MOVE and MO-Ped trials;

• $0.6 million increase in non-cash share-based compensation expense as a result of a higher stock option valuation; and

• $0.5 million increase in other expenses in support of increased development activities.

Tax credits

Tax credits were $1.2 million for the twelve-month period ended December 31, 2017, compared to $0.1 million for the twelve-month period ended December 31, 2016. The increase in tax credits reflects estimated orphan drug tax credits receivable as a result of direct research and developments activities undertaken from 2014 to 2017 previously unclaimed by the Company.

General and administrative expenses

General and administrative expenses were $9.3 million for the twelve-month period ended December 31, 2017, compared to $3.4 million for the twelve-month period ended December 31, 2016. The increase of $5.9 million in expenses was primarily due to $1.9 million increase in costs directly related to our IPO, a $1.4 million increase in non-cash share-based compensation, a $1.0 million increase in pre-commercial activities and a $1.6 million increase in other general and administrative support activities.

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Interest income

Interest income was $1.1 million for the twelve-month period ended December 31, 2017, compared to $0.4 million for the twelve-month period ended December 30, 2016. The increase in interest income relates to higher invested balances as a result of our IPO proceeds.

Financial expenses

Financial expenses were $80.4 million for the twelve-month period ended December 31, 2017, compared to $37.6 million for the twelve-month period ended December 31, 2016. The $42.8 million increase in financial expenses was primarily due to an increase in non-cash losses on the re-measurement at fair value of the embedded derivative in our preferred shares in the second and third quarter of 2017 as compared to the same period in 2016. With the completion of our IPO in August 2017, all classes of our preferred shares have been converted on a one-for-one basis into common shares and as such, gains or losses on the re-measurement of embedded derivatives at fair value and accretion expense have been eliminated going forward.

Income tax expense

Income tax expense was $0.6 million for the year ended December 31, 2017, compared to $0.1 million for the year ended December 31, 2016. The increase in income tax expense relates to higher taxable income in the United States.

B. Liquidity and Capital Resources

	Dec. 31, 2018		Dec. 31, 2017		Increase (decrease)
	(in thousands)
Cash	$	94,973	$	36,230	$	58,743
Short-term investments		75,000		30,000		45,000
Long-term investments		-		75,000		(75,000	)
Total liquidity	$	169,973	$	141,230	$	28,743

Sources of liquidity

We have funded our operations principally from the issuance of common shares, preferred shares and convertible notes to purchase common shares, IPO proceeds and follow-on offering proceeds. In addition, we have recorded tax credits of $2.9 million since inception. As of December 31, 2018, we had cash and investments of $170.0 million.

Cash in excess of immediate working capital requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our investments are held in term deposits with a Canadian chartered bank.

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The Company is not subject to any externally imposed restrictions, covenants or capital requirements and has no arranged sources of financing.

As of December 31, 2018, the Company’s liquidity had increased by $28.7 million since December 31, 2017.

Cash flows

Comparison of the three-month periods ended December 31, 2018 and 2017

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

Three-month periods ended December 31,	2018			2017			Increase (decrease)
	(in thousands)
Net cash provided by (used in)
Operating activities	$	(12,996	)	$	(11,253	)	$	(1,743	)
Investing activities		20,212			10,260			9,952
Financing activities		75,782			-			75,782
Net increase (decrease) in cash	$	82,998		$	(993	)	$	83,991

Operating activities

The use of cash in all periods resulted primarily from our net losses, adjusted for non-cash charges and changes in working capital. The increase in cash used in operating activities for the three-month period ended December 31, 2018, compared to the three-month period ended December 31, 2017, is due to an increase in research and development activities for new and on-going clinical trial activities primarily in FOP and MO.

During the three-month period ended December 31, 2018, operating activities used $13.0 million in cash, primarily resulting from our research and development and general and administrative expenses, partially offset by cash provided by changes in working capital. The significant items accounting for the change in working capital include an increase in accounts payable and accrued liabilities and a decrease in prepaid expenses.

During the three-month period ended December 31, 2017, operating activities used $11.3 million in cash, primarily resulting from our research and development and general and administrative expenses, partially offset by cash provided by changes in working capital. The significant items accounting for the change in working capital include a decrease in prepaid expenses and an increase in accounts payable and accrued liabilities, offset by an increase in income tax and tax credits receivable.

Investing activities

Net cash used in investing activities primarily consists of acquisition of investments, in-licensing of intellectual property and purchases of fixed assets. Net cash provided by investing activities primarily consist of investment maturities.

During the three-month period ended December 31, 2018, investing activities provided $20.2 million in cash arising primarily from the maturity of investments. Net cash provided by investment activities in the three-month period ended December 31, 2017 amounted to $10.3 million primarily from the maturity of investments.

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Financing activities

During the three-month period ended December 31, 2018, cash provided by financing activities amounted to $75.8 million as a result of net cash proceeds from the follow-on offering in October 2018. During the three-month period ended on December 31, 2017, no cash was provided or used by financing activities.

Comparison of the twelve-month periods ended December 31, 2018 and 2017

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

Twelve-month periods ended December 31,	2018			2017			Increase (decrease)
	(in thousands)
Net cash provided by (used in)
Operating activities	$	(49,145	)	$	(35,566	)	$	(13,579	)
Investing activities		32,228			(75,206	)		107,434
Financing activities		75,782			137,531			(61,749	)
Net increase (decrease) in cash	$	58,865		$	26,759		$	32,106

Operating activities

The use of cash in all periods resulted primarily from our net losses, adjusted for non-cash charges and changes in working capital. The increase in cash used in operating activities for the twelve-month period ended December 31, 2018, compared to the twelve-month period ended December 31, 2017, is due to an increase in general and administrative expenses and an increase in research and development activities for new and on-going clinical trial activities primarily in FOP and MO.

During the twelve-month period ended December 31, 2018, operating activities used $49.1 million in cash, primarily resulting from our research and development and general and administrative expenses, partially offset by cash provided by changes in working capital. The significant items accounting for the change in working capital include an increase in accounts payable and accrued liabilities and a decrease in prepaid expenses, partially offset by an increase in income tax and tax credits receivable.

During the twelve-month period ended December 31, 2017, operating activities used $35.6 million in cash, primarily resulting from our research and development and general and administrative expenses, as well as cash used by changes in working capital. The significant items accounting for the change in working capital include an increase in prepaid expenses and income tax and tax credits receivable, partially offset by an increase in accounts payable and accrued liabilities.

Investing activities

During the twelve-month period ended December 31, 2018, investing activities generated $32.2 million primarily from the maturity of investments and interest income generated. During the twelve-month period ended December 31, 2017, investing activities used $75.2 million primarily from investments made, partially offset by interest income generated.

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Financing activities

During the twelve-month period ended December 31, 2018, cash provided by financing activities amounted to $75.8 million as a result of net cash proceeds from the follow-on offering in October 2018. During the twelve-month period ended on December 31, 2017, cash provided by financing activities amounted to $137.5 million as a result of net cash proceeds from our IPO in August 2017.

Comparison of the twelve-month periods ended December 31, 2017 and 2016

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

Twelve-month periods ended December 31,	2017			2016			Increase (decrease)
	(in thousands)
Net cash provided by (used in)
Operating activities	$	(35,566	)	$	(18,828	)	$	(16,738	)
Investing activities		(75,206	)		(29,932	)		(45,274	)
Financing activities		137,531			-			137,531
Net increase (decrease) in cash	$	26,759		$	(48,760	)	$	75,519

Operating activities

The use of cash in all periods resulted primarily from our net losses, adjusted for non-cash charges and changes in working capital. The increase in cash used in operating activities for the twelve-month period ended December 31, 2017, compared to the twelve-month period ended December 31, 2016, is due to an increase in general and administrative expenses related to the IPO and an increase in research and development activities for new and on-going clinical trial activities primarily in FOP and MO.

During the twelve-month period ended December 31, 2017, operating activities used $35.6 million in cash, primarily resulting from our research and development and general and administrative expenses, as well as cash used for changes in working capital. The significant items accounting for the change in working capital include an increase in prepaid expenses for directors and officers (D&O) liability insurance related to the IPO and the initiation of clinical trial activities in FOP and MO and an increase in income tax and tax credits receivable, offset by a decrease in accounts payable and accrued liabilities.

During the twelve-month period ended December 31, 2016, operating activities used $18.8 million in cash, primarily resulting from research and development and general and administrative expenses. The significant items accounting for the change in working capital included an increase in accounts payable and accrued liabilities as well as increases in prepaid expenses and income tax and tax credits receivable.

Investing activities

During the twelve-month period ended December 31, 2017, investing activities used $75.2 million primarily for the acquisition of investments and the in-licensing of intellectual property. During the twelve-month period ended December 31, 2016, investing activities used $29.9 million in cash primarily for the acquisition of investments.

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Financing activities

During the twelve-month period ended December 31, 2017, net cash provided by financing activities was $137.5 million primarily resulting from the net cash proceeds from our IPO in August 2017 as well as the completion of our $10 million Class C redeemable convertible preferred share financing in the first quarter of 2017. During the twelve-month period ended December 31, 2016, no cash was provided by financing activities.

Funding Requirements and Planned Operations

Since our inception in November 2010, we have devoted substantially all of our resources to organizing and staffing our Company, business planning, raising capital, developing our product candidates, preparing and conducting clinical studies of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We have funded our operations primarily through issuances of common shares from our IPO and our follow-on offering, as well as issuances of redeemable convertible preferred shares and convertible notes. From our inception through December 31, 2018, we have received gross proceeds of $321.6 million from such transactions, of which $80.8 million was in the form of gross proceeds from our follow-on offering, $137.9 million was in the form of gross proceeds from our IPO, $102.2 million was in the form of gross proceeds from the sale of preferred shares, $0.5 million was in the form of gross proceeds from the sale of convertible notes and $0.2 million was in the form of gross proceeds from the sale of other common shares. In addition, we have recorded tax credits of $2.9 million since inception. As at December 31, 2018 we had cash and investments of $170.0 million. Cash in excess of immediate working capital requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our investments are held in term deposits with a Canadian chartered bank.

We have incurred net losses since our inception, the majority of which resulted from non-cash finance charges incurred in connection with the accounting of our preferred shares and embedded derivatives from 2014 to 2017, as well as research and development activities and general and administrative costs associated with our operations. As of December 31, 2018, we had an accumulated deficit of $149.5 million. In August 2017, all of the outstanding Class A, B and C redeemable convertible preferred shares were converted on a one-for-one basis into common shares of the Company. In connection therewith, the Company eliminated the approximate $173.3 million contributed surplus created by the conversion of the preferred shares into common shares, an amount equal to the excess of the carrying value of the preferred share liabilities and embedded derivatives liabilities immediately prior to the conversion over the amount that was accounted for as share capital, being the stated capital of the preferred shares, and reduced its deficit in the third quarter of 2017 by a corresponding amount of $173.3 million.

We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, particularly as we advance clinical development of palovarotene by conducting clinical trials; continue research and development efforts to support clinical development of additional RARγ agonist candidates; continue to engage contract manufacturing organizations (CMOs) to manufacture our clinical study materials and to develop large-scale manufacturing capabilities; seek regulatory approval for our product candidates; add personnel to support our product development and future commercialization; add operational, financial and management information systems; maintain, leverage and expand our intellectual property portfolio; and continue to operate as a public company. We are subject to all of the risks incident in the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

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We believe that our existing cash and investments as of December 31, 2018 will be sufficient to fund our anticipated operating expenses for at least the next twelve months from December 31, 2018. However, we will eventually require additional capital for the commercial development and potential working capital purposes related to our existing product candidates and we may also need to raise additional funds to pursue other development activities related to additional product candidates.

Until we can generate a sufficient amount of revenue from our products, if ever, we expect to finance future cash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common shares. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for palovarotene or any other product candidate, which we expect will take a number of years and is subject to significant uncertainty. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. As a result, we may need additional financing to support our continuing operations. Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Arrangements with collaborators or others may require us to relinquish certain rights related to our technologies or product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

The Company is not subject to any externally imposed restrictions, covenants or capital requirements and has no arranged sources of financing.

Quarterly Financial Data

We have a history of operating losses and have not been profitable since our inception in 2010. We expect to continue to incur losses for at least the next several years as we pursue clinical trials and research and development efforts. See Item 3.D. “Risks Factors”.

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Selected financial information for the eight quarters ending December 31, 2018 are as follows:

	Revenue		Research and development expenses		Financial expenses (income)			Net loss and comprehensive loss			Basic and diluted loss per share
	(in thousands, except per share data)
Q4-2018	$	-	$	14,779	$	90		$	(19,350	)	$	(0.54	)
Q3-2018	$	-	$	10,691	$	4		$	(14,777	)	$	(0.46	)
Q2-2018	$	-	$	7,437	$	28		$	(10,768	)	$	(0.34	)
Q1-2018	$	-	$	10,996	$	40		$	(13,231	)	$	(0.42	)
Q4-2017	$	-	$	10,592	$	(3	)	$	(11,789	)	$	(0.37	)
Q3-2017	$	-	$	7,074	$	29,416		$	(39,006	)	$	(1.83	)
Q2-2017	$	-	$	6,333	$	14,678		$	(23,324	)	$	(9.54	)
Q1-2017	$	-	$	3,407	$	36,347		$	(41,337	)	$	(17.48	)

It is important to note that historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and availability of capital resources vary substantially from period to period, depending on the level of research and development activities being undertaken at any one time and the availability of funding from investors and prospective commercial partners.

Financing expenses primarily reflect the revaluation of the preferred shares embedded derivative liabilities at fair value and underlying assumptions as well as accretion expenses on the preferred shares liabilities. With the completion of our IPO in August 2017, all classes of our preferred shares have been converted on a one-for-one basis into common shares and as such, gains or losses on the re-measurement of embedded derivatives at fair value and accretion expense were eliminated.

C. Research and development, patents and licenses, etc.

Refer to Items 4B “Business Overview”, 5A “Operating Results” and 5F “Tabular Disclosure of Contractual Obligations” for information on our research and development, patents and licences

D. Trend Information

Our results of operations and financial condition may be affected by various trends and factors discussed in Item 3D “Risk Factors”, including pricing regulations, third-party coverage and reimbursement policies, healthcare reform initiatives and the eventual degree of market acceptance of our product candidates in the healthcare field.

E. Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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F. Tabular disclosure of Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2018.

	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
	(in thousands)
Operating lease obligations		153		-		-		-		153
Others		75		75		-		-		150
		228		75		-		-		303

Other items not reflected in the above table include:

In October 2018, the Company terminated its head office lease at 4150 Sainte-Catherine Street West, Suite 550, in Montreal, Quebec, Canada originally expiring in June 2020, effective January 31, 2019. A lease termination fee of $0.1 million accrued for as rent expense as at December 31, 2018, was paid in January 2019. In December 2018, the Company entered into a new lease commitment for head office space at 1000 de la Gauchetière street, Suite 1200, Montreal, Quebec, Canada, effective January 2019 and expiring October 2023. Lease commitments related to this new lease are not included in the above table and represent approximately a $0.4 million commitment per year starting February 2019.

The Company’s current lease at 275 Grove Street, Suite 2-400 in Newton, Massachusetts, USA expires in April 2019. In March 2019, the Company extended its current lease to expire in July 2019, with monthly payments of approximately $0.05 million due from May 1, 2019 to July 31, 2019 (not reflected in the above table). In February 2019, the Company entered into a new lease commitment for office space at 275 Grove Street, Suite 2-130 in Newton, Massachusetts, USA, expiring in May 2024. Lease commitments related to this new lease are not included in the above table and represent approximately a $0.5 million commitment per year over a period of 5 years starting May 2019.

We expect to fund our existing commitments with current working capital.

We also have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones. We have not included these commitments on our statement of financial position or in the table above because the achievement and timing of these milestones is not fixed or determinable. These commitments include:

• In accordance with an exclusive licensing agreement with Hoffman-La Roche, we are committed to pay Roche (i) a total of $1 million in milestone payments upon the achievement of certain clinical milestones, (ii) up to a total of $11 million in milestone payments upon the achievement of certain regulatory milestones in connection with the three clinical trial programs currently underway with an additional $1 million in milestone payments upon the achievement of certain regulatory milestones in connection with each subsequent indication, if any, and (iii) up to a total of $37.5 million in milestone payments upon the achievement of certain sales milestones. We achieved the clinical milestone in December 2017 and paid Roche the $1 million milestone in January 2018. With the Company planning to file a new drug application with the FDA for palovarotene in FOP in the second half of 2019, the Company expects to incur a $2 million regulatory milestone. Future royalty payments in the low teens based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is not known at this time.

• In accordance with an exclusive licensing agreement with Thomas Jefferson University, we are committed to make a total of $100,000 in milestone payments upon the achievement of certain clinical milestones and a total of $250,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product or licensed process that meets the relevant milestones. We achieved the clinical milestone and paid TJU the $0.1 million milestone in December 2017. Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. Annual license maintenance royalty payments are also required as per the terms of the licensing agreement. Such maintenance royalty payments are non-refundable, but can be applied to royalties owing on sales per calendar year. The likelihood and timing of these payments is not known at this time.

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• In accordance with an exclusive licensing agreement with Yamaguchi University, we are committed to make a total of $75,000 in milestone payments upon the achievement of certain clinical milestones and a total of $150,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product that meets the relevant milestones. Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. We also have a royalty buy-out option pursuant to which we can terminate our obligation to pay royalties to Yamaguchi University under the license agreement at any time and at our sole discretion upon payment of a certain amount to Yamaguchi University. The likelihood and timing of these payments is not known at this time.

• In March 2017, we entered into an exclusive licensing agreement with Galderma to obtain access to RARγ agonists and were granted exclusive rights to use these RARγ agonists in non-dermatological indications. In accordance with this agreement with Galderma, we are committed to pay Galderma a total of $2,000,000 in milestone payments upon the achievement of certain clinical milestones and up to a total of $25,500,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first product that meets the relevant milestones. Future single digit royalty payments based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is unknown at this time.

We enter into contracts in the normal course of business with CROs for pre-clinical research and clinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

G. Safe Harbor

Please see “Forward Looking Statements” beginning on page 1 above.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Executive Officers

The following table sets forth the name, age (as of March 28, 2019) and position of individuals who currently serve as the executive officers of Clementia Pharmaceuticals Inc. The following also includes certain information regarding our officers’ individual experience, qualifications, attributes and skills.

Name	Age		Positions
Clarissa Desjardins		52	President, Chief Executive Officer, Director
Steve Forte		40	Chief Financial Officer, Corporate Secretary
Donna Roy Grogan		62	Chief Medical Officer
Jeffrey Packman		52	Chief Development Officer

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Dr. Clarissa Desjardins co-founded Clementia in 2010 and has served as our President since inception and as Chief Executive Officer since June 2012. Prior to founding Clementia, Dr. Desjardins served as Chief Executive Officer at the Centre d’excellence en médecine personnalisée, a Montreal-based federally and privately funded non-profit enterprise created to promote personalized medicine, from 2009 until 2012. Dr. Desjardins is an award-winning entrepreneur with more than 18 years of biotechnology experience. She has founded three successful biotech companies, leading all aspects of company creation including conception and financing. Dr. Desjardins founded Advanced Bioconcept, a research reagent and diagnostics company which was sold to NEN Life Sciences (Perkin Elmer) in 1998. Dr. Desjardins also cofounded Caprion Pharmaceuticals Inc. in 1998, a biotechnology company focused on proteomic biomarker discovery and drug development, where she was executive vice-president of corporate development from 1998 until 2007. Dr. Desjardins is the recipient of the 2018 Bloom Burton Award for her contribution to Canada’s innovative healthcare industry and the BRIO award for outstanding contributions to the biotechnology industry from the Quebec Biotechnology Association. Dr. Desjardins currently sits on the board of BELLUS Health and has been a board member of numerous companies, including the scientific advisory council of the Canadian Academy of Sciences. Dr. Desjardins earned a doctorate in neurology and neurosurgery from McGill University’s Faculty of Medicine and was a Medical Research Council postdoctoral fellow at the Douglas Hospital Research Centre. We believe Dr. Desjardins provides significant leadership and operational experience to our board of directors as our Chief Executive Officer.

Steve Forte has served as our Chief Financial Officer since August 2018, when he joined Clementia. He is a senior finance leader with broad experience managing complex, large-scale finance environments. Mr. Forte’s experience includes nearly a decade at Aptalis Pharma Inc., where he was responsible for the overall corporate controllership function of a multinational pharmaceutical company with approximately $700 million in annual revenue, six operating companies, five manufacturing sites and 40 subsidiaries. Mr. Forte was responsible for SEC reporting and led the preparation of an SEC S-1 registration statement for a U.S. IPO on NASDAQ prior to the successful sale of the company to Forest Labs. Mr. Forte also led the financial due diligence efforts leading to several acquisitions, including that of a key competitor worth $650 million that transformed the company. Most recently, Mr. Forte was Chief Financial Officer of Thinking Capital Financial Corporation, a leading Canadian financial technology firm, where he helped lead the firm through rapid growth and ultimately to a successful sale of the company to Purpose Investments. Mr. Forte received his Bachelor of Commerce in Accountancy from Concordia University and is a Certified Professional Accountant in the Province of Quebec and a Certified Information Systems Auditor with ISACA.

Dr. Donna Roy Grogan has served as our Chief Medical Officer since September 2013, when she joined Clementia. As Chief Medical Officer, Dr. Grogan is responsible for implementing the Company’s clinical strategy and the design of Clementia’s clinical trials for its lead product candidate. Since June 2014 Dr. Grogan has also served as a President of Clementia Pharmaceuticals USA Inc. Dr. Grogan is a board certified Internal Medicine physician with over 15 years of experience in clinical medicine and the pharmaceutical industry. She has been responsible for numerous INDs, the design and execution of clinical development programs and new drug applications across multiple therapeutic areas, including respiratory, cardiovascular and orphan diseases. Dr. Grogan has been involved with multiple high-profile product approvals including Lunesta^®, Xopenex HFA^®, Brovana^TM and most recently the EMA authorization of Vyndaqel^® (tafamidis) for the treatment of rare neurologic disease transthyretin familial amyloid polyneuropathy. Dr. Grogan was a key presenter at the FDA’s Division of Neurology Advisory Committee Meeting on tafamidis. Dr. Grogan has extensive experience with international regulatory authorities, including the FDA, EMA and the PMDA. Prior to joining Clementia, from March 2012 to August 2013, Dr. Grogan was Chief Medical Officer at Health Care Ventures Focused Companies. From August 2011 to March 2012, Dr. Grogan was an independent consultant, and from February 2007 to August 2011, she was Chief Medical Officer at FoldRx Pharmaceuticals. Dr. Grogan received her BA in Psychology from College of the Holy Cross in Massachusetts, and her MD from the University of Illinois College of Medicine.

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Jeffrey Packman has served as our Chief Development Officer since November 2013, when he joined Clementia. Mr. Packman has more than two decades of international experience in regulatory affairs, manufacturing, clinical operations management and orphan drug development. Mr. Packman has led drug development efforts at several biotechnology companies. From January 2012 to October 2013, Mr. Packman served as Chief Development Officer of Apofore Corporation, a start-up company focused on the development of novel diabetes therapeutics. Prior to Apofore, Mr. Packman was vice president of drug development operations at FoldRX Pharmaceuticals, which was acquired by Pfizer in October 2010. From October 2010 to June 2011, he was development team leader for Vyndaqel^® (tafamidis), now approved for the treatment of the rare disease transthyretin familial amyloid polyneuropathy. Mr. Packman also headed development operations at Oscient Pharmaceuticals and worldwide business operations for the regulatory affairs division of PAREXEL International Corporation. Since 1996, Mr. Packman has been a director of Recycline, Inc. Mr. Packman earned his BA in biology from Colby College and an MBA with highest honors from the F. W. Olin Graduate School of Business Administration at Babson College in Massachusetts.

Directors

The following table sets forth the name, age (as of March 28, 2019) and position of individuals who currently serve as the directors of Clementia Pharmaceuticals Inc. The following also includes certain information regarding our directors’ individual experience, qualifications, attributes and skills, and brief statements of those aspects of our directors’ backgrounds that led us to conclude that they should serve as directors.

Name	Age		Positions
David P. Bonita(1)(3)		43	Chairman of the Board of Directors
Robert Heft(2)		64	Director
Allan Mandelzys(1)(2)		54	Director
François Nader(3)		62	Director
Pierre Legault(1)(3)(4)		58	Director
Shawn Tomasello(2)(5)		60	Director
Clarissa Desjardins		52	President, Chief Executive Officer, Director

⁽¹⁾ Member of the Audit Committee. Mr. Pierre Legault is Chair of this Committee.

⁽²⁾ Member of the Compensation Committee. Dr. Allan Mandelzys is Chair of this Committee.

⁽³⁾ Member of the Corporate Governance and Nominating Committee. Dr. François Nader is Chair of this Committee.

⁽⁴⁾ Mr. Pierre Legault was appointed to the Company’s board of directors on January 30, 2018.

⁽⁵⁾ Ms. Tomasello was appointed to the Company’s board of directors on July 5, 2018.

Dr. David P. Bonita has served as Chairman of our Board since June 2013 and served as a director since April 2013. Since June 2013, Dr. Bonita has held the position of Private Equity Partner at OrbiMed, an affiliate of one of our principal shareholders. From June 2004 to June 2013, Dr. Bonita held other positions at OrbiMed. Within the past five years, Dr. Bonita held directorships with the following companies: Acutus Medical, Ambit Biosciences Corporation, CardiAQ Valve Technologies, Cryterion Medical Inc., Enobia Pharma Inc., Keystone Heart Ltd., Kyn Therapeutics Inc., Loxo Oncology Inc., Prelude Therapeutics Inc., Si-Bone Inc., Tricida Inc. and ViewRay Inc. Dr. Bonita has also worked as a corporate finance analyst in the healthcare investment banking groups of Morgan Stanley and UBS. He has published scientific articles in peer-reviewed journals based on signal transduction research performed at the Harvard Medical School. Dr. Bonita received his BA in Biological Sciences from Harvard University and his joint MD/MA from Columbia University. We believe Dr. Bonita provides significant scientific and industry knowledge to our board of directors, as well as valuable experience gained from prior board service.

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Dr. Robert Heft has served as a director since June 2013. Dr. Heft is Chief Executive Officer and a director of Zingenix Ltd. He also holds directorships with the following companies: Ra Pharma, VisionGate Inc., Parvus Therapeutics Inc. and Lumos Pharma Inc. Dr. Heft is a member of the advisory board of Sectoral Asset Management Inc. Prior to Clementia, Dr. Heft served as Chief Executive Officer, and a member of the board of directors of Enobia Pharma Inc. from 2005 until February 2012, when Enobia was sold to Alexion Pharmaceuticals. From 2001 until 2004, Dr. Heft held several senior positions with Biomarin Pharmaceuticals. Prior to that, Dr. Heft founded IBEX Pharmaceuticals in 1986, where he served as its President, Chief Scientist, and director until 2001. Dr. Heft received his PhD in Genetic Engineering/Radiological Sciences from the Massachusetts Institute of Technology and was a Neurology Fellow at the Massachusetts General Hospital. He has also received a Masters degree in Nuclear Engineering from Cornell University and a Bachelor of Mechanical Engineering from McGill University. We believe Dr. Heft provides significant executive and business skills, and scientific and industry knowledge to our board of directors, as well as valuable experience gained from prior and current board service.

Dr. Allan Mandelzys has served as a director since June 2013. He also serves as a director of Matrizyme Pharma Corp. and is President and a director of 8569975 Canada Inc. and 9639439 Canada Inc., companies involved in corporate and business development consulting for the pharmaceutical and biotechnology industries. From August 2014 to September 2015, Dr. Mandelzys served as a director of Bedrocan Cannabis Corporation and acted as chairman of the Special Committee of the Board leading to its acquisition by Tweed Marijuana Inc. Dr. Mandelzys was the Chief Executive Officer and a director of Thallion Pharmaceuticals Inc. from January 2010 to July 2013, when Thallion was sold to Bellus Health Inc. Prior to that, Dr. Mandelzys served as Executive Vice President of Licensing & Corporate Development at Thallion and from 2000-2006, Vice President of Business Development at Labopharm Inc., where he helped to transform the drug delivery company into a product development company with commercial sales via multiple distribution partners. He earned his PhD in physiology and MBA from McGill University. Dr. Mandelzys also holds a BSc from the University of Toronto and received his post-doctoral training at the Roche Institute of Molecular Biology. We believe Dr. Mandelzys provides significant executive and business skills, and scientific and industry knowledge to our board of directors, as well as valuable experience gained from prior and current board service.

Dr. François Nader has served as a director since February 2014. Since February 2015, Dr. Nader has been the Chief Executive Officer of Jesra Advisors LLC. Prior to that Dr. Nader was President, Chief Executive Officer and a member of the board of directors of NPS Pharmaceuticals from 2008 until 2015, when NPS was acquired by Shire. He joined NPS in 2006 as Chief Medical and Commercial Officer, and was promoted to Chief Operating Officer in 2007. Before NPS, from 2004 to 2006, he was a CMO and venture partner at Care Capital. Prior to that, he served on the North America Leadership Team of Aventis and its predecessor companies holding a number of executive positions. Dr. Nader was recognized as the Ernst and Young National Life Science Entrepreneur of the Year in 2013. Dr. Nader is the Chairman of the Board of BioNJ, a trade association representing the biotechnology industry in New Jersey. Dr. Nader currently serves as chairman of the board of directors of Acceleron Pharma Inc. and as a director of Alexion Pharmaceuticals Inc. From 2015 to 2016, he served as a director at Baxalta Inc. and from 2014 to 2015, as director of Trevena. Dr. Nader is a board member of the Biotechnology Industry Organization and the New Jersey Chamber of Commerce. Dr. Nader earned his French Doctorate in Medicine from St. Joseph University in Lebanon and his Physician Executive MBA from the University of Tennessee. We believe Dr. Nader provides significant executive and business skills, and scientific and industry knowledge to our board of directors, as well as valuable experience gained from prior and current board service.

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Pierre Legault has served as a director since his appointment on January 30, 2018. He is currently the chairman of Poxel and Aritios and serves on the board of directors for Syndax Pharmaceuticals and UROVANT. Previously Mr. Legault served on the board of Armo Biosciences, Tobira Therapeutics, NPS Pharmaceuticals, Forest Laboratories, Regado Biosciences, Iroko Pharmaceuticals, Cyclacel Pharmaceuticals, Eckerd Pharmacy and Nephrogenex where he was chairman and CEO. Prior to that, Mr. Legault served as the CEO of Prosidion Ltd, CFO and treasurer of OSI Pharmaceuticals, president of Eckerd Pharmacies and senior executive vice president and chief administration officer of the Rite Aid Corporation. He was also president, CEO and CFO at legacy companies of the Sanofi group. Mr. Legault holds an MBA in marketing from McGill University and a bachelor’s degree from HEC (University of Montreal) and also studied at Harvard Business School. We believe Mr. Legault provides significant executive and business skills and industry knowledge to our board of directors, as well as valuable experience gained from prior and current board service.

Shawn Tomasello has served as a director since her appointment on July 5, 2018. She currently serves on the board of directors of Diplomat Pharmacy, Centrexion Therapeutics and Oxford BioTherapeutics. Previously, she served as chief commercial officer of Kite Pharma and was instrumental in building Kite, leading to its acquisition for $11.9 billion by Gilead Pharmaceuticals in 2017. Prior to joining Kite Pharma, Ms. Tomasello served as the chief commercial officer of commercial and medical affairs at Pharmacyclics, and was previously the president of the Americas, hematology and oncology for Celgene Corporation where she led the company through five successful product launches encompassing eleven indications. Previously, Ms. Tomasello served in leading commercial roles with Genentech and other major pharmaceutical companies. Ms. Tomasello received her bachelor of science in marketing from the University of Cincinnati and her MBA from Murray State University in Kentucky.

B. Compensation

Determining Compensation

Radford, part of Aon Hewitt (a business unit of Aon plc), was retained by the compensation committee to conduct a competitive review and assessment of Clementia’s director and executive compensation program and recommend go-forward strategies. The compensation committee was involved in and approved the adoption of the following procedures during Radford’s assessment:

⁽¹⁾ Establishing the public company peer group used in the director and executive compensation assessment;

⁽²⁾ Reviewing the detailed assessment of Clementia’s director compensation program versus the market, approving and implementing certain recommendations;

⁽³⁾ Reviewing the detailed assessment of Clementia’s executive compensation program versus the market, approving and implementing certain recommendations;

⁽⁴⁾ Reviewing Clementia’s equity incentive program, approving and implementing certain recommendations; and

⁽⁵⁾ Reviewing equity ownership levels, and approving and implementing certain recommendations.

The compensation committee has and will continue to utilize these strategies when contemplating director and executive compensation matters.

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Executive Compensation

For the years ended December 31, 2018, 2017 and 2016, our named executive officers (NEOs) received compensation for services, as follows:

Name and Principal Position		Salary earned(1)	Non-equity incentive plan compensation(1)(2)	Other compensation(1)(3)	Total
Clarissa Desjardins, President, Chief Executive Officer, President(4)
	2018	$500,000	$250,000	$3,430,920	$4,180,920
	2017	$377,447	$184,909	$398,668	$961,024
	2016	$265,335	$69,732	-	$335,067
Steve Forte, Chief Financial Officer, Corporate Secretary(5)
	2018	$130,128	$44,973	$1,608,593	$1,783,694
	2017	-	-	-	-
	2016	-	-	-	-
Michael Singer, Chief Financial Officer, Corporate Secretary(6)
	2018	$202,011	-	-	$202,011
	2017	$235,413	$65,957	$462,454	$763,824
	2016	$191,989	$40,845	-	$232,834
Donna Roy Grogan, Chief Medical Officer(7)
	2018	$368,425	$128,949	$859,758	$1,357,132
	2017	$361,201	$102,942	-	$464,143
	2016	$356,566	$72,739	-	$429,305
Jeffrey Packman, Chief Development Officer(8)
	2018	$308,600	$108,010	$694,400	$1,111,010
	2017	$275,760	$78,592	-	$354,352
	2016	$262,181	$63,513	-	$325,694
Eric Grinstead, Chief Commercial Officer(9)
	2018	$339,204	$71,800	$270,900	$681,904
	2017	$354,118	$95,612	-	$449,730
	2016	$349,574	$80,227	-	$429,801

(1) Compensation amounts paid in Canadian dollars have been converted to U.S. dollars for purposes of the table. For 2018, the U.S. dollar per Canadian dollar exchange rate used for such conversion was $0.7719 for salaries earned ($0.7703 in 2017 and $0.7581 in 2016), which was the Company’s average exchange rate for the year ended December 31, 2018 (December 31, 2017 and 2016), along with $0.7332 for non-equity inventive plan compensation ($0.7955 in 2017 and $0.7441 in 2016), which was the Company’s closing exchange rate at December 31, 2018 (December 31, 2017 and 2016), all based on Bloomberg Markets CADUSD:CUR spot exchange rates.

(2) Non-equity incentive plan compensation reflects annual bonuses earned with respect to fiscal 2018, 2017 and 2016, based on the achievement of corporate goals and objectives, as well as personal performance assessments.

(3) Other compensation reflects stock option awards in the year ended December 31, 2018 and 2017. No options were granted in the year ended December 31, 2016. In determining the fair value of these option-based awards, the Black-Scholes valuation methodology was used with the following weighted average assumptions, consistent with those reported in the Company’s audited consolidated financial statements: (i) expected life of 4.45 years (6 years in 2017), ii) volatility of 74.64% (75.01% in 2017), (iii) risk-free interest rate of 2.65% (1.96% in 2017), and (iv) dividend yield of nil. For 2018, stock option awards to Michael Singer and Eric Grinstead have not been included in the above table as these were forfeited upon their departure in 2018.

Also included in other compensation is a nine-month severance owing to Eric Grinstead, in the amount of $270,900, which has been accrued for at December 31, 2018 and will be paid out via salary continuance throughout 2019.

Furthermore, compensation amounts do not include taxable benefits for group health, dental, life insurance and disability insurance premiums paid by the Company on behalf of the named executive officers as these benefits are offered to all employees of the Company.

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(4) On January 1, 2019, Clarissa Desjardins’ annual base salary was increased to $514,000 and her non-equity inventive compensation was increased from 50% to 55% of base salary.

(5) Steve Forte joined the Company as Chief Financial Officer effective August 3, 2018 with an annual base salary of $350,000 and non-equity incentive plan compensation of 35% of base salary. On January 1, 2019, his annual base salary was increased to $405,300 and his non-equity incentive compensation was increased from 35% to 40%.

(6) Michael Singer resigned from his role as Chief Financial Officer effective August 9, 2018.

(7) On January 1, 2019, Donna Roy Grogan’s annual base salary was increased to $378,740.

(8) On January 1, 2019, Jeffrey Packman’s annual base salary was increased to $317,240.

(9) Eric Grinstead left his role as Chief Commercial Officer effective November 30, 2018.

Employment Agreements

In February 2019, the board of directors approved certain amendments to the existing employment agreements of our NEOs, which include the following terms. Copies of the employment agreements with our NEOs have been filed as Exhibits to this Annual Report on Form 20-F and are incorporated by reference herein.

Term of Employment

All of our NEOs are employed for an indefinite term, subject to termination in accordance with the terms of the Employment Agreements.

Base Salaries and Bonus Opportunities

The Employment Agreements establish a base salary for each of our NEOs, subject to annual review and possible increase by our board of directors. A decrease in the base salary of our NEOs by the board of directors is only allowed if implemented throughout the Company and is proportional to the decrease in base salaries of all the employees of the Company.

The annual base salaries for Ms. Desjardins, Ms. Grogan, and Mr. Packman were established at $500,000, $368,425 and $308,600, respectively on January 1, 2018. The annual base salary for Mr. Forte was established at $350,000 upon hire in August 2018. The annual base salaries for Mr. Singer and Mr. Grinstead were established at $320,000 and $361,200, respectively for 2018, but Mr. Singer and Mr. Grinstead left the Company in August and November 2018, respectively. Annual base salaries for Ms. Desjardins, Mr. Forte, Ms. Grogan, and Mr. Packman were increased to $514,000, $405,300, $378,740 and $317,240, respectively on January 1, 2019.

Our NEOs are also eligible for an annual bonus based on achievement of performance goals established for the employees and the Company at the beginning of each year and/or in accordance with the terms of the applicable bonus plan in effect from time to time. The maximum annual bonus that may be earned, expressed as a percentage of the NEO’s annual base salary, were 50% for Ms. Desjardins and 35% for each of Mr. Forte, Ms. Grogan, Mr. Grinstead, Mr. Singer and Mr. Packman. As of January 1, 2019, the maximum was increased to 55% for Ms. Desjardins and to 40% for Mr. Forte, with no change for others.

The Employment Agreements also provide that our NEOs are eligible to participate in any benefit plans made generally available to the Company’s similarly-situated employees.

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Severance

Each of the Employment Agreements provide that if the applicable NEO is terminated by the Company for cause or if his or her employment is terminated at such NEO’s initiative, the NEO will be entitled to the following standard payments: (i) base salary earned by her or him up to the date of termination; (ii) unused vacation pay calculated as of the date of termination and (iii) reimbursement of expenses up to and including the date of termination.

Each of the Employment Agreements also provide that if the applicable NEO is terminated by the Company other than for cause, in addition to the standard payments, the NEO will also be entitled to the following additional severance payments, subject to the execution of a general release and waiver: (i) base salary and (ii) health continuation coverage reimbursements, in each case during the severance period, which is equal to 15 months from the date of termination for Ms. Desjardins and 12 months from the date of termination for each of Mr. Forte, Ms. Grogan and Mr. Packman. In November 2018, Mr. Grinstead left the company and a nine-month severance has been accrued as at December 31, 2018, which will be paid out throughout 2019. No severance was paid to Mr. Singer upon his resignation in July 2018.

In the event any NEO is terminated by the Company for any reason other than a “good reason” (generally meaning (i) the assignment of responsibilities inconsistent with current position, subject to certain exceptions, (ii) a reduction in base salary or bonus other than as a result of a consistently applied board reduction across the entire employee population or (iii) requiring the NEO to be based at any office or location outside 50 km of the current location or other location previously agreed to) or for cause within 12 months after a change of control, in addition to the standard payments, the Employment Agreements provide that the NEO will also be entitled to the following change of control benefits, subject to the execution of a general release and waiver: (i) 1.75 times the target bonus for the year in which date of termination occurs, (ii) base salary and benefit continuation, in each case during the severance period, which is equal to 21 months from the date of termination and (iii) vesting of all outstanding equity grants including any outstanding stock options as of the date of termination for Ms. Desjardins and (i) 1.5 times the target bonus for the year in which date of termination occurs, (ii) base salary and benefit continuation, in each case during the severance period, which is equal to 18 months from the date of termination and (iii) vesting of all outstanding equity grants including any outstanding stock options as of the date of termination for each of Mr. Forte, Ms. Grogan and Mr. Packman.

Restrictive Covenants

Each of the Employment Agreements contain standard confidentiality, non-solicitation and non-competition restrictions.

The confidentiality obligations of Ms. Desjardins, Mr. Forte, Ms. Grogan and Mr. Packman are effective during the term of their employment and for 36 months following the date of termination (subject to limited exceptions pursuant to which their confidentiality obligations continue indefinitely). Confidentiality obligations of Mr. Eric Grinstead continue indefinitely after termination of his employment and continue for a period of 36 months after termination of employment for Mr. Singer.

Non-solicitation and non-competition restrictions pursuant to the Employment Agreements are effective during the term of each of our NEOs’ employment and remain in place during the severance period applicable to the respective NEO.

Potential Payments upon Termination or Change in Control

The table below reflects amounts payable by the Company to the NEOs as per the terms of their new employment agreements and assuming that their employment was terminated as of January 1, 2019, either without cause or upon change of control of the Company.

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Name	Severance		Continuation of benefits(3)		Bonus		Total without cause
Clarissa Desjardins	$	642,500	$	8,579	$	-	$	651,079
Steve Forte	$	405,300	$	6,065	$	-	$	411,365
Donna Grogan	$	378,740	$	23,249	$	-	$	401,990
Jeffrey Packman	$	317,240	$	32,957	$	-	$	350,198

Name	Severance		Continuation of benefits(3)		Bonus(1)		Accelerated vesting of options(2)		Total upon change in control
Clarissa Desjardins	$	899,500	$	12,010	$	494,725	$	951,256	$	2,119,522
Steve Forte	$	607,950	$	9,098	$	243,180	$	-	$	667,139
Donna Grogan	$	568,110	$	34,874	$	198,839	$	882,513	$	1,614,446
Jeffrey Packman	$	475,860	$	49,436	$	166,552	$	661,876	$	1,295,182

⁽¹⁾ In the event of a Change in Control, NEOs will also receive the 1.75 times the target bonus for the year in which date of termination occurs for Ms. Desjardins and 1.5 times for other NEOs.

⁽²⁾ In the event of a Change in Control, all of the NEO outstanding unvested equity awards will immediately vest in full on the date of such termination. Amounts included in the table above reflect the in-the-money value each NEO’s unvested options at January 1, 2019, based upon the difference between closing price per share of our stock on December 31, 2018, being $11.76, and the exercise price of the options. The actual value of the awards realized by each NEO, if any, will depend on the price of our common shares at the time of exercise.

⁽³⁾ For purposes of calculating values in this column, amounts in Canadian dollars have been converted to U.S. dollars at an estimated exchange rate of $0.80.

Director Compensation

Prior to the effective date of our IPO, independent directors were compensated with quarterly cash retainers of C$5,000 per quarter or C$20,000 per annum. Directors appointed by investors to the Company’s board of directors received no compensation.

On March 31, 2017, our board of directors approved a director compensation program to be effective on the effective date of our IPO. Under this director compensation program, non-employee directors are paid a cash retainer for service on the board of directors and for service on each committee on which the director is a member, except for Jean-François Pariseau. The chairman of the board and of each committee receives higher retainers for such service. These fees are payable in arrears in four equal quarterly installments on the last day of each quarter, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on our board of directors and no fee shall be payable in respect of any period prior to the effective date of our IPO. The fees paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors on which the director is a member are as follows:

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	Member Annual Fee		Chairman Annual Fee
Board of Directors	$	35,000	$	60,000
Audit Committee	$	7,500	$	15,000
Compensation Committee		$5, 000	$	10,000
Nominating and Corporate Governance Committee	$	3,750	$	7,500

The annual retainer fee, including fees for chairing the Board and committees, is paid in cash unless a director instead elects to receive the fair value equivalent in deferred share units (DSU). All directors received DSUs for the 2018 fiscal year and all directors except for Dr. Francois Nader, have elected to receive DSUs for the 2019 fiscal year.

We also continue to reimburse our non-employee directors for reasonable travel and other expenses incurred in connection with attending our board of directors and committee meetings.

We do not pay any compensation to our Chief Executive Officer in connection with her service on our board of directors. The compensation that we pay to our Chief Executive Officer is discussed previously in the “Executive Compensation” section.

For the year ended December 31, 2018, our directors received compensation for services, as follows:

Name and Principal Position	Director fees earned(1)		Other compensation(1)(2)		Total
David P. Bonita, Chairman of the Board	$	73,726	$	93,029	$	166,755
Jean-François Pariseau, Chairman of the Compensation Committee, Director(3)		-		-		-
Davit Mott, Director(4)	$	7,083		-	$	7,083
Robert Heft, Director	$	39,974	$	93,029	$	133,003
Allan Mandelzys, Chairman of the Compensation Committee, Director	$	51,848	$	93,029	$	144,877
François Nader, Chairman of the Corporate Governance and Nominating Committee	$	42,474	$	93,029	$	135,503
Pierre Legault, Chairman of the Audit Committee, Director(5)	$	41,016	$	282,466	$	323,482
Shawn Tomasello, Director(6)	$	19,986	$	262.762	$	282,748
Clarissa Desjardins, President, Chief Executive Officer, Director		-		-		-

(1) Direct fees earned were paid via a combination of cash or DSUs as per directors’ election. For 2018, all directors received DSUs, except for David Mott who received cash compensation and Jean Francois Pariseau and Clarissa Desjardins who were not compensated.

(2) Other compensation reflects stock option awards in the year ended December 31, 2018. In determining the fair value of these option-based awards, the Black-Scholes valuation methodology was used with the following weighted average assumptions, consistent with those reported in the Company’s audited consolidated financial statements: (i) expected life of 3.8 years, ii) volatility of 77.16% (iii) risk-free interest rate of 2.86 and (iv) dividend yield of nil.

(3) Jean-Francois Pariseau resigned as a director of the Company on July 5, 2018.

(4) David Mott resigned as a director of the Company on February 27, 2018.

(5) Pierre Legault was appointed as a director of the Company on January 31, 2018.

(6) Shawn Tomasello was appointed as a director of the Company on July 5, 2018.

On April 30, 2017, the board of directors approved a new stock option grant to each non-employee director, except for Jean-Francois Pariseau. Pursuant to this grant, each non-employee director, except for Jean-Francois Pariseau, received under the 2013 Stock Option Plan, an option to purchase 23,980 common shares at an exercise price of $10.04 per share. Each of these options will vest as to one-third of the shares of our common shares underlying such option on each anniversary date of our IPO until the third anniversary of our IPO, subject to the non-employee director’s continued service as a director. Further, each non-employee director, except for Jean-Francois Pariseau, also received under the 2013 Stock Option Plan, an option to purchase 11,990 common shares at an exercise price of $10.04 per share. Each of these options will vest in full on the one-year anniversary of our IPO, subject to the non-employee director’s continued service as a director.

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In addition, under our director compensation program which became effective on August 2, 2017 (closing of our IPO), each non-employee director will receive under the 2017 Omnibus Plan, upon his or her initial election to our board of directors, an option to purchase 23,980 common shares. Each of these options will vest as to one-third of the shares of our common shares underlying such option on each anniversary of the grant date until the third anniversary of the grant date, subject to the non-employee director’s continued service as a director. In 2018, Pierre Legault and Shawn Tomasello each received their election awards upon their appointment as directors. Further, on the date of the first board meeting held after each annual meeting of stockholders, each non-employee director will receive, under the 2017 Omnibus Plan, an option to purchase 11,990 common shares. Each of these options will vest in full on the one-year anniversary of the grant date unless otherwise provided at the time of grant, subject to the non-employee director’s continued service as a director. In 2018, all directors, except David Mott and Jean-Francois Pariseau, who resigned in 2018, and Clarissa Desjardins, who is not compensated, received an annual award of 11,990 stock options. All options issued to our non-employee directors under our director compensation program will be issued at exercise prices equal to the fair market value of our common shares on the date of grant and will become exercisable in full upon a change in control of our Company.

2013 Stock Option Plan

Our 2013 Stock Option Plan provides for the granting of stock options to officers, directors, employees and consultants of ours and our affiliates. The purpose of the 2013 Stock Option Plan is to develop the interest and incentive of our eligible employees, directors, officers and consultants in our growth and development by giving eligible participants an opportunity to purchase common shares of our stock, providing incentives thereby advancing our interests, enhancing the value of the common shares for the benefit of all the shareholders and increasing our ability to attract, motivate and retain skilled and motivated individuals.

The following is a summary only and is qualified in its entirety by the terms and conditions of the 2013 Stock Option Plan, a copy of which is included as Exhibit 10.8 to our Registration Statement on Form F-1/A filed with the SEC on July 21, 2017 and hereby incorporated by reference.

Administration by the Board of Directors

The 2013 Stock Option Plan is administered by our board of directors, which has sole and complete authority and discretion, subject to the express provisions of the 2013 Stock Option Plan, to interpret the 2013 Stock Option Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations deemed necessary or advisable for the administration of the 2013 Stock Option Plan. This includes the discretion of our board of directors to decide who will participate in the 2013 Stock Option Plan, including directors, officers, employees or consultants (each a Participant). Our board of directors also has authority to delegate its duties to a committee of the board.

Expiry

Options granted under the 2013 Stock Option Plan (Options), are non-transferable. Unless an earlier termination date is specified by the board and/or stock option agreement, each Option expires on the earlier of the following: (i) on the tenth anniversary of its date of grant and (ii) the time immediately following the closing of a merger or consolidation or other transaction in which greater than or equal to 50% of the voting power of shareholders of Clementia is transferred to a third party or a sale, lease, license, transfer or other disposition of all or substantially all of the assets or intellectual property rights of Clementia (except to an affiliate) (a liquidity event).

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Exercise Price

Subject to the rules of any stock exchange upon which the Common Shares may become listed, the exercise price of common shares under any option will be determined by the Board.

Insider Participation Limit

The aggregate number of common shares issuable (or reserved for issuance) to Participants under the 2013 Stock Option Plan is 3,786,886, subject to adjustment as described in the plan.

Amendment Provisions

Our board of directors has the discretion to amend, suspend, or terminate the 2013 Stock Option Plan, although such changes may not alter or impair the rights or obligations arising from any Option previously granted.

Termination, Resignation, Death, etc.

Options granted under the 2013 Stock Option Plan are evidenced by a stock option agreement entered between us and the Participant. All vested and unvested options granted under the plan terminate immediately if a Participant is dismissed with cause. If, at any time, a Participant ceases to be an employee as a result of the Participant’s death, disability, or termination for any reason other than for cause, the Options granted to the Participant and vested as of the Termination Date (as defined therein) remain exercisable for 90 days after the Termination Date, unless such vested Options expire sooner in accordance with their terms. All unvested Options granted to the Participant will expire. Where, in the case of a consultant, the Participant’s consulting agreement terminates by reason of the Participant’s death, disability, termination for any reason other than for breach of the consulting agreement, or voluntary termination by the Participant, then any Options granted to the Participant and vested as of the Termination Date, or as of the date of the death or disability of the participant, as the case may be, remain exercisable for 30 days following the Termination Date, or the date of the death or disability of the Participant, as the case may be, unless such vested Options expire earlier in accordance with their terms. All unvested Options granted to the Participant will expire. Where, in the case of a consultant, the Participant’s consulting agreement is terminated for breach or for cause, then all vested and unvested Options granted to the Participant will expire. If a Participant ceases to be a director or officer, the Options granted to the Participant and vested as of the Termination Date may be exercised by the Participant pursuant to the same terms and conditions described above, as if the director or officer were a consultant unless such director or officer continues as a consultant or full-time employee of the company.

Change of Control

The 2013 Stock Option Plan provides that in the event that the Company or its shareholders accept an offer in respect of a transaction that will result in a Liquidity Event, the board of directors, without the consent of any Participant, shall take such steps as are necessary or desirable to cause the conversion or exchange of any outstanding Options into or for, rights or other securities of substantially equivalent value (or greater value), as determined by the board of directors in its discretion, in any entity participating in or resulting from a Liquidity Event (an Alternative Award). If no Alternative Awards are available, the board of directors shall, without the consent of any Participant, provide that all unvested options vest immediately prior to the consummation of the transaction constituting the Liquidity Event. Unless otherwise determined by the board of directors at or after the time of grant, any Participant whose service is terminated by his or her employer for any reason other than for Cause within 12 months following the consummation of a Liquidity Event, then with respect to all Options granted to the Participant prior to the date of the consummation of the Liquidity Event which were still outstanding at the time of such termination of service, all such unvested Options shall vest and to the extent exercisable shall remain exercisable until the earlier of the one-year anniversary of such termination of service or until the Option’s normal expiration date.

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Maximum Limit

The aggregate number of Common Shares that may be issued pursuant to the exercise of Options shall not exceed 3,786,886 Common Shares, subject to adjustments related to a reorganization of our capital, amalgamation, combination, merger, or similar events.

2017 Omnibus Plan

Following the adoption of our 2017 Omnibus Plan by our board in June 2017, all equity-based awards are now granted under the 2017 Omnibus Plan described below.

In June 2017, our board of directors adopted and our shareholders approved the 2017 Omnibus Plan. As of this date, all equity-based awards are granted under the 2017 Omnibus Plan. The following summary describes the terms of the 2017 Omnibus Plan. This summary of the 2017 Omnibus Plan is not a complete description of all provisions of the 2017 Omnibus Plan and is qualified in its entirety by reference to the 2017 Omnibus Plan, a copy of which is included as Exhibit 10.9 to our Registration Statement on Form F-1/A filed with the SEC on July 21, 2017 and hereby incorporated by reference.

Administration

The 2017 Omnibus Plan is administered by our compensation committee. Our compensation committee has the authority to, among other things, determine eligibility for awards to be granted, determine, modify or waive the type or types of, form of settlement (whether in cash, our common shares or other property) of, and terms and conditions of awards, to accelerate the vesting or exercisability of awards, to adopt rules, guidelines and practices governing the operation of the 2017 Omnibus Plan as the compensation committee deems advisable, to interpret the terms and provisions of the 2017 Omnibus Plan and any award agreement, and to otherwise do all things necessary or appropriate to carry out the purposes of the 2017 Omnibus Plan. The compensation committee’s decisions with respect to the 2017 Omnibus Plan and any award under the 2017 Omnibus Plan is binding upon all persons.

Eligibility

Our key employees and non-employee directors on our board of directors who, in the opinion of the compensation committee, have the capacity to contribute to our and our affiliates’ success are eligible to participate in the 2017 Omnibus Plan.

Authorized Shares

Subject to adjustment, as described below, the maximum number of our common shares that will be available for issuance under the 2017 Omnibus Plan was 3,659,308 shares as at December 31, 2018. Common shares issued under the 2017 Omnibus Plan may be shares held in treasury or authorized but unissued shares of the Company not reserved for any other purpose. The number of shares reserved for issuance under the 2017 Omnibus Plan will automatically increase by an annual amount to be added the first day of each fiscal year, beginning January 1, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the lower of 4% of the number of shares of our common shares outstanding as of December 31 of the prior calendar year and an amount determined by our board of directors. The amount added on January 1, 2019 was established at 4% of the common shares outstanding at December 31, 2018, or 1,514,563, thus bringing the maximum number of common shares available for issuance under the 2017 Omnibus Plan to 5,173,871 as of January 1, 2019. The increase in the number of shares available for issuance under the stock option plan has not been registered as at the date of this Annual Report.

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Common shares subject to an award that for any reason expires without having been exercised, is cancelled, forfeited or terminated or otherwise is settled without the issuance of shares will again be available for grant under the 2017 Omnibus Plan. The grant of a tandem award of a stock option and a stock appreciation right (SAR) will reduce the number of our common shares available for awards under the 2017 Omnibus Plan by the number of shares subject to the related stock option (and not as to both awards). To the extent consistent with applicable legal requirements (including applicable stock exchange requirements), common shares issued under awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition will not reduce the number of shares available for awards under the 2017 Omnibus Plan.

Types of Awards

The 2017 Omnibus Plan provides for awards of stock options, SARs, restricted stock, unrestricted stock, stock units (including RSUs), performance awards, deferred share units, elective deferred share units and other awards convertible into or otherwise based on our common shares. Eligibility for stock options intended to be ISOs will be limited to our employees. Dividend equivalents may also be provided in connection with an award under the 2017 Omnibus Plan.

• Stock options and SARs. The exercise price of a stock option, and the base price against which a SAR is to be measured, may not be less than the fair market value (or, in the case of an ISO granted to a 10% shareholder, 110% of the fair market value) of our common shares on the date of grant. Our compensation committee will determine the time or times at which stock options or SARs become exercisable and the terms on which such awards remain exercisable. The maximum term of stock options and SARs is ten years, except that if a participant still holding an outstanding non-statutory stock option or SAR ten years from the date of grant (or in the case of such an award with a maximum term of less than ten years, such maximum term) is prohibited by applicable law or written policy of the Company applicable to similarly situated employees from engaging in any open-market sales of our common shares, and if at such time the stock is publicly traded, the maximum term of the award will instead by deemed to expire on the 30th day following the date the participant is no longer prohibited from engaging in such open market sales. A SAR that is granted in tandem with a stock option will become vested and exercisable on the same date or dates as the related stock option and may only be exercised upon the surrender of the right to exercise the related option for an equivalent number of our common shares.

• Restricted and unrestricted stock. A restricted stock award is an award of our common shares subject to forfeiture restrictions, while an unrestricted stock award is not subject to such restrictions.

• Restricted stock units. An RSU award is an award denominated in our common shares that entitles the participant to receive our common shares or cash measured by the value of our common shares in the future. The delivery of our common shares or cash under an RSU award may be subject to the satisfaction of performance conditions or other vesting conditions.

• Performance awards. A performance award is an award the vesting, settlement or exercisability of which is subject to specified performance criteria.

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• Deferred share units. A deferred share unit is an award of a notional investment in our common shares reflected on an unfunded, book-entry account maintained by the Company. Deferred share units may be subject to performance conditions or other vesting conditions. Each deferred share unit may be settled, at the compensation committee’s discretion, in a share of our common shares, cash measured by the value of a share of our common shares or a combination thereof.

• Elective deferred share unit. An elective deferred share unit is an award of a notional investment in a share of our common shares reflected on an unfunded, book-entry account maintained by the Company, where the number of elective deferred share units awarded to a participant is determined by the amount of a participant’s elective deferral of his or her eligible compensation and/or bonus divided by the fair market value of a share of our common shares on the date of the payment of such amounts to be deferred, in accordance with and subject to the conditions of the 2017 Omnibus Plan. Elective deferred share units are at all times fully vested and may be settled, at the compensation committee’s discretion, in our common shares, cash measured by the value of our common shares or a combination thereof.

• Other awards. Other awards are awards that are convertible into or otherwise based on our common shares.

Performance Awards

The 2017 Omnibus Plan provides for the grant of performance awards that will be made based upon, and subject to achieving, performance objectives. Performance objectives with respect to those awards that are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the Code), to the extent applicable, will be limited to an objectively determinable measure or measures of performance relating to any, or any combination, of the following (measured either in absolute terms or relative to the performance of one or more similarly situated companies or a published index covering the performance of a number of companies and determined either on a consolidated basis or, as the context permits, with respect to one or more business units, divisions, subsidiaries, products, projects or geographic locations, or on combinations thereof): stockholder return; sales; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, amortization or equity expense, whether or not on a continuing operation or an aggregate or per share basis; return on equity, investment, capital, capital employed or assets; operating earnings; one or more operating ratios; operating income or profit, including on an after-tax basis; net earnings; net income; income; earnings per share; revenues; stock price; economic value added; cash flow; expenses; capital expenditures; working capital levels; borrowing levels, leverage ratios or credit rating; gross profit; market share; workplace safety goals; workforce satisfaction and diversity goals; employee retention; completion of key projects; implementation and achievement of synergy targets; joint ventures and strategic alliances, licenses or collaborations; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity); or refinancings. When establishing performance objectives, the compensation committee may exclude any or all unusual items as determined by the board of directors, including, without limitation, the charges or costs associated with closures and restructurings of the Company or an affiliate, discontinued operations, extraordinary items, capital gains and losses, dividends, share repurchase, other unusual or non-recurring items, and the cumulative effects of accounting changes.

To the extent consistent with Section 162(m), if applicable, the compensation committee may provide that one or more performance objectives applicable to awards intended to qualify for the performance-based compensation exception under Section 162(m) will be adjusted in an objectively determinable manner to reflect events occurring during the performance period that affect the applicable performance objective.

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Individual Limits

The maximum aggregate number of our common shares subject to all awards under the 2017 Omnibus Plan (including stock options, SARs, restricted stock, unrestricted stock, RSUs, performance awards, deferred share units, elective deferred share units and any other award under the 2017 Omnibus Plan) that may be granted to any participant in the 2017 Omnibus Plan in any calendar year is 1,199,000 shares.

A participant who is a non-employee director on our board of directors, in any calendar year, may not receive initial awards with respect to the greater of an aggregate of 35,970 common shares, or $0.3 million and annual awards with respect to the greater of an aggregate of 23,980 common shares or $0.2 million in aggregate grant date fair value. In addition, the aggregate number of our common shares issuable under outstanding awards to non-employee directors, at any time, may not exceed 1% of our common shares that are issued and outstanding. These limitations, however, will not apply to any award or common shares granted pursuant to a non-employee director’s election to receive our common shares in lieu of cash fees.

Vesting; Termination of Employment or Service

Our compensation committee has the authority to determine the vesting schedule applicable to each award, and to accelerate the vesting or exercisability of any award. Our compensation committee will determine the effect of termination of employment or service on an award. Unless otherwise provided by our compensation committee, upon a termination of a participant’s employment or service under the following circumstances the following treatment will apply:

• Death. All time-based awards will immediately vest and performance awards will vest at the target level of performance. Awards subject to exercise will remain exercisable until the earlier of the one-year anniversary of the participant’s death or the award’s normal expiration date.

• Disability. All time-based awards will immediately vest and performance awards will remain eligible to vest to the extent the applicable performance goals are achieved. Awards subject to exercise will remain exercisable until the earlier of the one-year anniversary of the participant’s termination of employment or service due to disability or the award’s normal expiration date.

• Retirement. All time-based awards will be deemed vested with respect to a portion of the award determined by multiplying the number of shares underlying the award by a fraction, the numerator of which is the number of days from the grant date to the date of retirement and the denominator of which is the number of days from the grant date to the final vesting date of the award. Performance awards will remain eligible to vest, to the extent the applicable performance goals are achieved, with respect to a portion of the award determined by multiplying the number of shares underlying the award by a fraction, the numerator of which is the number of days from the beginning of the applicable performance period through the date of retirement and the denominator of which is the number of days in the performance period. Awards subject to exercise will remain exercisable until the earlier of the one-year anniversary of the Participant’s “retirement” or the award’s normal expiration date. Unless otherwise defined in a participant’s employment or award agreement, under the 2017 Omnibus Plan, “retirement” means a termination of the participant’s employment or service at or after the time the participant reaches age 65.

• Resignation by Participant. All unvested awards will be forfeited. Awards subject to exercise will remain exercisable until the earlier of the 90 day anniversary of the participant’s termination of employment or the award’s normal expiration date.

• Termination by the Company for Cause. All stock options and SARs, whether vested or unvested, will be forfeited and all other awards, to the extent unvested, will be forfeited.

• Termination by the Company other than for Cause. Awards other than RSUs, restricted stock awards and performance awards will be forfeited to the extent then unvested. Awards subject to exercise, to the extent vested, will remain exercisable until the earlier of the 90 day anniversary of the participant’s termination of service or the award’s normal expiration date. RSUs, restricted stock awards and performance awards will be deemed vested with respect to a portion of the award determined by multiplying the number of shares underlying the award by a fraction, the numerator of which is the number of days from the grant date to the six-month anniversary of the date of the participant’s termination of employment or service and the denominator of which is the number of days from the grant date to third anniversary of the grant date, with the vesting of such performance awards to be subject to performance assessed as of the date of such termination of employment or service.

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• Termination by the Company other than for Cause within 12 months following a Change in Control. To the extent granted prior to the time of the change in control and then outstanding at the time of termination, all time-based awards will vest and performance awards will vest at the target level of performance. Awards subject to exercise will remain exercisable until the earlier of the one-year anniversary of the participant’s termination of employment or service due to disability or the award’s normal expiration date.

Non-Transferability of Awards

Awards under the 2017 Omnibus Plan may not be sold, assigned, transferred, pledged or otherwise encumbered other than by the laws of succession or descent and distribution or, in the case of awards other than ISOs, to a permitted assign (within the meaning of the National Instrument 45-106 Prospectus and Registration Exemptions of the Canadian Securities Administrators).

Recovery of Compensation

Our compensation committee may cancel, rescind, withhold or otherwise limit or restrict any award at any time under the 2017 Omnibus Plan if the participant is not in compliance with the provisions of the 2017 Omnibus Plan or any award thereunder or if the participant breaches any agreement with our Company with respect to non-competition, non-solicitation or confidentiality. Our compensation committee also may recover any award or payments or gain in respect of any award under the 2017 Omnibus Plan in accordance with any applicable Company recoupment policy or as otherwise required by applicable law or applicable stock exchange listing standards.

Change in Control

In the event of certain consolidations, mergers or similar transactions, certain sales or other disposition of our common shares, certain liquidations of the Company or sales or dispositions of all or substantially all of the Company’s assets, or members of our board of directors cease to constitute a majority of our board of directors or the board of directors of a successor entity, our compensation committee may provide for the conversion or exchange of outstanding awards for new awards, or, if no equivalent awards are available, for the accelerated vesting or delivery of shares under awards, or for a cash-out of outstanding awards.

Certain Adjustments

In the event of an extraordinary dividend, stock dividend, stock split or share combination (including a reverse stock split) or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting our common shares our board of directors will make adjustments as it determines in its sole discretion to the number and kind of shares available for issuance under the 2017 Omnibus Plan, the maximum number of shares that may be issued upon the exercise of ISOs, the annual per-participant share limits, the number, class, exercise price (base value), performance objectives applicable to outstanding awards and any other terms of outstanding awards affected by such transaction. Our compensation committee may also make adjustments of the type described in the preceding sentence to take into account distributions and events other than those listed above if it determines that adjustments are appropriate to avoid distortion in the operation of the 2017 Omnibus Plan.

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Term

The 2017 Omnibus Plan became effective on the date it was adopted by our board in June 2017 and will terminate on the tenth anniversary of such date, unless terminated earlier by our board of directors.

Amendment; Termination

Our compensation committee may amend the 2017 Omnibus Plan or outstanding awards, or terminate the 2017 Omnibus Plan as to future grants of awards, except that our compensation committee will not be able to alter the terms of an award if it would affect materially and adversely a participant’s rights under the award without the participant’s consent (unless expressly provided in the 2017 Omnibus Plan or the right to alter the terms of an award was expressly reserved by our compensation committee at the time the award was granted). Shareholder approval will be required for any amendment to the 2017 Omnibus Plan that increases the number of our common shares available for issuance under the 2017 Omnibus Plan or the individual award limitations specified in the 2017 Omnibus Plan (except with respect to certain adjustments described above), modifies the class of persons eligible for participation in the 2017 Omnibus Plan, allows options to be issued with an exercise price below fair market value on the date of grant, extends the term of any award granted under the 2017 Omnibus Plan beyond its original expiration date, permits an award to be exercisable beyond 10 years from its grant date (except where an expiration date would have fallen within a blackout period of the Company), permits awards to be transferred other than for normal estate settlement purposes, or deletes or reduces the range of amendments which require approval of the holders of voting shares of the Company, or to the extent required by law.

Option Grant Summary

The following table sets forth the outstanding option-based awards for each of our directors and officers as at December 31, 2018:

Name and Office Held	Number of securities underlying unexercised options		Option exercise price		Option expiration date	Value of unexercised in-the-money options(1)
David P. Bonita, Chairman of the Board, Director(2)
		35,970	$	10.04	April 30, 2027	$	61,868
		11,990	$	13.40	November 6, 2025		-
Jean-François Pariseau, Chairman of the Compensation Committee, Director(2)
		-		-	-		-
David Mott, Director(2)
		-		-	-		-
Robert Heft, Director(2)
		39,999	$	0.29	June 17, 2023	$	458,789
		14,724	$	0.29	August 27, 2024	$	168,884
		35,970	$	10.04	April 30, 2027	$	61,868
		11,990	$	13.40	November 6, 2025		-
Allan Mandelzys, Chairman of the Compensation Committee, Director(2)
		79,997	$	0.29	June 17, 2023	$	917,566
		14,724	$	0.29	August 27, 2024	$	168,884
		35,970	$	10.04	April 30, 2027	$	61,868
		11,990	$	13.40	November 6, 2025		-

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François Nader, Chairman of the Corporate Governance and Nominating Committee, Director(2)
	39,999	$	0.29	February 20, 2024	$	458,789
	14,724	$	0.29	August 27, 2024	$	168,884
	35,970	$	10.04	April 30, 2027	$	61,868
	11,990	$	13.40	November 6, 2025		-
Pierre Legault, Chairman of the Audit Committee, Director(2)
	23,890	$	13.80	February 27, 2025		-
	11,990	$	13.40	November 6, 2025		-
Shawn Tomasello, Director(2)
	23,890	$	12.28	July 3, 2025		-

	11,990	$	13.40	November 6, 2025		-
Clarissa Desjardins, President, Chief Executive Officer, President(3)
	400,034	$	0.29	June 17, 2023	$	4,588,390
	329,473	$	0.29	August 27, 2024	$	3,779,055
	59,950	$	10.04	April 30, 2027	$	103,114
	305,000	$	13.80	February 27, 2025		-
	100,000	$	15.95	April 17, 2025		-
Michael Singer, Chief Financial Officer, Corporate Secretary(4)
	161,874	$	0.69	March 31, 2019	$	1,791,945
	23,181	$	10.04	March 31, 2019	$	39,871
Steve Forte, Chief Financial Officer, Corporate Secretary(5)
	225,000	$	11.86	July 12, 2025		-
Donna Roy Grogan, Chief Medical Officer(6)
	77,791	$	0.29	September 23, 2023	$	892,263
	217,103	$	0.29	August 27, 2024	$	2,490,171
	60,000	$	13.80	February 27, 2025		-
	40,000	$	15.95	April 17, 2025		-
Jeffrey Packman, Chief Development Officer(7)
	22,913	$	0.29	February 20, 2024	$	262,812
	145,966	$	0.29	August 27, 2024	$	1,674,230
	40,000	$	13.80	February 27, 2025		-
	40,000	$	15.95	April 17, 2025		-
Eric Grinstead, Chief Commercial Officer(8)
	133,353	$	0.29	June 5, 2019	$	1,529,559
	151,616	$	0.29	June 5, 2019	$	1,739,035

(1) Amounts included in the table above reflect the in-the-money value of unvested options at January 1, 2019, based upon the difference between closing price per share of our stock on December 31, 2018, being $11.76, and the exercise price of the options. An option is in-the-money if the market price of common shares is greater than the exercise price. The actual value of the awards realized by each of the directors and officers, if any, will depend on the price of our common shares at the time of exercise.

(2) On November 6, 2018, each non-employee director, except for David Mott and Jean Francois Pariseau who resigned in 2018, received an annual grant of 11,990 stock options at an exercise price of $13.40. Each of these options vest evenly over a twelve-month period, subject to the non-employee director’s continued service as a director. In addition, Pierre Legault and Shawn Tomasello each received a grant of 23,980 stock options upon their appointment as a director at exercise prices of $13.80 and $12.28, respectively. Each of these options will vest evenly over a period of three years, subject to the non-employee director’s continued service as a director.

(3) On February 27, 2018, Clarissa Desjardins received an equity-based award of 305,000 stock options at an exercise price of $13.80 under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant date and will vest over a period of 4 years. On April 17, 2018, Clarissa Desjardins also received an equity-based award of 100,000 performance stock options at an exercise price of $15.95 under the 2017 Omnibus Plan. Following a modification to the milestone associated with these performance options approved subsequent to year-end December 31, 2018, these stock options will vest 50% upon the achievement of a milestone and 50% on the one-year anniversary of milestone achievement and will expire if the milestone is not achieved prior to December 31, 2019 or will expire 7 years after their initial grant date if the milestone is achieved. Management believes it is probable that the milestone event will be achieved.

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(4) Michael Singer resigned from his role as Chief Financial Officer effective August 9, 2018. Stock options granted to Michael Singer in 2018 were forfeited upon his departure. Stock options granted to Michael Singer prior to 2018 continued vesting until December 31, 2018 with unvested options being forfeited. All vested options will expire if not exercised prior to March 31, 2019.

(5) On July 12, 2018, Steve Forte received an equity-based award of 225,000 stock options at an exercise price of $11.86 under the 2017 Omnibus Plan. These stock options will expiry 7 years from their initial grant date and will vest over a period of 4 years from August 2018.

(6) On February 27, 2018, Donna Grogan received an equity-based award of 60,000 stock options at an exercise price of $13.80 under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant date and will vest over a period of 4 years. On April 17, 2018, Donna Grogan also received an equity-based award of 40,000 performance stock options at an exercise price of $15.95 under the 2017 Omnibus Plan. Following a modification to the milestone associated with these performance options approved subsequent to year-end December 31, 2018, these stock options will vest 50% upon the achievement of a milestone and 50% on the one-year anniversary of milestone achievement and will expire if the milestone is not achieved prior to December 31, 2019 or will expire 7 years after their initial grant date if the milestone is achieved. Management believes it is probable that the milestone event will be achieved.

(7) On February 27, 2018, Jeffrey Packman received an equity-based award of 40,000 stock options at an exercise price of $13.80 under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant date and will vest over a period of 4 years. On April 17, 2018, Jeffrey Packman also received an equity-based award of 40,000 performance stock options at an exercise price of $15.95 under the 2017 Omnibus Plan. Following a modification to the milestone associated with these performance options approved subsequent to year-end December 31, 2018, these stock options will vest 50% upon the achievement of a milestone and 50% on the one-year anniversary of milestone achievement and will expire if the milestone is not achieved prior to December 31, 2019 or will expire 7 years after their initial grant date if the milestone is achieved. Management believes it is probable that the milestone event will be achieved.

(8) Eric Grinstead left his role as Chief Commercial Officer effective November 30, 2018. Stock options granted to Eric Grinstead in 2018 were forfeited upon his departure. Unvested stock options granted prior to 2018 were forfeited. All vested options will expire if not exercise prior to June 5, 2019.

The following stock option grants were not included in the above table as they were not outstanding as at December 31, 2018:

· On February 19, 2019, Clarissa Desjardins, Steve Forte, Donna Grogan and Jeffrey Packman received an equity-based award of 463,300, 164,100, 104,500 and 104,500 stock options, respectively at an exercise price of $14.67 per share under the 2017 Omnibus Plan. These stock options will vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months.

Under the plan of arrangement, each unvested option will be deemed to be vested as of the effective date of the arrangement and subsequently transferred in exchange for the purchase price less the applicable exercise price.

DSU Grant Summary

The following table sets forth the outstanding DSUs for each of our directors as at December 31, 2018:

Name and office held	Number of DSUs held
David P. Bonita, Chairman of the Board, Director		5,817
Robert Heft, Director		3,165
Allan Mandelzys, Chair of the Compensation Committee, Director		4,090
François Nader, Chairman of the Corporate Governance and Nominating Committee, Director		3,363
Pierre Legault, Chairman of the Audit Committee, Director		3,387
Shawn Tomasello, Director		1,746

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In connection with the Plan of Arrangement, on February 24, 2019, the Company approved the issuance of 39,225 deferred share units (DSUs) to non-executive directors of the Company to replace long-term incentive grants which would otherwise have been made in 2019 to non-executive directors of the Company in the normal course of business.

Employee Share Purchase Plan

In June 2017, we adopted an employee share purchase plan (ESPP) pursuant to which eligible employees will be able to acquire our common shares at a discount from the average market price on the purchase date in a convenient and systematic manner through payroll deductions. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are United States taxpayers. The following discussion is qualified in its entirety by the full text of the ESPP, a copy of which is included as Exhibit 10.10 to our Registration Statement on Form F-1/A filed with the SEC on July 21, 2017 and hereby incorporated by reference. While adopted in June 2017, as of the date of this Form 20-F, we have not yet rolled out the ESPP.

Unless otherwise determined by our board of directors, participation in the ESPP will be open to our employees in Canada and the United States who are customarily employed for at least 20 hours per week. Participation in the ESPP is voluntary. Eligible employees will be able to contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions. The maximum number of common shares issued to insiders within any six-month period, or issuable to insiders at any time, under the ESPP and all private placements must not exceed 10% of the number of common shares issued and outstanding at that time. No employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding common shares measured by vote or value under Section 424(d) of the Code. In addition, no employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common shares (determined on the grant date of the purchase right) for each year such purchase right is outstanding.

The ESPP will be implemented through a series of offerings under which eligible employees are granted rights to purchase our common shares at the end of specified purchase periods. We currently expect to hold offerings consisting of a single six-month purchase period commencing on January 1 and July 1 of each calendar year, with a single purchase date at the end of the purchase period on June 30 and December 31 of each calendar year. However, our compensation committee may establish different offerings and purchase periods from time to time, which may have a duration of between three months to twenty-four months. No offering has commenced as of the date of this Annual Report. Common shares purchased under the ESPP will be issued from treasury at a purchase price equal to 85% of the average market price of the common shares on such date, all in accordance with applicable laws and the terms and conditions of the ESPP. For the purposes of the ESPP, the average market price of the common shares as at a given date shall be the weighted average trading price on the trading day immediately preceding such date.

The number of common shares reserved for issuance under the ESPP will not exceed 290,000 common shares, plus the number of common shares that are automatically added on January 1st of each year, commencing on (and including) January 1, 2018 and ending on (and including) January 1, 2027, in an amount equal to the lesser of (i) 1% of the total number of common shares issued and outstanding on December 31st of the preceding calendar year, and (ii) 290,000 common shares. No rights to purchase common shares may be issued under the plan from and after the tenth anniversary of the date the plan becomes effective, unless otherwise approved by our shareholders. In accordance with the terms of the ESPP, the board of directors chose not to increase the number of common shares reserved for issuance under the plan on January 1, 2019.

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The ESPP is administered by the compensation committee of our board of directors. The compensation committee has the authority, in the event the common shares are subdivided or consolidated, or in the event the common shares will be exchanged for shares of another issuer in the context of a reorganization, split-up, liquidation, recapitalization or similar transaction, to determine appropriate equitable adjustments, if any, to be made under the ESPP, including adjustments to the number of common shares which have been authorized for issuance under the ESPP.

In the event of certain significant corporate transactions such as an acquisition, merger or sale of all or substantially all of our assets, then either (i) a participant’s then-outstanding purchase right shall be continued or substituted for by the surviving or acquiring entity, or (ii) such purchase right shall be terminated in exchange for a cash payment equal to the fair market value of a number of our common shares on the date of such transaction that the participant’s accumulated payroll deductions as of the date of the transaction could purchase, determined with reference only to the first business day of the applicable purchase period, less the result of multiplying such number of shares by such purchase price.

Our board of directors has the right to amend or terminate the ESPP, in whole or in part, at any time, subject to applicable laws and requirements of any stock exchange or governmental or regulatory body (including any requirement for shareholder approval). Subject to certain exceptions, our board of directors is entitled to make amendments to the ESPP without shareholder approval.

Rule 10b5-1 Sales Plans

Subject to compliance with Canadian securities laws, rules and regulations, our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common shares on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from the director or officer. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive officers may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, non-public information.

C. Board Practices

Board of Directors

Our board of directors currently consists of 7 members. The articles provide that the number of directors shall be a minimum of one and a maximum of 10 members and will be fixed from time to time by resolution of the board of directors. Our board of directors is elected at each annual meeting of our shareholders. Our directors serve until their successors are elected or appointed, unless their office is vacated earlier. The term of office for each of the directors will expire at the time of our next annual shareholders meeting. Under the CBCA, one quarter of our directors must be resident Canadians, as defined in the CBCA.

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Family Relationships and Other Arrangements

There are no family relationships among our directors and senior management.

Dr. Bonita was designated as a director by OrbiMed in connection with a shareholders’ agreement, which terminated upon the closing of our IPO.

Mr. Pariseau was designated as a director by BDC Venture Capital in connection with a shareholders’ agreement, which terminated upon the closing of our IPO. Mr. Pariseau resigned as a director on July 5, 2018.

Mr. Mott was designated as a director by New Enterprise Associates in connection with a shareholders’ agreement, which terminated upon the closing of our IPO. Mr. Mott resigned as a director on February 27, 2018.

Director Independence

As a foreign private issuer, under the listing requirements and rules of The Nasdaq Global Select Market, we are not required to have independent directors on our board of directors, except to the extent that our audit committee is required to consist of independent directors, subject to certain phase-in schedules. Nevertheless, our board of directors has undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Our board of directors determined that 7 of our 8 directors are “independent directors” as defined under current rules and regulations of the SEC and the listing standards of The Nasdaq Global Select Market. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances that our board of directors deemed relevant in determining their independence.

Board Committees

The standing committees of our board of directors consist of an audit committee, compensation committee and a nominating and corporate governance committee.

Audit Committee

Our audit committee is currently comprised of Pierre Legault (Chair), Dr. David Bonita and Dr. Allan Mandelzys.

Our board of directors has determined that each of the members of our audit committee is financially literate and has sufficient financial expertise, and is independent within the meaning of such term in the rules of The Nasdaq Global Select Market and the SEC. Our board of directors has determined that Pierre Legault is a financial expert in accordance with the applicable rules and regulations of the SEC.

The purpose of our audit committee is to assist our board of directors in overseeing:

• the integrity of our financial statements and our accounting and financial reporting processes and financial statement audits;

• our compliance with legal and regulatory requirements;

• the performance, qualifications and independence of our registered public accounting firm (independent auditor);

• the results of our audits; and

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• the design, implementation and ongoing effectiveness of our systems of disclosure controls and procedures, risk management systems,

• internal control over financial reporting and compliance with ethical standards adopted by us.

In June 2017, our Board of Directors adopted a new written charter for the Audit Committee. A copy of the Audit Committee charter is available on our website at www.clementiapharma.com or, without charge, upon written request to Clementia Pharmaceuticals Inc., 1000 de la Gauchetière Street West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Attention: Investor Relations, telephone 1-514-940-1080 or via email at info@clementiapharma.com.

Compensation Committee

Our compensation committee is comprised of Dr. Allan Mandelzys (Chair), Shawn Tomasello and Dr. Robert Heft, all of whom are “independent” in accordance with the provisions of Rule 10C-1(b)(1) under the Exchange Act and Nasdaq Rule 5605(a)(2).

Our board of directors has determined that each member of our compensation committee is independent within the meaning of such term in the rules and regulations of the SEC and The Nasdaq Global Select Market. In affirmatively determining the independence of any member of our compensation committee, our board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the Company to such director; and (ii) whether such director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company.

The purpose of our compensation committee is to ensure that the compensation programs and values transferred to management through cash pay, share and share-based awards, whether immediate, deferred, or contingent are fair and appropriate to attract, retain and motivate management and are reasonable in view of company economics and of the relevant practices of other similar companies. Our compensation committee also recommends to our board of directors’ compensation arrangements for board members.

In June 2017, our Board of Directors adopted a new written charter for the Compensation Committee. A copy of the Compensation Committee charter is available on our website at www.clementiapharma.com or, without charge, upon written request to Clementia Pharmaceuticals Inc., 1000 de la Gauchetière Street West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Attention: Investor Relations, telephone 1-514-940-1080 or via email at info@clementiapharma.com.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee is comprised of Dr. Francois Nader (Chair), Dr. David Bonita and Pierre Legault, all of whom are “independent directors” within the meaning of Nasdaq Rule 5605(a)(2). In affirmatively determining the independence of any member of our corporate governance and nominating committee, our board must consider all factors specifically relevant to determining whether a director has a relationship to us that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

The purpose of our corporate governance and nominating committee is to:

• assist our board of directors in identifying prospective director nominees and recommend to our board of directors the director nominees for each annual meeting of shareholders;

• recommend members for each board committee;

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• ensure that our board of directors is properly constituted to meet its fiduciary obligations to the Company and its shareholders and that the Company follows appropriate governance standards;

• develop and recommend to our board of directors governance principles applicable to the Company;

• review and recommend to the board of directors the functions, duties and compositions of the committees of the board of directors;

• oversee the succession planning for senior management; and

• oversee the evaluation of our board of directors and management.

In June 2017, our Board of Directors adopted a new written charter for the Nominating and Corporate Governance Committee. A copy of the Nominating and Corporate Governance Committee charter is available on our website at www.clementiapharma.com or, without charge, upon written request to Clementia Pharmaceuticals Inc., 1000 de la Gauchetière Street West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Attention: Investor Relations, telephone 1-514-940-1080 or via email at info@clementiapharma.com.

Code of Business Conduct and Ethics

Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all of our employees, executive officers and directors. A copy of this Code of Business Conduct and Ethics is available on our website at www.clementiapharma.com or, without charge, upon written request to Clementia Pharmaceuticals Inc., 1000 de la Gauchetière Street West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Attention: Investor Relations, telephone 1-514-940-1080 or via email at info@clementiapharma.com.

The Corporate Governance and Nominating Committee of our board of directors is responsible for overseeing the Code of Business Conduct and Ethics and must approve any waivers from the Code of Business Conduct and Ethics for employees, executive officers and directors. There were no amendments to our Code of Business Conduct and Ethics since its adoption. We did not grant any waivers to the provisions of our Code of Business Conduct and Ethics during the fiscal years ended December 31, 2018 and 2017.

D. Employees

As at December 31, 2018, we employed 45 full-time employees, including 28 in research and development functions and 17 in general and administrative and commercial functions. 12 of our employees hold M.D., Sc.D., or Ph.D. degrees and an additional 15 hold M.Sc. degrees. As at December 31, 2018, 32 of our employees were located in Montreal, Quebec, Canada and 15 were located in Newton, Massachusetts, USA. We have never had a work stoppage, and none of our employees is represented by a labor organization or under any collective-bargaining arrangements. We consider our employee relations to be good.

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E. Share Ownership

The following table sets out the share ownership and options held by our directors and NEOs as of December 31, 2018.

Name and office held	Number of common shares owned		Number of stock options held		Exercise price		Option expiry date	Number of exercisable options
David P. Bonita, Chairman of the Board, Director
		-		23,980	$	10.04	04/20/2027		10,658
				11,990	$	10.04	04/20/2027		11,990
				11,990	$	13.40	11/06/2025		999
Jean-François Pariseau(1)
David Mott, Director(1)
Robert Heft, Director(2)
		63,895		39,999	$	0.29	06/17/2023		39,999
				14,724	$	0.29	08/27/2024		14,724
				23,980	$	10.04	04/20/2027		10,658
				11,990	$	10.04	04/20/2027		11,990
				11,990	$	13.40	11/06/2025		999
Allan Mandelzys, Chairman of the Audit Committee, Director
		58,751		79,997	$	0.29	06/17/2023		79,997
				14,724	$	0.29	08/27/2024		14,724
				23,980	$	10.04	04/20/2027		10,658
				11,990	$	10.04	04/20/2027		11,990
				11,990	$	13.40	11/06/2025		999
François Nader, Chairman of the Nominating and Corporate Governance Committee, Director
		103,329		39,999	$	0.29	02/20/2024		39,999
				14,724	$	0.29	08/27/2024		14,724
				23,980	$	10.04	04/20/2027		10,658
				11,990	$	10.04	04/20/2027		11,990

		11,990	$	13.40	11/06/2025	999
Clarissa Desjardins, President, Chief Executive Officer, Director
	814,054	400,034	$	0.29	06/17/2023	400,034
		329,473	$	0.29	08/27/2024	252,532
		59,950	$	10.04	04/20/2027	19,983
		305,000	$	13.80	02/27/2025	-
		100,000	$	15.95	04/17/2025	-
Steve Forte, Chief Financial Officer, Corporate Secretary (3)
		225,000	$	11.86	07/12/2025	-
Michael Singer, Chief Financial Officer, Corporate Secretary(4)
	26,378	161,874	$	0.69	03/31/2019	161,874
		23,181	$	10.04	03/31/2019	23,181
Donna Roy Grogan, Chief Medical Officer
	69,866	77,791	$	0.29	09/23/2023	77,791
		217,103	$	0.29	08/27/2024	140,162
		60,000	$	13.80	02/27/2025	-
		40,000	$	15.95	04/17/2025	-
Jeffrey Packman, Chief Development Officer
	104,685	22,913	$	0.29	02/20/2024	22,913
		145,966	$	0.29	08/27/2024	88,261
		40,000	$	13.80	02/27/2025	-
		40,000	$	15.95	04/17/2025	-
Eric Grinstead, Chief Commercial Officer(5)
	-	133,353	$	0.29	06/05/2019	133,353
		151,616	$	0.29	06/05/2019	151,616

(1) David Mott resigned as a director of the Company on February 27, 2018 and Jean-Francois Pariseau resigned as of July 5, 2018.

(2) Includes 63,895 common shares held by Gren Trust, for which Dr. Heft serves as sole trustee.

(3) Steve Forte joined the Company as Chief Financial Officer effective August 3.

(4) Michael Singer resigned from his role as Chief Financial Officer effective August 9, 2018.

(5) Eric Grinstead left his role as Chief Commercial Officer effective November 30, 2018.

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See Item 6B for a description of arrangements pursuant to which employees may become involved in the capital of Clementia.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table and accompanying footnotes sets forth, as of December 31, 2018, information regarding beneficial ownership of our common shares by:

• each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common shares;

• each of our executive officers;

• each of our directors; and

• all of our executive officers and directors as a group.

Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities, including options and deferred share units that are currently exercisable or exercisable within 60 days of December 31, 2018. Common shares subject to options and deferred share units currently exercisable or exercisable within 60 days of December 31, 2018 are deemed to be outstanding for computing the percentage ownership of the person holding these options and/or deferred share units and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person.

Our calculation of the percentage of beneficial ownership is based on 40,318,772 shares, which represents the aggregate of all common shares issued and outstanding as at December 31, 2018 and shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

Name of beneficial owner	Number of shares beneficially owned		% of shares beneficially owned
5% or greater shareholders
OrbiMed Private Investments IV, LP(1)		10,425,225		25.86	%
BDC Capital Inc.(2)		5,497,211		13.63	%
Baker Brothers Advisors LP(3)		3,724,445		9.24	%
Wellington Management Group LLP(4)		2,725,480		6.76	%
Entities Affiliated with New Enterprise Associates 15, L.P.(5)		2,706,283		6.71	%
Janus Henderson Group PLC(6)		2,105,040		5.22	%
Executive officers and directors
Clarissa Desjardins(7)		1,572,300		3.90	%
Steve Forte(8)		-		-
Michael Singer(9)		120,009		*
Donna Roy Grogan(10)		308,519		*
Jeffrey Packman(11)		230,134		*
Eric Grinstead(12)		284,969		*

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David P. Bonita(13)	33,461	*
Jean-François Pariseau(14)	-	-
David Mott(15)	-	-
Robert Heft(16)	157,272	*
Allan Mandelzys(17)	193,051	*
François Nader(18)	196,904	*
Pierre Legault(19)	22,223	*
Shawn Tomasello(20)	17,252	*
All executive officers and directors as a group (14 persons)	3,136,094	7.78	%

(1) Consists of 10,425,225 common shares. The mailing address of OrbiMed Private Investments IV, LP is 601 Lexington Avenue, 54th Floor, New York, NY 10022.

(2) Consists of 5,497,211 common shares. The mailing address of BDC Capital Inc. is 5 Place Ville-Marie, Suite 300 Montreal, Québec H3B 5E7.

(3) Consists of 3,724,445 common shares. The mailing address of Baker Brothers Advisors LP is 860 Washington Street, 3^rd Floor, New York, NY, 10014.

(4) Consists of 2,725,480 common shares. The mailing address of Wellington Management Group LLP, c/o Wellington Management Company LLP is 280 Congress Street, Boston MA 02210.

(5) Consists of 2,706,283 common shares. The mailing address of New Enterprise Associates 15, IV, L.P is 1954 Greenspring Drive, Suite 600 Timonium, Maryland 21093.

(6) Consists of 2,105,040 common shares. The mailing address of Janus Henderson Group PLC is 201 Bishopsgate, London CO, EC2M3AE.

(7) Consists of 814,054 common shares and 758,246 shares issuable pursuant to outstanding stock options that are exercisable within 60 days of December 31, 2018. On February 19, 2019, Clarissa Desjardins received an equity-based award of 463,300 stock options at an exercise price of $14.67 per share under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant and vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. These stock options have not been reflected in the above table as none were exercisable within 60 days of December 31, 2018.

(8) Steve Forte joined the Company as Chief Financial Officer effective August 3. On July 12, 2018, Steve Forte received an equity an equity-based award of 225,000 stock options at an exercise price of $11.86 per share under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant and vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. On February 19, 2019, Steve Forte received an equity-based award of 164,100 stock options at an exercise price of $14.67 per share under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant and vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. These stock options have not been reflected in the above table as none were exercisable within 60 days of December 31, 2018.

(9) Consists of 26,378 common shares and 93,631 shares issuable pursuant to outstanding stock options that are exercisable within 60 days of December 31, 2018. Michael Singer resigned from his role as Chief Financial Officer effective August 9, 2018.

(10) Consists of 69,866 common shares and 238,653 shares issuable pursuant to outstanding stock options that are exercisable within 60 days of December 31, 2018. On February 19, 2019, Donna Grogan received an equity-based award of 104,500 stock options at an exercise price of $14.67 per share under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant and vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. These stock options have not been reflected in the above table as none were exercisable within 60 days of December 31, 2018.

(11) Consists of 104,685 common shares and 125,449 shares issuable pursuant to outstanding stock options that are exercisable within 60 days of December 31, 2018. On February 19, 2019, Jeffrey Packman received an equity-based award of 104,500 stock options at an exercise price of $13.80 per share under the 2017 Omnibus Plan. These stock options will expire 7 years after their initial grant and vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. These stock options have not been reflected in the above table as none were exercisable within 60 days of December 31, 2018.

(12) Consists of 284,969 shares issuable pursuant to outstanding stock options that are exercisable within 60 days of December 31, 2018. Eric Grinstead left his role as Chief Commercial Officer effective November 30, 2018.

(13) Consists of 33,461 shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018.

(14) Jean-Francois Pariseau resigned as a director of the Company on July 5, 2018.

(15) David Mott resigned as a director of the Company on February 27, 2018.

(16) Consists of 63,895 common shares held by Grent Trust, for which Dr. Heft serves as sole trustee and 93,377 shares issuable pursuant to outstanding stock options and deferred shares units that are exercisable within 60 days of December 31, 2018.

(17) Consists of 58,751 common shares and 134,300 shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018.

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(18) Consists of 103,329 common shares and 93,575 shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018.

(19) Consists of 22,223 shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018. Pierre Legault was appointed to the board of directors of the Company in February 2018.

(20) Consists of 17,252 shares issuable pursuant to outstanding stock options and deferred share units that are exercisable within 60 days of December 31, 2018. Shawn Tomasello was appointed to the board of directors of the Company in July 2018.

As at December 31, 2018, approximately 2% of our ordinary Common Shares are held in Canada, and there are 4 record holders of our Common Shares in Canada, 14 record holders in the United States and 1 record holders in Europe. All of our shareholders have equal voting rights.

B. Related Party Transactions

We have entered into employment contracts with each of our executive officers (see Item 6).

We have granted equity awards to our executive officers and directors (see Item 6).

During the year ended December 31, 2016, one of the Company’s named executive officers provided limited services to a company controlled by an investor. The salary and related expenses incurred, such as travel costs, totaled $59,022 for the year ended December 31, 2016. These expenses were invoiced to the company controlled by an investor in the year ended December 31, 2016 and were collected in the year ended December 31, 2017.

We have not been party to any other material related party transaction in the years ended December 31, 2018 or 2017 or since and as at December 31, 2018, we do not have any loans outstanding with any officer, director or major shareholder other than amounts payable of $875,643 to named executive officers for accumulated vacation and bonus accruals as well as business expense reimbursements for named executive officers and directors.

Related Person Transaction Policy

Our audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. Our policy regarding transactions between us and related persons provides that a related person is defined as a director, executive officer, nominee for director or greater than 5% beneficial owner of our common shares, in each case since the beginning of the most recently completed year, and any of their immediate family members.

C. Interests of Experts and Counsel

Not Applicable

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

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Financial Statements

The audited consolidated financial statements filed as part of this Annual Report are filed under Item 18.

Legal Proceedings

We are not a party to or engaged in any material legal proceedings. From time to time we may be subject to legal proceedings and claims arising in the ordinary course of business.

Dividend policy

We have never declared or paid cash dividends on our common shares. We currently intend to retain any future earnings to fund the development and growth of our business and we do not currently anticipate paying dividends on our common shares. Any determination to pay dividends to holders of our common shares in the future will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, legal requirements and other factors as our board of directors deems relevant.

B. Significant Changes

There have been no significant changes to our annual financial statements.

Item 9. The Offer and Listing

A. Offer and Listing Details

Our common shares are currently listed and traded on the NASDAQ Global Select Market under the symbol “CMTA”. Our shares began trading on August 2, 2017. The following table indicates, for the relevant periods, the high and low prices of our common shares on NASDAQ.

	High		Low		Volume
Year Ended December 31, 2018
4th Quarter	$	19.58	$	9.07		8,174,476
3rd Quarter	$	12.60	$	8.46		6,030,900
2nd Quarter	$	19.47	$	13.16		4,432,112
1st Quarter	$	19.02	$	11.90		4,654,278
Year Ended December 31, 2017
4th Quarter	$	20.02	$	15.80		4,420,653
Period from August 2, 2017 to September 30, 2017	$	17.71	$	15.65		10,730,136

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Market Price Volatility of Common Shares

Market prices for the securities of biotechnology companies, including our securities, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors, such as fluctuations in our

operating results, the aftermath of our public announcements, and general market conditions, can have an adverse effect on the market price of our common shares and other securities.

B. Plan of Distribution

Not applicable.

C. Markets

See Item 9.A.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information

A. Share Capital

General

The following is a description of the material terms of our common and preferred shares as set forth in our articles of incorporation, as amended, and as further amended in connection with our IPO, and certain related sections of the CBCA. For more detailed information, please see our articles of incorporation and amendments thereto, which were filed as exhibits to this Annual Report, hereby incorporated by reference. Immediately prior to the closing of our IPO, we had 2,450,360 common shares outstanding, which were held by 12 shareholders of record, 13,409,796 Class A preferred shares outstanding, which were held by six shareholders of record, 5,825,018 Class B preferred shares outstanding, which were held by approximately 16 shareholders of record and 841,410 Class C preferred shares outstanding, which were held by one shareholder of record. Immediately prior to the closing of our IPO, each of our outstanding preferred shares were converted into common shares. Both our common and preferred shares have no par value.

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In the last three years, we have amended and restated our articles of incorporation three times to create new classes of shares (in March 2017 to create our Class C preferred shares), to reflect our 11.99-for-1 stock split, which was effected in July 2017, as well as to reflect the capital described below (August 2017).

Since January 1, 2016, we have issued and sold 2,540,653 common shares to our directors, officers and employees under our equity compensation plans; issued 841,410 Class C preferred shares in connection with our Class C financing; issued 9,191,000 common shares pursuant to our IPO and issued 6,095,000 common shares pursuant to our follow-on offering.

Our authorized share capital currently consists of an unlimited number of common shares, no par value per share, of which 38,108,193 is issued and outstanding as at March 28, 2019 and an unlimited number of preferred shares, issuable in series, no par value per share, none of which is issued and outstanding.

Common Shares

Under our amended and restated articles of incorporation, the holders of our common shares are entitled to one vote for each share held at any meeting of the shareholders. Subject to the prior rights of any holders of preferred shares, the holders of our common shares are entitled to receive dividends as and when declared by our board of directors. See “Dividend Policy.” Subject to the prior payment to any holders of preferred shares, in the event of our liquidation, dissolution or winding-up or other distribution of our assets among our shareholders, the holders of our common shares are entitled to share pro rata in the distribution of the balance of our assets. Holders of common shares have no pre-emptive, redemption, conversion rights or other rights. The rights, preferences and privileges of the holders of common shares is subject to and may be adversely affected by, the rights of the holders of any series of preferred shares that we may designate in the future.

Preferred Shares

Under our amended and restated articles of incorporation, we are authorized to issue, without shareholder approval, an unlimited number of preferred shares, issuable in one or more series, and, subject to the provisions of the CBCA, having such designations, rights, privileges, restrictions and conditions, including dividend and voting rights, as our board of directors may determine, and such rights and privileges, including dividend and voting rights, may be superior to those of the common shares. The issuance of preferred shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our Company and might adversely affect the market price of our common shares and the voting and other rights of the holders of common shares. We have no current plans to issue any preferred shares.

Options

During the year ended December 31, 2018, we granted 1,869,400 stock options under our 2017 Omnibus Plan.

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As of March 28, 2019, we have granted to employees, officers, directors and consultants 3,237,204 options to purchase our common shares under our 2013 Stock Option Plan, of which 2,461,320 are outstanding. As of our IPO, all stock options are being granted under our 2017 Omnibus Plan. As of March 28, 2019, we have granted to employees, officers, directors and consultants 4,424,620 options to purchase common shares under our 2017 Omnibus Plan, of which 3,277,315 are outstanding.

Deferred Share Units

Under our 2017 Omnibus Plan, directors may elect to take all, none or a portion of their director compensation as DSUs. DSUs have no voting rights. There are no vesting requirements relating to DSUs. DSUs are settled when a director leaves the Company’s board of directors, in either cash or common shares issued from treasury, or purchased on the open market, at the Company’s option. As at March 28, 2019, there were 60,793 DSUs issued and outstanding.

B. Memorandum and Articles of Association

We are incorporated under the CBCA by articles of incorporation dated November 5, 2010 (Corporation Number 7694369).

The following is a summary of certain important provisions of the articles of incorporation and by-laws in effect, as well as certain related sections of the CBCA. Please note that this is only a summary and is not intended to be exhaustive. Copies of the Articles of Amendment and Amended and Restated By-Law No. 1 of Clementia Pharmaceuticals Inc. are included as Exhibits 3.1 and 3.2 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017.

Stated Objects or Purposes

Our articles of incorporation do not contain stated objectives or purposes and do not place any limitations on the business that we may carry on.

Directors

Residency and Independence. Under the CBCA and our by-laws, as amended, at least 25% of our directors must be resident Canadians. Furthermore, under the CBCA, no business may be transacted at a meeting of our board of directors unless 25% of the directors present are resident Canadians. The minimum number of directors we may have is one and the maximum number we may have is ten. The CBCA provides that any amendment to our articles to increase or decrease the minimum or maximum number of our directors requires the approval of our shareholders by a special resolution.

Power to vote on matters in which a director is materially interested. The CBCA states that a director must disclose to us, in accordance with the provisions of the CBCA, the nature and extent of an interest that the director has in a material contract or material transaction, whether made or proposed, with us, if the director is a party to the contract or transaction, is a director or an officer or an individual acting in a similar capacity of a party to the contract or transaction, or has a material interest in a party to the contract or transaction.

A director who holds an interest in respect of any material contract or transaction into which we have entered or propose to enter is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless the contract or transaction:

• relates primarily to the director’s remuneration as a director, officer, employee or agent of us or an affiliate;

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• is for indemnity or insurance otherwise permitted under the CBCA; or

• is with an affiliate.

Directors’ power to determine the remuneration of directors. The CBCA provides that the remuneration of our directors, if any, may be determined by our directors subject to our articles of incorporation and by-laws. That remuneration may be in addition to any salary or other remuneration paid to any of our employees who are also directors.

Retirement or non-retirement of directors under an age limit requirement. Neither our articles of incorporation nor the CBCA imposes any mandatory age-related retirement or non-retirement requirement for our directors.

Number of shares required to be owned by a director. Neither our articles of incorporation nor the CBCA provides that a director is required to hold any of our shares as a qualification for holding his or her office. Our board of directors has discretion to prescribe minimum share ownership requirements for directors.

Action Necessary to Change the Rights of Holders of Our Shares

Our shareholders can authorize the alteration of our articles of incorporation to create or vary the special rights or restrictions attached to any of our shares by passing a special resolution. However, a right or special right attached to any class or series of shares may not be prejudiced or interfered with unless the shareholders holding shares of that class or series to which the right or special right is attached consent by a separate special resolution. A special resolution means a resolution passed by: (a) a majority of not less than two-thirds of the votes cast by the applicable class or series of shareholders who vote in person or by proxy at a meeting, or (b) a resolution consented to in writing by all of the shareholders entitled to vote holding the applicable class or series of shares.

Shareholder Meetings

Under the CBCA, we must hold an annual general meeting of our shareholders at least once every year at a time and place determined by our board of directors, but no later than six months after the end of our preceding financial year. A meeting of our shareholders may be held anywhere in Canada, or provided that all shareholders agree, anywhere outside Canada.

Under our by-laws, a notice to convene a meeting, specifying the date, time and location of the meeting, and the general nature of any special business, must be sent to shareholders, to each director and the auditor not less than 21 days prior to the meeting. Under the CBCA, shareholders entitled to notice of a meeting may waive or reduce the period of notice for that meeting, provided applicable securities laws are met. The accidental omission to send notice of any meeting of shareholders to, or the non-receipt of any notice by, any person entitled to notice does not invalidate any proceedings at that meeting.

A quorum for meetings is one or more persons present in person or by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting and each entitled to vote at the meeting and holding or representing by proxy not less than 20% of the votes entitled to be cast at the meeting.

Holders of our common shares are entitled to attend meetings of our shareholders. Except as otherwise provided with respect to any particular series of preferred shares, and except as otherwise required by law, the holders of our preferred shares are not entitled as a class to receive notice of, or to attend or vote at any meetings of our shareholders. Our directors, our secretary (if any), our auditor and any other persons invited by our chairman or directors or with the consent of those at the meeting are entitled to attend at any meeting of our shareholders but will not be counted in the quorum or be entitled to vote at the meeting unless he or she is a shareholder or proxyholder entitled to vote at the meeting.

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Change of Control

Our articles of incorporation do not contain any change of control limitations with respect to a merger, acquisition or corporate restructuring that involves us.

Shareholder Ownership Disclosure

Although applicable securities laws regarding shareholder ownership by certain persons require disclosure, our articles of incorporation do not provide for any ownership threshold above which shareholder ownership must be disclosed.

Registration Rights

Certain holders of our common shares are entitled to rights with respect to the registration of their shares. The Registration Rights Agreement provides for the registration of the shares held by such shareholders under the securities laws of the United States and/or the qualification for distribution of the shares held by such shareholders under the securities laws of the provinces and territories of Canada. These shareholders collectively held a majority of our common shares upon the completion of our IPO. Pursuant to the Registration Rights Agreement, any one or more of the shareholders holding at least 51% of the then-outstanding registrable securities may require us to file and take such other steps as may be necessary under securities laws to facilitate a public offering with respect to all or part of such shareholders’ registrable securities. The registration rights set out above may be postponed in certain circumstances. These demand registration rights did not apply until six months following the closing of our IPO in August 2017.

In addition to the demand registration rights described above, these shareholders also have “piggy-back” registration rights relating to the inclusion of their common shares on certain registration statements or prospectuses filed by us. Pursuant to the piggy-back registration rights, we have certain obligations to include the common shares of such shareholders in such registration statements or prospectuses, subject to a qualified right to reduce the number of such common shares we are obligated to include if the underwriters participating in such transaction determine in writing that, in their opinion, the number of securities to be included in the offering relating to such piggy-back registration exceeds the number of securities that can be sold in such offering and that the number of securities proposed to be included in such offering would adversely affect the price per security to be sold in such offering.

We have agreed to pay all costs and expenses in connection with each registration and prospectus qualification described above, except underwriting fees, discounts and commissions, fees and disbursements of the selling shareholders’ counsel (other than for one counsel for all shareholders), and any transfer taxes applicable to the securities sold by the shareholders. We have agreed to indemnify the shareholders against certain liabilities, and the shareholders have agreed to indemnify us for certain liabilities, including liabilities under the Securities Act and Canadian provincial securities laws.

Copies of the Amended and Restated Registration Rights Agreements between the Company and certain shareholders are included as Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017.

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Limitations on Liability and Indemnification of Directors and Officers

Under the CBCA, we may indemnify our current or former directors or officers or another individual who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with us or another entity. The CBCA also provides that we may also advance moneys to a director, officer or other individual for costs, charges and expenses reasonably incurred in connection with such a proceeding; provided that such individual shall repay the moneys if the individual does not fulfill the conditions described below.

However, indemnification is prohibited under the CBCA unless the individual:

• acted honestly and in good faith with a view to our best interests, or the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at our request;

• in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful; and

• was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done.

Our by-laws require us to indemnify each of our current or former directors or officers and each individual who acts or acted at our request as a director or officer, or in a similar capacity, of another entity, and well as well as their respective heirs and legal representatives to the full extent permitted by the CBCA.

Our by-laws authorize us to purchase and maintain insurance for the benefit of each of our current or former directors or officers and each person who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity.

We have entered into indemnity agreements with our directors and our executive officers which provide, among other things, that we will indemnify him or her to the fullest extent permitted by law from and against all liabilities, claims, damages, costs, charges or expenses reasonably incurred in any proceeding in which the Indemnified Party is involved in or made a party to, or that arises because the Indemnified Party is or was a director or officer of the Company; provided that, we shall not indemnify such individual if, among other things, he or she did not act honestly and in good faith with a view to our best interests and, in the case of a criminal or penal action, the individual did not have reasonable grounds for believing that his or her conduct was lawful. A copy of the Form of Indemnification Agreement for Directors and Officers is included as Exhibit 10.11 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017, and is incorporated by reference herein.

At present, we are not aware of any pending or threatened litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification would be required or permitted.

C. Material Contracts

Other than the agreements described below, we have not, in the three years preceding the date hereof, entered into any material agreements other than contracts in the ordinary course of business.

1. Employment agreements between the Company and its Named Executive Officers (see Item 6.B.).

2. Amended and Restated Registration Rights Agreements between the Company and certain shareholders (see Item 10.B.), copies of which are included as Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017.

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3. Indemnification Agreements between the Company and its directors and officers (see Item 10.B.), the Form of which is included as Exhibit 10.11 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017, and is incorporated by reference herein.

4. License agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. dated January 4, 2013 (see Item 4.B.), a copy of which was included as Exhibit 10.1 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017, and incorporated by reference herein.

5. Amendment No. 1 to License Agreement with F. Hoffmann-La Roche Ltd. And Hoffmann-La Roche Inc. dated July 30, 2018, a copy of which is included as Exhibit 10.5 and incorporated by reference herein.

6. Exclusive license agreement with Thomas Jefferson University dated February 10, 2014 (see Item 4.B.), a copy of which was included as Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017, and incorporated by reference herein.

7. Exclusive license agreement with Yamaguchi University and Yamaguchi Technology Licensing Organization dated April 8, 2015 (see Item 4.B.), a copy of which was included as Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017, and incorporated by reference herein.

8. Exclusive license agreement with Galderma Research and Development SNC dated March 29, 2017 (see Item 4.B.), a copy of which was included as Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017, and incorporated by reference herein.

9. Amendment No. 1 to the Exclusive License Agreement with Galderma Research and Development DNC dated December 7, 2018, a copy of which is included as Exhibit 10.6 and incorporated by reference herein.

10. Agreement of Sub-Sublease with Analysis Group LTD, dated December 10, 2018, a copy of which is included as Exhibit 10.17 and incorporated by reference herein.

11. Office Lease Agreement with Hines Global Reit Riverside Center LLC dated February 13, 2019, a copy of which is included as Exhibit 10.18 and incorporated by reference herein.

D. Exchange Controls

We are not aware of any law, governmental decree, regulation or other legislation in Canada that restricts the export or import of capital or which would affect the remittance of dividends, interest or other payments by us to non-Canadian holders of our securities, other than withholding tax requirements.

This summary is not a comprehensive description of relevant or applicable considerations regarding such requirements and, accordingly, is not intended to be, and should not be interpreted as, legal advice to any prospective purchaser and no representation with respect to such requirements to any prospective purchaser is made. Prospective investors should consult their own legal advisors with respect to any questions regarding securities law and exchange controls.

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E. Taxation

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a general summary of the material U.S. federal income tax considerations for U.S. Holders (defined below) relating to the acquisition, ownership, and disposition, as a capital asset, of common shares issued by our Company (Common Stock). This discussion is based upon the Code, U.S. Treasury regulations (the Treasury Regulations) promulgated thereunder, published rulings, court decisions and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect).

This summary does not address, except as explicitly set forth below, the U.S. federal income tax considerations that may be applicable to any particular taxpayer nor to taxpayers that may be subject to special tax rules (e.g., financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, tax-exempt organizations, holders that are, or that own their Common Stock through, partnerships or other passthrough entities, traders that elect mark-to-market treatment, persons that do not acquire their Common Stock upon original issuance, holders for whom Common Stock is not a “capital asset,” holders that are subject to the alternative minimum tax, holders that are not U.S. Holders, holders that have a functional currency other than the U.S. dollar, expatriates and former long-term residents of the United States, persons holding Common Stock as part of a “straddle,” “hedge,” “constructive sale” or “conversion” or other integrated transaction for U.S. federal income tax purposes, persons that acquire Common Stock pursuant to any employee share option or otherwise as compensation, or holders that own (directly, indirectly or constructively) 10% or more of our total combined voting power). This summary does not address the U.S. estate and gift, alternative minimum, state, local or non-U.S. tax consequences to U.S. Holders (defined below) of the acquisition, ownership, and disposition of the Common Stock. Each U.S. Holder should consult its own tax advisor regarding the U.S. estate and gift, alternative minimum, state, local and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of the Common Stock.

IN VIEW OF THE FOREGOING, EACH INVESTOR AND PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING ALL U.S. FEDERAL, STATE, AND LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF AN INVESTMENT IN COMMON STOCK, WITH SPECIFIC REFERENCE TO SUCH INVESTOR’S OWN PARTICULAR TAX SITUATION AND RECENT OR PROPOSED CHANGES IN APPLICABLE LAW.

For purposes of this discussion, a “U.S. Person” is:

i. a citizen or resident of the United States,

ii. a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in or organized under the law of the United States or any political subdivision thereof,

iii. an estate the income of which is subject to U.S. federal income taxation regardless of its source, or

iv. a trust which (A) is subject to the primary supervision of a United States court and one or more U.S. Persons have the authority to control all substantial decisions of the trust or (B) has otherwise validly elected to be treated as a U.S. Person under the Code.

A “U.S. Holder” is a U.S. Person that is a beneficial owner of Common Stock for U.S. federal income tax purposes.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of Common Stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner of a partnership holding Common Stock, such U.S. Holder is urged to consult its tax advisor regarding an investment in Common Stock.

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Controlled Foreign Corporation Considerations

Our Company is a corporation organized under the laws of Canada. Generally, a non-U.S. corporation, such as us, will be classified as a CFC if more than 50% (by vote or value) of the shares of the corporation are held, directly, indirectly or constructively, by “U.S. Shareholders.” For purposes of this test, a U.S. Shareholder is generally any U.S. Person that possesses, directly, indirectly or constructively, at least 10% of the combined voting power of all classes of shares of a non-U.S. corporation. If a non-U.S. corporation is a CFC for an uninterrupted period of 30 days or more during any taxable year, the U.S. Shareholders of the CFC will generally be subject to current U.S. federal income tax on certain types of income of the CFC (generally passive forms of income; including dividends, interest, certain rents and royalties, gain from the sale of property producing such income, gain from commodities transactions, foreign currency gain, income from notional principal contracts, and certain income from certain sales and services) and, in certain circumstances, treated as having received a taxable dividend with respect to earnings of the CFC that are invested in U.S. property (including loans to or investments in certain obligations of a U.S. Person). Such income is currently taxable to U.S. Shareholders regardless of whether corresponding cash distributions are made by the CFC. Gain recognized on the sale of a CFC’s stock may be classified, in whole or in part, as a dividend, if, at any time during the five-year period ending on the sale date, the seller was a U.S. Shareholder with respect to such non-U.S. corporation while it was a CFC. Gain taxable as a dividend pursuant to the CFC rules may be eligible for reduced rates of taxation to non-corporate taxpayers in certain circumstances. See “Distributions on Common Stock,” below.

Although we believe we qualified as a CFC in prior taxable years, based on our current ownership structure, we do not believe that we are not currently a CFC for U.S. Federal income tax year ending December 31, 2018. However, our ownership includes U.S. Holders that are U.S. Shareholders for U.S. federal income tax purposes. Therefore, while we do not believe we are a CFC, it is possible that, in future, shareholders treated as U.S. Persons could acquire, directly or indirectly, enough shares to be treated as a U.S. Shareholder after application of the constructive ownership rules and, together with any other U.S. Shareholders of our Company, cause our Company to be treated as a CFC for U.S. federal income tax purposes. If we are classified as both a CFC and a PFIC (as discussed below), U.S. Holders that meet the definition of a U.S. Shareholder during the period in which we are a CFC generally will not also be subject to the PFIC rules during such period. A U.S. Holder who is a shareholder may be required to file Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations) with the IRS for one or more taxable years. This information return requires certain disclosures concerning the filing U.S. Shareholder, other U.S. Shareholders and us. The CFC rules are complex and may have a significant effect on U.S. Holders that are U.S. Shareholders. EACH PRIOR, CURRENT AND PROSPECTIVE U.S. HOLDER SHOULD CONSULT ITS TAX ADVISOR REGARDING ALL ASPECTS OF THE CFC RULES.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as us, will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of certain subsidiaries, either: (i) at least 75% of its gross income for the taxable year is “passive income”; or (ii) at least 50% of the average quarterly value of its total gross assets (which may be determined in part by the market value of outstanding shares of Common Stock, if our Company is a publicly traded corporation) is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, passive income generally includes most types of income subject to current taxation under the CFC rules described above (other than certain sales and service income) and if a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of such other corporation’s income.

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There are no minimum stock ownership requirements exempting U.S. investors from the PFIC rules. If we are a PFIC for any tax year during which a U.S. Holder owns Common Stock, we will generally continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which such U.S. Holder owns Common Stock, regardless of whether we continue to qualify as a PFIC under the tests described above.

Based on certain estimates of our gross income and gross assets, our receipt and intended use of proceeds from our IPO, and the nature of our business, we believe that we qualified as a PFIC for our taxable year ended December 31, 2018. We can give no assurance that we will not continue to be a PFIC for the taxable year ended December 31, 2019.

General PFIC Rules

If we are a PFIC, and unless a U.S. Holder makes one of the elections described below, a special tax regime will apply to both (i) any “excess distribution” received by such holder from us (generally, such holder’s ratable portion of any distributions in a year which exceeds 125% of the average annual distribution received by such holder during the shorter of the three preceding tax years or such holder’s holding period for Common Stock) and (ii) any gain realized by such holder on the sale or other disposition of Common Stock. Under the PFIC rules, any such excess distribution and realized gain will generally be treated as though realized ratably over such U.S. Holder’s holding period of Common Stock and subject to tax rates applicable to ordinary income. Such income is generally allocated to each previous year when we were a PFIC, taxed at the highest tax rate then in effect applicable to such U.S. Holder for that year and, in addition, is subject to an interest charge. The interest charge is based on the tax deemed deferred from prior years based on the allocation of the income and the resulting tax liability across the U.S. Holder’s holding period. If we are determined to be a PFIC, a U.S. Holder will generally be treated as owning a proportionate amount (by value) of shares owned by us in any direct or indirect subsidiaries that are also PFICs (lower-tier PFIC), and will be subject to similar adverse rules with respect to any distributions we receive from, or dispositions we make of, the shares of such subsidiaries. The mark-to-market election (as described below) is not permitted for the shares of any of our subsidiaries that are also classified as PFICs. U.S. holders are urged to consult their tax advisors about the application of the PFIC rules to any of our subsidiaries.

Mark-to-Market Election

If we are a PFIC and our Common Stock is treated as “marketable stock” (as described below), a U.S. Holder may make an election to “mark to market” its Common Stock. If a U.S. Holder makes the mark-to-market election, then, in lieu of being subject to the PFIC tax and interest charge rules discussed above, the U.S. Holder generally will recognize as ordinary income any excess of the fair market value of the Common Stock at the end of each taxable year over such U.S. Holder’s adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ordinary shares over its fair market value at the end of the taxable year (but in the case of losses, only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the Common Stock will be adjusted up or down to reflect these income or loss amounts taken into income annually. Any gain recognized on the sale or other disposition of Common Stock in a year when we are a PFIC will continue to be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election) but no interest charge is imposed. If a U.S. Holder makes a mark-to market election, it will be effective for the taxable year for which the election is made and for all subsequent taxable years unless Common Stock ceases to be marketable stock or the U.S. Internal Revenue Service (IRS) consents to the revocation of the election.

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Our Common Stock is regularly traded in The Nasdaq Global Market and therefore is considered marketable stock for purposes of the mark-to-market election. However, there can be no assurance that our Common Stock will continue to be treated as marketable stock.

QEF Election

Alternatively, a U.S. Holder may make an election to treat us (and each lower-tier PFIC, if any) as a “qualified electing fund” (QEF Election). If a U.S. Holder makes a QEF Election, in lieu of the treatment described in “General PFIC Rules” above, such U.S. Holder would be required to include in income each year a portion of the “ordinary earnings” and “net capital gains” of our Company or such lower-tier PFIC, even if not distributed to such U.S. Holder. Such U.S. Holder will not be permitted to recognize our current capital losses or ordinary losses. For this purpose, “net capital gain,” which is are taxed as ordinary income, are the excess of (a) ”earnings and profits” over (b) net capital gain.

A U.S. Holder that makes a QEF Election with respect to us (or a lower-tier PFIC, if any) generally may receive a tax-free distribution from us to the extent that such distribution represents our “earnings and profits” that were previously included in income by the U.S. Holder because of the QEF Election. The tax basis in such U.S. Holder’s Common Stock will be adjusted to reflect the amount included in income or allowed as a tax-free distribution because of the QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of its Common Stock.

If a U.S. Holder does not make a QEF Election for the first year of the U.S. Holder’s holding period for its Common Stock in which we were a PFIC with respect to such U.S. Holder, the U.S. Holder may still be able to make a retroactive QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under the general PFIC rules discussed above) as if its Common Stock were sold for its fair market value on the day when the QEF Election becomes effective. If a U.S. Holder is permitted to make a retroactive QEF Election but does not make a “purging” election to recognize gain as discussed in the preceding sentence, then such U.S. Holder shall continue to be subject to tax under the general PFIC rules discussed above (see, “General PFIC Rules,” above.)

A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. A U.S. Holder will not be currently taxed on the ordinary income and net capital gain of a PFIC with respect to which a QEF Election was made for any taxable year of the non-U.S. corporation during which such corporation does not qualify as a PFIC.

We will make due inquiry with our U.S. tax advisors at least annually regarding our status as a PFIC. For each year in which we determine our Company to be a PFIC, we will endeavor to provide to a U.S. Holder, upon its written request, all information necessary for such U.S. Holder to make or maintain a valid QEF Election, with respect to us (and any of our subsidiaries which are lower-tier PFICs (as discussed below). However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC. In addition, we may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs and the procedure for and adjustability of making a QEF Election.

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Other PFIC Rules

Pursuant to proposed Treasury Regulations, subject to certain exceptions, a U.S. Holder that has not made a timely QEF Election may be required to recognize gain (but not loss) upon certain transfers of its Common Stock that would otherwise be tax-deferred (e.g., gifts or exchanges pursuant to corporate reorganization provisions). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which such stock is transferred.

Certain additional adverse rules may apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, a U.S. Holder that uses its Common Stock as securities for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such stock. Furthermore, non-corporate U.S. Holders will not qualify for the preferential rates of taxation applicable to qualified dividend income as discussed in “Distributions on Common Stock” below.

A tax-exempt U.S. Holder will be subject to the PFIC rules discussed above only if a dividend from a PFIC would be treated as unrelated business taxable income to such tax-exempt U.S. Holder.

If a U.S. holder owns Common Stock during any taxable year in which we are a PFIC, the U.S. Holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to the company, generally with the U.S. Holder’s federal income tax return for that year. If our company were a PFIC for a given taxable year, each U.S. Holder should consult its tax advisor concerning any applicable filing requirements. The PFIC rules are complex and may have a significant effect on U.S. Holders. Each prospective U.S. Holder should consult its tax advisor regarding all other aspects of the PFIC rules.

Distributions on Common Stock

We do not currently make distributions on our common shares and we currently intend to retain all available funds and any future earnings for use in the operation of our business. See “Dividend Policy.”

Subject to the CFC and PFIC rules discussed above and herein, a U.S. Holder that receives a distribution with respect to its Common Stock (without reduction for any Canadian tax withheld from such distribution) will be required to include the amount of such distribution in gross income as a dividend to the extent of our current and accumulated “earnings and profits,” as determined for U.S. federal income tax purposes. To the extent that a distribution exceeds our current and accumulated “earnings and profits,” such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in its Common Stock and thereafter as gain from the sale or exchange of such stock. (See “Sale or Other Disposition of Common Stock,” below.) There can be no assurance that we will maintain the calculations of our earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by us with respect to its Common Stock will constitute ordinary dividend income.

In general, dividends received by corporate U.S. Holders on their Common Stock generally will not be eligible for the “dividends received deduction.” However, the 2017 Tax Cuts and Jobs Act allows a domestic corporation that is a U.S. Shareholder of a specified 10% owned foreign corporation that satisfies certain holding and other requirements to take a deduction in an amount equal to the foreign-source portion of any dividend received from such specified 10% owned foreign corporation (essentially exempting such dividend from U.S. taxation). In such case, the corporate U.S. Shareholder is required to reduce the basis of its stock in such specified 10% owned foreign corporation (but not below zero) by the amount of the allowable dividends received deduction. No foreign tax credit or deduction is allowed for any taxes paid or accrued as to any dividend for which such dividends received deduction is allowed. For this purpose, a specified 10% owned foreign corporation is any foreign corporation as to which a corporate U.S. Holder is a U.S. Shareholder, other than a PFIC that is not a CFC.

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If we are not a PFIC in the tax year of distribution or in the preceding tax year, dividends received by non-corporate U.S. Holders with respect to their Common Stock may constitute “qualified dividend income” and thus, may be eligible for the preferential tax rates applicable to long-term capital gains, provided that (1) we are eligible for the benefits of the United States-Canada income tax treaty as determined in accordance with the provisions of such treaty and certain U.S. federal income tax rules or such Common stock is readily tradable on an established securities market in the United States and (2) certain holding period requirements are satisfied.

We expect to be eligible for the benefits of the United States-Canada income tax treaty. In addition, The Nasdaq Global Market should be treated as an established securities market for this purpose, although there can be no assurance that Common Stock will be readily tradable.

Subject to the discussions above regarding Corporate U.S. Shareholders of a specified 10% owned foreign corporation, dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are qualified dividend income, the amount of the dividend taken into account for purposes of calculating the U.S. foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation of foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends distributed by us with respect to Common Stock will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” Special rules may also apply to the amount of foreign tax credit that U.S. Holder may claim on a distribution from a PFIC. The rules relating to foreign tax credits are complex and the availability of a foreign tax credit depends on numerous factors. EACH U.S. HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE UNITED STATES FOREIGN TAX CREDIT RULES TO ITS PARTICULAR SITUATION.

If dividends are paid in foreign currency, the amount includible in gross income will be the U.S. dollar value of such dividends, calculated based on the exchange rate applicable on the date of receipt, regardless of whether such foreign currency is converted into U.S. dollars at that time. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisors regarding foreign currency gain or loss for U.S. federal income tax purposes if any portion of dividends in foreign currency is not converted into U.S. dollars on the date of receipt.

Sale or Other Disposition of Common Stock

Subject to the PFIC and CFC rules discussed above, a U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of its Common Stock in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such stock. If Canadian tax is imposed on the sale or other disposition of Common Stock, a U.S. Holder’s amount realized will include the gross amount of the proceeds before deduction of such Canadian tax. See “Material Canadian Federal Income Tax Considerations—Holders Not Resident in Canada—Dispositions.” Subject to the PFIC and CFC rules discussed above, for non-corporate U.S. Holders, capital gains from the sale or other disposition of Common Stock held for more than one year are generally eligible for preferential rates applicable to long-term capital gains. The deductibility of a capital loss is subject to certain limitations. Any gain or loss recognized on the sale of stock of a non-U.S. corporation by a U.S. Holder will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. Each prospective U.S. Holder should consult its own tax advisor regarding the tax consequences if a Canadian withholding tax is imposed on a disposition of its Common Stock, including the availability of the foreign tax credit under their particular circumstances.

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Subject to the discussion below under “Backup Withholding,” a non-U.S. Holder will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or other disposition of its Common Stock unless (i) such gain is effectively connected with its conduct of a trade or business in the United States (or, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base that such holder maintains in the United States); (ii) such non-U.S. Holder is an individual and has been present in the United States for 183 days or more in the taxable year of such sale or disposition or as determined under a special “lookback” formula, and certain other conditions are met, or (iii) such non-U.S. Holder is subject to rules applicable to certain expatriates or former long-term residents of the United States.

Medicare Tax

Certain U.S. Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to an additional 3.8% tax on all or a portion of their “net investment income,” which includes, among others, dividends on their Common Stock (including excess distributions treated as dividends), and net gains from the disposition of their Common Stock. U.S. Holders making a mark-to-market election or a QEF Election may be subject to special rules for purposes of this additional tax. Prospective U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the applicability of this additional tax to their income and gains in respect of their investments in Common Stock.

Certain Reporting Requirements

U.S. Persons (and in certain cases, certain non-resident aliens) that are treated as holding certain specified foreign financial assets in excess of certain thresholds may be subject to various U.S. return disclosure obligations. For these purposes, specified foreign financial assets include not only financial accounts maintained with foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a foreign person or entity. U.S. Holders may be subject to these reporting requirements unless their shares of Common Stock are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. EACH PRIOR, CURRENT AND PROSPECTIVE U.S. HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH REGARD TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX REPORTING REQUIREMENTS ASSOCIATED WITH AN INVESTMENT IN COMMON STOCK.

Backup Withholding

Dividend payments with respect to Common Stock and proceeds from the sale, exchange or redemption of Common Stock may be subject to certain information reporting to the IRS and possible United States backup withholding currently at a rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes other required certifications, or who is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s United States federal income tax liability, and a U.S. Holder generally may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information. U.S. Holders should consult their tax advisors regarding the application of the United States backup withholding rules.

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MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary, as of the date hereof, of certain material Canadian federal income tax considerations under Canada’s Income Tax Act (Canadian Tax Act) generally applicable to a holder who acquires, as beneficial owner, Common Stock. This summary only applies to such a holder who, for the purposes of the Canadian Tax Act and at all relevant times: (i) deals at arm’s length and is not affiliated with us, (ii) acquires and holds the Common Stock as capital property, and (iii) has not entered into, and will not enter into, with respect to the Common Stock, a “derivative forward agreement” as that term is defined in the Canadian Tax Act (a Holder). The Common Stock will generally be considered to be capital property to a Holder unless they are held in the course of carrying on a business or were acquired in one or more transactions considered to be an adventure or concern in the nature of trade.

This summary is based upon: (i) the current provisions of the Canadian Tax Act in force as of the date hereof; (ii) all specific proposals (the Tax Proposals) to amend the Canadian Tax Act that have been publicly announced by, or on behalf of, the Minister of Finance (Canada) prior to the date hereof; and (iii) counsels’ understanding of the current published administrative policies and assessing practices of the Canada Revenue Agency made publicly available prior to the date hereof. This summary assumes that all such Tax Proposals will be enacted in the form currently proposed but no assurance can be given that they will be enacted in the form proposed or at all. This summary does not otherwise take into account or anticipate any changes in law, administrative policy or assessing practice, whether by legislative, regulatory, administrative, governmental or judicial interpretation, decision or action, nor does it take into account the tax laws of any province or territory of Canada or of any jurisdiction outside of Canada, which may differ from the Canadian federal income tax considerations described herein.

Subject to certain exceptions that are not discussed in this summary, for the purposes of the Canadian Tax Act, all amounts relating to the acquisition, holding or disposition of Common Stock must be determined in Canadian dollars based on exchange rates as determined in accordance with the Canadian Tax Act. The amount of any dividends required to be included in the income of, and capital gains or capital losses realized by, a Holder may be affected by fluctuations in the relevant exchange rate.

This summary is not exhaustive of all possible Canadian federal income tax considerations of purchasing, holding or disposing of the Common Stock. Moreover, this summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder and no representation with respect to the income tax consequences to any particular Holder is made. Accordingly, Holders are urged to consult their own tax advisors about the specific tax consequences to them of acquiring, holding and disposing of Common Stock in their particular circumstances.

Holder Resident in Canada

This portion of the summary is generally applicable to a Holder who, for the purposes of the Canadian Tax Act and at all relevant times, is or is deemed to be, a resident of Canada (a Resident Holder). A Resident Holder whose Common Stock might not otherwise qualify as capital property may, in certain circumstances, be entitled to make the irrevocable election provided by subsection 39(4) of the Canadian Tax Act to have its Common Stock and every other “Canadian security” (as defined in the Canadian Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property. Such Resident Holders should consult their own tax advisors as to whether an election under subsection 39(4) of the Canadian Tax Act is available and/or advisable in their particular circumstances.

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This portion of the summary is not applicable to a Resident Holder: (i) that is a “financial institution” within the meaning of the Canadian Tax Act (for the purposes of the mark-to-market rules); (ii) that is a “specified financial institution” within the meaning of the Canadian Tax Act; (iii) that reports its “Canadian tax results” within the meaning of the Canadian Tax Act in a currency other than Canadian currency; or (iv) an interest in which is a “tax shelter investment” within the meaning of the Canadian Tax Act. This summary does not address the possible application of the “foreign affiliate dumping” rules that may be applicable to a Resident Holder that is a corporation that is or becomes, or does not deal at arm’s length for purposes of the Canadian Tax Act with a corporation resident in Canada that is or becomes, as part of a transaction or event or series of transactions or events that include the acquisition of the Common Stock, controlled by a non-resident corporation for the purposes of the rules in section 212.3 of the Canadian Tax Act. Any such Resident Holder to which this portion of the summary does not apply should consult its own tax advisor with respect to the tax consequences of acquiring Common Stock.

Dividends on Common Stock

A Resident Holder will be required to include in computing its income for a taxation year any dividend received or deemed to be received on the Common Stock. In the case of a Resident Holder that is an individual (other than certain trusts), such dividend will be subject to the gross-up and dividend tax credit rules normally applicable under the Canadian Tax Act to taxable dividends received from taxable Canadian corporations. Taxable dividends that are designated by us as “eligible dividends” will be subject to an enhanced gross-up and tax credit regime in accordance with the rules in the Canadian Tax Act. There may be limitations on our ability to designate dividends as eligible dividends. In the case of a Resident Holder that is a corporation, the amount of any such dividend that is included in its income for a taxation year will generally be deductible in computing its taxable income for that taxation year. In certain circumstances, however, subsection 55(2) of the Canadian Tax Act will treat a dividend received or deemed to be received by a Resident Holder that is a corporation as proceeds of disposition or a capital gain. Resident Holders that are corporations should consult their own tax advisors having regard to their own circumstances.

Dispositions of Common Stock

A Resident Holder who disposes of or is deemed for the purposes of the Canadian Tax Act to have disposed of Common Stock (other than to the company unless purchased by the company in the open market in the manner in which shares are normally purchased by any member of the public in the open market) will generally realize a capital gain (or capital loss) in the taxation year of the disposition equal to the amount by which the proceeds of disposition are greater (or are less) than the total of: (i) the adjusted cost base as defined in the Canadian Tax Act to the Resident Holder of the Common Stock immediately before the disposition or deemed disposition, and (ii) any reasonable costs of disposition.

A Resident Holder will generally be required to include in computing its income for the taxation year of disposition, one half of the amount of any capital gain (a “taxable capital gain”) realized in such year. Subject to and in accordance with the provisions of the Canadian Tax Act, a Resident Holder will generally be required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in the taxation year of disposition against taxable capital gains realized in the same taxation year. Allowable capital losses in excess of taxable capital gains for the taxation year of disposition generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such taxation years, to the extent and under the circumstances specified in the Canadian Tax Act.

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If a Resident Holder is a corporation, any capital loss realized on a disposition or deemed disposition of Common Stock (or a share for which the Common Stock has been substituted) may, in certain circumstances prescribed by the Canadian Tax Act, be reduced by the amount of any dividends which have been received or which are deemed to have been received on such Common Stock. Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns Common Stock directly or indirectly through a partnership or a trust. Resident Holders to whom these rules may be relevant should consult their own tax advisors.

Other Taxes

A Resident Holder that is a “private corporation” or a “subject corporation,” as defined in the Canadian Tax Act, will generally be liable to pay a refundable tax of 38 1/3% under Part IV of the Canadian Tax Act on dividends received or deemed to be received on the Common Stock to the extent such dividends are deductible in computing the Resident Holder’s taxable income for the year.

A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Canadian Tax Act) may be liable to pay an additional refundable tax of 10 2/3% on its “aggregate investment income” (as defined in the Canadian Tax Act) for the year, including taxable capital gains realized on the disposition of Common Stock.

Capital gains and taxable dividends received or deemed to be received by a Resident Holder who is an individual (other than certain trusts) may result in such Resident Holder being liable for alternative minimum tax under the Canadian Tax Act. Such Resident Holders should consult their own tax advisors in

this regard.

Holders Not Resident in Canada

This portion of the summary is generally applicable to a Holder who, at all relevant times, for the purposes of the application of the Canadian Tax Act, (i) is not, and is not deemed to be, resident in Canada for purposes of the Canadian Tax Act and (ii) does not use or hold, and is not deemed to use or hold, Common Stock in a business carried on in Canada (a Non-Canadian Holder). Special rules, which are not discussed in this summary, may apply to a Non-Canadian Holder that is an insurer carrying on an insurance business in Canada and elsewhere.

Dividends

Dividends paid or credited on the Common Stock or deemed to be paid or credited on the Common Stock to a Non-Canadian Holder will be subject to Canadian withholding tax at the rate of 25%, subject to any reduction in the rate of withholding to which the Non-Canadian Holder is entitled under any applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident. For example, under the Canada-United States Tax Convention (1980), as amended, where dividends on the Common Stock are considered to be paid to or derived by a Non-Canadian Holder that is a beneficial owner of the dividends and is a U.S. resident for the purposes of, and is entitled to benefits of, such treaty, the applicable rate of Canadian withholding tax is generally reduced to 15% or, if such beneficial owner is a corporation that owns at least 10% of our voting shares, to 5%.

Dispositions

A Non-Canadian Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition or deemed disposition of Common Stock, unless the Common Stock are “taxable Canadian property” to the Non-Canadian Holder for purposes of the Canadian Tax Act and the Non-Canadian Holder is not entitled to relief under an applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident.

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Generally, the Common Stock will not constitute “taxable Canadian property” to a Non-Canadian Holder at a particular time provided that the Common Stock are listed at that time on a “designated stock exchange” (as defined in the Canadian Tax Act), which includes The Nasdaq Global Market, unless at any particular time during the 60-month period that ends at that time (i) one or any combination of (a) the Non-Canadian Holder, (b) persons with whom the Non-Canadian Holder does not deal at arm’s length, and (c) partnerships in which the Non-Canadian Holder or a person described in (b) holds a membership interest directly or indirectly through one or more partnerships, has owned 25% or more of the issued shares of any class or series of our capital stock, and (ii) more than 50% of the fair market value of the Common Stock was derived, directly or indirectly, from one or any combination of: (i) real or immoveable property situated in Canada, (ii) “Canadian resource properties” (as defined in the Canadian Tax Act), (iii) “timber resource properties” (as defined in the Canadian Tax Act) and (iv) options in respect of, or interests in, or for civil law rights in, property in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain circumstances set out in the Canadian Tax Act, Common Stock could be deemed to be “taxable Canadian property.” Non-Canadian Holders whose Common Stock may constitute “taxable Canadian property” should consult their own tax advisors.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to the information and reporting requirements of the Exchange Act and file periodic reports and other information with the SEC. Our reports and other information filed with the SEC may be inspected at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials may be obtained at prescribed rates from the SEC at that address. Our reports and other information can also be inspected at no charge on the SEC’s website at www.sec.gov.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.

We are also required to file reports and other information with the securities commissions in Canada. These filings are electronically available, at no charge, from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) on the website www.sedar.com.

I. Subsidiary Information

We have two wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc., which is incorporated in the state of Delaware and Clementia Pharmaceuticals France SARL, which is incorporated in France.

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Item 11. Qualitative and Quantitative Disclosure About Market Risks

Refer to note 16 to the audited consolidated financial statements contained in Item 18.

We are exposed to certain financial risks, including liquidity risk, credit risk, interest rate risk and foreign exchange risks.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage by monitoring its forecasted cash requirements and expected cash drawdowns. The balance of the Company’s accounts payable and accrued liabilities is due within one year.

Credit risk arises from cash, short-term investment, interest and other receivables. The Company holds its cash and short-term investments at Canadian and US chartered banks. The credit risk of cash, short-term investments and interest receivable from short-term investments is limited because the counter-parties are chartered banks with high credit ratings assigned by international credit rating agencies.

We are exposed to interest rate risk on our short-term investments. The objective of holding term deposits is to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to our interest-bearing operating bank accounts with limited risk to the principal amount invested. We intend to match the maturities of our term deposits with the cash requirements of our operating activities. We do not have in place any tools to manage our interest rate risk. We do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to interest rates on our investments, owing to the relative short-term nature of the investments.

We are exposed to the financial risk related to fluctuations of foreign exchange rates. We incur a portion of our expenditures in Canadian dollars and in Euros. A change in the currency exchange rates between the U.S. dollar relative to the Canadian dollar or the Euro could have a significant effect on our results of operations, financial position or cash flows. We are exposed to currency risk through our cash, sales tax and other receivables and accounts payable and accrued liabilities denominated in Canadian dollars and Euros. We do not have in place any tools to manage our foreign exchange risk, other than keeping expected foreign currency cash requirements in the foreign currency to form a natural hedge. Based on our net exposures as at December 31, 2018, and assuming all other variables remain constant, a 10% depreciation or appreciation of the U.S. dollar against the Canadian dollar and the Euro would result in an increase/decrease of approximately $0.1 million on the Company’s results of operations.

Item 12. Description of Securities Other Than Equity Securities

A. Debt securities

Not applicable.

B. Warrants and Rights

Not applicable.

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C. Other Securities

Not applicable.

D. American Depositary Shares

Not applicable.

PART II

Item 13. Defaults, Dividend, Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

There has been no change to the information provided in our registration statement filed on Form F-1, dated August 1, 2017.

Item 15. Controls and Procedures

Internal controls over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. A company’s internal control over financial reporting, or ICFR, is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. A material weakness is defined as a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Management assessed the effectiveness of the Company’s ICFR using the Committee of Sponsoring Organizations of the Treadway Commission framework in Internal Control – Integrated Framework of 2003 (COSO). Based on this assessment, our principal executive officer and principal financial officer concluded that, as of December 31, 2018, the Company’s ICFR was effective.

The design of any system of internal controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Disclosure controls and procedures

As at December 31, 2018, an evaluation of the effectiveness of our disclosure controls and procedures (DCP) was carried out by our management under the supervision of and with the participation of the principle executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of that period, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

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It should be noted that while our principal executive officer and principal financial officer have concluded that our DCP are effective and provide a reasonable level of assurance, they do not expect that the DCP or ICFR will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Changes in ICFR

During the year ended December 31, 2018, there were no changes made to the Company’s ICFR that have materially affected or are reasonably likely to materially affect our ICFR or DCP.

Attestation Report of the Registered Public Accounting Firm

Because we are an “emerging growth company” under the rules of the SEC, this Annual Report is not required to include, and does not include, an attestation report of our independent registered public accounting firm with respect to our internal control over financial reporting.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert

Our Board has determined that each of the Audit Committee members, Pierre Legault, Dr. Allan Mandelzys and Dr. David P. Bonita, is a financial expert and each is independent pursuant to Rule 5605(d)(2) of the NASDAQ Capital Market and Rule 10A-3 of the Exchange Act.

Item 16B. Code of Ethics

Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all of our employees, executive officers and directors. A copy of this Code of Business Conduct and Ethics is available on our website at www.clementiapharma.com or, without charge, upon written request to Clementia Pharmaceuticals Inc., 1000 de la Gauchetière Street West, Suite 1200, Montreal, Quebec, Canada H3B 4W5, Attention: Investor Relations, telephone 1-514-940-1080 or via email at info@clementiapharma.com.

The Corporate Governance and Nominating Committee of our board of directors is responsible for overseeing the Code of Business Conduct and Ethics and must approve any waivers from the Code of Business Conduct and Ethics for employees, executive officers and directors. There were no amendments to our Code of Business Conduct and Ethics since its adoption. We did not grant any waivers to the provisions of our Code of Business Conduct and Ethics during the fiscal year ended December 31, 2018.

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Item 16C. Principal Accountant Fees and Services

KPMG LLP (KPMG) is our independent registered public accounting firm and is located in Montreal, Canada. Total fees billed to us for professional services provided by KPMG for the years ended December 31, 2018, 2017 and 2016 are as follows:

		2018		2017(1)		2016(1)
Audit fees	$	262,270	$	362,350	$	151,465
Audit-related fees		-		-		-
Tax fees	$	76,340		35,065		6,820
Other fees		-		-		-
	$	338,610	$	397,415	$	158,285

(1) Fees paid in Canadian dollars have been converted to US dollars for purposes of the table. For 2018, the US dollar per Canadian dollar exchange rate used for such conversion was $0.7719 ($0.7703 in 2017 and $0.7581 in 2016), which was the Company’s average exchange rate for the year ended December 31, 2018 (December 31, 2017 and 2016) based on Bloomberg Markets CADUSD:CUR spot exchange rates.

Audit fees consist of fees paid with respect to the audit of our consolidated annual financial statements, quarterly reviews and 20-F filing with the SEC, services in relation to the Company’s IPO, follow-on offering and ATM offering and any other professional services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements.

Audit-related fees consist of fees paid for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements that are not reported under the heading “Audit fees” above.

Tax fees consist of tax consultation, tax advise and tax compliance services for the Company and its subsidiaries.

Other fees are for services other than those described under the above headings.

Pre-Approval Policies and Procedures

The Audit Committee pre-approved all audit services to be provided to us by our independent auditors. The Audit Committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by the Audit Committee or by the Chair of the Audit Committee, who must report all such pre-approvals to the Audit Committee at their next meeting following the granting thereof. Non-audit services that are prohibited to be provided to us by our independent auditors may not be pre-approved. In addition, prior to granting any pre-approval, the Audit Committee or the Chair, as the case may be, must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. In 2018, 2017 and 2016, no services described above were approved by the Audit Committee pursuant to the pre-approval requirement waiver provision set out in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Neither the Company nor, to our knowledge, any affiliated purchaser has made any purchases of our registered shares during the last financial year.

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Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

On August 2, 2017, we listed our Common Shares for trading on NASDAQ. NASDAQ listing rules permit the Company to follow certain home country practices in lieu of compliance with certain NASDAQ corporate governance rules. Set forth below are the requirements of NASDAQ’s Rule 5600 Series that the Company does not follow and the home country practices that it follows in lieu thereof and other differences from domestic U.S. companies that apply to us under NASDAQ’s corporate governance rules.

Shareholder Approval in Connection with Certain Transactions: NASDAQ’s Rule 5635 requires each issuer to obtain shareholder approval prior to certain dilutive events, including: (i) a transaction other than a public offering involving the sale under certain circumstances of 20% or more of the issuer’s common shares outstanding prior to the transaction at a price less than the greater of book value or market value, (ii) the acquisition of the stock or assets of another company; (iii) equity-based compensation of officers, directors, employees or consultants and (iv) a change of control. Under the exemption available to foreign private issuers under NASDAQ Rule 5615(a)(3), the Company does not follow NASDAQ Rule 5635. Instead, and in accordance with the NASDAQ exemption, the Company complies with applicable Canadian corporate and securities regulatory requirements.

Disclosure of Waivers of Code of Business Conduct and Ethics: Domestic U.S. NASDAQ listed companies are required under NASDAQ Rule 5610 to disclose any waivers of their codes of conduct for directors or executive officers in a Form 8-K within four business days. As a foreign private issuer we are required to disclose any such waivers either in a Form 6-K or in the Company’s next Form 20-F.

Compensation Committee Mandate: NASDAQ Rule 5605(d) requires that the mandate of the Compensation Committee include accountability to external advisors. Our Compensation Committee Mandate does not currently include such requirements which is consistent with applicable Canadian corporate and securities regulatory requirements.

Item 16H. Mine Safety Disclosure

Not applicable.

Item 17. Financial Statements

See Item 18 below.

Item 18. Financial Statements

The financial statements appear on pages F-1 through F-38.

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Item 19. EXHIBITS

Exhibit No.		Description
3.1		Articles of Amendment of Clementia Pharmaceuticals Inc. (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
3.2		Amended and Restated By-Law No. 1 of the Registrant (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
4.2		Second Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017).
10.1		License Agreement, by and among F. Hoffman-La Roche Ltd, Hoffman-La Roche Inc. and Clementia Pharmaceuticals Inc. dated January 4, 2013 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017).
10.2		Exclusive License Agreement by and between Thomas Jefferson University and Clementia Pharmaceuticals Inc. dated February 10, 2014 (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017).
10.3		Exclusive License Agreement by and among Yamaguchi University, Yamaguchi Technology Licensing Organization and Clementia Pharmaceuticals Inc. dated April 8, 2015 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017).
10.4		Exclusive License Agreement by and between Galderma Research & Development SNC and Clementia Pharmaceuticals Inc. dated March 29, 2017 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-219066) filed with the SEC on June 30, 2017).
10.5	*	Amendment No. 1 to License Agreement with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. dated July 30, 2018.
10.6	*	Amendment No. 1 to the Exclusive License Agreement with Galderma Research and Development DNC dated December 7, 2018.
10.8		Third Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
10.9		2017 Omnibus Plan (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
10.10		Employee Share Purchase Plan (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
10.11		Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1/A (file no. 333-219066) filed with the SEC on July 21, 2017).
10.12	*	Third Amended and Restated Employment Agreement with Clarissa Desjardins.

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10.13	*	Amended and Restated Employment Agreement with Steve Forte.
10.14	*	Amended and Restated Employment Agreement with Donna Grogan.
10.15	*	Amended and Restated Employment Agreement with Jeff Packman.
10.17	*	Agreement of Sub-Sublease with Analysis Group LTD, dated December 10, 2018.
10.18	*	Office Lease Agreement with Hines Global Reit Riverside Center LLC dated February 13, 2019.
12.1	*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
12.2	*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
13.1	*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23.1	*	Consent of KPMG LLP.

____________

* Included herewith.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on annual report Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: March 28, 2019

Clementia Pharmaceuticals Inc.

By:	/s/ Clarissa Desjardins	By:	/s/ Steve Forte
Name:	Clarissa Desjardins	Name:	Steve Forte
Title:	President and Chief Executive Officer	Title:	Chief Financial Officer

149

Clementia Pharmaceuticals Inc.

Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016

F-1

KPMG LLP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone (514) 840-2100 Fax (514) 840-2187 Internet www.kpmg.ca

ReporT of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Clementia Pharmaceuticals Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statement of financial position of Clementia Pharmaceuticals Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of net loss and comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2018 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the financial performance and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.

F-2

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP*

We have served as the Company’s auditor since 2016.

March 28, 2019

Montréal, Canada

*CPA auditor, CA, public accountancy permit No. A125211

F-3

Clementia Pharmaceuticals Inc.

Consolidated Statements of Financial Position

As at (in US dollars)	Note		December 31, 2018			December 31, 2017
Assets
Current assets
Cash			$	94,972,524		$	36,230,343
Short-term investments		5		75,000,000			30,000,000
Interest receivable				564,584			575,499
Sales tax and other receivables				161,100			94,497
Income tax and tax credits receivable				1,034,808			977,901
Prepaid expenses				2,406,868			3,023,125
Total current assets				174,139,884			70,901,365
Non-current assets
Long-term investments		5		-			75,000,000
Long-term prepaid expenses				1,038,606			775,757
Property and equipment				8,186			33,084
Intangible assets		6		1,657,705			1,715,192
Total non-current assets				2,704,497			77,524,033
Total assets			$	176,844,381		$	148,425,398
Liabilities
Current liabilities
Accounts payable and accrued liabilities			$	12,412,420		$	6,718,666
Total liabilities			$	12,412,420		$	6,718,666
Equity
Common shares		8	$	306,556,943		$	230,659,692
Contributed surplus				7,613,658			2,659,348
Deficit				(149,738,640	)		(91,612,308	)
Total equity			$	164,431,961		$	141,706,732
Commitments and contingencies		14
Subsequent events		18
Total equity and liabilities			$	176,844,381		$	148,425,398

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

On behalf of the Board:

/s/ David Bonita, M.D.	/s/ Pierre Legault
Director	Director

F-4

Clementia Pharmaceuticals Inc.

Consolidated Statements of Changes in Equity

	Common  shares					Contributed surplus			Deficit			Equity
(in US dollars)	Shares		$			$			$			$
December 31, 2015		2,351,347		272,391			324,052			(91,930,991	)		(91,334,548	)
Share-based compensation (note 9)		-		-			174,419			-			174,419
Net loss and comprehensive loss		-		-			-			(57,511,979	)		(57,511,979	)
December 31, 2016		2,351,347		272,391			498,471			(149,442,970	)		(148,672,108	)
Issuance of common shares upon public offering		9,191,000		137,865,000			-			-			137,865,000
Share issuance costs		-		(10,236,593	)		-			-			(10,236,593	)
Conversion of preferred shares (note 7)		20,076,224		102,707,268			-			-			102,707,268
Excess of carrying value of preferred shares and embedded derivatives liabilities, over the stated capital of the preferred shares (note 7)		-		-			173,285,855			-			173,285,855
Deficit reduction (note 7)		-		-			(173,285,855	)		173,285,855			-
Exercise of stock options		99,013		51,626			(20,038	)		-			31,588
Share-based compensation (note 9)		-		-			2,180,915			-			2,180,915
Net loss and comprehensive loss		-		-			-			(115,455,193	)		(115,455,193	)
December 31, 2017		31,717,584		230,659,692			2,659,348			(91,612,308	)		141,706,732
Issuance of common shares upon follow-on offering		6,095,000		80,758,750									80,758,750
Share issuance costs		-		(5,172,599	)								(5,172,599	)
Exercise of stock options		51,484		311,100			(115,384	)					195,716
Share-based compensation  (note 9)		-		-			5,069,694						5,069,694
Net loss and comprehensive loss		-		-						(58,126,332	)		(58,126,332	)
December 31, 2018		37,864,068		306,556,943			7,613,658			(149,738,640	)		164,431,961

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

F-5

Clementia Pharmaceuticals Inc.

Consolidated Statements of Net Loss and Comprehensive Loss

			Year ended			Year ended			Year ended
			December 31,			December 31,			December 31,
(in US dollars)	Note		2018			2017			2016
Expenses
Research and development expenses			$	43,903,393		$	27,405,648		$	16,851,974
Tax credits				(1,038,712	)		(1,237,028	)		(139,212	)
				42,864,681			26,168,620			16,712,762
General and administrative expenses				16,491,989			9,287,036			3,405,615
Interest income				(2,357,593	)		(1,082,030	)		(398,559	)
Financial expenses		13		161,404			80,437,802			37,645,707
Net loss before income taxes				57,160,481			114,811,428			57,365,525
Income tax expense		11		965,851			643,765			146,454
Net loss and comprehensive loss			$	(58,126,332	)	$	(115,455,193	)	$	(57,511,979	)
Basic and diluted loss per share			$	(1.78	)	$	(7.93	)	$	(24.46	)
Weighted average number of outstanding basic and diluted shares				32,714,234			14,560,482			2,351,347

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

F-6

Clementia Pharmaceuticals Inc.

Consolidated Statements of Cash Flows

(in US dollars)	Note		Year ended December 31, 2018			Year ended December 31, 2017			Year ended December 31, 2016
Operating activities
Net loss			$	(58,126,332	)	$	(115,455,193	)	$	(57,511,979	)
Adjusting items
Interest income recognized in net loss				(2,357,593	)		(1,082,030	)		(398,559	)
Depreciation of property and equipment				18,808			25,297			35,055
Amortization of intangible assets		6		193,472			179,392			137,526
Loss on write-off of property and equipment				10,510			-			-
Transaction costs recognized in net loss				-			35,175			-
Embedded derivative loss recognized in net loss		7		-			77,902,663			33,982,042
Accretion of preferred shares		7		-			2,479,162			3,742,178
Share-based compensation		9		5,069,694			2,180,915			174,419
Net foreign exchange loss (gain)				127,909			(40,913	)		(82,589	)
Income tax expense recognized in net loss		11		965,851			643,765			146,454
Income taxes received (paid)				15,954			(392,620	)		(98,218	)
Tax credit				(601,227	)		(330,000	)		-
Net changes in working capital
Sales tax and other receivables				(78,909	)		3,641			(48,207	)
Income tax and tax credits receivable				(437,485	)		(761,999	)		238,690
Prepaid expenses				353,408			(3,146,724	)		350,129
Accounts payable and accrued liabilities				5,701,228			2,193,009			504,976
Net operating cash flows				(49,144,712	)		(35,566,460	)		(18,828,083	)
Investing activities
Interest income received				2,368,508			814,110			95,526
Acquisition of short-term investments				(25,000,000	)		(134,000,000	)		(40,000,000	)
Maturity of short-term investments				55,000,000			59,000,000			10,000,000
Acquisition of property and equipment				(4,420	)		(20,218	)		(27,918	)
Acquisition of intangible assets		6		(135,985	)		(1,000,000	)		-
Net investing cash flows				32,228,103			(75,206,108	)		(29,932,392	)
Financing activities
Issuance of common shares		8		195,716			31,588			-
Proceeds of public offering		8		80,758,750			137,865,000			-
Issuance costs – public offering		8		(5,172,599	)		(10,236,593	)		-
Issuance of Preferred Shares		7		-			10,000,080			-
Issuance costs – Preferred Shares		7		-			(129,520	)		-
Net financing cash flows				75,781,867			137,530,555			-
Net increase (decrease) in cash				58,865,258			26,757,987			(48,760,475	)
Cash, beginning of year				36,230,343			9,434,495			58,106,885
Effect of exchange rate fluctuations on cash held				(123,077	)		37,861			88,085
Cash, end of year			$	94,972,524		$	36,230,343		$	9,434,495

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

F-7

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

1. General information

Clementia Pharmaceuticals Inc. (the Company or Clementia) is a clinical stage biopharmaceutical company innovating new treatments for people with ultra-rare bone disorders and other diseases. The Company’s lead product candidate, palovarotene, is an oral small molecule that has shown potent activity in preventing abnormal new bone formation as well as fibrosis in a variety of tissues. The Company is developing palovarotene for the treatment of Fibrodysplasia Ossificans Progressiva (FOP), Multiple Osteochondromas (MO) and other diseases. The Company intends to file a New Drug Application (NDA) for palovarotene for the treatment of FOP in the second half of 2019.

On February 24, 2019, the Company entered into an agreement (the Arrangement Agreement) with Ipsen S.A. (Ipsen), a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and a wholly-owned subsidiary of Ipsen (the Purchaser, and together with Ipsen, the Purchaser Parties), pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of US$25.00 per share in cash upfront, plus a contingent value right (CVR) of US$6.00 per share related to the multiple osteochondroma indication for a total transaction value of up to US$1.31 billion (Plan of Arrangement). Completion of the transaction is anticipated to occur in the second quarter of 2019, subject to satisfaction or waiver of all closing conditions (see Note 18). As of the date of these financial statements, the arrangement (the Arrangement) contemplated in the Arrangement Agreement has not yet been approved or completed.

In July 2017, the Company amended its articles of incorporation to effect a 11.99-for-1 stock-split of all of the Company’s common shares. The stock-split became effective on July 19, 2017 and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in these consolidated financial statements have been retrospectively adjusted to reflect this stock-split for all periods presented.

In August 2017, the Company completed its initial public offering (IPO) and issued 9,191,000 common shares at $15 per share, including the underwriters’ over-allotment option, for total gross proceeds of $137,865,000. The Company’s common shares are listed and traded on the Nasdaq Global Select Market under the symbol CMTA.

In October 2018, the Company completed a follow-on offering and issued 6,095,000 common shares at $13.25 per share, for total gross proceeds of $80,758,750.

In October 2018, the Company also filed an At-The-Market (ATM) offering prospectus for $40,000,000 of additional common shares for a period of 24 months. The ATM permits the Company to sell common shares having an aggregate offering price of up to $40,000,000 from time to time at prevailing market prices. The underwriters’ commission will be 3% of the amount of funds raised. There were no draws on this ATM offering prospectus as at the date the financial statements were authorized for issuance.

Clementia is a development stage company and has not generated any product revenues to date. The Company has incurred net losses in each year since its inception. Net losses were $58,126,332, $115,455,193, and $57,511,979 for the years ended December 31, 2018, 2017 and 2016, respectively, resulting primarily from non-cash finance charges incurred in connection with the accounting of our preferred shares and embedded derivatives for 2017 and 2016, as well as costs incurred in connection with research and development activities and general and administrative costs associated with operations.

As of December 31, 2018, the Company had an accumulated deficit of $149,738,640. In August 2017, all outstanding Class A, B and C redeemable preferred shares were converted on a one-for-one basis into common shares of the Company. In connection therewith, the Company eliminated the $173,285,855 contributed surplus created by the conversion of the preferred shares into common shares, an amount equal to the excess of the carrying value of the preferred share liabilities and embedded derivatives liabilities immediately prior to the conversion over the amount that was accounted for as share capital, being the stated capital of the preferred shares, and reduced its deficit in the third quarter of 2017 by a corresponding amount of $173,285,855.

F-8

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Operating activities used $49,144,712, $35,566,460, and $18,828,083 in cash for the years ended December 31, 2018, 2017 and 2016, respectively.

We expect to incur significant expenses and continued operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, particularly as we advance clinical development of palovarotene by conducting clinical trials; continue research and development efforts to support clinical development of additional RARγ agonist candidates; continue to engage contract manufacturing organizations (CMOs) to manufacture our clinical study materials and to develop large-scale manufacturing capabilities; seek regulatory approval for our product candidates; add personnel to support our product development and future commercialization; add operational, financial and management information systems; maintain, leverage and expand our intellectual property portfolio; and continue to operate as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for palovarotene or any other product candidate, which we expect would occur no earlier than in the second half of 2020 and is subject to significant uncertainty. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. As a result, we may need additional financing to support our continuing operations.

Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Arrangements with collaborators or others may require us to relinquish certain rights related to our technologies or product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. The Company will need to generate significant revenue to achieve profitability and it may never do so.

Clementia is incorporated under the laws of Canada. The address of the Company’s registered head office is 1000 De La Gauchetière Street West, Suite 1200, Montréal, Québec, Canada, H3B 4W5.

The consolidated financial statements of the Company as at December 31, 2018 and 2017, and for the years ended December 31, 2018, 2017 and 2016 were approved by the board of directors of the Company and authorized for issue on March 28, 2019.

2. Significant accounting policies

a. Statement of compliance and basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

F-9

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

These consolidated financial statements have been prepared on the historical cost basis except for the valuation of the preferred shares, embedded derivatives, as well as the share-based payment transactions as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services at the time of acquisition.

Fair value is the price that would be received in selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

· Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

· Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

During the year ended December 31, 2018, the Company corrected an immaterial error that resulted in a reclassification from current prepaid expenses to long-term prepaid expenses of $775,757 as at December 31, 2017.

b. Basis of consolidation

These consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc. and Clementia Pharmaceuticals France SARL, together, the “Group”. Clementia Pharmaceuticals USA Inc. is an entity incorporated in the state of Delaware, with a registered office in Newton, Massachusetts, United States. Clementia Pharmaceuticals France SARL is an entity incorporated in France, with a registered office in Paris, France.

Subsidiaries are fully consolidated from the date of creation or acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved when the Company has the power over the investee; is exposed or has the rights to variable returns from its involvement with the investee; and has the ability to use its power to affect its return. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed beforehand.

F-10

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transaction between members of the Group are eliminated in full on consolidation.

c. Functional and presentation currency

Items included in the consolidated financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These consolidated financial statements are presented in United States dollars (USD), which is the Company’s functional and presentation currency.

d. Foreign currency transactions

In preparing these consolidated financial statements, transactions in currencies other that the Company’s functional currency are recognized at rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

e. Cash

Cash is limited to current balances with banks and similar institutions that have an insignificant risk of change in value.

f. Short and long-term investments

Short-term investments are highly liquid investments with an original maturity greater than three months but less than one year. Long-term investments are highly liquid investments with an original maturity greater than one year. Our investment portfolio consists of guaranteed investment certificates.

g. Property and equipment

Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of such items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit and loss in the period in which they are incurred.

Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their estimated useful lives, using the straight-line method as follows.

F-11

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Computer hardware	Straight-line over 2 years
Office equipment	Straight-line over 2 years
Furniture	Straight-line over 5 years
Leasehold improvements	Straight-line over the term of the lease

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

h. Intangible assets

Intangible assets with finite useful lives that are acquired separately or developed externally are carried at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is recognized on a straight-line basis over their estimated useful lives ranging from 5 years for software and from 9 to 20 years for in-licensed patents. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. All intangible assets have been purchased from or developed by third parties and have not been internally generated.

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

i. Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

F-12

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Recoverable amount of a cash-generating unit is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss.

j. Government assistance

Government assistance, consisting of investment tax credits and orphan drug tax credits, is recorded as a reduction of the related expense or against the cost of the asset acquired. Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved research program, when there is reasonable assurance that benefits will be received and all attached conditions have been complied with.

Investment tax credits consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s research and development programs. Research and development costs are expensed as incurred. Overhead expenses comprise general and administrative support provided to the research and development program and involve costs associated with support activities such as office services, information technology and human resources. Orphan drug tax credits consist of direct expenditures associated with the Company’s orphan drug clinical trials.

Investment tax credits and orphan drug tax credits are recorded based on management estimates of amounts for which there is reasonable assurance that they will be received and are subject to audit by the taxation authorities and, accordingly, these amounts may vary materially which could result in adjustments to profits or losses.

k. Share-based payments

Equity-settled share-based payments to employees and directors providing similar services are measured at the fair value of the equity instruments at the grant date.

The Company recognizes the compensation cost of share-based payments using a graded vesting method where each installment that vests is treated as its own award and each installment is measured and recognized separately. The fair value determined at the grant date for each tranche of the equity-settled share-based payments is expensed over its vesting period on a straight-line basis, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in contributed surplus.

F-13

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.

l. Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares and stock options are recognized as a deduction from share capital, net of any tax effects.

m. Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profits differ from profits or losses as reported in the consolidated statements of net loss and comprehensive loss because items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflect the tax consequences that would flow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The effect of a change in tax rates is recognized in the period during which the tax rate change occurs.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. In the Company’s case, recurring operating losses expected to be incurred throughout the development years create tax assets that may reduce future taxable earnings, if any. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or a part of the asset to be recovered.

F-14

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

In assessing whether deferred tax assets may be realized, management considers the likelihood that some portion or all of the tax assets will be realized. The ultimate use of net deferred tax assets is dependent upon the generation of future taxable income or available tax planning strategies in making this assessment. Since the Company is a development stage company, the generation of future taxable income is dependent on the successful commercialization of its products and technologies. Management has determined that it is not “more likely than not” that the benefits of the deferred tax assets will be recovered and these have thus not been recorded.

n. Loss per share

Loss per share is determined using the weighted average number of common shares outstanding during the period.

Diluted loss per share is determined by adjusting the loss and the weighted average number of common shares for the effects of all dilutive potential common shares, which comprise the preferred shares and employee stock options.

o. Employee benefits

Short-term employee benefit obligations are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Company has a present, legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

p. Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes party to the contractual obligations of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities other than financial assets and financial liabilities at fair value through profit or loss are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial instruments are classified into the following specified categories: amortised cost or fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). The classification depends on the cash flow characteristics of the financial instrument and the business model and is determined at the time of initial recognition. The Company’s financial instruments have been classified as follows:

F-15

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Financial instrument	Classification of financial assets and financial liabilities
Cash	Amortized cost
Short and long-term investments	Amortized cost
Interest and other receivables	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Preferred shares	Amortized cost
Embedded derivatives	FVTPL

For financial assets measured at amortized cost, the impairment model reflects expected credit losses. The Company recognizes, if any, loss allowances for expected credit losses and changes in those expected credit losses. At each reporting date, financial assets carried at amortized cost are assessed to determine whether they are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Loss allowances for financial assets measured at amortized cost, if any, are deducted from the gross carrying amount of the assets. The gross carrying amount of a financial asset is written off to the extent that there is no realistic prospect of recovery.

Financial liabilities other than those at FVTPL are initially recognized at fair value, net of directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest method. A financial liability is derecognized when the obligation underlying the liability is discharged or cancelled or expires.

Financial liabilities at FVTPL are recognized and subsequently measured at fair value at each reporting date with changes in fair value recorded in profit and loss in the period in which they arise. Transaction costs are allocated to financial liabilities at FVTPL and are expensed in profit and loss at inception.

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

F-16

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Embedded derivatives

An embedded derivative is a feature within a contract, such that the cash flows associated with that feature behave in a similar fashion to a stand-alone derivative. Embedded derivatives that are separated from the host contract are accounted for at FVTPL.

The terms of the preferred shares include an embedded conversion feature which provides for the conversion of the preferred shares into common shares at a variable rate due to a price protection feature (down-round protection). The Company determined that the conversion feature was an embedded derivative liability that required separation from the financial liability host contract. The embedded derivative liability is recognized and measured at fair value at each reporting date with changes in fair value recorded in financial expenses in profit and loss in the period in which they arise. The liability component is determined at inception by deducting the fair value of the embedded derivative from the fair value of the instrument as a whole.

Transaction costs that relate to the issue of the preferred shares are allocated to the liability and embedded derivative components in proportion to the allocation of the gross proceeds. Transaction costs relating to the embedded derivative liability component are expensed directly in profit and loss and transaction costs relating to the financial liability component are included in the carrying amount of the liability component and are amortized over the expected lives of the convertible instrument using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including transaction costs and other premiums or discounts) through the expected term of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

q. Interest income

The Company earns interest on its cash in current bank accounts and on its short and long-term investments. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of interest can be measured reliably.

Interest income is accrued on a time basis, by reference to the principal amount outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

F-17

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

r. Leases

The Company’s leases are operating leases. The leased assets are not recognized in the Company’s consolidated statements of financial position as the Company did not substantially assume all risks and rewards of ownership of the leased assets. Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

In the event that lease incentives were received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives has been recognized as a reduction of rental expense on a straight-line basis.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenditures, assets and liabilities. Actual results could differ from those estimates.

On an ongoing basis, estimates and judgements are evaluated. The Company bases its estimates on the most probable set of economic conditions and planned course of action, historical experience, known trends and events, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Uncertainty about these assumptions and estimates could result in outcomes that require material adjustments to the carrying amount of the asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which these estimates are revised and in any future periods affected.

Balances and transactions that are subject to a high degree of estimation are the estimation of accrued expenses, the valuation of the embedded derivatives of the preferred shares and the estimation of share-based compensation.

a. Estimation of accrued expenses

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost.

The majority of service providers invoice the Company in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. The Company estimates its accrued expenses as of each statement of financial position date in its financial statements based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with service providers and makes adjustments if necessary.

F-18

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Examples of accrued research and development expenses include fees paid to: i) contract research organizations in connection with performing research and development services on the Company’s behalf; ii) investigative sites or other providers in connection with clinical trials; iii) vendors in connection with non-clinical development activities; iv) vendors related to product manufacturing, development and distribution of clinical supplies; and v) various external consultants.

The Company bases its expenses related to clinical trials on its estimate of the services received and efforts expended pursuant to contracts with multiple contract research organizations that conduct and manage non-clinical studies and clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. The majority of prepaid expenses relate to these instances. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

In accruing service fees, the Company estimates the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of efforts varies from its estimate, the Company adjusts the accrual or prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, if its estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company may report amounts that are too high or too low in any particular period.

b. Valuation of the embedded derivative of the preferred shares

As part of assessing whether an instrument is a hybrid financial instrument and contains an embedded derivative, significant judgement is required in evaluating whether the host contract is more akin to debt or equity and whether the embedded derivative is clearly and closely related to the underlying host contract. The Company concluded that the host instrument of the preferred shares was a debt host due in part to the holder’s right to redeem the instrument at a point in time in the future based only on passage of time. The Company determined that the conversion option was not closely related to the debt host, and that the conversion option was required to be separated from the host instrument and accounted for as an embedded derivative due to its down-round protection feature. In applying its judgement, the Company relies primarily on the economic characteristics and risks of the instrument as well as the substance of the contractual arrangement.

The initial fair values of the embedded derivative conversion options and subsequent re-measurements at fair value at each reporting date were determined by using the Monte Carlo simulation model. The Monte Carlo simulation model better reflects non-static inputs, such as the anti-dilution (down-round protection) features of the preferred shares. A Monte Carlo simulation model is a valuation model that relies on random sampling and is often used when modeling systems with a large number of inputs and where there is a significant uncertainty in the future value of inputs and where the movement in inputs can be independent of each other.

F-19

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Moreover, the use of this valuation model requires highly subjective assumptions. These assumptions are determined as of the measurement date and include the risk-free interest rate, the expected dividend yield, the expected volatility, the timing and amounts of subsequent rounds of financing, the expected timing and probability of exit events, and the underlying value of the Company. Assumptions with regards to volatility, subsequent rounds of financing, time to exit and underlying value of the Company are particularly important and sensitive, requiring significant judgement by management. Accordingly, any changes in the assumptions used in this model could significantly impact the values recognized as embedded derivative conversion options at inception and on subsequent re-measurement at each reporting date.

The risk-free rate is the rate of return on the US Department of Treasury daily treasury yield curve rates over a period equal to the expected timing of an exit event. The expected dividend yield is nil as the Company does not expect to pay dividends in the near future. The expected volatility reflects the assumption that the volatility used in estimating the value of the embedded derivative is indicative of future trends, which may not necessarily be the actual outcome. Due to the lack of a public market for the trading of the Company’s shares and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. For these analyses, the Company has selected companies with comparable characteristics to it including risk profiles, orphan drugs within their portfolios, positions within the industry and with historical share price information sufficient to meet the expected timing of an exit event.

The expected timing and amounts of subsequent rounds of financing reflect management’s best estimate of subsequent rounds of financing based on contracted commitments for subsequent rounds of financing; the Company’s financial condition, including cash on hand; and the Company’s historical and forecasted performance and budgeted cash burn.

The expected timing of exit events are based on management’s best estimate of possible exit events and their likelihood, considering the progress of the Company’s research and development programs, including the status of non-clinical studies and clinical trials for the Company’s product candidates; the Company’s stage of development and its commercialization and business strategy; the Company’s financial condition, including cash on hand; the Company’s historical and forecasted performance and operating results; the likelihood of achieving a liquidity event, such as a sale of the Company or an IPO given prevailing market conditions; external market conditions affecting the biopharmaceutical industry; and trends within the biopharmaceutical industry.

In the absence of a public trading market, the underlying value of the Company was performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accounts Audit and Accounting Practice Aid Series, with the assistance of a third-party specialist, and is subject to estimation based on the valuation techniques selected and an evaluation of the inputs used in creating the valuation. Valuation techniques used include the probability-weighted expected return method and the option-pricing method or a hybrid of both methods. In addition, various objective and subjective factors were also considered, including the prices at which the Company sold preferred shares and the superior rights and preferences of the preferred shares relative to the Company’s common shares; the progress of the Company’s research and development programs; the Company’s stage of development and its commercialization and business strategy; the Company’s financial condition, including cash on hand; the Company’s historical and forecasted performance and operating results; the lack of an active public market for the Company’s common shares and preferred shares; the likelihood of achieving a liquidity event, such as a sale of the Company or an IPO given prevailing market conditions; the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry; external market conditions affecting the biopharmaceutical industry; and trends within the biopharmaceutical industry.

F-20

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

There are significant judgements and estimates inherent in these valuations. These judgements and estimates include assumptions regarding the Company’s future operating performance, the timing and likelihood of potential liquidity events and the determination of the appropriate valuation methodology at each valuation date. If different assumptions had been made, the Company’s fair value of embedded derivatives and the resulting preferred share liability and accretion expense, as well as the re-measurement of the embedded derivatives could have been materially different.

c. Estimation of share-based compensation expenses

The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option pricing model that was developed to estimate the fair value of freely tradable, fully transferrable stock options without vesting restrictions. The terms of the share-based awards that have been awarded by the Company differ significantly from actual options that the Black-Scholes model was designed to evaluate.

The Black-Scholes model requires the input of highly subjective assumptions, which affect the calculated values. The most subjective assumptions are the expected volatility of the Company’s stock and the expected life of the award. Other assumptions include the risk-free interest rate and expected dividends. The assumptions used represent the Company’s best estimates at the time of grant.

The expected volatility reflects the assumption that the volatility used in estimated the fair value of share-based compensation is indicative of future trends, which may not necessarily be the actual outcome. Due to the limited historical trading of the Company’s common shares and a lack of company implied volatility data, the Company has based its estimate of expected volatility on the weighting of historical volatility of a group of similar companies that are publicly traded and the volatility of its share price for the period for which the Company has been listed. For these analyses, companies selected had comparable characteristics to the Company, including risk profiles, orphan drugs within their portfolios and position within the industry. This process will continue to be applied until a sufficient amount of historical information regarding the volatility of the Company’s own stock price becomes available. Prior to the year ended December 31, 2018, the Company only used the historical volatility of a group of similar companies that are publicly traded.

The expected life of the options reflects the assumption that the expected life of the options used in estimating the fair value of share-based compensation is indicative of future exercise patterns that may occur which may not necessarily be the actual outcome. The Company has limited historical exercise patterns on which to base this estimate.

F-21

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The risk-free interest rates for periods within the expected life of the option are based on the U.S. Department of Treasury daily treasury yield curve rates in effect at grant date for time periods approximately equal to the expected life of the option.

The expected dividend yield has been estimated at nil as the Company has never paid cash dividends and does not expect to do so in the foreseeable future.

The Company also has to assess, at each reporting date, whether the achievement of the applicable milestone in performance awards is probable of achievement, which requires management judgement. If it is assessed as probable, compensation expense is recorded to the extent the award has vested and if it is assessed as not probable, no compensation expense is recorded.

4. Recently adopted and future changes in accounting policies

On January 1, 2018, the Company adopted Financial Instruments (IFRS 9), which replaces the requirements in IAS 39, Financial Instruments, Recognition and Measurement for classification and measurement of financial assets and liabilities. IFRS 9 introduces a single classification and measurement approach for financial instruments, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements and results in a single impairment model being applied to all financial instruments. IFRS 9 also modifies the hedge accounting model to incorporate the risk management practices of an entity. Additional disclosures are also required under the new standards. The expected credit loss related to the Company’s financial assets is not considered material because the Company’s principal financial assets are cash and investments (note 5) which do not have material expected credit losses due to the counterparty Canadian and U.S. chartered banks that have high credit ratings and low default rates.

The IASB has also issued new standards that are not effective for the year ended December 31, 2018, and although early adoption is permitted, they have not been applied in these consolidated financial statements.

Leases (IFRS 16), effective for annual periods beginning on or after January 1, 2019, provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS 17 Leases and its associated interpretive guidance. Significant changes were made to lessee accounting with the distinction between operating and finance leases removed and assets and liabilities recognized in respect of all leases (subject to limited exceptions for short-term leases and leases of low value assets). Earlier application of IFRS 16 is permitted for companies that have also adopted IFRS 15, Revenue from Contracts with Customers.

The Company will recognize a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove underlying assets or to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the term of the lease.

F-22

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, typically discounted using the Company’s estimated incremental borrowing rate. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in rate or index. When the lease liability is remeasured this way, a corresponding adjustment is generally made to the carrying amount of the right-of-use asset.

The Company had non-cancellable operating lease commitments with regards to two operating leases for its head office in Montreal expiring in 2020 and additional office space in Newton expiring in 2019. The Company has terminated its head office lease expiring in 2020 and entered into a new lease for head office space in Montreal effective January 2019 and expiring October 2023. The Company has also entered into a new lease for office space in Newton with an expected effective date of May 2019 and expected expiry of June 2024. The Company has adopted the requirements of IFRS 16 effective January 1, 2019, using a modified retrospective approach and therefore, comparative information will not be restated and will continue to be reported under IAS 17. The Company has also applied the short-term lease practical expedient to its existing leases to not recognize a right-of-use asset or lease liability for its existing leases as these were either terminated or have a lease term ending within 12 months of the date of application. Because the Company only had short-term leases at December 31, 2018, there was no cumulative effect on retained earnings on January 1, 2019. The Company will recognize right-of-use assets and lease liabilities for its new lease commitments effective 2019, but has not yet finalized its analysis. In addition, the nature of expenses related to these new leases will now change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.

5. Investments

Term deposits, bearing interest at rates varying between 1.71% and 1.88% and maturing on various dates up to October 1, 2019, were classified as follows.

	December 31, 2018		December 31, 2017		December 31, 2016
Short-term investments	$	75,000,000	$	30,000,000	$	30,000,000
Long-term investments		-	$	75,000,000		-
	$	75,000,000	$	105,000,000	$	30,000,000

The objective for holding term deposits is to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to the Company’s interest-bearing operating bank accounts with limited risk to the principal amount invested. The Company intends to match the maturities of its term deposits with the cash requirements of the Company’s operating activities.

F-23

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

6. Intangible assets

	2018		2017		2016
Cost:
Opening balance as at January 1,		2,388,399		1,388,399		1,388,399
Additions		135,985		1,000,000		-
Closing balance as at December 31,		2,524,384		2,388,399		1,388,399
Accumulated amortization:
Opening balance as at January 1,		673,207		493,815		356,289
Amortization		193,472		179,392		137,526
Closing balance as at December 31,		866,679		673,207		493,815
Net book value as at December 31,		1,657,705		1,715,192		894,584

Intangible assets are comprised of licensing agreements and external software development costs.

On March 29, 2017 the Company entered into an exclusive licensing agreement with Galderma Research & Development SNC (Galderma) to obtain access to retinoic acid receptor gamma agonist compounds and was granted exclusive rights to use these in non-dermatological indications. In accordance with this agreement, the Company paid a one-time license fee of $1 million, which was recorded as an intangible asset, and is committed to making certain future payments based on successful achievement of specific development and commercialisation milestones related to the licensed Galderma compounds (see note 14).

During the year ended December 31, 2018, the Company recorded $135,985 of external software development costs as an intangible asset.

7. Preferred shares

The Company has an unlimited number of voting and participating Preferred Shares authorized for issuance in series and without par value.

On March 16, 2017, the Company completed a $10,000,080 Class C financing with a new investor. Under the agreed terms, the Company issued 841,410 Class C redeemable convertible preferred shares at $11.88 per share for a total consideration of $10,000,080, less $129,520 in share issuance costs.

F-24

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Class A, B and C redeemable and convertible preferred shares had substantially the same terms. The preferred shares were convertible into common shares any time at the option of the holder, on a one-to-one basis subject to normal and customary anti-dilutive provisions, but were mandatorily convertible upon closing of a qualified IPO, defined as an IPO with a minimum multiple of the original issue price of the preferred shares and with a minimum gross proceeds threshold. Also, the preferred shares were redeemable at face value at the option of the holder at any time commencing seven years after the Class B issuance in June 2015. The preferred shares also had a liquidation preference whereby upon dissolution or sale of the Company, the preferred shares were redeemable prior to the distribution of the remaining property, profits and surplus assets of the Company to preferred and common shareholders.

The preferred shares carried an 8% fixed, non-cumulative, preferential dividend, as and when declared by the Company’s board of directors. In order to maximize the full value of the Company’s assets and its ongoing development efforts, the Company did not pay out any dividends.

The preferred shares also contained provisions that protected the holders from a decline in the issue price of the Company’s shares (or down-round provisions). These down-round provisions reduced the conversion price of the preferred shares if the Company issued a subsequent round of financing at a price that was lower than the conversion price of the preferred shares. As a result, the Company accounted for the conversion options of the preferred shares as embedded derivative liabilities, measured at FVTPL. The difference between the fair values allocated to the embedded derivative liabilities at inception and the proceeds received were accounted for as financial liabilities due to their redemption features. The financial liabilities were being accreted back to their face values through a charge to financial expenses over their expected term using the effective interest rate method.

In August 2017, immediately prior to its qualifying IPO, all of the outstanding Class A, B and C redeemable convertible preferred shares were converted on a one-for-one basis into 20,076,224 common shares of the Company. In connection therewith, in the third quarter of 2017 the Company i) included the original stated capital of the preferred shares in share capital, ii) included the excess of the total carrying value of the preferred shares and the embedded derivative liabilities over the original stated capital of the preferred shares in contributed surplus and iii) eliminated the contributed surplus created by the conversion of the preferred shares into common shares and recorded a corresponding reduction in deficit (as resolved by the Company’s board of directors).

As at December 31, 2018, there were no Class A redeemable convertible preferred shares issued and outstanding (nil at December 31, 2017, and 13,409,796 as at December 31, 2016 at a price of $2.44 per share), no Class B redeemable convertible preferred shares issued and outstanding (nil at December 31, 2017 and 5,825,018 as at December 31, 2016 at a price of $10.30 per share) and no Class C redeemable convertible preferred shares issued and outstanding (nil as at December 31, 2017 and 2016).

F-25

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Changes in preferred shares and embedded derivatives for the years ended December 31, 2017 and 2016 were as follows:

	Preferred shares									Embedded derivatives
		Class A			Class B			Class C			Class A			Class B			Class C
Balance, December 31, 2015	$	23,801,078		$	40,337,696		$	-		$	61,893,086		$	21,949,483		$	-
Accretion during the year		1,192,408			2,549,770			-			-			-			-
Loss on re-measurement at fair value		-			-			-			21,462,384			12,519,658			-
Balance, December 31, 2016	$	24,993,486		$	42,887,466		$	-		$	83,355,470		$	34,469,141		$	-
Issuance of preferred shares		-			-			7,284,269			-			-			2,715,811
Transaction costs		-			-			(94,345	)		-			-			-
Accretion during the year		730,576			1,575,843			172,743			-			-			-
Loss (gain) on re-measurement at fair value		-			-			-			85,089,013			(7,093,016	)		(93,334	)
Original stated capital of preferred shares reclassified as share capital upon conversion		(32,708,047	)		(59,999,141	)		(10,000,080	)		-			-			-
Excess reclassified as contributed surplus (total $173,285,855)		6,983,985			15,535,832			2,637,413			(168,444,483	)		(27,376,125	)		(2,622,477	)
Balance, December 31, 2017	$	-		$	-		$	-		$	-		$	-		$	-

The fair values of the embedded derivative conversion options prior to March 16, 2017 were estimated using a Monte Carlo simulation model.

The fair values of the embedded derivative conversion options at March 31, 2017, and at inception for the Class C preferred shares, were estimated using a hybrid of the probability-weighted expected return method (PWERM), weighted at 75%, and a Monte Carlo simulation model, weighted at 25%. The Company integrated a PWERM model into its valuation methodology during the first quarter of 2017 as it had undertaken tangible steps towards a qualifying IPO and it believed this model to be a more accurate estimation method of the conversion option.

Under the PWERM methodology, the fair value was estimated based upon the future implied equity values using a range of low, medium and high exit multiples. Exit multiples were derived from comparable public company transactions that compared the invested capital (being the aggregate of debt and shares) to the pre-IPO equity values. The estimated implied equity value was discounted back from the estimated time to exit to the valuation date.

The fair values of the embedded derivative conversion options at June 30, 2017 were estimated using a hybrid of the PWERM method, weighted at 95%, and a liquidation scenario, weighted at 5%. The shift in weight towards the PWERM model considered the Company’s continued progress towards a qualifying IPO.

F-26

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The fair values of the embedded derivative conversion options in August 2017, immediately prior to the conversion of the Class A, B and C redeemable convertible preferred shares on a one-for-one basis into common shares pursuant to the Company’s qualifying IPO, were based on the public offering price of $15 per share over the conversion price of the Class A, B and C redeemable convertible preferred shares, being their stated price per share.

The fair value of the embedded derivative conversion options were estimated at inception and on a recurring basis using the Monte Carlo simulation model or PWERM methodology with the following key assumptions, including a nil dividend yield:

	August 2017						2017 (inception)				December 31, 2016
		Class A		Class B		Class C		Class C				Class A			Class B		Class C
Fair value of embedded derivative per share	$	12.56	$	4.70	$	3.12			$3.23		$	6.22		$	5.92		-
PWERM assumptions:
Range of exit multiples		-		-		-		3.4	-	4.1		-			-		-
Time to exit (in years)		-		-		-			0.50			-			-		-
Monte Carlo assumptions:
Starting equity value (in millions of $)		-		-		-			$298.1		$	249.6		$	249.6		-
Volatility		-		-		-			74%			68	%		68	%	-
Weighted average time to exit (in years)		-		-		-			0.75			0.85			0.85		-

These derivative liabilities were classified as a Level 3 in the fair value hierarchy. A reasonably possible movement in the estimated starting equity value, expected volatility or expected time to exit could significantly impact the fair value of the embedded derivative.

8. Share capital

The Company has an unlimited number of voting and participating common shares authorized for issuance without par value.

In July 2017, the Company amended its articles of incorporation to effect a 11.99-for-1 stock-split of all of the Company’s common shares. The stock-split became effective on July 19, 2017 and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in these consolidated financial statements have been retrospectively adjusted to reflect this stock-split for all periods presented.

F-27

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

In August 2017, immediately prior to its qualifying IPO, all outstanding Class A, B and C redeemable convertible preferred shares were converted on a one-for-one basis into 20,076,224 common shares of the Company (see note 7).

In August 2017, the Company completed its IPO and issued 9,191,000 common shares at $15 per share, including the underwriters’ over-allotment option, for total gross proceeds of $137,865,000.

Financing costs, consisting of legal and other advisory costs in the amount of $1,436,356, were allocated to the listing of the Company’s common shares existing immediately prior to the IPO and were expensed as incurred under general and administrative expenses. Financing costs, consisting of legal and other advisory costs in the amount of $586,043, were allocated to new common shares issued in conjunction with the IPO and are reflected in share capital as a reduction of the IPO proceeds, along with underwriter fees of $9,650,550.

In October 2018, the Company completed a follow-on offering and issued 6,095,000 common shares at $13.25 per share, including the underwriters’ over-allotment option, for total gross proceeds of $80,758,750. Financing costs, consisting of legal and other advisory costs in the amount of $327,074 and underwriter fees of $4,845,525 are reflected in share capital as a reduction of the follow-on offering proceeds.

In October 2018, the Company also filed an At-The-Market (ATM) offering prospectus for $40,000,000 of additional common shares for a period of 24 months. This ATM permits the Company to sell common shares having an aggregate offering price of up to $40,000,000 from time to time at prevailing market prices. The underwriters’ commission will be 3% of the amount of funds raised. There were no draws on this ATM offering prospectus as at the date these consolidated financial statements were authorized for issuance.

9. Share-based payments

Under the Company’s Employee Stock Option Plan (ESOP), the Company could grant to its directors, management and employees non-transferrable stock options for the purchase of common shares. Up until completion of the IPO, the maximum number of common shares that were available for issuance under the ESOP was limited to 3,786,886, of which 2,720,709 remain issued and outstanding as at December 31, 2018 (2,997,836 as at December 31, 2017 and 2,453,586 as at December 31, 2016).

Upon completion of its IPO, the Company adopted the 2017 Omnibus Plan (Omnibus) under which all future equity-based awards are now granted. Employees, directors and consultants are eligible to participate in the Omnibus. The maximum number of common shares available for issuance under the Omnibus was limited to 3,659,308 as at December 31, 2018. This number will automatically increase by an annual amount to be added on the first day of each year, beginning January 1, 2018 and continuing until, and including, the year ending December 31, 2027, equal to the lower of 4% of the number of common shares outstanding as of December 31 of the prior calendar year and an amount determined by the Company’s board of directors. The annual amount added on January 1, 2019 was established at 4% of the common shares outstanding at December 31, 2018, or 1,514,563, thus bringing the maximum number of common shares available for issuance under the Omnibus to 5,173,871 as of January 1, 2019.

F-28

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The Omnibus provides for awards of stock options, stock appreciation rights, unrestricted stock, stock units (including restricted stock units), performance awards, deferred share units, elective deferred share units and other awards convertible into or otherwise based on the Company’s common shares. As at December 31, 2018, there were 1,673,065 stock options outstanding under the Omnibus (27,990 as at December 31, 2017 and nil as at December 31, 2016).

The Omnibus is substantially consistent with the ESOP as it pertains to stock options. Stock options granted under the ESOP expire 10 years after their initial grant date and those granted under the Omnibus expire 7 years after their initial grant date. Time-based stock options under either plan generally vest over a period of 4 years: 25% cliff vesting after one year with monthly vesting over the subsequent 36 months. Outstanding performance-based stock options vest in part upon achievement of a milestone event and in part over a time period subsequent to the achievement of the milestone event.

The exercise price for stock option grants is determined at the date of grant by the Company’s board of directors and cannot be less than the fair value of the Company’s common shares. This fair value was previously established by various valuation analyses prior to the Company’s IPO and will now be based on the Company’s stock’s closing price on the day prior to option grant.

Changes in the number of stock options outstanding are as follows:

	December 31, 2018					December 31, 2017					December 31, 2016
	Options			Weighted average exercise price		Options			Weighted average exercise price		Options			Weighted average exercise price
Balance at beginning of year		3,025,826		$	2.61		2,453,586		$	0.44		2,462,914		$	0.44
Issued during the year		1,869,400		$	14.16		671,253		$	10.22		-			-
Exercised during the year		(51,484	)	$	3.80		(99,013	)	$	0.32		-			-
Forfeited during the year		(449,968	)	$	10.13		-			-		(9,328	)	$	0.69
Balance at end of period		4,393,774		$	6.74		3,025,826		$	2.61		2,453,586		$	0.44

F-29

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The following table summarizes the information related to outstanding stock options as at December 31, 2018.

	Outstanding stock options						Exercisable stock options
Range of exercise prices	Number of stock options outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number of exercisable stock options		Weighted average exercise price
$0.29 - $0.69		2,182,548		5.3	$	0.34		1,965,049	$	0.34
$4.81		35,704		6.9	$	4.81		25,125	$	4.81
$8.61 - $9.58		35,000		6.6	$	8.75		-		-
$9.70 - $10.04		502,457		8.3	$	9.97		263,723	$	9.97
$11.86 - $12.28		258,980		6.5	$	11.90		3,331	$	12.28
$13.40 - $14.38		866,720		6.3		13.76		12,655	$	13.61
$15.95 - $16.50		405,365		6.3	$	15.97		8,913	$	16.39
$17.00 - $18.98		107,000		6.3	$	17.77		-		-
		4,393,774		6.0	$	6.74		2,278,796	$	1.66

During the year ended December 31, 2018, the Company recorded a stock-based compensation expense of $4,800,597 ($2,180,915 in 2017 and $174,419 in 2016) of which $3,354,609 ($1,495,174 in 2017 and $64,998 in 2016) was recorded in general and administrative expenses and $1,445,988 ($685,741 in 2017 and $109,421 in 2016) in research and development expenses.

As at December 31, 2018, the Company had approximately $6.1 million of total unrecognized stock-based compensation expense, net of related forfeiture estimates, which is expected to be recognized over a weighted-average remaining vesting period of approximately 1.4 years.

As at December 31, 2018, there were 404,250 performance-based stock options outstanding for which no share-based compensation expense was recorded. The Company had approximately $3.7 million of unrecognized share-based compensation expenses related to these. Subsequent to December 31, 2018, the Company’s board of directors approved a modification to the milestone associated with these performance options, with all other terms remaining the same. Based on this modification, management has revised its assessment of achieving the milestone as being probable and expects to record cumulative share-based compensation expense related to these options in the first quarter of 2019 and thereafter until the awards are vested.

F-30

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2018			2017			2016
Grant (number of stock options)		1,869,400			671,253			-
Weighted average fair value of stock options	$	8.38		$	6.80			-
Weighted average exercise price	$	14.16		$	10.22			-
Weighted average assumptions:
Share price	$	14.16		$	10.22			-
Risk-free interest rate		2.68	%		1.96	%		-
Expected dividend yield		-			-			-
Volatility factor		74.86	%		77.13	%		-
Expected life (in years)		4.40			5.85			-

Deferred share units (DSUs)

Under the Company’s Omnibus, directors may elect to take all, none or a portion of their director compensation as DSUs. DSUs have no voting rights, but accrue dividends, if any, as additional DSUs at the same rate as dividends are paid on the Company’s shares. There are no vesting requirements relating to DSUs. DSUs are settled when a director leaves the Company’s board of directors, in either cash or the Company’s common shares issued from treasury or purchased on the open market, at the Company’s option. DSUs issued were treated as equity-settled DSUs, due to the Company’s current intent to settle outstanding DSUs in shares, whereby the fair value of services received is credited against contributed surplus, with the corresponding share-based compensation being recorded under general and administrative expenses. DSUs are not remeasured subsequent to grant date.

During the year ended December 31, 2018, the Company granted 21,568 DSUs to directors in lieu of payment of their board fees at an average grant date fair value of $12.47, based on the closing price of the Company’s shares, and recognized an expense of $269,097 in general and administrative expenses for the year ended December 31, 2018 (nil for the years ended December 31, 2017 and 2016).

10. Loss per share

For the years ended December 31, 2018, 2017 and 2016, diluted loss per share is the same as basic loss per share as the effect of stock options and preferred shares would have been anti-dilutive.

F-31

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

11. Income taxes

The effective tax rate on the Company’s net loss differs from the expected amount that would arise using the statutory income tax rates. A reconciliation of the difference is as follows:

	2018			2017			2016
Loss before income taxes	$	(57,160,481	)	$	(114,811,428	))	$	(57,365,525	)
Statutory income tax rate		26.7	%		26.8	%		26.9	%
Computed income tax recovery		(15,261,848	)		(30,769,463	)		(15,431,326	)
Adjustment in income taxes resulting from:
Unrecorded potential tax benefits		14,420,791			9,434,421			5,165,985
Decrease in deferred tax assets resulting from a reduction in tax rate		108,306			106,805			217,675
Income taxable at a different foreign tax rate		34,550			115,247			43,494
Accounting charges not deducted for tax and other		1,664,052			21,756,755			10,150,626
Current income tax expense	$	965,851		$	643,765		$	146,454

The Company’s applicable statutory tax rate is the Canadian combined rate applicable in the jurisdictions in which the Company operates. The Company’s statutory income tax rate decreased from 26.8% to 26.7% as a result of a provincial decrease in income tax rates from 2017 to 2018 and from 26.9% to 26.8% from 2016 to 2017.

The income tax effect of temporary differences that give rise to net deferred tax assets and deferred tax liabilities is presented below.

	2018			2017			2016
Deferred tax assets
Net operating loss carryforwards	$	35,883,150		$	21,923,593		$	12,938,264
Unused research and development expenditures		2,766,408			1,807,596			1,178,910
Financing costs		1,896,242			2,470,787			17,201
Costs relating to patents and others		119,314			139,380			118,564
Property and equipment		442,866			258,423			174,725
		41,107,980			26,599,779			14,427,664
Deferred tax liabilities
Property and equipment		-			-			(3,209	)
Net deferred income tax assets		41,107,980			26,599,779			14,424,455
Unrecorded deferred income tax assets		(41,107,980	)		(26,599,779	)		(14,424,455	)
	$	-		$	-		$	-

F-32

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

As at December 31, 2018, the Company had the following loss carryforwards and unclaimed deductions and credits available for carryforward. Investment tax credits, orphan drug tax credits, loss carryforwards and scientific research and experimental development expenditure amounts are based on management estimates and are subject to verification by taxation authorities. Accordingly, these amounts may vary significantly.

	Provincial		Federal
Research and development expenditures, without time limitation	$	11,322,445	$	9,762,179
Losses carried forward, expiring
2029	$	39,492	$	39,508
2030		153,102		153,353
2031		88,677		89,381
2032		77,368		92,095
2033		2,631,911		2,722,029
2034		7,902,544		8,103,485
2035		18,705,985		18,980,654
2036		18,711,295		19,046,349
2037		33,829,690		33,978,229
2038		52,370,269		52,905,565
	$	134,510,333	$	136,110,648
Unused tax credits, expiring
2033			$	76,818
2034				260,594
2035				203,856
2036				154,272
2037				354,563
2038				654,025
			$	1,704,128

F-33

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

		US Federal
Orphan drug tax credits, expiring
2037	$	900,109
2038		3,075,708
	$	3,975,817

	State
Massachusetts R&D tax credits, expiring
2038	$	1,080,814

12. Additional information on the consolidated statements of net loss and comprehensive loss

	2018		2017		2016
Included in research and development expenses:
Employee benefits expense		6,530,389	$	4,475,640	$	2,352,591
Depreciation of property and equipment		11,602	$	16,879	$	20,544
Rent expense		466,604	$	444,427	$	360,565
Included in general and administrative expenses:
Employee benefits expense		6,950,520	$	3,759,584	$	1,677,808
Depreciation of property and equipment		7,206	$	8,418	$	14,511
Amortization of intangible assets		193,472	$	179,392	$	137,526
Rent expense		182,804	$	120,261	$	132,110

13. Financial expenses

	2018		2017		2016
Transaction costs – embedded derivatives	$	-	$	35,175	$	-
Accretion – preferred shares		-		2,479,162		3,742,178
Loss on re-measurement at fair value – embedded derivatives		-		77,902,663		33,982,042
Bank charges and other interest		17,360		14,320		11,487
Foreign exchange losses (gains)		144,044		6,482		(90,000	)
Total financial expenses	$	161,404	$	80,437,802	$	37,645,707

F-34

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

14. Commitments and contingencies

The following table summarizes our contractual obligations at December 31, 2018:

	2019		2020		2021		2022		2023		More than 5 years		Total
Lease commitments	$	152,880		-		-		-		-		-	$	152,880
Other commitments	$	75,000	$	75,000		-		-		-		-	$	150,000
													$	302,880

Other items not reflected in the above table include:

In October 2018, the Company terminated its head office lease in Montreal, Quebec, Canada originally expiring in 2020, effective January 31, 2019. A lease termination fee of $62,000, accrued for as rent expense as at December 31, 2018, was paid in January 2019. In December 2018, the Company entered into a new lease commitment for head office space in Montreal, Quebec, Canada, effective January 2019 and expiring October 2023, with annual payments averaging approximately $400,000/year throughout the lease term (not reflected in the above table).

The Company’s current lease in Newton, Massachusetts, USA expires in April 2019. In March 2019, the Company extended its current lease to expire in July 2019, with monthly payments of approximately $50,000 due from May 1, 2019 to July 31, 2019 (not reflected in the above table). In February 2019, the Company entered into a new lease commitment for office space in Newton, Massachusetts, USA, with an expected effective date of May 2019 and expected expiry of June 2024, and annual payments averaging approximately $465,000/year throughout the lease term (not reflected in the above table).

In accordance with an exclusive licensing agreement with Hoffman–La Roche (Roche), the Company is committed to pay Roche (i) a total of $1,000,000 in milestone payments upon the achievement of certain clinical milestones, (ii) up to a total of $11,000,000 in milestone payments upon the achievement of certain regulatory milestones in connection with the three clinical trial programs currently underway, with an additional $1,000,000 in milestone payments upon the achievement of certain regulatory milestones in connection with each subsequent indication, if any, and (iii) up to a total of $37,500,000 million in milestone payments upon the achievement of certain sales milestones. The Company achieved the clinical milestone in December 31, 2017 and paid Roche the $1,000,000 milestone in January 2018. This amount was recorded as research and development expenses in the year ended December 31, 2017 and was included in accounts payable and accrued liabilities as at December 31, 2017. Upon filing a new drug application (NDA) with the FDA for palovarotene in FOP, the Company would incur a $2 million regulatory milestone pursuant to this agreement. Future royalty payments, in the low teens, based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is unknown at this time.

F-35

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

In accordance with a licensing agreement with the Thomas Jefferson University (TJU), the Company is committed to make a total of $100,000 in milestone payments upon the achievement of certain clinical milestones and a total of $250,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product or licensed process that meets the relevant milestones. The Company achieved the clinical milestone and paid TJU the $100,000 milestone in December 2017. This amount was recorded as research and development expenses in the year ended December 31, 2017. Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. Annual license maintenance royalties are also required as per the terms of the TJU licensing agreement. Such maintenance royalties are non-refundable but can be applied to royalties owing on sales per calendar year. The likelihood and timing of these payments is unknown at this time.

In accordance with a licensing agreement with Yamaguchi University in Japan, the Company is committed to make a total of $75,000 in milestone payments upon the achievement of certain clinical milestones and a total of $150,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first licensed product that meets the relevant milestones. Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. The Company also has a royalty buy-out option pursuant to which it can terminate its obligation to pay royalties to Yamaguchi University under the license agreement at any time and at its sole discretion upon payment of a certain amount to Yamaguchi. The likelihood and timing of these payments is unknown at this time.

In accordance with an exclusive option agreement signed with Galderma on April 1, 2016, the Company was evaluating certain Galderma retinoic acid receptor gamma agonist compounds in exchange for technology access payments with a potential aggregate amount of $0.7 million during a two-year option period. The technology access fees were being expensed over the period to which they related and terminated when the Company decided to enter into a pre-negotiated and exclusive licensing agreement.

On March 29, 2017, the Company entered into an exclusive licensing agreement with Galderma to obtain access to retinoic acid receptor gamma agonist compounds and was granted exclusive rights for use in non-dermatological indications. In accordance with this agreement, the Company is committed to pay Galderma a total of $2,000,000 in milestone payments upon the achievement of clinical milestones and up to a total of $25,500,000 in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the first product that meets the relevant milestones. Future single digit royalty payments based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is unknown at this time.

The Company enters into contracts in the normal course of business with contract research organizations for preclinical research and clinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancellable contracts.

15. Related party transactions

The Company has not been party to any material related party transactions which might reasonably be expected to influence decisions made by the users of these consolidated financial statements, other than the following.

During the year ended December 31, 2016, one of the Company’s executive officers provided limited services to a company controlled by an investor. The salary and related expenses incurred, such as travel costs, totaled $59,022 for the year ended December 31, 2016, and were invoiced to the company controlled by an investor, all of which was receivable at December 31, 2016 and collected in 2017. The Company recorded this expense reimbursement as a reduction of general and administrative expenses in the year ended December 31, 2016. This transaction was measured at the exchange amount, being the consideration established and agreed to by the related parties.

F-36

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

Accounts payable and accrued liabilities, including accumulated payroll, vacation and bonus accruals for key management personnel, as well as business expense reimbursements for key management personnel amounted to $875,643 as at December 31, 2018 ($589,787 as at December 31, 2017 and $355,327 as at December 31, 2016).

Compensation of key management personnel

The Executive Committee, comprised of all C-Suite executives, and the members of the Board of Directors are considered to be key management personnel. The aggregate compensation for the years ended December 31, 2018, 2017 and 2016 to key management personnel of the Company is set out below:

	2018		2017		2016
Short-term benefits	$	2,800,188	$	2,176,345	$	1,742,021
Director fees		276,410		116,398		45,540
		3,076,598		2,292,743		1,787,561
Stock-based compensation		2,737,711		1,083,160		83,270
	$	5,814,309	$	3,375,903	$	1,870,831

16. Financial instruments

a. Capital management

The Company’s primary objective when managing capital is to ensure its ability to continue as a going concern in order to pursue the development of its product candidates.

The capital structure consists of equity offset by cash and short-term investments.

Cash in excess of immediate working capital requirements is invested in accordance with the Company’s investment policy, primarily with a view to liquidity and capital preservation. At December 31, 2018, short-term investments are held in guaranteed investment certificates with a Canadian chartered bank.

The Company monitors its cash requirements and market conditions to anticipate the timing of requiring additional capital to finance the development of its product candidates.

The Company has incurred losses and cumulative negative operating cash flows since its inception. The Company anticipates that it will continue to incur losses for at least the next several years in order to fund its operations. The Company expects its research and development, general and administrative and commercial expenses to increase and, as a result, the Company will need additional capital to fund its operations, which it may raise through any one or a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliance and licensing arrangements.

F-37

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

To date, the Company has financed its cash requirements primarily from the issuance of common shares, preferred shares and convertible notes. The Company believes that its current liquidities will not be sufficient to fund operations until profitability is achieved.

If the Company is unable to secure additional financing, it will be required to curtail some or all of its operations. There can be no assurance that such financing will materialize on a timely basis or be obtained on acceptable terms.

In order to maximize the full value of the Company’s assets and its ongoing development efforts, the Company does not pay out dividends.

The Company is not subject to any externally imposed restrictions, covenants or capital requirements.

b. Fair value of financial instruments

The Company has determined that the carrying amount of its cash, short-term investments, interest receivable, other receivables and accounts payable and accrued liabilities approximates their fair value because of the relatively short periods to maturity of these instruments.

c. Financial risk management objectives

The Company is exposed to certain financial risks, including liquidity risk, foreign currency risk, interest rate risk and credit risk. Management is responsible for setting acceptable levels of risk and reviewing risk management activities as necessary.

d. Liquidity risk management

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in note 16 a) above.

The balance of accounts payable and accrued liabilities is due within one year. For information on the maturity of commitments and contingencies, see note 14.

e. Foreign currency risk management

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company incurs a portion of its expenses in Canadian dollars and in Euros as well as other currencies to a lesser extent. A change in the currency exchange rates between the US dollar relative to the Canadian dollar or the Euro could have a significant effect on the Company’s results of operations, financial position or cash flows. The Company does not have in place any tools to manage its foreign exchange risk, other than keeping expected foreign currency cash requirements in the foreign currency to form a natural hedge.

F-38

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The Company is exposed to currency risk through its cash, interest, sales tax and other receivables and accounts payable and accrued liabilities denominated in Canadian dollars and Euros as follows.

	December 31, 2018			December 31, 2017			December 31, 2016
	CA$			CA$			CA$
Cash		2,950,552			954,965			931,082
Interest, sales tax and other receivables		219,508			118,790			42,930
Accounts payable and accrued liabilities		(1,286,712	)		(1,303,339	)		(569,958	)
Net exposure		1,883,348			(229,584	)		404,054

	December 31, 2018			December 31, 2017			December 31, 2016
	EUR			EUR			EUR
Cash		96,689			139,056			98,060
Accounts payable and accrued liabilities		(1,000,853	)		(637,369	)		(421,451	)
Net exposure		(904,164	)		(498,313	)		(358,418	)

Based on the above net exposures as at December 31, 2018, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase/decrease of $138,087 on the Company’s net loss.

Based on the above net exposures as at December 31, 2018, and assuming that all other variables remain constant, a 10% depreciation or appreciation of the US dollar against the Euro would result in an increase/decrease of $103,681 on the Company’s net loss.

The following exchange rates applied during the year ended December 31, 2018:

	Average rate		Reporting date rate
CA$ - US$		0.7719		0.7332
EURO – US$		1.1809		1.1467

f. Interest rate risk management

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to interest rate risk on its short-term investments. The objective of holding term deposits is to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to current interest-bearing operating bank accounts with limited risk to the principal amount invested.

F-39

Clementia Pharmaceuticals Inc.

Notes to the Consolidated Financial Statements

Years ended December 31, 2018, 2017 and 2016 (in US dollars)

The Company intends to match the maturities of its term deposits with the cash requirements of its operating activities. The Company does not have in place any tools to manage its interest rate risk. The risk of a sudden, significant change in market interest rates relative to the interest rates earned on the Company’s short-term investments having an impact on the Company’s results of operations or cash flows is limited owing to the relative short-term nature of these investments.

g. Credit risk management

Credit risk arises from cash, short-term investments, interest, and other receivables. The Company holds its cash and short-term investments at Canadian and US chartered banks. The credit risk of cash, short-term investments and interest receivable from short-term investments is limited because the counter-parties are chartered banks with high credit ratings assigned by international credit rating agencies.

17. Operating segments

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions, being the biopharmaceutical segment. The Company’s singular focus is on advancing treatments for people living with rare diseases, including FOP and MO, as well as other diseases.

All of the Company’s intangible assets are held in Canada. The Company’s property and equipment are held as follows: 92% held in Canada and 8% in the United States.

18. Subsequent events

Leases

a. Effective January 31, 2019, the Company terminated its head office lease in Montreal, Quebec, Canada originally expiring in 2020. A lease termination fee of $62,000, accrued for as rent expense as at December 31, 2018, was paid in January 2019. In December 2018, the Company entered into a new lease commitment for head office space in Montreal, Quebec, Canada, effective January 2019 and expiring October 2023, with annual payments averaging approximately $400,000/year throughout the lease term.

b. In February 2019, the Company entered into a new lease commitment for office space in Newton, Massachusetts, USA, with an expected effective date of May 2019 and expected expiry of June 2024, and annual payments averaging approximately $465,000/year throughout the lease term. In March 2019, the Company extended its current lease in Newton expiring April 2019 by three-months to July 2019, with monthly payments of approximately $50,000 throughout May 1, 2019 to July 31, 2019.

Stock options

a. From January 1, 2019 to March 28, 2019, the Company granted 1,629,250 stock options at a weighted average exercise price of $14.60.

b. Subsequent to December 31, 2018, the Company’s board of directors approved a modification to the milestone associated with outstanding performance options, with all other terms remaining the same. Based on this modification, management has revised its assessment of achieving the performance milestone as being probable and expects to record cumulative share-based compensation expense related to these performance options in the first quarter of 2019 and thereafter until the awards are vested.

Plan of Arrangement

On February 24, 2019, the Company entered into an agreement (Arrangement Agreement) with Ipsen S.A., a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and the Purchaser, pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of US$25.00 per share in cash upfront, plus a contingent value right (CVR) of US$6.00 per share related to the multiple osteochondroma indication for a total transaction value of up to US$1.31 billion.

Completion of the transaction is anticipated to occur in the second quarter of 2019, subject to satisfaction or waiver of all closing conditions. The acquisition is expected to proceed by way of a court-approved plan of arrangement pursuant to the Canada Business Corporation Act and will require, at the special meeting of Clementia shareholders expected to be held on April 9, 2019, the approval of at least 66 2/3% of the votes cast by Clementia’s shareholders present in person or represented by proxy as well as the approval of a majority of the votes cast by Clementia’s disinterested shareholders present in person or represented by proxy. A proxy circular relating to the special meeting of shareholders of Clementia has been mailed to Clementia’s shareholders.

In addition to shareholders’ and court approvals, the Arrangement is also subject to other customary closing conditions. The Arrangement Agreement is subject to customary “fiduciary out” provisions, and a right in favor of Ipsen to match any superior proposal. A termination fee of $35 million is payable to Ipsen in certain specific circumstances, including if it fails to exercise its right to match in the context of a superior proposal supported by Clementia.

Under the Plan of Arrangement, each unvested option will be deemed to be vested as of the effective date of the arrangement and subsequently transferred in exchange for the purchase price less the applicable exercise price. As such, the Company expects to record share-based compensation expense related to the accelerated vesting of all stock options in 2019.

The estimated fees, costs and expenses of the Company in connection with the Plan of Arrangement contemplated including, without limitation, financial advisors’ fees, filing fees, legal and accounting fees, proxy solicitation fees and printing and mailing costs, but excluding payments made by the Company pursuant to the plan of arrangement in respect of outstanding stock options and DSUs, are anticipated to be approximately $25.7 million.

As of the date of these financial statements, the Arrangement contemplated in the agreement has not yet been approved or completed.

DSUs

In connection with the Plan of Arrangement, on February 24, 2019, the Company approved the issuance of 39,225 DSUs to non-executive directors of the Company to replace long-term incentive grants which would otherwise have been made in 2019 to non-executive directors of the Company in the normal course of business.

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EX-10.5

Exhibit 10.5

 

 

 

EX-10.6

Exhibit 10.6

AMENDMENT NO. 1 TO THE EXCLUSIVE LICENSE AGREEMENT

This Amendment No. 1 (this “Amendment”) to the Exclusive License Agreement dated March 29, 2017 (the “Agreement”), is executed as of 07 December, 2018 (the “Amendment Effective Date”), by and between Galderma Research & Development SNC, a société en nom collectif organized under the laws of France having its principal address at Les Templiers, 2400 route des Colles, 06410 Biot, France (“Galderma”), and Clementia Pharmaceuticals Inc., a corporation organized under the federal laws of Canada having its principal address of 4150 Saint Catherine West, Suite 550, Montreal, Quebec, Canada H3Z2Y5 (“Clementia”). Each of Galderma and Clementia is sometimes referred to individually herein as a “Party” and collectively as the “Parties”. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.

WHEREAS, further to the exercise by Clementia of the Exclusive Commercialization Option (as defined in the Exclusive Evaluation and Option Agreement signed between the Parties on April 1^st, 2016) the Parties have entered into the Agreement;

WHEREAS, the Parties have agreed that Clementia would screen all Licensed Compounds and that Clementia would designate at least one Exclusive Licensed Compounds in early 2019;

WHEREAS, Clementia wishes to extend the Clementia Field with Additional Indications;

WHEREAS, in consideration of such extension of the Clementia Field, Galderma wishes to implement a return mechanism according to which any Licensed Compound, Exclusive Licensed Compound and/or Indication which is not diligently Developed and/or Commercialized by Clementia would be returned or removed from the Clementia Field; and

WHEREAS, for sake of simplification, the Parties wish to amend the prosecution and maintenance process of Licensed Patent Rights.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:

1.       Definitions/Grant of Licenses

The definition of Clementia Field’ in Section 1.15 of the Agreement is deleted entirely and replaced by the following definition:

1.15       “Clementia Field” means all prophylactic, therapeutic and diagnostic uses for all Indications or conditions which are not part of Galderma Field.

Sections 2.1.l(b); 2.2.2; 2.2.3 and 2.3 of the Agreement are deleted.

The following is added to the end of the definition of ‘Exclusive Licensed Compound’ in Section 1.41 of the Agreement:

It is understood between the Parties that, in accordance with Section 1.61, if a Licensed Compound is designated as an Exclusive License Compound, all compounds within the applicable Licensed Compound Family (A, B, C or D), will be covered by the same exclusivity as the Exclusive Licensed Compounds (“Exclusive Licensed Family”).

2.       Development Program

Sections 3.1.1, 3.1.2 and 3.6 of the Agreement are deleted entirely and replaced as follows:

3.1.1       Objective of the Development Program. No later than 30 June 2019, Clementia shall designate from the Licensed Compounds at least one Exclusive Licensed Compound for which Clementia shall initiate Development. If at any time during the Term, Clementia wishes to initiate Development for another Licensed Compound, Clementia shall notify Galderma thereof and such Licensed Compound shall become an Exclusive Licensed Compound. Each Exclusive Licensed Compound shall be included on the list attached as Schedule 5 to this Agreement through an amendment to this Agreement signed between the Parties.

The objective of the Development Program shall be the Development by Clementia of Exclusive Licensed Compounds in order to obtain Licensed Products for use in the Clementia Field in accordance with the Development Plan.

3.1.2       Preparation of Development Plan. A Development Plan will be prepared by Clementia with respect to each Exclusive Licensed Compound and furnished to Galderma within sixty (60) days after the corresponding designation date. For Exclusive Licensed Compounds included after 30 June 2019, the corresponding Development Plan shall be furnished to Galderma within sixty (60) days after the execution of the amendment updating the Exclusive Licensed Compounds list. Any amendments or modifications to the Development Plan for any Exclusive Licensed Compound shall be prepared by Clementia and promptly furnished to Galderma.

3.6       Reports and meetings. Clementia shall (a) maintain records of its activities in sufficient detail and in good scientific manner, which shall reflect work performed and results achieved and (b) provide to Galderma twice each Calendar Year (on June 30 and December 31) during the Term a reasonably detailed report (each, a “Development Report”) that summarizes (i) Development activities conducted and results obtained with respect to any Exclusive Licensed Compound and/or any Licensed Products (including but not limited to the status of any Clinical Trials, the results generated in each such Clinical Trial and any Regulatory Approvals obtained), and (ii) an updated version of the Development Plan.

Within the first month of each Calendar Year, beginning in January 2019, the Parties shall meet, either face to face or by conference call, to analyze the Development Reports and discuss the next steps of each Development Program (the “Annual Meeting”). In particular, during such Annual Meetings, Galderma shall reasonably determine if Clementia is meeting its diligence obligations described in Section 3.4.l. In the event that Galderma reasonably determines that Clementia has failed to meet such diligence obligations, Galderma shall give Clementia written notice of such failure and if Clementia is unable to cure such failure within sixty (60) days from the date of such notice, the Parties shall implement the return process defined in Section 3.4. .

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3.       Return mechanism.

Section 3.4 of the Agreement is deleted entirely and replaced as follows:

3.4       Development Diligence -Return Process.

3.4.1       Development Diligence. Clementia shall use Commercially Reasonable Efforts during the Term to Develop at least one Exclusive Licensed Compound and shall commit such resources (including employees, consultants, contractors, facilities, equipment and materials) as are necessary to conduct such Development activities.

Prior to the commencement of any proof of concept activities or Clinical Trials with an Exclusive Licensed Compound, Clementia shall generate a written clinical plan and budget describing in reasonable detail its proposed activities. Each clinical plan shall include the following: (a) the trial objectives, design and endpoints; (b) estimated timelines and go/no-go decision points; and (c) a high-level summary of Clementia’s key responsibilities for completing all of the necessary tasks. All clinical plans will be revised, updated and submitted by Clementia to Galderma at least annually for review and comment.

3.4.2       Return of Licensed Compounds.

The Parties hereby agree that, if for a period of five (5) years from the Amendment Effective Date, Clementia has not notified Galderma that it will commence Development for a Licensed Compound, then unless such Licensed Compound is part of an Exclusive Licensed Family, such Licensed Compound shall no longer be deemed to be a Licensed Compound under this Agreement (each, a “Returned Licensed Compound “) and Galderma shall be free to license such Returned Licensed Compound to any Third Party to research, Develop, Manufacture and Commercialize products that contain, incorporate or comprise any such Returned Licensed Compound for use in Clementia Field and in the Territory.

3.4.3       Return of Exclusive Licensed Compounds.

If at any point during the Development, Clementia affirmatively elects to discontinue working on an Exclusive Licensed Compound, Clementia shall promptly inform Galderma thereof (each, a “Discontinued Exclusive Licensed Compound”). The Discontinued Exclusive Licensed Compound shall be deleted from the Exclusive Licensed Compounds list and the Compound Specific Exclusivity Period shall terminate for such Discontinued Exclusive Licensed Compound.

Clementia agrees that, if for a period of three (3) years from the date of the designation of an Exclusive Licensed Compound, Clementia has not defined a targeted biological pathway, such Exclusive Licensed Compound shall be deemed to be a Discontinued Exclusive Licensed Compound, and shall be deleted from the Exclusive Licensed Compounds list and the Compound Specific Exclusivity Period shall terminate for such Discontinued Exclusive Licensed Compound.

Upon termination of the Compound Specific Exclusivity Period for a Discontinued Exclusive Licensed Compound, unless such Discontinued Exclusive Licensed Compound is part of an Exclusive Licensed Family, Galderma or its Affiliates shall be entitled to conduct any activity, either on its own or for its benefit, or with, for the benefit of, or sponsored by any Third Party, or grant any license to any Third Party to utilize any Know-How or Patent Rights Controlled by Galderma or any of its Affiliates or provide any Galderma Materials to any Third Party, that, in any case, involves the identification, generation, research, Development, Manufacture or Commercialization of such Discontinued Exclusive Licensed Compound , in the Clementia Field.

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3.4.4       Return of Indications.

If at any point during the Term, Clementia affirmatively elects to discontinue the Development of Exclusive Licensed Compounds for an Indication, Clementia shall promptly inform Galderma thereof (each, a “Discontinued Indication”) and the Discontinued Indication shall be deleted from the Clementia Field.

If Galderma can reasonably demonstrate that at the end of the period defined in Section 3.4.3 for the Exclusive Licensed Compounds, Clementia has not dedicated Commercially Reasonable Efforts to conduct the Development of any Exclusive Licensed Compounds in any Indication within the Clementia Field, Galderma shall notify Clementia thereof. If within a period of sixty (60) days following Galderma’s notice, Clementia has not demonstrated in a manner reasonably satisfactory to Galderma, that Clementia has dedicated Commercially Reasonable Efforts to the Development of any Exclusive Licensed Compound in such Indication, the Indication shall be deemed to be a Discontinued Indication and the exclusivity obligations defined in Section 2.2.1 of the Agreement shall terminate with respect to such Discontinued Indication. Accordingly, unless any such Licensed Compound is part of an Exclusive Licensed Family, Galderma shall be entitled to grant to any Third Party a non-exclusive license to develop, make and use Licensed Compounds, in order to research, Develop, Manufacture and Commercialize products that contain, incorporate or comprise any such Licensed Compound for use in the Discontinued Indication.

4.       License Patent Prosecution and Maintenance.

Sections 9.1.1, 9.1.2 and 9.1.3 of the Agreement are deleted entirely and replaced as follows:

9.1.1       Prosecution Rights

(a)       Concerning Licensed Patent Rights. Galderma hereby grants Clementia the right to act on behalf of Galderma with the preparation, filing, prosecution and maintenance of all Licensed Patent Rights. Galderma authorizes Clementia to appoint patent counsel or agents of its choice and Galderma shall cooperate with and assist Clementia in all reasonable respects, regarding the transfer of all documents and filings to the new patent counsel or agents appointed by Clementia. Galderma shall cooperate with and assist Clementia in all reasonable respects, in connection with Clementia’s preparation, filing, prosecution (including review and comments regarding responses to office actions and/or official actions from worldwide patent offices) and maintenance of such Patent Rights. All Patent Costs incurred by Clementia in connection with the preparation, filing, prosecution and maintenance of such Patent Rights shall be borne by Clementia.

(b)       Galderma shall promptly deliver to Clementia copies of all necessary files related to any Licensed Patent Rights with respect to which responsibility has been transferred and shall take all actions, provide all information, and execute all documents necessary for Clementia to assume such prosecution, maintenance and defense and to effectively prosecute patents in all countries where a patent application is pending.

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(c)       Concerning New Licensed Compound-Specific Patent Rights. Clementia, acting through patent counsel or agents of its choice, shall be solely responsible for the preparation, filing, prosecution and maintenance of all New Licensed Compound-Specific Patent Rights. Galderma shall cooperate with and assist Clementia in all reasonable respects, in connection with Clementia’s preparation, filing, prosecution (including review and comments regarding responses to office actions and/or official actions from worldwide patent offices) and maintenance of such Patent Rights. All Patent Costs incurred by Clementia in connection with the preparation, filing, prosecution and maintenance of New Licensed Patent Rights shall be the sole responsibility of Clementia.

9.1.2       Information and Cooperation

(A)       Concerning Licensed Patent Rights: Clementia shall (a) promptly provide Galderma with copies of all material submissions and correspondence with the applicable patent offices with respect to Licensed Patent Rights, in sufficient time to allow for review and comment by Galderma and (b) provide Galderma with an opportunity to consult with Clementia regarding amendment, submission or response with respect to Licensed Patent Rights. The advice and suggestions of Galderma shall be taken into consideration in good faith by Clementia in connection with such prosecution; provided, that, if Galderma fails to provide any comment on or before the expiration of thirty (30) days before the proposed date for the amendment, submission or response notified by Clementia, Clementia’s obligations under this Section 9.1.2 shall be deemed to have been fulfilled. Clementia shall pursue in good faith the prosecution of any Licensed Patent Rights under this Section 9.1.2 at Clementia’s sole expense.

(B)       Concerning New Licensed Compound-Specific Patent Rights: Clementia shall (a) promptly provide Galderma with copies of all material submissions and correspondence with the applicable patent offices with respect to New Licensed Compound Specific Patent Rights, in sufficient time to allow for review and comment by Galderma and (b) provide Galderma or its patent counsel with an opportunity to consult with Clementia and its patent counsel regarding amendment, submission or response with respect to New Licensed Compound Specific Patent Rights. The advice and suggestions of Galderma and its patent counsel shall be taken into consideration in good faith by Clementia and its patent counsel in connection with such prosecution; provided, that, if Galderma fails to provide any comment on or before the expiration of thirty (30) days before the proposed date for the amendment, submission or response notified by Clementia, Clementia’s obligations under this Section 9.1.2(B) shall be deemed to have been fulfilled. Clementia shall pursue in good faith all reasonable claims requested by Galderma in the prosecution of any New Licensed Compound-Specific Patent Rights under this Section 9.1.2 at Clementia’s sole expense.

9.1.3       Decision Not to File; Abandonment. If Clementia decides to cease prosecution or to allow to lapse any Licensed Patent Rights, Clementia shall inform Galderma of such decision promptly and, in any event, so as to provide Galderma a reasonable amount of time to meet any applicable deadline to establish or preserve such Licensed Patent Rights in such country or region. Galderma shall have the right, but not the obligation, to assume responsibility for continuing the prosecution of such Licensed Patent Rights in such country or region and paying any required fees to maintain such Licensed Patent Rights in such country or region or defending such Licensed Patent Rights, all at Galderma’s sole expense, through patent counsel or agents of its choice and, to the extent that Galderma assumes such responsibility, Clementia shall promptly deliver to Galderma copies of all necessary files related to any Licensed Patent Rights with respect to which responsibility has been transferred and shall take all actions and execute all documents reasonably necessary for Galderma to assume such prosecution, maintenance and defense. Clementia will be permitted to cease prosecution , without Galderma assuming responsibility in a country, if 3 months after notifying Galderma of such decision, Galderma has not informed Clementia of a decision to assume responsibility for continuing prosecution in the country.

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5.       Miscellaneous. The Parties hereby confirm and agree that except as amended hereby, the Agreement remains in full force and effect and provides binding obligations of the Parties thereto. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

The Amendment is executed by the authorized representatives of the Parties as of the Amendment Effective Date.

Galderma Research & Development SNC			Clementia Pharmaceuticals Inc.
By:	/s/ Thibaud Portal		By:	/s/ Clarissa Desjardins
	Name:	Thibaud PORTAL		Name:	Clarissa DESJARDINS
	Title:	Site Director		Title:	Chief Executive Officer

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EX-10.12

Exhibit 10.12

EX-10.13

Exhibit 10.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.14

Exhibit 10.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.15

Exhibit 10.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.17

Exhibit 10.17

SUB-SUBLEASE

AGREEMENT OF SUB-SUBLEASE (the “Sub-Sublease Agreement”), dated the 10 day of December 2018 by and between ANALYSIS GROUP LTD., having its head office at 1000 De La Gauchetière Street West, Suite 1200, in the City of Montreal, Province of Quebec, H3B 4W5 (hereinafter referred to as (“Sub-Sublandlord”) and CLEMENTIA PHARMACEUTICALS INC., having currently an office at 4150 Sainte-Catherine Street West, Montreal, Province of Quebec (hereinafter referred to as (“Sub-Subtenant”).

WHEREAS by a lease dated April 30, 1993 (the “Original Lease”) 1000 DE LA GAUCHETIÈRE WEST BUILDING INC. (the “Original Head Landlord”) leased to BCE Inc. (the “Sublandlord”) certain premises comprising approximately a total rentable area of one hundred twenty-one thousand five hundred and fifty-four (121,554) square feet located on the 11th, 12th, 13th, 34th, 36th, 37th and 38th floors (the “Original Premises”) in the building bearing civic address 1000 de la Gauchetière Street West, in the City of Montreal, Province of Quebec (the “Building”) for a term expiring on October 31, 2003 (the “Original Term”);

WHEREAS by a lease amendment agreement dated December 31, 1996 (the “First Amendment”), the Sublandlord leased from the Original Head Landlord additional premises (Space “G”) located on the thirteenth (13th) floor of the Building comprising approximately two thousand twenty-seven (2,027) square feet of rentable area for a term commencing on January 1, 1997 an expiring on October 31, 2003;

WHEREAS the Original Lease was amended by two (2) letter agreements respectively dated as of March 16, 1999 and July 13, 1999.

WHEREAS by a lease amendment agreement dated January 20, 2000 (the “Second Amendment”), the Sublandlord leased from the Original Head Landlord additional premises on the roof of the Mezzanine of the Building for the installation, maintenance and operation of a satellite dish for a term commencing on February 1, 2000 and terminating on January 31, 2003;

WHEREAS by the letter agreement dated March 17, 2000 (the “March 2000 Letter”), the Tenant was authorized to install cabling in the Building subject to the terms and conditions set forth therein;

WHEREAS by a lease amendment agreement dated May 31, 2000 (the “Third Amendment”), the Original Head Landlord relocated the Sublandlord’s satellite dish on the roof of the Mezzanine of the Building and the Sublandlord installed a coaxial cable to link the hub in the riser of the fourth (4th) floor to the twelfth (12th) floor of the Building;

WHEREAS by a letter agreement dated July 6, 2000 (the “July 2000 Letter”), the Tenant was authorized to install antennas and telecommunication cables and equipment in the Building subject to the terms and conditions set forth therein;

WHEREAS by a lease amendment agreement dated January 5, 2001 (the “Fourth Amendment”), the Sublandlord lensed from the Original Head Landlord additional premises located on the 39th floor of the Building comprising approximately three thousand eight hundred and twenty-two (3,822) square feet of rentable area (the “Additional Premises”) and two (2) additional non-reserved parking spaces for a term commencing on June l, 2001 and terminating on October 31, 2003;

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WHEREAS the Original Premises, Space “G” and the Additional Premises are hereinafter collectively referred to as the “Premises”;

WHEREAS by a lease amendment agreement dated September 15, 2001 (the “Fifth Amendment”), the Sublandlord and the Original Head Landlord agreed to extend the Original Term (save and except for Space “E” located on the 34th floor of the Building, which term expired on October 31, 2008, and save and except for the entire 11th floor of the Building, which term expired on October 31, 2003) for an additional period of twenty (20) years, commencing on November 1, 2003 and expiring on October 31, 2023 (the “First Extended Term”);

WHEREAS by a lease amendment agreement dated September 21, 2001 (the “Sixth Amendment”) the Original Head Landlord granted to the Sublandlord two (2) options to terminate the Original Lease, as amended;

WHEREAS LE 1000 DE LA GAUCHETIÈRE 1 INC. and LE 1000 DE LA GAUCHETIÈRE II INC. (collectively, the “Head Landlord”), has acquired from the Original Head Landlord all its rights, titles and interests in the Building including those contained in the Head Lease;

WHEREAS on October 10, 2007, the Sublandlord, Bell Canada and the Head Landlord entered into a partial lease termination agreement (the “Partial Lease Termination”) whereby the parties agreed to terminate the leasing of the Premises, except of the entire twelfth (12th) floor of the Building and Space G, and whereby certain provisions of the Original Lease, as amended, were modified;

WHEREAS by a sublease agreement dated February 9, 2009 and the consent of the Head Landlord dated February 5th, 2009, the Sublandlord subleased to the Sub-Sublandlord a portion of the Premises consisting of the entire twelfth (12th) floor of the Building, having a total rentable area of nineteen thousand nine hundred and forty-six (19,946) square feet, whereby certain provisions of the Head Lease, as amended pursuant to the above agreements, were modified (the Sublease agreement dated February 9, 2009 and the consent of the Head Landlord dated February 5th, 2009 are hereafter collectively referred to as “Sublease Agreement”);

WHEREAS by a first sublease amendment agreement dated April 27, 2017 (the “First Sublease Amendment Agreement”), the Sublandlord leased to the Sub-Sublandlord additional premises located on the 13th floor of the Building comprising approximately three thousand one hundred and sixty-eight (3,168) square feet of rentable area a term commencing on August 1, 2017 and terminating on July 31, 2018, automatically extended from month to month, with the option to terminate by either party up upon a thirty day written notice.

WHEREAS the Sub-Sublandlord, the Sublandlord and the Head Landlord agreed to terminate the First Sublease Amendment Agreement whereby the above additional premises on the 13th floor were leased;

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WHEREAS the Original Term and the First Extended Term may hereinafter collectively be referred to as the “Term”;

WHEREAS as the Original Lease, the Fifth Amendment, the Partial Lease Termination and the Sublease Agreement are attached hereto as Schedule “A” and are hereinafter collectively referred to as the “Head Lease”;

WHEREAS the Premises governed by the Head Lease are now only composed of the 12th floor;

WHEREAS the Sub-Subtenant wishes to sub-sublease from the Sub-Sublandlord the portion of the Premises consisting of the entire twelfth (12th) floor of the Building, having a total rentable area of nineteen thousand nine hundred and forty-six (19,946) square feet, excluding any storage premises (the “Sub-Subleased Premises”), upon the terms and conditions set forth in this Sub-Sublease Agreement;

WHEREAS terms with initial capitals not otherwise defined herein are defined in the Head Lease or the Sublease Agreement, as the case may be, and have the same meanings herein as are ascribed to them in the Head Lease or the Sublease Agreement, as the case may be;

NOW THEREFORE, THE PARTIES AGREE that the above recitals are part of this Sub-Sublease Agreement as if recited at length. The parties also agree to the following:

1.Basic Term and Rental.

(a)Sub-Sublandlord hereby sub-subleases to Sub-Subtenant, and Sub-Subtenant hereby sub-subleases from Sub-Sublandlord, the Sub-Subleased Premises, for a term (the “Sub-Sublease Term”) commencing on February 1, 2019 (the “Commencement Date”) and ending on October 30, 2023 (the “Expiration Date”). Sub-Sublandlord agrees that so long as the Sub-Subtenant is not in default hereunder, Sub-Sublandlord will exercise the option to obtain a New Lease in the event of a termination of the Head Lease pursuant to the provisions contained in Section 13 of the consent of the Head Landlord dated February 5th, 2009, and shall reimburse the Sub-Subtenant upon demand for all and any costs and expenses incurred by the Sub-Subtenant to relocate its operations from the Sub-Subleased Premises in the event of Sub-Sublandlord’s failure to obtain a New Lease and any required consent for the sub-sublease to the Sub-Subtenant. Sub-Sublandlord shall permit Sub-Subtenant to access and occupy the Sub-Subleased Premises on January 15, 2019 solely for purposes of preparing the Sub-Subleased Premises for its use, which is for general office purposes. Such access and occupation of the Sub-Subleased Premises shall be subject to and upon all of the terms and conditions of this Sub-Sublease, other than the payment of Net Rent or Additional Rent, which are free until the Commencement Date.

(b)The Sub-Subtenant undertakes to use the Sub-Subleased Premises solely for general office purposes, it being understood that such use shall not in any way conflict with the prohibited activities set forth in Section 10.2 (Prohibited Activities by Tenant) of the Original Lease. Any uses other than general office purposes proposed for the Sub-Subleased Premises in the future shall be previously submitted in writing to Sub-Sublandlord, Sublandlord, and the Head Landlord for their approval.

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(c)The fixed annual net rent (the “Net Rent” or “Rent”) payable by the Sub-Subtenant shall be one dollar and twenty-three cents ($1.23) per square foot of the rentable area of the Sub-Subleased Premises per annum, being $24,533.50 per annum, $2,044.47 per month. The Net Rent payable by the Sub-Subtenant shall be paid to the Sub-Sub landlord in advance on the first day of each and every calendar month during the Sub-Sublease Term, commencing on the Commencement Date.

(d)The Sub-Subtenant shall pay to the Sub-Sublandlord, as Additional Rent, the Tenant’s Proportionate Share of Real Estate Taxes, the Tenant’s share of the Surtax on Non-Residential Immovables (if any), the Tenant’s Proportionate Shore of Operating Costs, the cost of electricity consumed within the Sub-Subleased Premises, and the aggregate (without duplication) of all other costs provided for payable by the Tenant under the Head Lease and allocable to the Sub-Subleased Premises (the whole as hereinafter referred to as the “Additional Rent”).

(e)The Net Rent and the Additional Rent shall be paid to Sub-Sublandlord or at such other place as Sub-Sublandlord may designate in writing to Sub-Subtenant, in lawful money of Canada, without demand therefor and without any deduction, setoff or abatement, except us expressly set forth herein. All partial months rent due under this Sub-Sublease shall be prorated on a daily basis. Sub-Subtenant shall remit to Sub-Sublandlord any and all sales taxes and goods and services taxes required to be remitted with respect to the Net Rent and Additional Rent payable hereunder, including, without limitation all Sales Taxes. “Sales Taxes” means all goods and services taxes imposed with respect to Rent, namely G.S.T. and P.S.T. If Sub-Subtenant shall not remit Net Rent or Additional Rent due to Sub-Sublandlord when the same is due, a late fee of five (5%) percent shall be added to the amount past due, and such late fee shall be considered “Additional Rent” within the definitions as set forth in this Sublease

2.Services Provided to Sub-Subtenant other than charged as Operating Costs.

(a)Commencing on the Commencement Date, Sub-Subtenant shall pay directly to Head Landlord the costs of all services provided, at the Sub-Subtenant’s request, by the Head Landlord or its agents to the Sub-Subtenant, other than services supplied by the Head Landlord and charged as Operating Costs, the whole in accordance with Section 9.6 of the Head Lease. Such costs and expenses shall be paid within the time periods required by the Head Landlord in virtue of the Head Lease. Sub-Subtenant and Sub-Sublandlord shall use their best efforts to arrange for Head Landlord to invoice Sub-Subtenant directly for all of the foregoing costs. If, however, Sub-Sublandlord receives any invoice therefore, Sub-Sublandlord shall promptly forward such invoice to Sub-Subtenant.

(b)On or before the Commencement Date, subject to the provisions of the Head Lease, Sub landlord shall request that (i) Sub-Subtenant’s name shall be placed by the Head Landlord on to the directory board in the lobby of the Building and (ii) Sub-Subtenant’s corporate signage conforming to Development standards and approved in writing by the Head Landlord shall be installed by the Head Landlord, in each case in accordance with the provisions of Section 9.8 of the Head Lease. The Sub-Sublandlord undertakes to pay for any cost related to the change of signage which may be required for outside of Suite 1200, which cost shall include the Landlord’s Administration Fee of 15% of the cost of the said signage. Any change of signage shall be preapproved in writing by the Head Landlord and shall comply with the Building’s standards and the Head Lease. For greater clarity, any above modifications to the signage must not result in additional signage being granted over and above the signage rights provided in the Head Lease.

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(c)Sub-Subtenant shall have access to the Building lobby, elevators and Sub-Subleased Premises twenty-four (24) hours per day, seven (7) days a week.

3.As Is. Sub-Subtenant acknowledges that neither Sub-Sublandlord nor Sub-Sublandlord’s agents have made any representations or promises with regard to the Sub-Subleased Premises, except as otherwise set forth herein and except that all furniture and equipment listed and described in Schedule “B” attached hereto is within the Sub-Subleased Premises. Sub-Subtenant agrees to accept the Sub-Subleased Premises “as-is” with all such furniture and equipment, and Sub-Sublandlord shall not be required to perform any alterations or decorations or furnish any materials in or to the Sub-Subleased Premises in order to suit them for Sub-Subtenant’s occupancy.

4.Transfer of Sub-Subleased Premises. Neither this Sub-Sublease, nor the term and estate hereby granted, or any part hereof or thereof, shall be assigned, mortgaged, pledged, encumbered or otherwise transferred or sub-sublet by Sub-Subtenant, in whole or in part, without obtaining the express written consent of (a) Sub-Sublandlord and (b) to the extent required pursuant to the terms of the Head Lease, the Head Landlord and the Sublandlord, to any such assignment, mortgage, pledge, encumbrance, transfer or sublease. Any further sublease or assignment of the Sub-Subleased Premises (including, for greater certainty, subleases or assignments to the Sub-Subtenant’s affiliates or subsidiaries) shall be subject to pre-approval in writing by the Head Landlord, the Sublandlord and the Sub-Sublandlord and shall be performed in accordance with all the provisions of Article 15 (Transfers) of the Original Lease, which shall apply to the parties. The Sub-Subtenant shall remain responsible for the performance of its obligations under this Sub-Sublease Agreement until the expiration of the Term of the Sub-Sublease, notwithstanding any such assignment or sublease.

5.Provisions respecting Head Lease and Sublease Agreement.

(a)Attached hereto as Schedule “A” is a complete copy of the Head Lease and the Sublease Agreement.

(b)The Sub-Subtenant hereby acknowledges receipt of a copy of the Head Lease and the Sublease Agreement documentation attached hereto as Schedule “A” and that it has full and complete knowledge of the terms and conditions of the Head Lease and the Sublease Agreement. Sub-Sublandlord hereby represents and warrants (i) that the copy of the Head Lease and the Sublease Agreement attached hereto as Schedule “A” is true, correct and complete, is currently in full force and effect and has not been amended or modified, and (ii) that there exist s under the Sublease Agreement no default or event of default by either Sublandlord or Sub-Sublandlord. Sub-Sublandlord shall not amend, modify, surrender, cancel or otherwise modify the Sublease Agreement in any manner that would adversely affect the Sub-Subleased Premises or Sub-Subtenant’s rights hereunder, or that would increase Sub-Subtenant’s obligations under this Sub-Sublease, without obtaining the prior written consent of Sub-Subtenant in each instance.

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(c)The Sub-Subtenant acknowledges that its possession and use of the Sub-Subleased Premises shall at all times be subject to the rights of Head Landlord and Sublandlord set forth in the Head Lease and the Sublease Agreement. The Sub-Subtenant shall not do or cause to be done or suffer or permit any act to be done which would or might cause the Head Lease or rights of the Sublandlord, as tenant under the Head Lease, or Sub-Sublandlord, as tenant under the Sublease Agreement, to be endangered, cancelled, terminated, forfeited or surrendered, or which would or might cause the Sublandlord or Sub-Sublandlord to be in default thereunder or liable for any damage, claim or penalty.

(d)Subject to the terms of this Sub-Sublease Agreement including provisions with respect to the payment of Net Rent and Additional Rent, the Sub-Subtenant covenants and agrees to observe and perform, insofar as they affect or relate to the Sub-Subleased Premises, all terms, conditions, covenants, agreements and obligations on the part of the Sub-Sublandlord to be observed and performed under the terms of the Sublease Agreement, as if the Sub-Subtenant were the subtenant under the Sublease Agreement and the Sub-Sublandlord were the sublandlord under the Sublease Agreement, and such covenants, agreements and obligations of the Sublease Agreement are incorporated herein by reference mutatis mutandis. However, for purposes of such incorporation by reference, all references to Sublandlord and Subtenant under the Sublease Agreement shall be deemed references to Sub-Sublandlord and Sub-Subtenant, respectively hereunder, all references to the Subleased Premises shall be deemed references to the Sub-Sublease Premises and all references to the term of the Sublease Agreement shall be deemed references to the term of this Sub-Sublease.

(e)For clarity and without limiting the generality of the foregoing, the parties acknowledge that Section 4.6 (Cash Allowance), Section 9.9 (Identification), Section 9.10 (Naming Rights), the second paragraph of Section 15.1, Section 16.2 (Subordination and Non-Disturbance) and Article 19 (Special Provisions) in its entirety of the Original Lease shall not apply to the Sub-Sublease Agreement. The following provisions of the Sublease are expressly not incorporated in to this Sub-Sublease: Sections 1.2-1.4, 1.6-1.8, and 1.10, Sections 2.1, 3.1 and 3.3, Article IV, Article V, Article VII, Sections 11.1, 11.2, 11.13, and 11.14, Schedule “C” and Schedule “D”, as well as such other terms of the Sublease as do not relate to the Sub-Sublease Premises or are inapplicable, inconsistent with, or specifically modified by, the terms of this Sub-Sublease.

(f)Sub-Sublandlord hereby agrees to make all payments of Rent and other amounts required to be paid to the Sublandlord under the Sublease Agreement, to perform all other obligations imposed by the Sublease Agreement which are not assumed by Sub-Subtenant hereunder, and to indemnify Sub-Subtenant against and hold it harmless from all costs and expenses incurred by Sub-Subtenant or asserted against it as a result of the failure of Sub-Sublandlord to perform its obligations thereunder, provided such failure is not a result of the action of Sub-Subtenant or its agents, employees or contractors.

6.Insurance. Whenever any insurance coverage is required to be obtained or maintained by the Sub-Sublandlord under the Sublease Agreement, Subtenant shall obtain and maintain such insurance coverage naming as insureds therein Head Landlord, Sublandlord, Sub-Sublandlord and Subtenant, as their respective interests may appear, and any other party to be named under the provisions of the Head Lease and the Sublease.

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7.Indemnity and Non-Responsibility. Except with respect to a claim or liability which are the result in whole or in part, of the negligent act or omission of the Head Landlord, the Sublandlord or the Sub-Sublandlord, or those for whom in law they are respectively responsible, the Sub-Subtenant covenants and agrees to indemnify and save harmless the Sub-Sublandlord, the Sublandlord and the Head Landlord in respect of any and all liabilities, damages, costs, claims, suits or actions arising out of:

(a)any breach, violation or non-observance by the Sub-Subtenant of any its covenants and obligations under this Sub-Sublease Agreement;

(b)any damage to property while said property shall be in or about the Sub-Subleased Premises, including the systems, furnishings and amenities thereof, as a result of the willful or negligent act of the Sub-Subtenant, its invitees, licensees, agents, servants or employees, and

(c)any injury to any licensee, invitee, agent, servant or employee or the Sub-Subtenant, including death resulting at any time therefrom, occurring in, on the Sub-Subleased Premises or the Building.

This indemnity shall survive the expiry or earlier termination of this Sub-Sublease Agreement, in respect of any of the foregoing circumstances during the Sub-Sublease Term.

Without limiting the generality of the foregoing, the Sub-Subtenant covenants and agrees that the Head Landlord, the Sublandlord or the Sub-Sublandlord shall not be liable for any bodily injury of, death of, or loss or damage to any property belonging to the Sub-Subtenant or its employees, invitees, licensees and agents or any other person in the Sub-Sublease Premises unless resulting from in whole or in part the negligent act or omission of the Head Landlord, the Sublandlord or the Sub-Sublandlord or those for whom in law they are respectively responsible. Unless resulting from in whole or in part the negligent act or omission of the Head Landlord, the Sublandlord or the Sub-Sublandlord or those for whom in law they are respectively responsible, in no event shall the Head Landlord, the Sublandlord or the Sub-Sublandlord or those for whom in law they are respectively responsible, be liable for any damage which is caused by the interruption of the supply of any public utility, service or supply, or by steam, water, rain, snow or other thing which may leak into, issue or flow from any part of the Building or from the pipes or plumbing works, including the sprinkler system (if any) therein or from any other place or quarter of for any loss, damage or injury caused by or attributable to the condition or arrangement of any electric or other wiring, or arising from the use and operation of any plan or equipment or from any electrical, gas or other installation or for any damage caused by anything done or omitted to be done by any other tenant of space in the Building.

The Sub-Sublandlord covenants and agrees to indemnify and save harmless the Sub-Subtenant in respect of any and all liabilities, damages, costs, claims, suits or actions arising out of (a) any breach, violation or non-observance by the Sub-Sublandlord of any its covenants and obligations under this Sub-Sublease Agreement; and (b) any damage to property or injury to persons, as a result of the willful or negligent act or omission of the Sub-Sublandlord, its agents, servants or employees. This indemnity shall survive the expiry or earlier termination of this Sub-Sublease Agreement, in respect of any of the foregoing circumstances during the Sub-Sublease Term.

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8.Notices.

Any notice to be given to the Head Landlord under these presents or the Head Lease shall be validly given if sent to:

Ivanhoe Cambridge Inc.
Edifice Jacques Parizcau
Suite C-500
Montréal, Québec H2Z 2B5

Attention: Legal Affairs

Any notice to be given to the Sublandlord shall be validly given if sent to:

BGIS O&M Solutions Inc.
87 Ontario Street West – 6th Floor
Montreal QC H2X OA7

Attention: Senior Manager – Realty Transactions
Telecopier: (514) 840-8404

With a copy to:

Bell Canada
87 Ontario Street West – 6th Floor
Montreal QC H2X 1Y8

Attention: Senior Specialist, Asset Management
Telecopier: (514) 391-7990

Any notice to be given to the Sub-Sublandlord shall be validly given if sent to:

Analysis Group Ltd.
1000 De La Gauchetière Street West
Suite 1200
Montreal, Quebec
H3B 4W5

With a copy to:

Analysis Group Ltd.
111 Huntington Avenue
10th floor
Boston, MA 02199

Attention: James R. Gill
Fax: 617-425-8001

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Any notice to be given to the Sub-Subtenant after the Commencement Date shall be validly given if sent to the Sub-Subleased Premises, to the attention of the Chief Financial Officer.

All notices shall be sent by registered mail, reputable overnight courier, or hand delivered to the respective above-noted addresses. Each party reserves its right to change its address subject to written notice to the other parties. Notices sent by registered mail and hand delivered shall be deemed to be received on the day they are received, and those sent by overnight courier, shall be deemed to be received on the day after they were sent.

9.Consents of the Head Landlord and the Sublandlord. This Sub-Sublease is subject and subordinate to the obtaining of the written consent of Head Landlord and Sublandlord in accordance with the terms of the Head Lease and the Sublease (collectively, the “Sub-Sublease Consents”) and shall not be effective until and unless such Sub-Sublease Consents shall have been obtained. If, for any reason whatsoever, both Sub-Sublease Consents have not been obtained on or before December 13, 2018, then either the Sub-Sublandlord or the Sub-Subtenant, at its respective option, may elect by written notice to the other to terminate this Sub-Sublease, in which event this Sub-Sublease shall be deemed null, void and of no effect, without penalty, cost, charge or recourse whatsoever against the Sub-Subtenant or the Sub-Sublandlord.

10.Alterations. Notwithstanding anything to the contrary contained herein, Sub-Sublandlord shall not unreasonably withhold, delay or condition its consent to any proposed alterations, additions or improvements (“Alterations”) to the Sub-Subleased Premises by Sub-Subtenant, provided that (i) the Head Landlord and the Sublandlord have approved the Alterations in accordance with the terms of the Head Lease and (ii) said Alterations do not increase the obligations of Sub-Sublandlord hereunder or under the Head Lease. In no event shall Sub-Sublandlord be required to consent to any Alteration which would physically affect any part of the Building outside of the Sub-Subleased Premises or would adversely affect the proper functioning of the mechanical, electrical, sanitary or other services systems of the Building. Any work to be done in the Sub-Subleased Premises shall be performed in accordance with the provisions of Article 11.3 (Tenant’s Alterations) of the Original Lease, and are subject to the management and supervision fees described therein.

11.Brokerage.

Each of the Sub-Subtenant and the Sub-Sublandlord represents and warrants to the other that it has not had any dealings or communications with any broker, finder, intermediary or other like agent in connection with the Sub-Sublease or the transactions contemplated hereby, other than Jones Lang LaSalle Real Estate Services Inc. or any related entity or individual (collectively, the “Broker”). Sub-Sublandlord shall pay when due all and any brokerage commission and remuneration payable to the Broker and shall indemnify, defend and hold Sub-Subtenant harmless from payment of any and all brokerage commission and remuneration payable to the Broker, and from any and all claims, demands, suits, proceedings, legal fees, costs and expenses with respect to any brokerage commission and remuneration payable to the Broker.

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12.End of Term and Overholding.

(a)Sub-Subtenant acknowledges that the Sub-Subleased Premises must be surrendered upon the termination of the Term of this Sub-Sublease. Sub-Subtenant agrees to indemnify, defend and save Sub-Sublandlord harmless from and against any and all loss, cost, expense, or liability resulting from the failure of or the delay by Sub-Subtenant in so surrendering the Sub-Subleased Premises. Sub-Subtenant therefore agrees that if possession of the Sub-Subleased Premises is not so surrendered to Sub-Sublandlord upon the termination of the Term, each portion of any month during which Sub-Subtenant holds over in the Sub-Subleased Premises thereafter, a sum equal to two hundred percent (200%) of the Net Rent payable under this Sub-Sublease for the last month of the Sub-Sublease Term.

(b)Upon the termination of the Term of this Sub-Sublease, the Sub-Subtenant shall surrender the Sub-Subleased Premises in good condition and state of repair, save and except for reasonable wear. All Alterations to and/or placed upon the Sub-Subleased Premises by or on behalf of Sub-Subtenant, as well as any and all Leasehold Improvements and fixtures (Section 11.5 of the Original Lease), all and any Items, leasehold improvements, cables and wires (including telecommunication cabling), modifications to the lighting fixtures, electrical, mechanical and sprinkler systems (Section 9 of the consent of the Head Landlord to the Sublease Agreement dated February 5th, 2009) as well as all and any other leasehold improvements, alterations, additions or modifications to the Sub-Subleased Premises, and all and any articles of personal property attached to or used in connection with the Sub-Subleased Premises, shall be surrendered by the Sub-Subtenant to the Sub-Sublandlord at the Expiration Date, and the Sub-Subtenant shall not be obliged to remove any of those from the Sub-Subleased Premises, other than any leasehold improvements, alterations, additions or modifications performed by Sub-Subtenant and required by the Head Landlord or the Sublandlord to be removed. Notwithstanding the foregoing, movable furniture, movable personal property and movable trade fixtures owned by the Sub-Subtenant shall remain the property of Sub-Subtenant and shall be removed by Sub-Subtenant upon the termination of the Term.

(c)The provisions of this Section 13 shall survive the Expiration Date or any sooner termination of the term of this Sub-Sublease.

13.Parking. Sub-Subtenant may have the use of the five (5) non-reserved parking stalls allocated under the Head Lease in the Building underground parking facility. The parking spaces shall be leased at the then current rate prevailing for tenants of the Building as may be modified from time to time, which amount shall be payable in accordance with the parking operator’s lease for the Building.

14.Furniture. Sub-Sublandlord represents and warrants that all furniture and equipment listed and described in Schedule “B” attached hereto is within the Sub-Subleased Premises (such equipment and furniture is hereinafter collectively referred to as the “Existing Furniture”). The Sub-Sublandlord warrants that the Existing Furniture is free of any financial lien or hypothec and that there are no service contracts affecting the Existing Furniture. The parties acknowledge and agree that, upon the execution and delivery of this Sub-Sublease, without the requirement of any additional consideration, all rights, title and ownership in and to the Existing Furniture shall be conveyed to and vest in Sub-Subtenant and Sub-Subtenant shall be free to maintain and/or dispose the Existing Furniture as Sub-Subtenant so elects in its sole discretion but subject to the terms hereof. The foregoing conveyance with respect to the Existing Furniture shall be self-executing and no additional documentation shall be required in order to evidence the aforementioned assignment and conveyance of the Existing Furniture to Sub-Subtenant. Sub-Sublandlord makes no representation or warranty as to the condition, fitness or suitability of such Existing Furniture for Sub-Subtenant’s purposes. Sub-Subtenant may, as it deems appropriate or necessary, reconfigure the Existing Furniture to combine with any of Sub-Subtenant’s furniture and equipment. Sub-Sublandlord shall have no obligation for the maintenance, repair or replacement of any such Existing Furniture.

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15.Counterparts. This Sub-Sublease Agreement may be executed and delivered in several counterparts and by means of facsimile or other electronic transmission, and all such executed counterparts, when taken together, shall constitute the same Sub-Sublease Agreement, effective as of the date first above written. The parties undertake to promptly deliver to one another original copies of all such counterparts which are executed and delivered by means of facsimile or other electronic transmission.

16.This agreement binds the parties herein and their respective successors and assigns.

17.The parties specifically declare that they have requested the present agreement be drawn up in the English language. “Les parties déclarent qu’elles ont demandé que cette entente soit rédigée en anglais”.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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SCHEDULE A

HEAD LEASE AND SUBLEASE

(Immediately Follows)

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THIS LEASE, entered into at the City of Montreal, as of the thirtieth (30th) day of April, nineteen hundred and ninety-three (1993).

BETWEEN:	1000 DE LA GAUCHETIÈRE WEST BUILDING INC., a company incorporated under the laws of Canada, having its head office in the City of Montreal, Province of Quebec, herein acting and represented by Michel E. Saint-Cyr, its President, and François Laurin, its Vice President. (hereinafter called the “Landlord”);
AND:	BCE INC., a company incorporated under the laws of Canada, having its head office in the City of Montreal, Province of Quebec, (hereinafter called the “Tenant”).

ARTICLE 1

1 Definitions

1.1 Definitions – In this Lease, unless there is something in the subject matter or context inconsistent therewith;

1.1.1 “Accounting Period” means a calendar year or such other accounting period, not exceeding sixteen (16) months, determined by the Landlord for the Building;

1.1.2 “Additional Rent” means all amounts in addition to Net Rent payable by the Tenant to the Landlord pursuant to this Lease, including those amounts set out in Section 4.2, whether or not the same are designated “Additional Rent”;

1.1.3 “Affiliate” or “Affiliate of the Tenant” means any person which owns, directly or indirectly, voting securities carrying more than ten percent (10%) of the voting rights attached to all voting securities of the Tenant and any corporation in which the Tenant owns, directly or indirectly, voting securities carrying more than ten percent (10%) of the voting rights attached to all voting securities of such corporation;

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1.1.4 “Applicable Laws” means all statutes, laws, by-laws, regulations, ordinances, orders and requirements of governmental or other public authorities having jurisdiction, and all amendments thereto;

1.1.5 “Architect” means the independent architect being a member of the Order of Architects of Quebec designated by the Landlord and authorized to practice in Quebec;

1.1.6 “Building” means the multi-storey integrated office and retail building bearing civic number 1000 de La Gauchetière West, Montreal, Province of Quebec, and all other structures, improvements, facilities and appurtenances, including the Common Areas and Facilities, all as may be altered, expanded, reduced or reconstructed from time to time and which building is constructed on the lands described in Schedule “A” annexed hereto;

1.1.7 “Building Systems” means:

1.1.7.1 the HVAC System and all other systems, services, installations and facilities servicing the Building (or any portion thereof), whether exclusively or in common with other parts of the Development including, but not limited to, the elevators and escalators, and mechanical systems (including plumbing, sprinkler, drainage and sewage), electrical and other utilities, lighting, life safety (including fire prevention, communications, security and surveillance), computer (including environmental, security and lighting control), ice and snow melting, refuse removal or recycling, window washing, and music; and

1.1.7.2 all machinery, appliances, equipment, apparatus, components, computer software and appurtenances forming part of or used for or in connection with any of such systems, services, installations and facilities including, but not limited to, boilers, motors, generators, fans, pumps, pipes, conduits, ducts, valves, wiring, meters and controls, and the structures and shafts housing and enclosing any of them;

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1.1.8 “Business Day” means any day which is not a Saturday, Sunday or a holiday as defined in the Interpretation Act (Quebec) as the same may be amended, re-enacted or replaced;

1.1.9 “Business Hours” means the hours from 7:00 a.m. to 6:30 p.m. on each Business Day as may be amended by the Landlord from time to time;

1.1.10 “Business Taxes” means all taxes, rates, duties, levies, assessments, and other charges in respect of the use or occupancy of, or any business carried on, by tenants or occupants of the Building and includes, without limitation, all business taxes levied or assessed but shall not include Real Estate Taxes or any income, profit, inheritance, succession or transfer taxes or levies or tax on capital or large corporations tax of the Landlord or the Co-owners;

1.1.11 “Bus Terminal” means the bus terminal operated in the Development by the Société de Transport de la Rive Sud de Montreal, or its successors or permitted assigns;

1.1.12 “Change of Control” means, in the case of any corporation or partnership, the issue by subscription or the transfer by sale, assignment, transmission on death, mortgage, charge, security interest, operation of law or otherwise, of any shares, voting rights or interest which would result in any change in the effective Control of such corporation or partnership, unless such change occurs as a result of trading in the shares of a corporation listed on the Montreal Exchange or The Toronto Stock Exchange;

1.1.13 “Commencement Date” means the date indicated as the commencement of the Term in Section 3.1 hereof;

1.1.14 “Common Areas and Facilities” means: (i) those areas, facilities, improvements, installations and equipment in or around the Development that (A) are neither rented nor designated or intended by the Landlord to be rented, and (B) are provided or designated from time to time by the Landlord for the benefit or use of all the tenants of the Development, their agents, invitees, servants, employees and licensees and (ii) space, facilities and installations that are made available for community service, public or other use pursuant to the Municipal Agreements; all as may be altered, or relocated from time to time by the Landlord and any other space or equipment as may be determined from time to time by the Landlord;

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1.1.15 “Control”, when referring to a body corporate, shall have the same meaning as the one attributed to this expression in the Canada Business Corporations Act;

1.1.16 “Co-owners” means BCE Inc. and Teleglobe Canada Inc. and their successors and assigns;

1.1.17 “Delivery Date” means the date upon which the Landlord notifies the Tenant that it shall take possession of the premises for the purposes of effecting the Tenant’s Work;

1.1.18 “Development” means the Lands and all structures, improvements, facilities and appurtenances constructed on the Lands, including or together with the Building, the Common Areas and Facilities (including, without limitation, passageways, tunnels or other facilities servicing the Development that may extend or be located beyond the boundaries of the Lands), all as may be altered, expanded, reduced or reconstructed;

1.1.19 “Event of Default” means any event specified as such in Article 17;

1.1.20 “Expert” means the Architect, the Land Surveyor or any independent engineer, independent chartered accountant, or other independent professional consultant appointed by the Landlord and authorized to perform the function for which he is retained and who shall be a member of the professional order or body appropriate to his or her profession;

1.1.21 “Fixturing Period” means the period allowed to the Tenant to perform the Tenant’s Work, commencing at the Delivery Date as determined by the Landlord;

1.1.22 “Guarantor” INTENTIONALLY DELETED

1.1.23 “HVAC System” means all interior climate control (including heating, ventilating and air-conditioning) systems, installations, equipment of the Building;

1.1.24 “Ice Amphitheatre” means the portion of the Building occupied by the skating rink including the locker rooms and the ice surface exclusively;

1.1.25 “Landlord” means 1000 de la Gauchetière West Building Inc. and its successors and assigns;

1.1.26 “Landlord’s Sales Taxes” means any and all taxes imposed on the Landlord with respect to Operating Costs and any other taxable cost (example rent) whether characterized as a goods and services tax, sales tax, or otherwise but shall not include any income or profit taxes, it being understood that taxes on capital and large corporations tax are not part of Landlord’s income or profit taxes;

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1.1.27 “Landlord’s Work” means the work performed by the Landlord in relation to the base Building installations;

1.1.28 “Lands” means the lands described in Schedule “A” hereto, as they may be altered, expanded or reduced from time to time;

1.1.29 “Land Surveyor” means the independent professional land or quantity surveyor, designated by the Landlord and authorized by the appropriate professional order or body to practice in the Province of Quebec;

1.1.30 “Lease” means this lease as it may be amended including its Schedules;

1.1.31 “Leasehold Improvements” means all fixtures, improvements, installations, alterations and additions made, erected or installed by or on behalf of the Tenant or any former occupant of the Premises, including internal stairways, doors, hardware, partitions (excluding moveable partitions) and wall-to-wall carpeting with the exception of such carpeting where laid over vinyl, tile or other finished floor designated as part of the Building, and removable without damage to such floor, and excluding trade fixtures, drapes, and furniture and equipment not of the nature of fixtures;

1.1.32 “Lease Year” means, for the first Lease Year, the period beginning on the Commencement Date and ending on the last day of the twelfth (12th) consecutive full month after the expiry of the calendar month in which the Commencement Date occurs (except that if the Commencement Date occurs on the first day of a calendar month, the first Lease Year shall end on the day prior to the first anniversary of the Commencement Date) and, for the second and each subsequent Lease Year, means consecutive periods each of twelve (12) consecutive full months, with the second Lease Year commencing immediately at the end of the first Lease Year or of any subsequent Lease Year, the Landlord may, at its discretion, change the Lease Year from time to time provided that such change shall not increase the Tenant’s liability for any amounts payable pursuant to this Lease;

1.1.33 “Mortgage” means any mortgage, hypothec, charge or security instrument (including a trust deed securing bonds) and all extensions, modifications and renewals thereof which may now or hereafter affect the Lands;

1.1.34 “Municipal Agreement” means any agreement with the City of Montreal, the Montreal Urban Community or any other governmental authority relating to the development, construction, or operation of the Development or any part thereof, in each case whether now or hereafter entered into, and as the same may be amended;

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1.1.35 “Net Rent” means the annual net rent payable by the Tenant pursuant to Section 4.1, as the same may be increased or adjusted pursuant to the terms of the Lease;

1.1.36 “Operating Costs” means any and all actual and reasonable costs, expenses. fees, rentals, disbursements and outlays of every kind paid, or incurred by or on behalf of the landlord or any of the Co-owners on an accrual basis (or on a cash basis to the extent the Landlord determines, acting reasonably, and in accordance with generally accepted accounting principles) in connection with the operation, maintenance, repair, management, administration and supervision of the Development, subject to the exclusions and deductions set forth in Article 5 hereof;

1.1.37 “Parking Areas” means the areas in the Building designated by the Landlord for interior parking use;

1.1.38 “Person” includes any person, corporation, firm, partnership or other entity, any group of persons, corporations, firms, partnerships or other entities, or any combination thereof;

1.1.39 “Premises” means these parts of the Building identified in Article 2 and shown outlined in red on the floor plans annexed as Schedules “B-1”, “B-2”, “B-3”, “B-4”, ”B-5”, “B-6” and “B -7”;

1.1.40 “Prime Rate” means the annual rate of interest as determined from time to time by the Landlord’s bank (which shall be a Schedule I Canadian chartered bank designated by the Landlord from time to time) and used by such bank in setting rates of interest for commercial loans of Canadian dollars and commonly referred to by such bank as its “prime rate”;

1.1.41 “Proportionate Share” means that fraction having as numerator the Rentable Area of the Premises and as denominator the total Rentable Area of the Building;

1.1.42 “Real Estate Taxes” means all taxes, surtaxes, rates, duties, levies, fees, charges and assessments, general or special, present or future for which the Landlord and/or the Co-owners are liable and which are assessed against the Development (or any part thereof other than the Ice Amphitheatre, the Bus Terminal, the Storage Areas, the Parking Areas and the Retail Areas) or which are now and which may be imposed or assessed thereon by any lawful taxing authority whether school, municipal, regional, provincial, federal or otherwise, but excluding any income, profit, inheritance, succession or transfer taxes or levies or tax on capital and tax on large Corporations and also excluding any penalties or interest resulting from late payment;

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1.1.43 “Rent” means all Net Rent and Additional Rent payable pursuant to this Lease;

1.1.44 “Rentable Area of the Premises”, means the area expressed in square feet and/or square meters, as certified by the Architect, measured in accordance with the “BOMA Standards” of area measurement dated June 21, 1989, as amended from time to time, a copy of which is annexed hereto as Schedule “C”, it being acknowledged that the Rentable Area of the Premises, will be adjusted from time to time upon mutual consent of the Landlord and the Tenant to reflect any alteration of the Rentable Area of the Building;

1.1.45 “Rentable Area of the Building” means the aggregate of the rentable area of all rentable premises in the Building that are rented, or designated or intended by the Landlord to be rented, for offices or business purposes, expressed in square feet and/or square meters as certified by the Architect, measured in accordance with the “BOMA Standards” of area measurement, a copy of which is annexed hereto as Schedule “C”, but excluding the Ice Amphitheatre, the Bus Terminal, the Storage Areas, the Parking Areas and the Retail Areas;

1.1.46 “Retail Areas” means the areas of rentable premises in the Building designated by the Landlord for retail use;

1.1.47 “Rules and Regulations” means the rules and regulations made by the Landlord set forth in Schedule “F” annexed hereto, which may be amended by the Landlord, acting reasonably;

1.1.48 “Schedules” – The Schedules shall form part of this Lease and are as follows:

Schedule “A” – Description of Lands

Schedule “B-1” – Plan of the 36th floor

Schedule “B-2” – Plan of the 37th floor

Schedule “B-3” – Plan of the 38th floor

Schedule “B-4” – Plan of the 13th floor

Schedule “B-5” – Plan of the 11th floor

Schedule “B-6” – Plan of the 12th floor

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Schedule “B-7” – Plan of the 34th door

Schedule “C” – BOMA Standards

Schedule “D” – Base Building Standards

Schedule “E” – Standards for Tenant’s Improvements

Schedule “F” – Rules and Regulations

Schedule “G-l” – Descriptive Specifications

Schedule “G-2” – Tenant Improvement Standards

Schedule “H” – Construction Progress Schedules

1.1.49 “Secured Creditor” means any mortgagee or hypothecary creditor or secured party or trustee for bondholders, as the case may be, who from time to time holds a Mortgage;

1.1.50 “Security Deposit” INTENTIONALLY DELETED

1.1.51 “Storage Areas” means those areas in the Building which are designated or intended from time to time by the Landlord to be rented to tenants or other occupants for storage purposes;

1.1.52 “Surtax on Non-Residential Immovables” means a tax imposed by a local municipal taxing authority on the real estate taxable value of the Development on the basis that the Development constitutes a non-residential immovable;

1.1.53 “Tenant” means BCE INC. and its successors and assigns;

1.1.54 “Tenant’s Sales Taxes” has the meaning ascribed to such term in Section 5.7 hereof;

1.1.55 “Tenant’s Work” means the work to be performed on behalf of the Tenant, at its expense, in accordance with the Base Building Standards set forth in Schedule “D” and with the Standards for Tenant’s Work set forth in Schedule “E” to render the Premises suitable to the Tenant’s intended use and which work has been previously approved by the Landlord;

1.1.56 “Term” means the periods specified in Section 3,1;

1.1.57 “Transfer” means an assignment of this Lease in whole or in part, a sublease of all or any part of the Premises, any mortgage, transaction or event to the same effect, any hypothec, charge or encumbrance of this Lease or the Premises or any part thereof or other arrangement under which either this Lease or the Premises become security for any indebtedness or other obligations and includes any transaction or occurrence whatsoever (including, but not limited to, expropriation. receivership proceedings, seizure by legal process and transfer by operation of law), which has changed or might change the identity of the Person having lawful use or occupancy of any part of the Premises. For greater certainty, a merger or amalgamation of BCE INC. with any other Person or persons shall not constitute a Transfer;

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1.1.58 “Transferee” means the Person to whom a Transfer is or is to be made;

1.1.59 “Unavoidable Delay” means any delay or cause beyond the control of either party hereto which prevents the performance of any obligation hereunder and not caused by a default or act of commission or omission of such party and not avoidable by reasonable care, including without limitation strikes, lockouts or other labour disputes, act of God, sabotage, war, blockades, insurrections, riots, civil disturbances, the enactment, amendment or repeal of any Applicable Laws, and shortages or unavailability of building materials; however a lack of funds or the financial inability of the Landlord shall not constitute an Unavoidable Delay.

ARTICLE 2

2 LEASED, PREMISES

2.1 Rentable Area – The Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord, upon the terms and conditions herein contained, the Premises which consist of:

(a) approximately fifty-nine thousand three hundred and sixteen (59,316) square feet of rentable area located on all of the 36th, 37th and 38th floors of the Building (collectively referred to as “Space “A””), aa shown outlined in red on the floor plans attached hereto as Schedules “‘B-1”, “B-2” and “B-3”;

(b) approximately two thousand and ninety-eight (2,098) square feet of rentable area located on part of the 13th floor of the Building (“Space “B””), as shown outlined in red on the floor plan attached hereto as Schedule “B-4”;

(c) approximately thirteen thousand and twenty-seven (13,027) square feet of rentable area located on part of the 13th floor of the Building (“Space “C”). as shown outlined in green on the floor plans attached hereto as Schedule “B-4”;

(d) approximately forty-one thousand two hundred and fifty-four (41,254) square feet of rentable area looted on the entire 11th floor and the entire 12th floor of the Building (collectively referred to as “Space “D””), as shown outlined in red on the floor plans attached hereto as Schedules “B-5” and “B-6”;

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(e) approximately three thousand and seventy-six (3,076) square feet of rentable area located on the 34th floor of the Building (“Space “E””), as shown outlined in red on the floor plan attached hereto as Schedule “B-7”; and

(f) approximately two thousand seven hundred and eighty-three (2,783) square feet of rentable area located on the 13th floor of the Building (“Space “F””), as shown outlined in yellow on the floor plan attached hereto as Schedule “B-4”.

The aforesaid areas have been determined in accordance with the BOMA Standards of area measurement attached hereto as Schedule “C”.

In no event shall the Tenant, in the future, lease less than five thousand (5,000) square feet of rentable area on any floor which is otherwise unleased. Furthermore, the Tenant shall use its reasonable efforts to lease the entire 13th floor, it being understood that, in no event, shall the Tenant lease only a part of both the 11th and the 13th floors.

2.2 Certificate of Measurement – The Tenant hereby acknowledges that, notwithstanding anything to the contrary contained in this Lease or the provisions of the Civil Code of Quebec, the Landlord may effect minor variations to the configuration of the Premises or any part thereof. Prior to the commencement of the Term, the Rentable Area of the Premises shall be conclusively determined by the Architect in accordance with the BOMA Standards of area measurement attached hereto as Schedule “C” and shall be set out in a certificate of measurement of the Architect, a copy of which shall be given to the Tenant. Such determination shall be final and binding on the parties, unless proven by either party to be incorrect.

For the sake of clarity, in the case of those floors which the Tenant occupies in full, the exact rentable area shall be certified by the Architect. Any floors which are partially occupied by the Tenant shall be measured, and the area certified by the Architect within thirty (30) days following the substantial completion of the initial Leasehold Improvements.

In addition to the foregoing, the Landlord shall, on or before the Commencement Date, provide the Tenant with a statement prepared by the Architect showing a breakdown of the rentable areas of the Building, together with a statement prepared by the Landlord showing the calculation of the Tenant’s Proportionate Share for the purposes of payment of Additional Rent as provided in Section 4.2 hereof.

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ARTICLE 3

3 TERM

3.1 Term – The term of this Lease (the “Term”) shall commence:

(a) in respect of Space “A”, on May 1, 1993;

(b) in respect of Space “B”, on July 1, 1993;

(c) in respect of Space “C”, on November 1, 1993;

(d) in respect of Space “D”, on June 1, 1993;

(e) in respect of Space “E”, on September 1, 1994; and

(f) in respect of Space “F”, on May 1, 1995.

Subject to Section 19.6 hereof, the Term shall expire on October 31, 2003, unless terminated earlier pursuant to this Lease.

ARTICLE 4

4 RENT AND ADDITiONAL RENT

4.1 Net Rent – The Tenant shall pay to the Landlord, yearly throughout the Term, for the respective Lease Year, in equal, consecutive monthly installments, in advance, without compensation or deduction whatsoever, on the first day of each month during the Term, subject to the adjustment provisions of Section 4.5 hereof, Net Rent in accordance with the following provisions:

(a) Space “A”

· from May 1, 1993 through to April 30, 1997 inclusive, eighteen dollars ($18.00) per square foot of the rentable area of Space “A” per annum; and

· from May 1, 1997 through to October 31, 2003 inclusive, twenty-two dollars ($22.00) per square foot of the rentable area of Space “A” per annum.

(b) Space “B”

· from July 1, 1993 through to April 30, 1997 inclusive, fourteen dollars ($14.00) per square foot of the rentable area of Space “B” per annum; and

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· from May 1, 1997 through to October 31, 2003 inclusive, nineteen dollars ($19.00) per square foot of the rentable area of Space “B” per annum.

(c) Space “C”

· from November 1, 1993 through to April 30, 1997 inclusive, fourteen dollars ($14.00) per square foot of the rentable area of Space “C” per annum; and

· from May 1, 1997 through to October 31, 2003 inclusive, nineteen dollars ($19.00) per square foot of the rentable area of Space “C” per annum.

(d) Space “D”

· from June 1, 1993 through to April 30, 1997 inclusive, fourteen dollars ($14.00) per square foot of the rentable area of Space “D” per annum, and

· from May 1, 1997 through to October 31, 2003 inclusive, nineteen dollars ($19,00) per square foot of the Rentable Area of Space “D” per annum; and

(e) Space “E”

· from September 15, 1994 through to August 31, 1999 inclusive, seven dollars and seventy-five cents ($7.75) per square foot of the rentable area of Space “E” per annum; and

· from September 1, 1999 through to October 31, 2003 inclusive, thirteen dollars ($13.00) per square foot of the rentable area of Space “E” per annum; and

(f) Space “F”

· from May 1, 1995 through to April 30, 2000 inclusive, eight dollars and thirty-five cents ($8.35) per square foot of the rentable area of Space “F” per annum; and

· from May 1, 2000 through to October 31, 2003 inclusive, ten dollars and ten cents ($10.10) per square foot of the rentable area of Space “F” per annum.

The Net Rent shall be entirely net to the Landlord, except as provided herein.

4.2 Additional Rent. - The Tenant shall also pay to the Landlord as Additional Rent:

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4.2.1 the Tenant’s Proportionate Share of Real Estate Taxes as provided in Section 5.2;

4.2.2 the Tenant’s share of the Surtax on Non-Residential Immovables;

4.2.3 the Tenant’s Proportionate Share of the Operating Costs;

4.2.4 electricity consumed within the Premises; and

4.2.5 the aggregate, without duplication, of:

4.2.5.1 costs of electricity and other utilities including special utilities and excess quantities consumed within the Premises;

4.2.5.2 costs of any additional services provided by the Landlord at the request of the Tenant and any related cost;

4.2.5.3 such other costs, as are required to be paid by the Tenant to the Landlord under this Lease (other than those specifically referred to above); and

4.2.5.4 any reasonable cost incurred by the Landlord on behalf of the Tenant in respect of any of the Tenant’s obligations set out in this Lease which the Tenant fails to perform, provided that nothing herein shall obligate the Landlord to perform any such obligations;

4.2.5.5 a management fee equal to 3.25% of the aggregate of the Net Rent, the Tenant’s Proportionate Share of the Operating Costs, the Tenant’s Proportionate Share of Real Estate Taxes and of the Surtax on Non-Residential Immovables, electricity and any other taxes payable by the Tenant to the Landlord pursuant to the Lease; and

4.2.5.6 a management fee equal to fifteen percent (15%) of the cost of special services, additional services and any other cost for services provided to the Tenant by the Landlord which is required to be paid by the Tenant to the Landlord pursuant to the Lease.

4.3 Payment of Additional Rent – Except for the Tenant’s Share of the Surtax on Non-Residential Immovables which is payable as provided in Section 5.8, and except as otherwise provided under this Lease, any and all Additional Rent is payable in equal monthly installments, in advance on the earlier of the due date of the next monthly payment of Net Rent or within fifteen (15) days of receipt by the Tenant of an invoice, statement or demand therefor from the Landlord.

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4.4 Estimation of Additional Rent - Before the commencement of each Accounting Period, the Landlord shall notify the Tenant of the reasonable estimated amount of Additional Rent for such Accounting Period. The Landlord, acting reasonably, may, during an Accounting Period, re-estimate any items of Additional Rent and may by notice to the Tenant fix new monthly installments for the then remaining balance of the Accounting Period so that such items will have been entirely paid during such Accounting Period. Notwithstanding anything herein contained to the contrary, as soon as bills for all or any portion of the costs and expenses payable by the Tenant as Additional Rent are received by the Landlord, the Landlord may bill the Tenant for any amount charged in excess of the estimated amount, and the Tenant shall pay the Landlord such amounts so billed (less all amounts previously paid by the Tenant on the basis of the Landlord’s original estimate thereof) as Additional Rent within thirty (30) days after demand.

Within a reasonable period of time (not exceeding four (4) months) after the end of the Accounting Period, the Landlord shall provide the Tenant with an audited statement prepared by an independent chartered accountant of the Landlord for the relevant Accounting Period of Operating Costs, Real Estate Taxes and all other items of Additional Rent payable by the Tenant which the Landlord has estimated in advance. Such statement shall be accompanied by the certificate from the Landlord’s auditors described in the next paragraph.

If the total of the monthly installments paid by the Tenant in respect of estimated Additional Rent for such Accounting Period is less than the amount of Additional Rent payable by the Tenant for such Accounting Period shown on such statement, the Tenant shall pay the difference to the Landlord on the earlier of the due date of the next monthly payment of Net Rent or within thirty (30) days of receipt of such statement. If the total of such monthly installments paid is greater than the amount of the Additional Rent payable by the Tenant for such Accounting Period, the difference shall, at the option of the Landlord, be repaid to the Tenant with such statement, or be applied in payment of other amounts owing by the Tenant, or be applied in reduction of future payments due under this Lease, the whole without interest. The Landlord shall provide the Tenant with a certificate of its independent chartered accountant confirming the fairness of the Landlord’s determination of Operating Costs, which shall be binding on the parties.

The Landlord shall, in keeping with sound first-class office building management practices in Montreal, minimize Operating Costs and make all reasonable attempts to obtain proceeds of insurance as well as to exercise all reasonable recourses available to the Landlord against any contractor, builder, supplier or any third party in order to reduce the Tenant’s liability for Operating Costs. In allocating Operating Costs, Real Estate Taxes and other costs to the various components of the Building, the Landlord shall act fairly and reasonably, and, with regard to allocation of Real Estate Taxes and other taxes, shall apply the method used and/or imposed and/or recommended by the competent authority.

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The Landlord shall operate the Building in a manner befitting of a prudent Landlord of similar first-class buildings of comparable age in downtown Montreal. Furthermore, the Landlord shall provide the Tenant, no later than four (4) months after the end of each Accounting Period, with a detailed statement from its auditors (who shall be a firm of independent chartered accountants) certifying that the Operating Costs have been calculated in accordance with this Lease. Upon receipt of the audited statements and provided the Tenant has not, either in whole or in part, assigned the Lease to any third party which is not an Affiliate of the Tenant, the Tenant may, in writing, request clarification from the Landlord with respect to the amount of Operating Costs. The Landlord shall, acting diligently, use all of its reasonable efforts to provide the Tenant with a reasonable response to the Tenant’s request. If, as a result of said clarification, it is determined that the Tenant has made an overpayment of Operating Costs, the Landlord shall reimburse the amount of said overpayment to the Tenant within thirty (30) days of said determination. Should the reverse be true, the Tenant agrees to settle any underpayment of Operating Costs within the same delay. The Tenant shall not withhold payment of Operating Costs pending its request for clarification of Operating Costs.

Provided the Tenant has not assigned the Lease to any third party which is not an Affiliate of the Tenant, has exercised the foregoing right and still is not satisfied as to the accuracy of the Landlord’s calculation of Operating Costs, then the Tenant shall have the right to have its external auditors review the Operating Costs for their accuracy and reliability. Such a review by the Tenant’s external auditors shall be at the Tenant’s entire expense, including any expenses incurred by the Landlord as a result thereof, and shall be conducted during the Landlord’s business hours and after a reasonable written notice to the Landlord to this effect. Should it be determined, however, that the Tenant has made an overpayment of Operating Costs, the Landlord shall reimburse the amount of said overpayment to the Tenant within thirty (30) days of said determination and the Tenant shall not be responsible to the Landlord for any expenses incurred by the Landlord as a result of said process.

4.5 Adjustment of Rent – If and whenever the Rentable Area of the Premises is revised, as provided pursuant to this Lease, the Net Rent for any year of the Term or relevant portion thereof affected by such revision shall be recalculated by multiplying such revised Rentable Area of the Premises by the applicable amount of Net Rent per square foot (square meter) of Rentable Area of the Premises for such year of the Term and the amount of the annual Net Rent for such year of the Term, or relevant portion thereof, and the equal monthly installments for such year of the Term, or relevant portion thereof, shall be amended accordingly. There shall be a corresponding recalculation of the Tenant’s Proportionate Share and of amounts payable as Additional Rent. Upon any such recalculation, the Landlord and the Tenant shall make the appropriate adjustments in respect of earlier payments of Net Rent and Additional Rent affected by any such recalculation.

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4.6 Cash Allowance – The Landlord agrees to pay to the Tenant in respect of each of Space “B”, Space “C” and Space “D”, not later than thirty (30) days following their respective Commencement Date, a cash allowance equal to NINETEEN DOLLARS AND FORTY-FOUR CENTS ($19.44) per square foot of their respective rentable area. It is expressly understood that said cash allowance shall be granted to the Tenant in lieu of eighteen (18) months of free Net Rent. There shall be no such allowance granted with respect to Spaces “A”, “E” and “F”.

ARTICLE 5

5 TAXES AND operating costs

5.1 Real Estate Taxes Payable by the Landlord – The Landlord shall discharge when due all Real Estate Taxes payable by the Tenant, as set out in Section 5.2, but it may defer such payment or compliance to the fullest extent permitted by law.

If the system of real estate taxation shall be altered or varied and any new tax or levy shall be levied or imposed on the Building and/or the Lands and/or the revenues therefrom and/or Landlord in substitution for and/or in addition to Real Estate Taxes presently levied or imposed on immovables in the city, town or municipality in which the Building and Land are situate, then any such new tax or levy shall be included within the term “Real Estate Taxes” and the provisions of this Article 5 shall apply mutatis mutandis.

The amount of the Real Estate Taxes which shall be deemed to have been levied or imposed with respect to the Building and the Lands shall be such amount as the legal authority imposing Real Estate Taxes shall have attributed to the Building and the Lands respectively, or, in the absence of such attribution, or, if such legal authority shall include other immovables other than the Building and the Lands in imposing such Real Estate Taxes, such amount as Landlord in the exercise of reasonable judgment shall establish.

5.2 Real Estate Taxes Payable by the Tenant

5.2.1 The Tenant shall pay to the Landlord, as Additional Rent, for each Accounting Period which the Landlord establishes to compute Real Estate Taxes occurring in whole or in part within the Term, its Proportionate Share of Real Estate Taxes attributable to such Accounting Period. Such Additional Rent shall be payable by the Tenant to the Landlord no later than the tax due date or such other date which may be specified by the Landlord to the Tenant and which shall not be more than thirty (30) days before the tax due date. The Landlord shall furnish to the Tenant upon the Tenant’s specific written request copies of all notices of valuation and assessment and all tax bills Landlord receives.

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5.2.2 The share of Real Estate Taxes payable by the Tenant pursuant to Subsection 5.2.1 shall be the amount which is the aggregate, without duplication, of:

5.2.2.1 the Tenant’s Proportionate Share of Real Estate Taxes that is not charged to the Tenant and other tenants of the Development pursuant to paragraph 5.2.2.2 and similar provisions in the leases of such other tenants; and

5.2.2.2 in the event that there is a separate assessment for the value of the Premises by a lawful public authority, the amount obtained by multiplying the appropriate commercial rate or rates for the relevant Accounting Period by the assessed value of the Premises as determined by such lawful public authority.

5.2.3 If the Landlord so requests in writing, the Tenant shall promptly provide the Landlord with a copy of any separate tax bill or separate assessment notice that it receives for the Premises or any part thereof. If, as a result of changes in existing Applicable Laws, in any Accounting Period the Tenant is prohibited by law from making payments of Real Estate Taxes directly to the Landlord, then it shall pay to the appropriate taxing authorities all Real Estate Taxes payable in respect of the Premises and promptly deliver to the Landlord receipts evidencing such payment. The Landlord and the Tenant will make an adjustment within thirty (30) days after the final tax bills are issued for such Accounting Period and the Tenant will pay to the Landlord the amount by which the Tenant’s Proportionate Share of Real Estate Taxes for such Accounting Period exceeds the amount of Real Estate Taxes actually paid by the Tenant or, as the case may be, the Landlord shall pay to the Tenant the amount by which the Real Estate Taxes actually paid by the Tenant exceed the Tenant’s Proportionate Share of Real Estate Taxes.

5.3 Landlord’s Contestation of Real Estate Taxes - The Landlord alone shall be entitled to appeal any governmental assessment or determination of the value of the Building or any portion thereof whether or not the assessment or determination affects the amount of Real Estate Taxes or other taxes, rates, duties, levies or assessments to be paid by the Tenant. The Landlord alone shall have the right to contest, appeal, object or litigate the imposition of any Real Estate Taxes.

The Landlord shall have no obligation to contest, object to or litigate the levying or imposition of any Real Estate Taxes and the Landlord may settle, compromise, consent to, waive or otherwise determine in its discretion any Real Estate Taxes without notice to, consent or approval of the Tenant.

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5.4 Business, Water and Other Taxes – The Tenant shall be liable for and pay to the competent authorities having jurisdiction or to the Landlord or the Co-owners, as the case may be, all water taxes, Business Taxes, garbage taxes and all other taxes imposed or levied upon the Premises or the business carried on therein, all other rates and taxes, present or future, which are or may become payable by the Tenant as tenant or occupant thereof and any and all such taxes that may be levied upon the Leasehold Improvements in the Premises, notwithstanding any change in the method of calculation, method of collection or nature of such taxes. For greater certainty, this Section 5.4 shall not be construed so as to render the Tenant liable for any income, profit, inheritance, succession or transfer taxes or levies or tax on capital or large corporations tax of the Landlord or the Co-owners.

If, by law, regulation or otherwise, business taxes and water taxes or other similar rates and taxes or taxes upon Tenant’s fixtures, equipment, machinery or upon alterations and/or improvements are made payable by landlords or proprietors, or if the mode of collecting such taxes and/or rates be so altered as to make Landlord liable therefor instead of Tenant, Tenant shall pay to Landlord prior to the due date but in any event within seven (7) days after demand upon Tenant the amount of the charge imposed on Landlord as a result of such change, and shall save Landlord harmless from any cost or expense in respect thereof.

5.5 Appeal of Business Taxes – The Tenant may appeal the imposition of any taxes, rates, duties, levies and assessments payable directly by it to the taxing authorities pursuant to Section 5.4 and may postpone payment thereof to the extent permitted by law if the Tenant is diligently proceeding with an appeal, provided that (i) such postponement does not render the Development, or any part thereof; subject to sale or forfeiture and does not render the Landlord liable to prosecution, penalty, fine or other liability and (ii) upon final determination of such appeal, the Tenant promptly pays the amount determined to be payable.

5.6 Receipts by the Tenant – Whenever requested by the Landlord, the Tenant shall forthwith upon demand deliver to the Landlord copies of receipts for payment of all Business Taxes and other taxes, rates, duties, levies and assessments payable by the Tenant under this Article 5 and furnish such other information in connection therewith as the Landlord may reasonably require.

5.7 Sales Taxes – Notwithstanding any other provision of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all taxes imposed on the Tenant and required to be remitted by the Landlord with respect to the Net Rent, Additional Rent or any other amounts payable by the Tenant to the Landlord under this Lease, whether characterized as a goods and services tax, sales tax, value added tax or otherwise (herein in this Section 5.7 called Tenant’s Sales Taxes”), it bang the intention of the parties that the Landlord shall be fully reimbursed by the Tenant with respect to any and all Tenant’s Sales Taxes and Landlord’s Sales Taxes. The amount of Tenant’s Sales Taxes payable to the Landlord shall be calculated by the Landlord in accordance with applicable legislation and imposed against the amounts due by the Tenant to the Landlord under the terms of this Lease and shall be paid to the Landlord at the same time as the amounts to which the Tenant’s Sales Taxes so applied are payable to the Landlord under the terms of this Lease, and the Landlord may make any estimates necessary for the purpose of such calculations in the same manner as provided in this Lease for payment of Operating Costs.

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Notwithstanding any other provision in this Lease to the contrary, the amounts payable by the Tenant under this Section 5.7 shall be deemed not to be Net Rent or Additional Rent, but the Landlord shall have all of the same remedies and rights of recovery of such amounts as it has for recovery of Rent under this Lease.

5.8 Surtax – Throughout the Term, the Tenant shall pay its share, as and when due, and in the manner reasonably determined from time to time by Landlord, of any real estate surtax including, without limitation, the Surtax on Non-Residential Immovables, which is or may be levied or imposed against or in respect of the Lands or the Development, or any part thereof. Without limiting the generality of the foregoing, the Landlord may allocate the entirety of such surtaxes among the tenants of all or any part of the Development based on their respective Proportionate Share.

Notwithstanding any contrary provision of this Lease, it is agreed that any reimbursements or credits of or in respect of Surtax on Non-Residential Immovables for vacant premises shall be for the sole benefit of the Landlord and the Co-owners. Therefore, the amounts of such reimbursements shall not be deducted from or otherwise reduce the amount(s) of Surtax on Non-Residential Immoveables which the Tenant would have otherwise paid had there not been any such credit or reimbursement.

5.9 Operating Costs – Without restricting the generality of its definition, Operating Costs shall include, without duplication:

5.9.1 all salaries, wages, medical, general welfare benefits (including group life insurance and pension payments), payroll taxes, workmen’s compensation insurance contributions and unemployment insurance contributions, fringe benefits, severance pay and termination payments paid to or for all personnel, including supervisory personnel and managers, but excluding all executive personnel of the Landlord to the extent they are not specifically responsible for the administration of the Development and all costs of obtaining such personnel in connection with the maintenance, cleaning, repair, operation, administration or management of the Development or any part of it, and amounts paid to professionals and independent contractors, including any management companies, for any services provided in connection with the maintenance, cleaning, repair, operation, administration or management of the Development or any part of it;

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5.9.2 costs of providing cleaning, maintenance and repair, elevator and escalator maintenance, security, supervision, traffic control, janitorial, gardening, landscaping, window cleaning, garbage and waste collection, disposal and recycling, and snow removal services for the Development;

5.9.3 any business taxes which may be imposed on the Landlord, or its managing agents, by reason of its operation of the Building, but such business taxes shall not include any income, profit, inheritance, succession or transfer taxes;

5.9.4 expenditures relating to environmental protection or energy conservation measures or programs;

5.9.5 costs of providing electric light and power, fuel, heat, processed air, water, telephone, steam, gas, sewage disposal and other utilities, costs of replacing building standard electric light fixtures, ballasts, tubes, starters, lamps, light bulbs and controls (except as chargeable separately to tenants);

5.9.6 costs of all insurance which the Landlord is obligated or permitted to obtain under this Lease including, without limiting the generality of the foregoing premiums and deductible payments in respect of fire, casualty, liability, property damage, boiler, loss of rental income;

5.9.7 legal, accounting and auditing fees and expenses of the Development;

5.9.8 all taxes on capital and large corporations tax, or similar or equivalent taxes, being the applicable amount (as hereinafter defined) of any tax or taxes levied or imposed against the Landlord and the Co-owners of the Development or any part thereof, by any governmental authority having jurisdiction, be it federal or provincial, which taxes are wholly or partly computed as a function of the capital employed in respect of the Development or any part thereof as determined for the purposes of such tax or taxes but, excluding all taxes on income and profits. For the purpose of this paragraph, “applicable amount” of such tax or taxes means the amount of tax that would be payable if the Development were the only establishment of the Landlord and the Co-owners on account of such taxes and on the basis of the original cost of the Building, established as at the date of initial stabilized occupancy.

5.9.9 costs of all non structural repairs and replacements (except if the same are being deprecated according to the provisions hereinafter set forth) and the costs of structural repairs and structural replacements (other than those directly related to any inherent structural defect or weakness) including those required to comply with Applicable Laws or the requirements of the Landlord’s insurers and amortization of the cost of any repairs or replacements not charged in accordance with the foregoing provisions of this paragraph, which costs of each item of repair or replacement are to be calculated (i) on a straight line basis over such period the Landlord determines is reasonable having regard to the nature of the repair or replacement or (ii) fifteen (15) years, whichever is lesser;

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5.9.10 the cost of cleaning and maintaining the curtain wall, the surface of any exterior walls and the roof of the Building (subject to Section 5.10);

5.9.11 depreciation calculated in accordance with generally accepted accounting principles of the costs of machinery, supplies, tools, equipment, facilities, furniture, furnishings, materials, systems and property used in connection with the Development or any rentals thereof, including the cost of any additional or replacement equipment required by law or which, in the reasonable opinion of the Landlord, is for the benefit or safety of the Development and/or the tenants thereof (excluding the costs of original components of the Building Systems installed as part of the original construction of the Building) (individually and collectively in this Subsection 5.9.11 called “machinery”) installed in or used in connection with the Building (except to the extent that the costs are, in accordance with generally accepted accounting principles, charged fully in the Accounting Period in which they are incurred) as calculated in the case of each item of machinery on a straight line basis over its useful life or fifteen (15) years, whichever is lesser;

5.9.12 interest on the undepreciated portion of the costs referred to in Subsections 5.9.9 and 5.9.11, calculated monthly, from the date on which the relevant costs were incurred, at an annual rate of interest that is one percent (1%) above the Prime Rate in effect on the first day of the Accounting Period in which the relevant costs were incurred (the applicable rate of interest to be adjusted by the Landlord on the first day of each Accounting Period to the annual rate of interest that is one percent (1%) above the Prime Rate then in effect);

5.9.13 the fair market rental value (having regard to rent being charged for similar space in the Building, including Additional Rent for Operating Costs and Real Estate Taxes) of space used by the Landlord in connection with the maintenance, repair, operation, administration and management of the Building and of space in the Building which may be designated from time to time by the Landlord for use as a conference center or exercise facility for the use of tenants of the Building;

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5.9.14 the administration fee set-out in Subsection 4.2.6;

5.9.15 Landlord’s Sales Tax;

5.9.16 without duplication, amounts payable by the Landlord to the Co-owners under the lease referred to in Section 20.16 in respect of costs which the Landlord would itself have incurred if the Landlord were the owner of the Development, including costs of the type described in the foregoing provisions of this Section 5.9;

5.9.17 subject to Sub-section 5.10.12, any costs related to providing security, crowd control, or other measures resulting from emergencies; and

5.9.18 any expenses, including, without limitation, legal, appraisal, administration and overhead expenses, incurred by the Landlord in obtaining or attempting to obtain a deduction of or to prevent an increase of any Real Estate Taxes.

5.10 Exclusions from Operating Costs – The following shall be excluded from Operating Costs:

5.10.1 depreciation of the Development (except as included in Section 5.9 above);

5.10.2 the cost of any structural repairs or structural replacements to the Development to the extent such costs are directly related to any inherent structural defect or weakness;

5.10.3 debt service costs;

5.10.4 without duplication, net rents payable by the Landlord to the Co-owners under the head lease referred to in Section 20.16 except for the amounts payable by the lessor thereunder in respect of costs which the Landlord would itself have incurred if the Landlord were the owner of the Development, including costs of the type described in Section 5.9;

5.10.5 inheritance, succession or transfer taxes or levies, any taxes on income or profits of the Landlord or the Co-owners, it being understood that taxes on capital and tax on large corporations are not part of such income or profits taxes or levies;

5.10.6 expenses incurred for work or services performed solely for a particular tenant(s) of the Building relating to premises leased by such tenant(s) which are not work or services normally supplied or furnished to other tenants of the Building or included in Operating Costs;

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5.10.7 the cost of repairs necessary to remedy faulty workmanship or materials, or errors in the design of the major Building components;

5.10.8 the cost of replacing the curtain wall, notwithstanding Subsection 5.9.10 of this Lease;

5.10.9 the cost of maintaining, operating, repairing, administering or managing any conference facility or exercise facility which may, from time to time, be made available by the Landlord for use by the tenants of the Building; the Tenant shall pay for such facilities on an as-use basis only, unless otherwise agreed to between the parties hereto;

5.10.10 any recycling costs which are recovered by the Landlord from third parties as a result of having sold recycled refuse;

5.10.11 any land rent payable by the Landlord or the Co-owners pursuant to an emphyteutic or other underlying ground lease;

5.10.12 any costs related to providing security, crowd control or other emergency measures, arising from the operation of the Ice Amphitheater, the Bus Terminal, the Metro or the Retail Area;

5.10.13 any amounts recovered under warranties and guarantees;

5.10.14 any business taxes imposed on the Co-owners acting in their capacity as owners;

5.10.15 capital costs arising from major renovations to the Building or the depreciation thereof;

5.10.16 any fines or penalties or damages levied against or payable by, the Landlord, its servants, employees, agents, contractors, subcontractors, or those for whom the Landlord is in law responsible as a result of their fault or negligence;

5.10.17 any costs or expenses which are attributable to any other tenants in the Building excluding any coats which are imputed to premises in the Building used by the Landlord in connection with the operation and management of the Building;

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5.10.18 original acquisition, original construction and original landscaping cost or costs of a capital nature arising from any addition to or of any expansion of the Building or the depreciation thereof;

5.10.19 consultant and professional fees not for the direct benefit of tenants of the Building;

5.10.20 costs of off-site personnel supervising the Building, which costs are not directly attributable to the operation and the administration of the Building;

5.10.21 any leasing commissions payable in respect of any premises of the Building;

5.10.22 any costs of any Landlord’s work in constructing, preparing or improving any premises for any tenants of the Building;

5.10.23 any costs or expenses incurred in older to induce a particular tenant to rent space in the Building (such as assuming former lease obligations for any such tenant, given such tenant an indemnity, leasehold allowance or rent abatement to induce it to lease, or purchasing of such tenant’s former building);

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5.10.24 losses resulting from uncollectible debts in the nature of unpaid rent, taxes and/or operating expenses (including Net Rent, Real Estate Taxes and Operating Costs) by other tenants;

5.10.25 any advertising and/or publicity costs related to the promotion of the Building;

5.10.26 expenses incurred to supply services and/or maintenance to other tenants of the Building, which services and maintenance would not be available to the Tenant without additional payment;

5.10.27 any amount paid as salary, bonus or any form of remuneration paid to any person, except to the extent such person performs work directly in connection with the management and administration of the Building;

5.10.28 any costs or expenses incurred by the Landlord with respect to defaulting tenants in the Building; and

5.10.29 any costs related to the Parking Areas, the Storage Areas, the Ice Amphitheater, the Metro, the Bus Terminal or the Retail Areas or related to the Common Areas and Facilities to the extent they serve such areas.

5.11 Deductions from Operating Costs – The following shall be deducted from Operating Costs as determined pursuant to Section 5.9:

5.11.1 net insurance proceeds received by the Landlord to the extent (but only to the extent) that such proceeds reimburse the Landlord for costs of repair and replacement which have been charged as Operating Costs; and

5.11.2 net recoveries by the Landlord in respect of warranties or guarantees relating to the construction of the Building to the extent (but only to the extent) that the repair costs in respect of the work covered by such warranties or guarantees have been charged as Operating Costs.

5.12 Adjustment of Operating Costs – In computing Operating Costs, if less than one hundred percent (100%) of the Rentable Area of the Building is completed or occupied during any period for which a computation must be made, the items of Operating Costs which vary with the extent of the occupancy percentage and/or use of leasable premises in the Building, (including without limitation, cleaning costs, refuse removal costs and utilities costs) shall be increased to such an amount as, in the reasonable estimate of the Landlord, would be incurred if one hundred percent (100%) of the Rentable Area of the Building was occupied during that period. Such adjustment shall not increase the Tenant’s Proportionate Share of Operating Costs.

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5.13 Estimates of Real Estate Taxes and Operating Costs – Without any representation or guarantee from the Landlord, the Real Estate Taxes and the Operating Costs for the calendar year 1995 are estimated at thirteen dollars and forty-five cents ($13.45) per square foot of the Rentable Area of the Premises, subject, however, to adjustments by the Landlord.

5.14 For the sake of clarity, it is agreed that the Tenant shall not be responsible for the payment of any income, profit, inheritance, succession or transfer taxes or levies, but that the Tenant shall be obliged to pay its Proportionate Share of the Landlord’s tax on capital and large corporations tax.

ARTICLE 6

6 PAYMENT OF MONIES

6.1 Payment of monies – All payments by the Tenant to the Landlord of whatsoever nature required or contemplated by this Lease shall:

6.1.1 be made when due hereunder at 1000 de La Gauchetière Street West, Montreal, Quebec, Mezzanine Level or at such other place in Canada as the Landlord may designate to the Tenant;

6.1.2 be applied towards amounts then outstanding hereunder in such manner as the Landlord determines; and

6.1.3 bear interest daily from the due date, at the rate per annum which is 3% above the Prime Rate.

If the Term of the Lease begins on any day of the month other than the first day, then the Net Rent and Additional Rent for such month shall be prorated and paid on a per diem basis, based upon the relevant Lease Year or Accounting Period as the case may be.

Subject to Section 19.7 hereof, the Tenant agrees to pay amounts due to the Landlord pursuant to the Lease without demand, compensation, reduction, or deduction whatsoever and regardless of any claims by the Tenant.

ARTICLE 7

7 INTENT OF LEASE

7.1 Net Lease – The Tenant acknowledges and agrees that it is intended that this Lease be an entirely net lease for the Landlord, except for the Landlord’s income taxes, it being understood that taxes on capital and tax on large corporations are not part of the Landlord’s income taxes. The Tenant shall alone be responsible for and pay all costs, charges, impositions and expenses of every nature and kind relating to the Premises and the Tenant’s share of the Surtax and the Tenant’s Proportionate Share of all costs, charges, impositions and expenses of every nature and kind relating to the Building, including such as may be incurred by or paid for by the Landlord on the Tenant’s behalf, save as expressly herein set forth.

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ARTICLE 8

8 CONTROL AND OPERATION OF DEVELOPMENT BY LANDLORD

8.1 Control and operation of the Development – The Landlord, acting as a prudent landlord, shall have exclusive control of the Development and its management and operation. The Landlord may, alone or in conjunction with the Co-owners:

8.1.1 retain contractors and employ all personnel, including supervisory personnel and managers, that the Landlord consider necessary for the effective maintenance, repair, operation, administration or management of the Development;

8.1.2 temporarily obstruct or close off parts of the Development for the purpose of maintenance, repair, replacement or construction of any component or phase of Development;

8.1.3 make, modify and terminate agreements pertaining to the use, maintenance, repair, operation, administration and management of all or any part of the Development including the Municipal Agreements and agreements with the Co-owners; and

8.1.4 do and perform such other acts in and to the Development or its component parts as the Landlord determines to be advisable for the proper and efficient operation of the Development.

8.2 Right to Use Common Areas and Facilities – The Tenant shall be entitled, subject to the terms of the Lease, to the non-exclusive use of the Common Areas and Facilities.

8.3 Landlords’ Alterations – At any time, the Landlord may, acting as a prudent landlord, alone or in conjunction with the Co-owners:

8.3.1 dedicate or convey portions of the Development to a governmental or public authority or other Person and grant servitudes, rights-of-way, restrictive covenants or other interests in the Development and impose any charge with respect to the Development; and

8.3.2 construct in or adjacent to the Development such improvements as it deems appropriate in its absolute discretion and make alterations or additions to the Premises (to the extent permitted under the terms and conditions set forth in Article 18 hereof) and the Common Areas and Facilities, or permit any such action to be taken.

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8.4 No Liability. Neither the exercise by the Landlord of its rights under this Article 8 nor any loss of enjoyment, noise, dust, vibration, reasonable amount of annoyance, or other consequences of repairs, maintenance, construction, alteration, expansion, reduction or reconstruction from time to time of the various parts or components of the Development or of improvements on adjoining properties shall entitle the Tenant to any reduction in Rent, result in any liability of the Landlord to the Tenant or in any other way affect this Lease or the Tenant’s obligations hereunder, or be deemed a constructive or actual eviction or a breach of any obligation of the Landlord for peaceable enjoyment contained in this Lease or constitute grounds for cancellation or termination of this Lease by the Tenant or for claim in damages, whether contractual or extra-contractual. However the Landlord shall act reasonably and diligently in effecting repairs, maintenance, construction, alteration, expansion, reduction or reconstruction.

ARTICLE 9

9 HVAC, UTILITIES AND OTHER SERVICES

9.1 Heating, Ventilation and Air-Conditioning

9.1.1 Subject to the following provisions, the Landlord shall provide and operate, during Business Hours, by means of equipment and systems, processed air in such quantities and at such temperatures as shall maintain in the Premises conditions of reasonable temperature and comfort as set-out in paragraphs 9.1.1.1 and 9.1.1.2 below.

The Landlord warrants to the Tenant that the ventilation and air conditioning system serving the perimeter areas of the Building which form part of the Premises shall operate twenty-four (24) hours per day, seven (7) days per week, and that the cost of same is included in Operating Costs. The central system, which serves the central zones of the Building, shall operate during Business Hours, and the cost of such operations is included in Operating Costs. Should the Tenant request the central zones of the Premises to be ventilated and air-conditioned outside of Business Hours, then the Tenant shall pay an hourly rate of fifty dollars ($50.00) per floor affected by said off-hours operations. Such rate shall increase by the same percentage as any increases in the commercial rate charged by Hydro-Quebec from time to time, after May 1, 1993.

Subject to causes beyond the Landlord’s reasonable control and the provisions hereof; the Landlord shall, at all times when the Landlord is obliged to do so in accordance herewith, maintain in the Premises, the following range of temperatures and relative humidity levels:

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9.1.1.1 during the cooling cycle - The interior temperature should be maintained at 32º Celsius (72º Fahrenheit) (+/-2º F) with a maximum of fifty percent (50%) relative humidity level as long as the outside temperature does not exceed eighty-six degrees Fahrenheit (86ºF) during other hours. Above this temperature of 86ºF, the system will maintain a differential of fifteen degrees Fahrenheit (15ºF) between the outside and inside temperature at an average humidity of fifty-five percent (55%). After operating hours, the interior temperature should be maintained at seventy-four degrees Fahrenheit (74ºF) (+/-2ºF). The interior relative humidity will fluctuate in accordance with the conditions of the exterior temperature; and

9.1.1.2 during the heating cycle – The interior temperature should be maintained at 32º Celsius (72º Fahrenheit) (+/-2ºF) with a maximum of thirty percent (30%) relative humidity level in all climate conditions.

The obligations of the Landlord hereinabove shall be conditional upon the Tenant keeping all exterior windows closed at all times, the blinds fully drawn on all windows exposed to the sun during the cooling cycle, keeping all registers free from obstruction so as to permit proper circulation of air, and otherwise not overcrowding the Premises with people and electrical equipment.

9.1.2 The Landlord shall not be responsible for inadequate performance of the HVAC System:

(i) to the extent caused by any misuse, omission or negligent act of the Tenant, its employees, representatives or agents or to any construction, modification, improvement or installation done by or on behalf of the Tenant, the production by the Tenant of smoke, odors or contaminated air;

(ii) if the occupancy rate of the Premises exceeds one person to every 150 square feet of Rentable Area of the Premises on an open floor basis, or

(iii) if the Tenant does not keep the heating, ventilation or air-conditioning vents or air returns free and clear of all obstructions.

The Landlord shall not be liable for direct, indirect or consequential damages or damages for persona] discomfort of the Tenant’s employees, or servants, guests, clients or customers by reason of the operation or non operation of the HVAC system that is caused or is the result of circumstances or events contemplated in paragraphs (i), (ii) and (iii) of this Section, nor shall Rent abate during any such non operation. The Tenant acknowledges that it may take up to twelve (12) months from the Commencement Date to properly balance the heating, ventilating and air-conditioning.

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9.1.3 In the event the Tenant has made changes or alterations in or to the Premises without the Landlord’s prior written consent, and if required by the Landlord, the interior office layout or partitioning of the Premises shall be modified by the Tenant, in order to secure maximum efficiency of the HVAC System serving the Premises. At all times during the Term and any renewal thereof, the Tenant shall comply with all the Rules and Regulations pertaining to the operation and regulation of the HVAC System within and serving the Premises, failing which the Landlord, after having given the Tenant at least five (5) days prior written notice of its intention, shall be entitled to take such steps as it deems advisable including, without limitation, entering upon the Premises and taking the necessary corrective action, and the Tenant will pay to the Landlord all costs incurred by the Landlord in so doing.

9.2 Electricity and Other Utilities

9.2.1 The Landlord will, subject to interruptions beyond its control, provide the Tenant electricity, water, sewage disposal and other utility services serving the Development. Such service will be provided in such quantities required for normal use for office tenants in the Building and shall be charged to the Tenant as Additional Rent. The Tenant shall not in any event overload the capacity of any such service. The Tenant shall not bring onto the Premises any installations, appliances or business machines which are likely to consume significant amounts of electricity or other utilities or which require special venting without the prior written consent of the Landlord which shall not be unreasonably withheld.

9.2.2 The Landlord shall, at the Tenant’s expense, replace building standard and, at the Tenant’s specific written request and expense, non-standard electric light fixtures, ballasts, tubes, starters, lamps, light bulbs and controls in the Premises.

9.2.3 The cost of all utilities supplied to, used or consumed in respect of the Common Areas and Facilities will form part of Operating Costs.

9.2.4 For purposes of information only and without any guarantee or representation from the Landlord, the cost of the electricity consumed in the Premises is estimated for the calendar year 1992 at eighty cents ($0.80) per square foot of the Rentable Area of the Premises, subject, however, to adjustments. In no event shall the cost of electricity exceed the actual amount charged to the Landlord by Hydro-Québec or any other entity in replacement thereof.

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9.3 Special Utilities and Excess Quantities - If the Tenant requests electricity, water, interior climate control or other utility services of a type or in quantities that exceed normal use from the standard provision of services to office tenants in the Building, the Landlord may supply such special utilities or excess quantities if the Landlord determines, in its sole discretion, that the provision of such special utilities or excess quantities is within the capacity of the Building Systems, would not adversely affect the operation, aesthetics or structure of any part of the Development, would not reduce the efficiency of the existing utility services supplied to other tenants or parts of the Development and is otherwise feasible. The Tenant will pay to the Landlord all costs of providing such special utilities or excess quantities. Such costs shall be determined by the Landlord and the Landlord may use an Expert to assist it in determining such costs. The Landlord may discontinue the provision of any such special utilities or excess quantities at any time if this becomes necessary to maintain or provide an equitable standard of service to all tenants or parts of the Development.

9.4 Meters – The Tenant covenants to pay for the capital costs and the costs of installation and maintenance of any and all meters which may be reasonably required, in the Premises for the purpose of determining and measuring any utility (including electricity and water) consumed in the Premises.

9.5 Janitorial Services - The Landlord shall provide janitorial services to the Premises and shall, at the Tenant’s expense, clean and maintain all curtains, carpets, rugs or drapes of any kind in the Premises. The Landlord will endeavor to obtain bonded janitorial staff, if generally available, provided that in no event unless negligent will the Landlord be liable for any act or omission of any Person employed or engaged by the Landlord to provide such services, or for any loss thereby sustained by the Tenant, its agents, officers, employees, customers, guests, licensees or any other Person who may be upon the Premises. The Tenant shall not engage any Person to provide janitorial services to the Premises without the written approval of the Landlord. The Tenant shall grant access necessary for the performance of the janitorial services and shall leave the Premises in a reasonably tidy condition at the end of each day to permit the performance of such services.

9.6 Additional Services of the Landlord - The Tenant shall pay to the Landlord the costs of all services provided, at the Tenant’s request, by the Landlord or its agent to the Tenant, other than services supplied by the Landlord and charged as Operating Costs. Such services shall be reasonable in the circumstances and shall be competitive with those charged by other landlords of similar buildings in downtown Montreal and shall include, without limitation:

9.6.1 services performed at the Tenant’s request including, without limitation, heating, ventilating and air-conditioning services exceeding normal use or replacement of standard or non-standard electric light fixtures, ballasts, tubes, starters, lamps, light bulbs and controls, special utilities or excess quantities of utilities, maintenance, repair, special janitorial or cleaning services, construction after the Commencement Date of Leasehold Improvements (except ax provided in the Lease), and electrical or other services provided exceeding normal use;

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9.6.2 services provided at the Landlord’s reasonable discretion including, without limitation, supervising and approving any work performed pursuant to Article 11 (at the cost provided in Subsection 11.3.1 under the title Management and supervision fees), operating elevators for the sole benefit of the Tenant and supervising the movement of furniture, equipment, freight and supplies for the Tenant; and

9.6.3 the performance by the Landlord for the account of the Tenant of one or the other of the Tenant’s obligations set forth herein and for which the Tenant is in default; nothing herein shall, however, oblige the Landlord to perform any such obligations.

Notwithstanding the foregoing, the Tenant agrees to pay all other costs and expenses which are its responsibility under this Lease and which are related, in some way or another, to the services hereinabove described.

9.7 Services by Other Persons - The Tenant shall be solely responsible for obtaining all services used or consumed in or provided to the Premises by Persons other than the Landlord, including, without limitation, telephone and other communications services, and shall pay all costs related thereto. In no event will the Landlord, unless negligent, be responsible for any failure or interruption in the supply of such services by Persons other than the Landlord.

9.8 Signs – The Tenant shall provide the Landlord with the Tenant’s corporate signage conforming to Development standards (which signage shall be approved in writing by the Landlord) which the Landlord will install, at the Tenant’s expense, at a location in proximity to those entrances to the Promises designated by the Tenant and approved by the Landlord and which shall also be installed in the elevators identifying the floors where the Premises are situated. Save as permitted as aforesaid, the Tenant shall not erect, affix, install or maintain signs, lettering, identification or any promotional or other written materials visible from the exterior of the Building or from any interior Common Areas and Facilities. If any signs, lettering, identification or any promotional or other written materials shall be used, painted or affixed by the Tenant on or to any part of the Building or of the Development, except as aforesaid, then the Landlord or its agents shall be at liberty to remove any such signs, lettering, identification or any promotional or other written materials and, if necessary, to enter the Premises for such purpose, and the Landlord’s costs and expenses of so doing and the cost of repairing any damages resulting therefrom, together with an administration fee of fifteen percent (15%) of such costs and expenses, shall be payable by the Tenant to the Landlord as Additional Rent.

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9.9 Identification - Provided the Tenant is not in default pursuant to the Lease or, if in default, any period provided for remedying such default has not expired, and further provided the Tenant has not sublet more than ten thousand (10,000) square feet in Space “A” or assigned the Lease to any third party, whether or not an Affiliate of the Tenant and subject to compliance with all applicable by-laws of the City of Montreal, the Tenant shall be entitled to place its corporate name on one (1) position of the Building’s shared exterior monument. Such signage shall be installed by the Landlord at the Tenant’s expense, after same has been approved in writing by the Landlord, and shall conform to the Landlord’s standards. The Landlord further agrees to use all of its reasonable efforts to offer the Tenant a position on the exterior monument which is satisfactory to the Tenant. It is expressly understood that nothing contained in this Section 9.9 shall be deemed as an obligation on the part of the Tenant to have signage on said exterior monument. In addition to the foregoing, should the Tenant decide that it does not wish to avail itself of this signage right during the first twelve (12) months of the Term, or should the Tenant wish to have its name removed from the exterior monument, then the Tenant shall be deemed to have renounced its rights pursuant to this clause and the Landlord shall have no further obligations with respect to the granting of such signage.

9.10 Naming Rights - Provided the Tenant is not in default pursuant to the Lease or, if in default, any period provided for remedying such default has not expired and further provided the Tenant and its affiliates at all times occupy at least seventy-five (75) percent of Space “A”, the Landlord agrees not to name the Building after any third party whose principal line of business is telecommunications. Notwithstanding the foregoing, nothing contained herein shall be deemed to limit or restrict, in any way, the Landlord’s right to lease space in the Building to any third party whose principal line of business is telecommunications.

9.11 Directory Board - The Landlord shall install an electronic directory board in the lobby of the Building identifying tenants of space in the Building and said directory board shall, at all times, be of a type which is befitting of similar first-class buildings of comparable age in downtown Montreal. At the time the Tenant takes occupancy of the Premises, the Landlord shall place, at no expense to the Tenant, the name of the Tenant onto such directory in a form and style conforming to Building standards.

9.12 Energy Conservation - The Tenant shall comply with any practices or procedures that the Landlord, at its option or as required by any governmental or public authority, may from time to time introduce to conserve or to reduce consumption of energy or to reduce or control other Operating Costs in accordance with governmental regulation or guidelines and shall pay as Additional Rent, forthwith upon demand, the cost of the additional energy consumed by reason of non-compliance as determined by the Landlord and the Landlord may use an Expert to assist it in making such determination. The Tenant shall also, within the period of time specified by the Landlord, convert to whatever system or units of measurement of energy consumption the Landlord may, at its sole discretion, from time to time adopt.

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9.13 Services Not Supplied – In no event shall the Landlord be responsible for any interruption in the furnishing of any service or additional service whatsoever, nor shall there be any compensation, diminution or abatement of Rent as a result thereof except for fault of Landlord or Landlord’s agent or employee. The Landlord reserves the right to stop the use or supply of any services when made necessary by reason of accident or malfunction or during any repairs, improvements or alterations thereto which the Landlord may deem necessary or desirable, upon not less than forty-eight (48) hours prior written notice, except in cases of emergency. No such stoppage, however, shall substantially interfere with the use and enjoyment of the Premises. In addition, the Landlord shall reinstate such use and supply with all reasonable diligence.

ARTICLE 10

10 USE OF PREMISES

10.1 Permitted Business - The Premises shall be used for the purpose of first-class office accommodations and for no other purpose whatsoever, it bring understood that such use shall not in any way conflict with the prohibitions set forth herein nor with any prior right of exclusivity granted to other tenants of the Building.

10.2 Prohibited Activities by Tenant – The Tenant acknowledges and agrees that it shall conduct its business in the Premises as a prudent tenant. Without limiting the generality of the foregoing, the Tenant will not use or permit or suffer the use of the Premises, or any part thereof, for any of the following businesses or activities:

10.2.1 any business which, because of the merchandising methods or quality or operation likely to be used, would, in the reasonable opinion of the Landlord, tend to lower the character of the Building;

10.2.2 any illegal or fraudulent practice;

10.2.3 subject to the last paragraph of this Section 10.2, any business or activity in respect of which the Landlord has previously granted a “non-competition” or “exclusive” provision in other leases or offers to lease entered into by the Landlord and the Landlord has given the Tenant written notice of such provisions. Upon receipt of such notice from the Landlord, the Tenant shall immediately discontinue such use, failing which the Landlord shall have the right to terminate this Lease by written notice, without prejudice to any of its other rights and recourses. The Tenant agrees to indemnify and save the Landlord harmless against and from any actions or claims and for all costs and expenses in connection therewith; or

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10.2.4 any business or activity which constitutes a nuisance or which is offensive or an annoyance to the Landlord or other occupants of the Development,

Notwithstanding anything to the contrary contained in this Article 10, it is agreed that any exclusivity granted to other tenants of the Building shall not, in any way, limit or affect the permitted use of any part of the premises located on the 11th, 12th, 13th, 36th, 37th, 38th and 39th floors of the Building (or any premises in which the Tenant or any of its Affiliates is relocated by the Landlord in accordance with the Lease) by the Tenant or any of its Affiliates. It is expressly agreed, however, that in no event shall the Tenant be permitted to use the Premises for the purposes of any deposit taking activities. The Landlord furthermore warrants that, as of the Commencement Date, there is no existing exclusivity restricting the Tenant’s present business activities on any of the Tenant’s floors or on any floors upon which the Tenant has been granted expansion rights and that it will not grant any such exclusivity in the future without the Tenant’s prior written consent.

10.3 Compliance with Applicable Laws – The Tenant shall, at its sole cost and expense, promptly comply with and conform to all Applicable Lows affecting the Premises or the Leasehold Improvements therein. If any obligation to modify, extend, alter or replace any part of the Premises or any Leasehold Improvement, trade fixtures, furniture or equipment in the Premises is imposed upon the Landlord, the Landlord may at its option either do the necessary work, at the expense of the Tenant, or forthwith give notice to the Tenant to do such work within the requisite period of time and the Tenant shall thereupon do such work within the requisite period of time. The Tenant shall pay to the Landlord, forthwith upon demand, the costs of any work done by the Landlord together with an administration fee in accordance with the following:

10.3.1 where the total cost of the work is ONE HUNDRED THOUSAND DOLLARS ($100,000.00) or less, fifteen percent (15%) of the cost;

10.3.2 where the total cost of the work is more than ONE HUNDRED THOUSAND DOLLARS ($100,000.00) and less than TWO HUNDRED THOUSAND DOLLARS ($200,000.00), ten percent (10%) of said cost; and

10.3.3 where the total cost of the work is TWO HUNDRED THOUSAND DOLLARS ($200,000.00) or more, seven and one half percent (7 1/2%) of said cost.

Without limiting the generality of the foregoing, the Tenant shall comply with the requirements of any authorities having jurisdiction to obtain a permit or licence in order for the Tenant to perform any such work in the Premises as permitted by Article 10 hereof. The Landlord warrants that, as of the Commencement Date, the Premises and the Leasehold Improvements therein comply with Applicable Laws.

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10.4 Compliance with Rules and Regulations – The Tenant shall comply and cause every Person over whom it has control to comply with the Rules and Regulations. The Landlord shall have the right during the Term to make any and all reasonable amendments, deletions or additions to such Rules and Regulations. The Rules and Regulations, together with any amendments of which notice shall have been given to the Tenant, shall be deemed to be part of this Lease, provided that, in the event of a conflict with any other provisions of this Lease, the other provisions of this Lease shall govern. The Landlord shall not be liable towards the Tenant for damages resulting from the failure by other tenants in the Building to comply with the Rules and Regulations. The Landlord shall apply the Rules and Regulations in a non-discriminatory manner.

10.5 Disfiguration, Overloading, Dangerous Materials – The Tenant shall not commit, do or suffer any waste, damage, disfiguration or injury to the Premises and shall not permit or suffer any overloading of the floors thereof or the bringing into any part of the Development, including the Premises, of any articles or fixtures that by reason of their weight, use or size might damage or endanger the structure or any of the Building Systems.

In addition, the Tenant shall not bring into or store in the Premises any inflammable liquid or dangerous or explosive materials. Furthermore, the Tenant warrants that it will not store in the Premises: cleaners, solvents or other chemicals or any other matter which may be considered as pollutants or contaminants or as hazardous wastes under any Applicable Laws. The Tenant shall indemnify and hold the Landlord harmless from all losses, liabilities, damages, costs, expenses and claims of any kind whatsoever resulting from any breach of the foregoing obligation, including, without limitation, any seepage, spillage, discharge or misuse of any cleaner, solvent or chemical, pollutant, contaminant or hazardous waste and hereby undertakes to immediately repair any such damage at its expense and to restore the Premises, the Building or the Development or any portion thereof damaged by such seepage, spillage, discharge, misuse or other cause, to their original condition, less ordinary wear and tear,

10.6 Tenant’s Continuous Operation - Subject to Unavoidable Delay and to the Tenant’s right to sublet the Premises, the Tenant shall operate continuously in the Premises, throughout the Term.

However, in respect to Spaces “A” to “F” inclusively, after the earlier of (i) ninety-five percent (95%) initial lease-up of the office portion of the Building (on the basis of rentable area) or (ii) in each case, the end of the second year of the Term for each of Spaces “A” to “F” inclusively, and provided the Tenant is not then in default under the Lease and provided the Tenant meets its financial obligations herein, the Tenant shall not be required to operate its business in Spaces “A” to “F” inclusively.

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10.7 Window Coverings – The Tenant will comply with the Landlord’s scheme of building standard window covers for the windows of the Development and will not use any drapes or curtains other than those approved in writing by the Landlord. The Tenant shall abide by any reasonable regulation as to the use or manner of operation of said covers.

10.8 Remedial Action – If the Tenant is in breach of any of the provisions of this Article 10, the Landlord, upon giving the Tenant reasonable notice (provided that such notice period shall not exceed ten (10) days and that no notice shall be required in the event of an emergency), may, in addition to any other remedies that it may have hereunder, enter upon the Premises and take such remedial action as it deems necessary to remedy the breach and repair any damage caused thereby and the Tenant shall pay to the Landlord, forthwith upon demand, the Landlord’s costs incurred in connection therewith together with an administration fee equal to fifteen percent (15%) of such costs, as Additional Rent, the whole without the Landlord being considered guilty of trespassing or becoming subject to any prosecution or becoming liable for any loss or damage which may be occasioned thereby notwithstanding any statute or law to the contrary.

ARTICLE 11

11 MAINTENANCE, REPAIR AND ALTERATIONS

11.1 Maintenance by Landlord

11.1.1 Subject to Article 14, the Landlord shall at all times throughout the Term, but subject to the provisions of this Article, effect, at its cost, all structural repairs and structural replacements to the Building. Throughout the Term, the Landlord shall, subject to Unavoidable Delay, and subject to the obligations of the Tenant to repair pursuant to this Lease and of other tenants of the Building to repair pursuant to their respective leases and the provisions of this Article, see that the Building including, but not limited to, the drains, plumbing, heating, air-conditioning, washrooms, elevators, duets, telephone closets, janitors closets, stairways, lighting of public areas, electrical and security systems, if any, shall be in good and substantial state of repair and in good working order (subject to normal wear and tear).

11.1.2 If any repairs or any alterations to the Development or Building Systems are requited by any Applicable Laws solely due to the business carried on by the Tenant, then the full cost of such repairs or alterations shall be paid by the Tenant, forthwith upon demand, to the Landlord. In carrying out repairs, maintenance or replacements, the Landlord need not use the same material or equipment used originally.

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11.1.3 If the Tenant fails to carry out any maintenance, repairs or work required to be carried out by it under this Lease to the reasonable satisfaction of the Landlord, the Landlord may at its option upon giving the Tenant reasonable notice (provided that such notice period shall not exceed live (5) days and that no notice shall be required in the event of an emergency) carry out such maintenance, repairs or work without any liability for any resulting damage to the Tenant’s property or business, except for those resulting from the Landlord’s fault or negligence. The costs incurred by the Landlord to carry out any such maintenance, repairs or work shall be payable by the Tenant to the Landlord on demand, together with an administrative fee equal to fifteen percent (15%) of such costs, as Additional Rent.

11.2 Maintenance by Tenant – The Tenant shall, at its sole cost, maintain and repair the Premises and all Leasehold Improvements therein to a standard consistent with a first class office building, with the exception only of those repairs which are the obligation of the Landlord under this Lease and the Tenant shall make all needed repairs and replacements thereto, the whole with due diligence and dispatch. The Landlord, upon a 24-hour notice (except in the ease of an emergency in which event no notice shall be required), may enter the Premises at all reasonable hours to view their condition and the Tenant shall maintain and repair to the extent of its obligations, according to notice in writing from the Landlord.

11.3 Tenant’s Alterations

11.3.1 After completion of the Tenant’s Leasehold Improvements, the Tenant shall not without the prior written approval of the Landlord, make any alterations, additions, improvements, repairs or replacements to the Premises. However, the approval of the Landlord shall not be required in connection with decorating and housekeeping in the Premises. The Tenant shall not be required to pay any administration fees with respect to plans which are prepared by the Landlord’s engineers. The Tenant shall, at the time of its application for such consent, provide such plans, specifications and designs in such detail as the Landlord may reasonably require. Subject to the foregoing, the Tenant shall pay as Additional Rent, forthwith upon demand, direct costs incurred by the Landlord in connection with the examination by professionals of such application, plans, specifications and designs.

The Tenant shall incorporate the reasonable changes required by the Landlord into such plans, specifications and designs and resubmit them for approval. The Tenant shall not apply for a building permit prior to receiving the Landlord’s prior written approval of the plans, specifications and designs.

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Management and supervision fees – If, under circumstances other than those contemplated under Section 10.4, the Tenant wishes to make alterations, additions, repairs, improvements or replacements to the Premises at any time after the completion of the initial Leasehold Improvements, the Tenant may, at its discretion, either request the Landlord to act as project manager to coordinate and supervise all work performed, or the Tenant may itself carry out, or mandate a third party to carry out, said work in accordance with the provisions of this Section 11.3,

Should the Landlord be requested to act as project manager, the Tenant shall pay the Landlord a fee for performing such duties in accordance with the following:

11.3.1.1 where the total cost of the work is ONE HUNDRED THOUSAND DOLLARS ($100,000.00) or less, fifteen percent (15%) of the cost;

11.3.1.2 where the total cost of the work is more than ONE HUNDRED THOUSAND DOLLARS ($100,000.00) and less than TWO HUNDRED THOUSAND DOLLARS ($200,000.00), ten percent (10%) of said cost; and

11.3.1.3 where the total cost of the work is TWO HUNDRED THOUSAND DOLLARS ($200,000.00) or more, seven and one half percent (7 1/2%) of said cost.

Should the Tenant elect to carry out its own alterations and/or improvements, the Tenant shall pay the Landlord a fee equal to seven and one half percent (7 1/2%) of the cost of said work.

11.3.2 All the Tenant’s alterations, additions, improvements, repairs and replacements after the completion of the Tenant’s Leasehold Improvements shall be performed;

11.3.2.1 at the sole cost of the Tenant;

11.3.2.2 by contractors and workmen approved by the Landlord, provided that if the alterations, improvements, repairs or replacements would affect any of the structural components of the Building or of the Development, exterior walls or roofs of the Building or any of the Building Systems or the status of any warranties on such systems or the aesthetics of the Building or are installed outside of the Premises or are within the Premises but are part of the Common Areas and Facilities, such work shall, at the option of the Landlord, be performed at the Tenant’s cost by the Landlord or by contractors and workmen designated by the Landlord in its sole discretion provided the cost quoted by such contractors is competitive;

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11.3.2.3 in a good and workmanlike manner;

11.3.2.4 in accordance with the plans, specifications and designs approved by the Landlord at the cost of the Tenant;

11.3.2.5 in accordance with all Applicable Laws and reasonable requirements of the Landlord’s insurers;

11.3.2.6 subject to the regulation, supervision, control and inspection of the Landlord; and

11.3.2.7 subject to such indemnification against legal hypothecs and expenses as the Landlord may require.

11.3.3 If the Tenant contravenes the provisions of Article 11 hereof, the Tenant shall be liable to the Landlord for any damages or injury caused to the Development or any part thereof or for the voiding of any warranties affecting systems or components of the Development or any work required to remedy such act.

11.4 Repair Where Tenant at Fault – Notwithstanding any other provisions of the Lease, if any part of the Building Systems or any part of the Development is damaged or destroyed or requires repair, replacement or alteration as a result of the act or omission of the Tenant, its employees, agents, contractors, guests, licensees or other Person for whom it is in law responsible, the Tenant shall reimburse to the Landlord, forthwith upon demand, the cost of the resulting repairs or alterations, together with an administrative fee equal to fifteen percent (15%) of such costs as additional rent, except where the risk is insured.

11.5 Removal of Improvements and Fixtures – Upon the expiration or earlier termination of the Lease or any renewal thereof, the Tenant shall surrender the Premises to the Landlord in as good a condition and repair as the Tenant is required to maintain throughout the Term but shall not remove nor be obliged to remove any of the Leasehold Improvements, which Leasehold Improvements shall be deemed to have become the property of the Landlord without any compensation therefor. Provided the Tenant is not then in default pursuant to the Lease, upon termination of the Term or any renewal thereof, the Tenant may, at its expense, remove from the Premises any moveables which are the property of the Tenant and the Tenant agrees to repair all damages to the Premises as a result of such removal. Should the Tenant not effect the aforesaid repair, the Landlord shall be entitled to effect such repairs and the Tenant shall be obliged to pay to the Landlord all costs and expenses incurred by the Landlord in respect thereof, together with an administrative fee equal to fifteen percent (15%) of such costs and expenses, such obligations surviving the termination of this Lease.

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11.6 Privileges – The Tenant shall promptly pay for all materials supplied and work done in respect of the Premises so as to ensure that no privilege is registered against any portion of the Development. If a privilege is registered against the Development or any part thereof as a result of work or services performed by or on behalf of the Tenant or as a result of any materials supplied to the Tenant, then, in such event and in addition to any other right or remedy of the Landlord, the Landlord, subject to the next following sentence of this Section 11.6, may, but shall not be obliged to, on not less than ten (10) days prior written notice to the Tenant, discharge the same by paying the amount claimed directly to the Secured Creditor and the amount thus disbursed and all expenses of the Landlord including legal fees shall become immediately due and payable by the Tenant to the Landlord, as Additional Rent. Notwithstanding the foregoing, the Tenant may contest the validity or amount of any such privilege, provided it is effected in good faith and with due diligence and provided further that the Tenant gives to the Landlord security in the amount and of the nature determined by the Landlord, the whole subject to the consent and any and all requirements of the Secured Creditor. The Tenant agrees to indemnify the Landlord against all claims, demands, losses, damages, privileges, lawsuits or other proceedings by whomsoever made and of whatever nature, and with respect to all costs and expenses incurred by the Landlord in any proceedings brought by anyone against the Landlord alone, or with others, or against the Development, or taken by the Landlord for or in respect of the work, labour, services or material, supplied to or for the Tenant.

11.7 Notice to Landlord – The Tenant shall promptly notify the Landlord of any accident, defect, damage or deficiency which occurs or exists or any repair required in any part of the Premises, the Building Systems within the Premises or the Common Areas and Facilities located on the floor(s) on which the Premises are located and which comes to the attention of the Tenant.

11.8 No Encumbrances on Leasehold Improvements, Equipment and Trade Fixtures – All equipment and trade fixtures which have been installed by the Tenant upon the Premises shall be owned by the Tenant. The Tenant shall not pledge, encumber or hypothecate the Leasehold Improvements or its equipment trade fixtures or inventory.

ARTICLE 12

12 INSURANCE, LIABILiTy AND INDEMNITY

12.1 Tenant’s Insurance – The Tenant shall effect and maintain during the Term:

12.1.1 “all risk” insurance upon all property owned by the Tenant or for which the Tenant is legally liable, or installed by or on behalf of the Tenant and which is located in the Premises including, without limitation, Leasehold Improvements, trade fixtures, furniture and equipment in the Premises in an amount not less than the full replacement cost thereof;

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12.1.2 when applicable, broad form boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in an amount not less than the full replacement value plus costs related to the replacement of all property outlined in Subsection 12.1.1 and of all boilers, pressure vessels, heating, ventilating and air-conditioning equipment and miscellaneous electrical apparatus owned or operated by the Tenant or by others (other than the Landlord) on behalf of the Tenant in the Premises, or relating to or serving the Premises;

12.1.3 comprehensive general liability insurance, including, but not limited to, public liability, bodily injury (including death), personal injury liability, property damage, contractual liability, non-owned automobile liability and contractor’s protective insurance coverage, all on an occurrence basis with respect to the use, occupancy, activities or things on the Premises and with respect to the use and occupancy of any other part of the Development by the Tenant or any of its employees, agents, contractors or persons for whom the Tenant is in law responsible, with coverage in an amount not less than five million dollars ($5,000,000) for each occurrence or such higher amounts as the Landlord may reasonably require and as shall be required by prudent landlords of first-class office buildings in downtown Montreal;

12.1.4 business interruption insurance for a minimum period of twenty-four (24) months in an amount that will reimburse the Tenant for direct or indirect loss of earnings and extra expense attributable to all perils insured against in Subsections 12.1.1 to 12.1.3 or attributable to prevention of access to the Premises or the Development as a result of any of such perils including, but not limited to the cost of moving in and out of alternative premises, and Additional Rent;

12.1.5 “all risk” tenant legal liability insurance in amounts not less than the full replacement cost of the Premises; and

12.1.6 any other form of insurance that the Landlord or any Secured Creditor may reasonably requite from time to time in form, amounts and for insurance risks acceptable to the Landlord, acting reasonably and which are generally requited by prudent landlords of first-class office buildings in downtown Montreal, and any Secured Creditor.

12.2 Intent – The intent of Section 12.1 is to guarantee that the Tenant insures the Premises, the business activities, any equipment, accessory and all persons making use of the Premises. These insurances by the Tenant shall always be primary in any occurrence and the Landlord’s insurance contained in Section 12.4 be secondary;

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12.3 Form and Scope of Policies

12.3.1 Within five (5) days prior to the Commencement Date, and no later than thirty (30) days from the end of the Fixturing Period, the Tenant shall verbally inform the Landlord of its insurers. The Tenant shall provide to the Landlord with certificates evidencing such insurance.

Each policy requited pursuant to Section 12.1 shall be in form and with insurers acceptable to the Landlord, acting reasonably, and shall contain the standard mortgage clause as may be required by the Secured Creditor. The insurance described in Subsections 12.1.1, 12.1.2 and 12.1.4 shall name as an additional insured the Landlord, the Co-owners and, if required by the Secured Creditor, the Secured Creditor and anyone else with an insurable interest in the Development from time to time designated in writing by the Landlord. All policies shall contain, as applicable, provisions for cross-liability and severability of interests as between the Co-owners, the Landlord and the Tenant, and a waiver of any rights of subrogation which the insurer may have against the Landlord, the Secured Creditor and those for whom the Landlord is in law responsible whether the damage is caused by the act, omission or negligence of the Landlord or such other Persons.

12.3.2 The insurance described in Subsections 12.1.1 and 12.17 shall provide that any proceeds recoverable in the event of damage to Leasehold Improvements shall be payable to the Landlord. The Landlord agrees to make available such proceeds toward repair or replacement of the insured property if this Lease is not terminated pursuant to any other provision of this Lease.

12.3.3 Each policy required pursuant to Section 12.1 shall provide that the insurer must notify the Landlord and any Secured Creditor indicated therein in writing at least thirty (30) days prior to any material change or cancellation or termination thereof and that the policy shall not be invalidated in respect of the interests of the Landlord and any Secured Creditor by reason of any breach or violation of any warranties, representations, declarations or conditions contained in such policies, and the policy will be considered as primary insurance and shall not call into contribution any other insurance that may be available to the Landlord.

12.3.4 The Tenant shall furnish to the Landlord, prior to the commencement of the Term, in a form reasonably acceptable to the Landlord, certificates of insurance evidencing that each policy required by Section 12,1 has been obtained, or, if required by the Landlord or the Secured Creditor, certified copies of each such insurance policies. Upon receipt of written request therefor, the Tenant shall provide written evidence of the continuation of such policies not less than thirty (30) days prior to their respective expiry dates. The cost or premium for each and every such policy shall be paid by the Tenant. If the Tenant fails to maintain such insurance the Landlord shall have the right, on fifteen (15) days notice to the Tenant, but not the obligation, to do so, and to pay the cost or premium therefore, and in such event the Tenant shall repay to the Landlord in full the total costs incurred, as Additional Rent, forthwith on demand the amount so paid. The acquisition and maintenance by the Tenant of the insurance policies as defined pursuant to Section 12.1 shall in no manner whatsoever limit or restrict the liability of the Tenant under this Lease.

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12.3.5 All insurances taken by the Tenant shall stipulate that they are “prime” for the insured risk covered therein. Only after the full coverage is exhausted by such policies, shall the Landlord’s insurance come into force.

12.4 Landlord’s Insurance – The Landlord shall maintain, throughout the Term, such types of insurance coverage on the Development (excluding the obligations of the Tenant specified in Section 12.1) and in such amounts and with such deductibles as the Landlord may determine from time to time or as may be required by the Secured Creditor. Without limiting the generality of the foregoing, the Landlord shall maintain comprehensive general liability insurance with respect to the use and occupancy of the Development (coverage to include the activities and operations conducted by the Landlord in the Development and any person performing work on behalf of the Landlord and those for whom the Landlord is, in law, responsible in any other part of the Development), for each occurrence involving bodily injury, death or property damage in such amounts and on such terms and conditions and with such deductibles a» the Landlord may from time to time determine. In addition, the Landlord shall obtain and maintain insurance coverage against major repairs or replacements to the Building. The Tenant agrees that the cost of all insurance maintained by the Landlord will be included in Operating Costs.

Notwithstanding the foregoing provisions of this Section 12.4, the Landlord shall maintain in respect of the Development insurance coverage consistent with that carried by prudent landlords of first-class office buildings in downtown Montreal.

Notwithstanding any contributions by the Tenant to the cost of insurance herein provided, the Tenant shall not have any interest in the insurance carried by the Landlord.

12.5 Insurance Risk – The Tenant shall not do, omit to do, or permit to be done or omitted to be done upon the Premises anything that may contravene or be prohibited by any of the Landlord’s insurance policies in force from time to time covering or relevant to any part of the Development or which would prevent the Landlord from procuring such policies with companies acceptable to the Landlord. If the occupancy of the Premises, the conduct of business in the Premises or any acts or omissions of the Tenant in the Premises or any other portion of the Development causes or results in any increase in premiums for any of the Landlord’s insurance policies, the Tenant shall pay any such increase, as Additional Rent upon receipt of an invoice of the Landlord for such additional premiums. The Landlord warrants that normal use of the Premises for the purposes permitted by this Lease does not and shall not contravene or be prohibited by any of the Landlord’s insurance policies covering or relevant to any part of the Development, nor does or shall such normal use cause any increase in premiums for any such insurance.

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12.6 Indemnity by Tenant – The Tenant shall indemnify and save harmless the Landlord and the Co-owners against any and all claims, actions, damages, losses, liabilities and expenses (including, without limitation, those in connection with bodily injury (including death), personal injury or damage to property) arising from or as a result of this Lease, or any occurrence in, upon or at the Premises or out of the occupancy or use by the Tenant of the Premises or any other part of the Development or occasioned wholly or in part by any act or omission of the Tenant, its representatives, employees, agents, contractors or due to or arising out of any breach by the Tenant of this Lease. If the Landlord and/or the Co-owners should be made a party to any such litigation commenced by or against the Tenant (other than litigation commenced by the Tenant against the Landlord to enforce the Landlord’s obligations under this Lease), then the Tenant shall defend, protect, indemnify and hold the Landlord and/or the Co-owners harmless and shall pay all costs and expenses and legal fees incurred or paid by the Landlord and/or the Co-owners in connection with such litigation.

12.7 Landlord’s Employees – It is agreed that every indemnity, exclusion or release of liability and waiver of subrogation contained in this Lease for the Landlord’s benefit shall extend to and benefit all of the Landlord’s employees, servants, agents and those for whom the Landlord is in law responsible (collectively referred to in this Section 12.7 as “Landlord’s Employees”) solely for such purpose, and to the extent that the Landlord expressly chooses to enforce the benefits of this Section 12.7 for Landlord’s Employees, it is agreed that the Landlord is the agent for Landlord’s Employees.

12.8 Tenant’s Employees – It is agreed that every indemnity, exclusion or release of liability and waiver of subrogation contained in this Lease for the Tenant’s benefit shall extend to and benefit all of the Tenant’s employees, servants, agents and those for whom the Tenant is in law responsible (collectively referred to in this Section 12.8 as “Tenant’s Employees”) solely for such purpose, and to the extent that the Tenant expressly chooses to enforce the benefits of this Section 12.8 for Tenant’s Employees, it is agreed that the Tenant is the agent for Tenant’s Employees.

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ARTICLE 13

13 LIMITATION OF LIABILITY

13.1 Limitation of Liability – The Co-owners, the Landlord, their representatives, agents, employees and other Persons for whom the Co-owners and the Landlord are legally responsible shall not be liable for:

13.1.1 damage to or destruction or loss of any property of the Tenant entrusted to the care or control of the Co-owners or the Landlord or any of their representatives, agents, employees or managers, or damage or destruction to the Premises (including Leasehold Improvements) or any property in or upon the Premises; or

13.1.2 any bodily injury (including death), personal injury, damages for personal discomfort or illness or consequential injury or damage (including, without limitation, loss of business income) sustained by the Tenant or any of its agents, officers, employees, customers, guests or licensees or any other Person who may be in or upon the Premises or any other part of the Development;

if not caused by their negligence or fault or caused by, the operation, interruption of utilities or other beyond Landlord’s control or breakdown of any of the Building Systems or services to be provided by the Landlord under Article 9 including, without limitation, electricity interruption, falls or surges, or any act or omission of any other Person, including without limitation, any other tenant or occupant of space in the Development or property adjacent thereto or by the public. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, flood, snow or leaks from any part of the Premises or from pipes, appliances, plumbing works, roof, subsurfaces of any floor or ceiling slab or from the street or any other place or by dampness or by any other cause whatsoever, except where ore caused by the Landlord’s fault or negligence. All property kept or stored on the Premises shall be so kept and stored on the Premises at the risk of the Tenant only and the Tenant shall indemnify the Landlord and save it harmless from any claims resulting or arising out of any damages to the same, including, without limitation, any subrogation claims by the Tenant’s insurers.

ARTICLE 14

14 DAMAGE BY FIRE; OR OTHER CASUALTY

14.1 Damage to Premises – Subject to the provisions of Section 14.2 hereof, in the event the Premises are at any time during the Term destroyed or damaged by fire or other casualty, then:

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14.1.1 if in the opinion of the Architect, the damage or destruction is such that the Premises are rendered wholly unfit for occupancy or it is impossible or unsafe to use and occupy them, and if in either event the damage or destruction, in the opinion of the Architect, cannot be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then the Landlord shall give notice to this effect to the Tenant within sixty (60) days of the happening of such damage or destruction, to which notice shall be attached the written opinion of the Architect. The Tenant or the Landlord may, within thirty (30) days next succeeding the giving of the aforesaid notice terminate the Lease by giving notice to the other party of such termination, in which event the Term of this Lease shall cease and be at an end as of the date of such destruction or damage, the Rent and all other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and be paid in full to the date of such destruction or damage and the Tenant shall forthwith surrender and yield up possession of the Premises and within ninety (90) days of receipt of notice from the Landlord, the Tenant shall vacate the Premises unless the destruction or damage is such as to require that the Tenant vacate immediately the Premises upon short notice from the Landlord, without the Landlord being responsible for damages of any kind whatsoever, contractual or extra-contractual or for any claim arising from such termination or cancellation. In the event that the Landlord does not terminate this Lease in accordance with the provisions of this Subsection 14.1.1, the Landlord shall, with reasonable due diligence, repair the Premises (excluding the Leasehold Improvements, the Tenant’s Work and any property belonging to the Tenant) after having received the proceeds of the applicable insurance policies and Rent shall wholly abate, from the date of the happening of the damage or destruction until the Premises are repaired by the Landlord to the extent required pursuant to this Subsection 14.1.1; or

14.1.2 if the damage or destruction be such that the Premises are wholly unfit for occupancy or if it is impossible or unsafe to occupy them, but if in either event that damage or destruction, in the opinion of the Architect, can be repaired with reasonable due diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then the Landlord shall give notice to this effect to the Tenant within sixty (60) days from the happening of such damage or destruction, to which notice shall be attached the written opinion of the Architect, and the Landlord shall repair the Premises (excluding Leasehold Improvements, the Tenant’s Work and any property belonging to the Tenant) with reasonable due diligence and, subject to Unavoidable Delay, at the latest within one hundred and eighty (180) days from the happening of such damage or destruction and Rent shall abate from the date of the happening of such damage or destruction until the Premises are repaired by the Landlord to the extent required pursuant to this Subsection 14.1.2;

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14.1.3 if, in the opinion of the Architect, the damage or destruction can be made good as aforesaid within one hundred and eighty (180) days of the happening of such damage or destruction and if the damage or destruction is such in the opinion of the Architect that the Premises are capable of being partially used for the Purposes for which they are leased until such damage has been repaired the Landlord shall repair the balance of the Premises (excluding Leasehold Improvement, the Tenant’s Work and any property belonging to the Tenant) with reasonable due diligence and, subject to Unavoidable Delay, at the latest within one hundred and eighty (180) days from the happening of such damage or destruction after having received the proceeds of the applicable insurance policies, and Rent shall abate, from the date of the happening of such damage or destruction until the Premises are repaired by the Landlord to the extent required pursuant to this this Subsection 14.1.3, in the proportion that the part of the Premises rendered unfit for occupancy bears to the whole of the Premises as determined by the Landlord; or

14.1.4 if in the opinion of the Architect, the damage cannot be made good as aforesaid within one hundred and eighty (180) days of the happening of such damage or destruction and if the damage or deletion is such in the opinion of the Architect, that the Premises are capable of being partially used for the purposes which they are leased, then the Landlord shall give notice to this effect to the Tenant within sixty (60) days of the happening of such damage or destruction. The Landlord may, notwithstanding that the Premises are capable of being so partially used, within thirty (30) days next succeeding the giving of the aforesaid notice, terminate this Lease by giving notice to the Tenant of such termination, in which event the Term of this Lease shall cease and be at an end as of the date of such damage or destruction, the Rent and all other payments for which the Tenant is liable under the Terms of this Lease shall be apportioned and be paid in full to the date of such damage or destruction and Tenant shall forthwith surrender and yield up possession of the Premises, without the Landlord being responsible for damages of any land whatsoever, contractual or extra-contractual or any claim arising from such termination or cancellation. In the event that the Landlord does not terminate this Lease in accordance with the provisions of Subsection 14.1.4, the Landlord shall, with reasonable due diligence, repair the Premises (excluding Leasehold Improvements, the Tenant’s Work and any property belonging to the Tenant) and Rent shall abate from the date of the happening of such damage or destruction until the Premises are repaired by the Landlord to the extent required pursuant to this Subsection 14.1.4, in the proportion that the part of the Premises rendered unfit for occupancy bears to the whole of the Premises as determined by the Landlord.

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Upon the Tenant being notified in writing by the Landlord of the Landlord’s obligations pursuant to this Section 14.1 being substantially completed, the Tenant shall forthwith complete all its Leasehold Improvements, the Tenant’s Work (which shall be made by either the Landlord’s contractors or the Tenant’s contractors, the choice of contractor to be determined by the Landlord) and all work required to fully restore the Premises for business fully fixtured, stocked and staffed.

14.2 Major Damage to Building – Notwithstanding anything contained in this Lease and specifically notwithstanding Section 14.1, if:

14.2.1 premises, whether of the Tenant or other tenants of the Building, comprising in the aggregate twenty-five percent (25%) or more of the Rentable Area of the Building; or

14.2.2 twenty-five percent (25%) or more of the Common Areas and Facilities,

are damaged or destroyed by any cause to the extent that, in the opinion of the Architect (which shall be given by written notice within sixty (60) days of the happening of such damage or destruction to which notice shall be attached the written opinion of the Architect), the damage or destruction cannot be repaired with reasonable due diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then the Landlord may, at its option, exercisable by notice to the Tenant given within ten (10) days next succeeding the giving of the notice as aforesaid, terminate this Lease, in which event the Term of this Lease and the tenancy created hereby and all the Tenant’s rights herein shall expire and be deemed to have been cancelled on the thirtieth (30th) day after such notice is given, without the Landlord being responsible for damages of any kind whatsoever, contractual or extra-contractual or any claim arising from such termination or cancellation. The Tenant shall, within such thirty (30) day period, vacate the Premises and return the same to the Landlord with the Landlord having the right to repossess the Premises discharged from this Lease and to evict all persons and remove all property therefrom. The Rent and all other payments for which the Tenant is liable under the terms of this Lease shall be due and payable without reduction and abatement subsequent to the destruction or damage until the date of termination, subject to any abatement to which the Tenant may be entitled under Section 14.1.

14.3 Landlord’s Rights on Rebuilding – In repairing or rebuilding the Building or the Premises the Landlord may use drawings, designs, plans and specifications other than those used in the original construction and may alter or relocate the Building or any part thereof, and may alter or relocate the Premises to the extent permitted by Article 18. If the Landlord is prevented from rebuilding in accordance with the original plans and design by any statute, law, regulation of or inability to obtain permission from any government authority having jurisdiction, the Landlord may, at its option, terminate this Lease upon sixty (60) days written notice to the Tenant or relocate the Tenant to other premises to the extent permitted by Article 18 hereof.

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14.4 Lease to Remain in Full Force – Notwithstanding anything to the contrary contained in the Civil Code of Québec, and except as may otherwise be provided in this Article 14, this Lease shall continue to be and remain in full force and effect upon the occurrence of any damage or destruction to the Building and/or the Premises or any part(s) thereof as contemplated in Sections 14.1 and 14.2.

14.5 Expropriation – The Landlord and the Tenant shall co-operate, each with the other, in respect of any expropriation of the Premises or any part thereof or the Development or any part thereof so that, subject to the following rights of the Landlord, the Tenant may receive the maximum award to which it is entitled in law for relocation costs, business interruption and such other costs (including any required increased rent in new premises) that it may be entitled to receive from the expropriating authority and so that the Landlord may receive the maximum award for all other compensation arising from or relating to such expropriation (including all compensation for the value of the Leasehold Improvements) and the Tenant’s rights, if any, to such compensation are hereby assigned to the Landlord. In the event the whole or any material part of the Development shall be condemned, reserved, expropriated or taken or acquired in any manner for any public or quasi-public use or purpose. The Landlord may, at its option, terminate this Lease by giving written notice to the Tenant to that effect and the Term shall expire upon the date of the taking of possession thereof by the expropriating authority or as and from the date of such condemnation or taking. The Tenant shall have no claim in damages or otherwise against the Landlord for any reason relating to or arising out of the expropriation or condemnation, or arising out of the cancellation of the Lease.

ARTICLE 15

15 TRANSFERS

15.1 Sublet and Assignment – The Tenant shall not enter into, consent to, or permit any Transfer without the prior written consent of the Landlord in each instance, which consent shall not he unreasonably withheld but shall be subject to the Landlord’s rights under Section 15.3.

Notwithstanding the foregoing, the Tenant shall have the right, without the written consent of the Landlord, to enter into, consent to, or permit a Transfer to an Affiliate of the Tenant, provided the Tenant advises the Landlord in writing prior to the Transfer and provided the Tenant remains jointly and severally responsible, without benefit of division or discussion, with the transferee for any and all obligations of the Tenant under the Lease, in no event, shall the Tenant enter into, consent to, or permit a Transfer to a third party which is not an Affiliate of the Tenant, whose use of the Premises would be in conflict with any then existing exclusivity in the Building.

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15.2 Landlord’s Consent – Notwithstanding any statutory provision to the contrary, it shall not be considered unreasonable for the Landlord to withhold its consent if, without limiting any other factors or circumstances which the Landlord may reasonably take into account:

15.2.1 the Tenant is then in default under this Lease;

15.2.2 the proposed Transfer would be or could result in violation or breach of any covenants or restrictions made or granted by the Landlord to other tenants or occupants, or prospective tenants or occupants, of the Development;

15.2.3 in the Landlord’s reasonable opinion, the reputation, type and quality of business and business history of the proposed Transferee is not satisfactory;

15.2.4 the proposed Transfer is to an existing tenant or other occupant of space in the Development and the Landlord has or will have during the next six (6) months suitable space for rent in the Building for such proposed tenant;

15.2.5 the use of the Premises by the proposed Transferee, could result in excessive use of the elevators or other Building Systems, be inconsistent with the image and standards of the Development, expose the occupants of the Development to risk of harm, damage or interference with their use and enjoyment thereof or is prohibited by the Lease;

15.2.6 where the proposed Transferee does not intend to physically occupy the demises and carry on business from the Premises; or

15.2.7 where the Landlord has reasonable grounds to believe that the proposed Transferee is not sufficiently financially responsible to fulfill all of its financial obligations, including, without limitation, the financial obligations of the Tenant pursuant to this Lease.

Any consent by the Landlord to a Transfer shall not constitute a waiver of the necessity for such consent to any subsequent Transfer.

Under no circumstances will (i) any occupation of all or part of the Premises by any proposed Transferee or Landlord’s tolerance thereof; (ii) the payment of Rent or other amounts by any proposed Transferee; (iii) the consent to any previous Transfer, constitute a waiver of any obligation of the Tenant to obtain consent to any Transfer, nor will any of the foregoing be construed as constituting a consent to the proposed Transfer.

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For greater certainty, the provisions of this Section 15.2 shall not apply to a Transfer from the Tenant to an Affiliate.

15.3 Landlord’s Option – If the Tenant intends to effect a Transfer, the Tenant shall give prior notice to the Landlord of such intent specifying the identity of the Transferee, the type of Transfer contemplated, the part of the Premises affected thereby, and the financial and other terms of the Transfer, and shall provide such financial, business or other reasonable information relating to the proposed Transferee and its principals as the Landlord or any Secured Creditor reasonably requires, together with copies of all documents which record the particulars of the proposed Transfer. The Landlord shall, within fifteen (15) days after having received such notice and all requested information, notify the Tenant either that:

15.3.1 it consents or does not consent to the Transfer but at no time shall such consent be refused without a serious reason; or

15.3.2 if there is Excess Rent (as hereinafter defined), it elects to terminate this Lease as to the whole or the part, as the case may be, of the Premises affected by the proposed Transfer.

If the Landlord elects to terminate this Lease pursuant to Sub-section 15.3.2, it shall stipulate in its notice the termination date of this Lease, which date shall be no less than thirty (30) days nor more than ninety (90) days following the giving of notice of such election. If the Landlord elects to terminate this Lease pursuant to Sub-section 15.3.2, the Tenant shall notify the Landlord within ten (10) days thereafter of the Tenant’s intention either to refrain from such Transfer or to acquit termination of this Lease or the part thereof in respect of which the Landlord has exercised its rights. If the Tenant fails to deliver such notice within such ten (10) days or notifies the Landlord that it accepts the Landlord’s termination, this Lease will, as to the whole or affected part of the Premises, as the case may be, be terminated on the date of termination stipulated by the Landlord in its notice of election to terminate. If the Tenant notifies the Landlord within ten (10) days that it intends to refrain from such Transfer, then the Landlord’s election to terminate this Lease shall become void.

Notwithstanding the foregoing, the provisions of this Section 15.3 shall not apply to a Transfer to an Affiliate of the Tenant.

15.4 Conditions of Transfer

15.4.1 If there is a permitted Transfer, the Landlord may collect Rent from the Transferee and apply the amount collected to the Rent payable under this Lease but no acceptance by the Landlord of any payments by a Transferee or any acceptance of the Transferee as a Tenant shall be deemed to be a waiver of the Tenant’s covenants or a release of the Tenant from the further performance by the Tenant of its obligations under this Lease. Save and except in the case of a transfer to an Affiliate of the Tenant, any consent by the Landlord shall be subject to the Tenant and Transferee executing, prior to the Transfer being made, an agreement with the Landlord agreeing that the Transferee will be bound by all of the terms of this Lease, and except in the case of a sublease, that the Transferee will be so bound as if it had originally executed this Lease as tenant.

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15.4.2 Notwithstanding any Transfer permitted or consented to by the Landlord, the Tenant shall remain jointly and severally liable with the Transferee for the due fulfillment of all of the obligations undertaken in this Lease by the Tenant and shall not be released from the performance of any of the terms, obligations and conditions of this Lease, the Tenant hereby waiving the benefits of division, and discussion.

15.4.3 Save and except in the case of a Transfer to an Affiliate of the Tenant, no Transfer shall be valid and no Transferee shall take possession of the Premises or any part thereof until an executed duplicate original of such assignment or sublease has been delivered to the Landlord.

15.4.4 “Excess Rent” for the purposes of this Lease means the amount by which the aggregate of oil amounts payable by the transferee or sub-tenant pursuant to a Transfer as rent, exceeds, when calculated, the total Net Rent and Additional Rent payable by the Tenant to the Landlord in accordance with this Lease (calculated on a proportional basis in the case of a sub-lease of only a part of the Premises), less reasonable costs incurred by the Tenant for additional improvements to the Premises (or in the case of a sub-lease, to the part of the Premises subject to such sub-lease) made by the Tenant at its own cost for the transferee or sub-tenant in question together with reasonable leasing fees (for example broker fees or legal fees) paid by the Tenant with respect to such Transfer. In calculating the amount to be subtracted from Excess Rent for each period of monthly payment with respect to the costs of the Tenant for such Transfer, such costs will be depreciated without interest on a straight line basis over the term of such Transfer.

15.4.5 If the Transfer in respect of which consent is required and has been given is not completed within ninety (90) days of the date of such consent, then such consent shall, at the Landlord’s option, become void, upon written notice to the Tenant.

15.4.6 Notwithstanding the effective date of any permitted Transfer as between the Tenant and the Transferee, all Rent for the month in which such effective date occurs shall be paid in advance by the Tenant so that the Landlord will not be required to accept partial payments of Rent for such month from either the Tenant or Transferee.

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15.4.7 As a condition to the Landlord’s consent, the Landlord may inter alia require the undertaking or guarantee of such Transferee which is not an Affiliate of the Tenant not to engage in business activities which conflict with the provisions of any “non-competition” or “exclusive” provisions of other leases or accepted offers to lease or agreements entered into by the Landlord in respect of the Development prior to the date of the Transfer or are otherwise prohibited by the provisions of Section 10.2 hereof.

15.4.8 The agreements referred to in this Section 15.4 and any document evidencing the Landlord’s consent to any Transfer to an entity which is not an Affiliate of the Tenant shall, at the Landlord’s option, be prepared by the Landlord or its solicitors at the Tenant’s reasonable cost.

15.5 Change of Control – If the Tenant is at any time a corporation or partnership, any actual or proposed Change of Control in such corporation or partnership or in any corporation or group of corporations which controls the Tenant shall be deemed to be a Transfer and subject to all of the provisions of this Article 15. The Tenant shall make available to the Landlord or its representatives all of its corporate or partnership records, as the case may be, for inspection at all reasonable times, in order to ascertain whether any Change of Control has occurred.

This Section 15.5 shall not apply to the Tenant or any of its wholly-owned subsidiaries.

15.6 No Advertising – The Tenant shall not advertise that the whole or any part of the Premises is available for a Transfer and shall not permit any broker or other person to do so unless the text and format of such advertisement is approved in writing by the Landlord. No such advertisement shall contain any reference to any of the financial conditions applicable to the Premises.

15.7 Cost of Transfer – The Tenant shall pay all costs and expenses incurred by the Landlord in the consideration, approval or rejection of any request for the Landlord’s consent pursuant to this Section 15, including solicitor’s fees incurred by the Landlord.

15.8 Assignment by Landlord – The Landlord shall have the unrestricted right to sell, transfer, lease, charge or otherwise dispose of all or any part of its interest in the Development or in this Lease. In the event of any sale, transfer, lease, charge or other disposition and to the extent that the assignee of the Landlord’s interest in this Lease agrees with the Landlord to assume the obligations of the Landlord under this Lease, the Landlord shall thereupon, and without further agreement, be released of all liability under this Lease.

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15.9 Exhibiting Premises – The Landlord and its agents, upon reasonable prior written notice to the Tenant, may, in the company of a representative of the Tenant, exhibit the Premises during Business Hours lo prospective tenants for such space or to prospective purchasers or Secured Creditors.

ARTICLE 16

16 STATUS CERTIFICATES AND NON-DISTurBANCE

16.1 Status Certificates – The Tenant shall at any time and from time to time execute and deliver to the Landlord or as the Landlord may direct within ten (10) days after it is requested a statement in writing in the form supplied by the Landlord, certifying that this Lease has been validly executed and delivered by the Tenant pursuant to due corporate action properly taken by it and is unmodified and in full force and effect (or if modified, stating the modification and stating that the Lease is in full force and effect as modified), the Commencement Date, the termination date and the amount of the Net Rent and other Rent then being paid hereunder, the dates to which such Rent hereunder has been paid, whether or not there is any existing default on the part of the Landlord of which the Tenant is aware and any other particulars that the Landlord or Secured Creditor or any prospective purchaser may reasonably request. Any such statement may be conclusively relied upon by any prospective fundraiser or purchasers or by the Secured Creditor.

16.2 Subordination and Non-Disturbance – This Lease and the rights of the Tenant hereunder shall be subject and subordinate to all existing or future Secured Creditors and to all renewals, modifications, consolidations, replacements and extensions thereof. Whenever requested by the Landlord a Secured Creditor, the Tenant shall, within five (5) days after such request, enter into an agreement with the Secured Creditor whereby the Tenant postpones or subordinates this Lease to the interest of any stipulated Secured Creditor and agrees that it shall become bound toward such Secured Creditor, or any purchaser from such Secured Creditor in the event of the exercise of any and all rights of the Secured Creditor for the then unexpired residue of the Term upon all the terms and conditions of this Lease as if such Secured Creditor were the Landlord under this Lease, If requested by the Tenant, the Landlord shall use its reasonable efforts to cause any Secured Creditor to grant a non-disturbance agreement, in a form approved by such Secured Creditor, in favour of the Tenant, whereby such Secured Creditor will recognize the Tenant’s rights under this Lease and not disturb the Tenant’s occupancy of the Premises provided the Tenant is not in default under this Lease.

Prior to the Commencement Date of the Term, the Landlord shall cause the Co-owners and all of its then existing hypothecary creditors and subsequently cause all its hypothecary creditors under any security registered prior to non-disturbance agreements in favour of the Tenant whereby such Co-owners and creditors will recognize the Tenant’s rights under the Lease and agree not to disturb the Tenant’s occupancy of the Premises so long as the Tenant is not in default under the Lease.

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ARTICLE 17

17 REMEDIES OF LANDLORD

17.1 Events of Default – Any of the following constitutes an Event of Default under this lease:

17.1.1 the Tenant fails to pay all or any portion of the Rent or Additional Rent due pursuant to this Lease within fifteen (15) days from the due date, after written notice of such failure from the Landlord to the Tenant;

17.1.2 the Tenant makes any assignment for the benefit of creditors or becomes bankrupt or takes the benefit of or becomes subject to any legislation that may be in force relating to bankrupt or insolvent debtors, or if a final petition in bankruptcy is granted against the Tenant, or if any application or petition or certificate or order is granted for the winding-up or dissolution or liquidation of the Tenant or its assets, voluntarily or otherwise, unless such winding-up or dissolution is part of a valid corporate reorganization;

17.1.3 a receiver or sequestrator, or a Person acting in a similar capacity, is appointed for all or a substantial part of the Tenant’s property and such appointment is not terminated or contested within thirty (30) days thereof;

17.1.4 any substantial portion of the goods or moveable effects on the Premises are seized in execution, before judgment or otherwise, by any creditor of the Tenant unless each seizure is discharged within thirty (30) days of service thereof on the Tenant and unless, in the case of seizure before judgment, the Tenant diligently contests such seizure and deposits with the Landlord such security as reasonably requested by the Landlord in respect of such seizure;

17.1.5 the Tenant makes a Transfer other than in compliance with the provisions of this Lease;

17.1.6 the Tenant fails to take possession of the Premises as required by this Lease or the Tenant abandons or attempts to abandon the Premises, unless permitted otherwise in this Lease, or if the Premises become vacant or unoccupied for a period of ten (10) consecutive days or more without the consent of the Landlord,

17.1.7 any insurance policy covering any part of the Development is, or is threatened to be, cancelled or adversely changed (including a substantial premium increase) as a result of any action or omission by the Tenant or any person for whom it is legally responsible or by reason of the use or occupation of the Premises or any part thereof by the Tenant or any Transferee or if the Tenant fails to effect the insurance required to be maintained by it hereunder and in each ease, fails, within forty-eight (48) hours after written notice of such default is given by the Landlord to the Tenant, to take such immediate steps in respect of such use or occupation as shall enable the Landlord or the Tenant to reinstate or avoid cancellation (as the case may be) of such insurance policy; or

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17.1.8 if the Tenant is in default in fulfilling any other term, condition, covenant or obligation of this Lease and such default has not been cured within a period of fifteen (15) Business Days after written notice of such default from the Landlord to the Tenant, or within well longer period of time as the Tenant shall reasonably require to cure such default.

17.2 Landlord’s Recourses – Upon the occurrence of an Event of Default, the Landlord shall have the following rights and remedies, all of which are cumulative and not alternative and do not exclude any other rights and remedies available to the Landlord by law or otherwise:

17.2.1 to terminate ipso facto this Lease without any formalities and to immediately thereafter cease to furnish any services hereunder and enter into and upon the Premises or any part thereof to repossess and enjoy the same as of its former state;

17.2.2 to enter and repossess the Premises with or without termination and to use such force as it may deem necessary for that purpose and for gaining admittance to the Premises. The Landlord may expel all Persons and remove all property from the Premises and such property may be stored in a public warehouse or elsewhere at the cost and for the account of the Tenant, the whole without the Landlord being considered guilty of trespassing or becoming subject to any prosecution or becoming liable for any loss or damage which may be occasioned thereby, except as a result of the Landlord’s own fault or negligence, any statute or law to the contrary notwithstanding.

17.3 Accelerated Rent - In the event of an occurrence of an Event of Default, the current month’s Rent plus the next ensuing six (6) month’s Rent shall immediately become due and payable and, as indicated above, the Landlord may, without prejudice to any other rights and recourses it may have, terminate this Lease and take immediate possession of the Premises and the Term of this Lease will forthwith become forfeited and determined and no payment or acceptance of rental subsequent to such termination will give the Tenant the right to continue occupancy of the Premises or in any way affect the rights of the Landlord herein.

17.4 Tenant’s Responsibility for Costs and Damages – If the Landlord at any time terminates this Lease pursuant to Section 17.2 or if any legal action is taken for the recovery of possession of the Premises or for the recovery of any amount due under this Lease, the Landlord, in addition to any other remedies it my hold hereunder or by law, may recover from the Tenant all damages and all expenses it may incur or suffer by reason thereof, including, without limitation, attorney’s fees and legal costs and the cost of repossession and reletting the Premises.

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17.5 Repossession of Premises – If the Landlord elects to repossess the Premises as herein provided, or if it takes possession thereof pursuant to legal proceedings, or pursuant to any notice provided for by law, it may either terminate this Lease or it may, from time to time without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises or any part thereof, either in the name of the Landlord or otherwise for a term or terms which may, if the Landlord chooses, be less or greater than the balance of the Term and at such rent and upon such other terms and conditions as the Landlord, acting reasonably, deems advisable, and the Landlord may grant reasonable concessions in connection therewith. Upon each such reletting, all rent received by the Landlord from such reletting shall be applied firstly to the payment of any indebtedness other than Rent due hereunder from the Tenant to the Landlord, secondly to the payment of any costs and expenses of such re-letting, including legal costs, solicitors’ fees and brokerage fees and the expenses of keeping the Premises in good order and of preparing the Premises for re-letting, thirdly to the payment of Rent due and unpaid hereunder, and the residue, if any, shall be held by the Landlord and applied in payment of other damages, if any, suffered by the Landlord as a result of the Event of Default. If such rentals received from such reletting during any month be less than that payable and paid during that month by the Tenant, the Tenant shall pay such deficiency to the Landlord. Notwithstanding any such reletting without termination, the Landlord may, at any time thereafter, elect to terminate this Lease for such previous breach.

17.6 Landlord’s Rights to Cure Defaults – Without limiting the generality of any provision of this Lease, but subject to any notice specifically provided elsewhere in this Lease, to be given and to any right to cure or remedy such default as specifically provided elsewhere in this Lease, if the Tenant shall default in the performance of any of its obligations under this Lease, the Landlord may from time to time after giving such notice as it considers sufficient but not less than ten (10) days (or without notice in the case of an emergency) perform or cause to be performed any of such obligations and for such purposes may do such things as may be required, including, without limitation, entering upon the Premises and doing such things upon or in respect of the Premises or any part thereof as the Landlord reasonably considers requisite or necessary to remedy such default. All expenses incurred pursuant to this Section 17.6, plus an administration fee equal to fifteen percent (15%) of such expenses shall be paid by the Tenant as Additional Rent forthwith upon demand. The Landlord, unless negligent, shall not be liable to the Tenant for any loss or damage resulting (from any such action or entry by the Landlord and the same shall not be considered a breach of any obligation for peaceable enjoyment contained in this Lease or implied by law.

17.7 Survival of Obligations - The indemnity provisions of this Lease and the Landlord’s rights in respect of any failure by the Tenant to perform any of its obligations under this Lease shall remain in full force and effect notwithstanding the expiration or earlier termination of the Term,

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17.8 Remedies Cumulative – Notwithstanding any other provision of this Lease, each of the Landlord and the Tenant may from time to time avail itself of any or all of the rights and remedies available to it in the event of any default hereunder by the other party, either by any provision of this Lease or by law, all of which rights and remedies are intended to be cumulative and not alternative, and the express provisions hereunder as to certain rights and remedies are not to be interpreted as excluding any other or additional rights and remedies available to the Landlord or the Tenant by law.

17.9 Emergencies – For the safety of the Tenant’s and the Landlord’s employees and for their protection in the event of fire or other hazardous incidents which could occur in the Building, the Tenant shall:

(a) comply with all safety standards reasonably required, from time to time, by the Landlord;

(b) designate one (or more) person(s) who shall join the emergency standards committee, with other tenants, and who shall devote a few hours per month to such committee;

(c) accept to be coordinator for the floor it occupies as major tenant;

(d) name one coordinator per floor rented by the Tenant; such coordinators shall be required to devote a few hours of training per month to the emergency team;

(e) actively participate in the annual evacuation drills required by the Co-owners and the municipal, provincial and federal governments.

ARTICLE 18

18 RELOCATION

18.1 Relocation – Provided the Tenant has not, either sublet more than 10,000 square feet in Space “A” or assigned this Lease with respect to Space “A” to a third party which is not an Affiliate of the Tenant, then the Landlord agrees not to change the location of the said Space “A” throughout the Term, as it may have been extended by the renewal option granted in Section 19.6 hereof.

Notwithstanding the foregoing, the Landlord shall, throughout the Term and any renewal thereof, have the right to change the location of Space “B”, Space “C” and Space “D” in accordance with the following terms and Conditions:

(a) the Landlord shall give the Tenant at least one hundred and twenty (120) days prior written notice of such relocation;

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(b) the new premises shall not be below the ninth floor of the Building;

(c) the new premises shall contain approximately the same rentable area as Space “B”, Space “C” and Space “D” and shall be at least equal in functional efficiency and quality to Space “B”, Space “C” and Space “D”;

(d) the Landlord will, at its expense, construct in the new premises new leasehold improvements, which will be at least equal in quality (inclusive of the dimensions of private offices) to those contained in the Premises, without regard to depreciation;

(e) the Landlord shall pay for all of the expenses of the Tenants’ physical move, including the cost of replacing all stationary which has been rendered obsolete as a result of said move and the cost of relocating the tenants’ telephone and computer systems and equipment; and

(f) if, by reason of such relocation, the rentable area of the new premises is greater than the rentable areas of Space “B”, Space “C” or Space “D”, and the Tenant has not requested any additional space, then the Net Rent and the Proportionate Share of the Additional Rent shall remain unchanged.

The Landlord agrees not to relocate any part of the Premises for any reason other than to consummate third party leasing.

ARTICLE 19

19 SPECIAL PROVISIONS

19.1 Delivery of Premises –

19.1.1 Spaces “A” to “D” inclusively

It is understood that the Landlord shall deliver spaces “A” to ‘‘D” inclusively to the Tenant in accordance with the “Base Building Standards” as set forth in Schedule “D” annexed hereto. In addition, subject to the last sentence of this Subsection 19.1.1, the Landlord shall, at its expense, deliver spaces “A” to “D” inclusively to the Tenant on a turnkey basis in accordance with final plans and specifications which shall respect the “Standards for Tenant’s Improvements” attached hereto as Schedule “E” and the criteria set forth in Schedule “G-1” (in the case of Space “A”) and Schedule G-2 in the case of Space “B”, Space “C” and Space “D”.

It is further agreed that the Tenant may install, at its sole expense, a security system in Space “A”, the whole in accordance with final plans and specifications which shall require the Landlord’s prior written approval. The Landlord shall pay to the Tenant the sum of two hundred thousand dollars ($200,000.00) as an inducement for having effected such installation, upon completion to the Landlord’s reasonable satisfaction of the installation of such security system.

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The Tenant and the Landlord expressly recognize that time is of the essence in the successful completion of the turnkey work on or before the Commencement Date and do hereby agree to cooperate with one another to the fullest extent. In accordance with the foregoing, the parties hereto agree to respect the dates applicable to each of Spaces “A”, “B”, “C” and “D” as set forth in the “Construction Progress Schedules” attached hereto as Schedule “H”. In the event the Landlord is delayed in the performance of the turnkey work by an act or omission of the Tenant or its employees, agents or representatives, then the delivery date of Spaces “A” to “D” inclusivity shall be delayed for such reasonable time as the Landlord may reasonably decide. Notwithstanding this, the Commencement Date of the Term for each of these spaces shall remain unchanged and the Landlord shall not be responsible for any damages or overholding costs incurred by the Tenant as a result of such delay.

In the event the Landlord is delayed in the performance of the turnkey work by an act or omission of the Landlord, then the Commencement Date of the Term for each of the spaces concerned shall remain unchanged and the Tenant shall commence paying rent in accordance with Articles 3 and 4 hereof. In such an event, the Landlord shall be responsible for any overholding costs incurred by the Tenant as a result of such delay, up to a maximum of $10,000.00 per day.

In the event either party is delayed in the performance of its obligations by reason of an Unavoidable Delay, then the Commencement Date, shall be delayed for such reasonable time as the Landlord and Tenant may reasonably require, and all other dates contained in this Lease in respect to spaces “A” to “D” inclusively shall be adjusted mutatis mutandis. In such an event, the Landlord shall not be responsible for any overholding or other costs incurred by the Tenant as a result of such delay.

It is further understood that the Tenant shall be solely responsible for any costs and/or delays resulting from any change orders requested by the Tenant subsequent to its approval of plans and such changes shall not in any way alter the commencement date of the Term.

Save as aforesaid, the Tenant declares having examined Spaces “A” to “D” inclusively and being satisfied therewith.

The Landlord shall pay to the Tenant the sum of fifty-five dollars ($55.00) per square foot of the 1,547 square feet of rentable area on the 36th floor of the Building which the Landlord is not required to deliver to the Tenant on a turnkey basis.

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19.1.2 Space “E”

It is understood that the Landlord shall deliver to the Tenant Space “E” in accordance with the “Base Building Standards” as set forth in Schedule “D” annexed hereto. In addition, the Landlord shall, at its expense, but up to a maximum amount of thirty-five dollars ($35.00) per square foot of the rentable area of Space “E”, deliver Space “E” on a turnkey basis in accordance with final plans and specifications which shall respect the “Standards for Tenant’s Improvements” attached hereto as Schedule “E”. Should the cost of the turnkey work exceed the aforesaid maximum amount, The Tenant shall pay the difference to the Landlord immediately upon request.

Save as aforesaid, the Tenant declares having examined Space “F” and being satisfied therewith.

19.1.3 Space “F”

It is understood that the Landlord shall deliver to the Tenant Space “F” in accordance with the “Base Building Standards” as set forth in Schedule “D” annexed hereto. In addition, the Landlord shall, at its expense, but up to a maximum amount of forty-five dollars ($45.00) per square foot of the rentable area of Space “F”, deliver Space “F” on a turnkey basis in accordance with final plans and specifications which shall respect the “Standards for Tenant’s Improvements” attached hereto as Schedule “E”. Should the cost of the turnkey work exceed the aforesaid maximum amount, the Tenant shall pay the difference to the Landlord immediately upon request.

Save as aforesaid, the Tenant declares having examined Space “F” and being satisfied therewith.

19.2 Fixturing Period - Subject to the provisions set forth in Section 19.1 hereof, the Landlord shall use its best efforts to give occupancy of Spaces “A” to “D” inclusively to the Tenant prior to the Commencement Date (the period between the date the aforesaid spaces are made available to the Tenant and the Commencement Date being referred to herein as the “Fixturing Period”) to allow the Tenant to supply and install in Spaces “A” to “D” inclusively its furniture and moveable effects. Notwithstanding anything contained in this Lease, no Net Rent or Additional Rent in respect of Spaces “A” to “D” inclusively shall be payable during the Fixturing Period but all other conditions of this Lease shall apply during the Fixturing Period.

During the Fixturing Period, the Tenant shall have joint occupancy of Spaces “A” to “D” inclusively with the Landlord, each not interfering with the other. The Tenant shall, during the Fixturing Period, maintain adequate public liability insurance coverage and shall indemnify and hold harmless the Landlord for any damage, injuries or destructions arising in or upon the Premises to any property or person or for any injuries sustained, and which are caused by an act or omission of the tenant, its servants, employees, agents or those for whom the Tenant is in law responsible. It is understood that the Landlord shall not charge the Tenant for any costs of using the Building’s freight elevators during the Tenant’s initial move in Spaces “A” to “D” inclusively.

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19.3 Moving Allowance – The Landlord shall, not later than thirty (30) days following the date upon which the Tenant has taken occupancy thereof, for the purpose of conducting its normal day to day business, pay the Tenant a moving allowance as follows:

19.3.1 with respect to Space “A”, TEN DOLLARS ($10.00) per square foot of the rentable area thereof;

19.3.2 with respect to Space “B”, TWENTY-FOUR DOLLARS AND SEVENTY-EIGHT CENTS ($24.78) per square foot of the rentable area thereof;

19.3.3 with respect to Space “C”, TWENTY-FIVE DOLLARS AND NINETY-NINE CENTS ($25.99) per square foot of the rentable area thereof; and

19.3.4 with respect to Space “D”, TWENTY-FOUR DOLLARS AND TWENTY CENTS ($24.20) per square foot of the rentable area thereof.

19.4 Right of First Refusal - Provided the Tenant occupies the entire 36th floor, is not then in default pursuant to the Lease and has not, either in whole or in part, sublet Spaces “A” to “D” inclusively or assigned the Lease to a third party which is not an Affiliate, the Tenant shall have, throughout the Term and any renewal thereof, a right of first refusal to lease any space located on the 39th floor which is or becomes vacant and available for leasing. In accordance with the foregoing, the Landlord shall, upon receipt from a third party of any bona fide offer to lease which the Landlord is willing to accept (or prior to the Landlord making a binding offer to lease to a third party), offer to lease the space located on the 39th floor and contemplated in such third party offer to the Tenant on the same terms and conditions as contained in such third party offer. Within five (5) days of the Tenant’s receipt of the Landlord’s written offer of such terms to the Tenant, the Tenant may notify the Landlord in writing of its acceptance of all of the said terms and conditions and shall within ten (10) business days sign an amendment to the Lease for all and not part of the premises contemplated in such offer. Should the Tenant not notify the Landlord of its acceptance of the Landlord’s offer within the aforesaid delay, the Landlord shall then have the right to enter into an agreement of lease with such third party and the Tenant’s right of first refusal on the 39th floor shall then after be subordinated to any rights which may have been granted to such party. It is expressly understood that, in no event, shall the Landlord be obligated to divulge the identity of any third party having made an offer to lease.

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Notwithstanding any of the foregoing, the Landlord agrees to use all of its reasonable efforts to inform the Tenant verbally of any impending third party offers to lease space on the 39th floor (if applicable pursuant to the foregoing), it being expressly understood that such verbal notification shall not be deemed a waiver of the Landlord’s right to lease space in accordance with this clause.

It is expressly understood that this right of first refusal shall not be assignable or transferable by the Tenant nor shall it pass to or devolve upon any subtenant or assignee of the Premises or the Lease, unless such subtenant or assignee is an Affiliate of the Tenant.

19.5 Parking - The Landlord agrees to make available to the Tenant during the Term of this Lease twenty (20) parking spaces, including eight (8) reserved parking spaces, at the prevailing rates being charged for parking spaces in the parking facilities of the Building from time to time.

Furthermore, the Landlord agrees to make available one (1) additional space per one thousand eight hundred (1,800) square feet of rentable area of Space “D”, said spaces being at the prevailing rates being charged for parking spaces in the parking facility in the Building.

19.6 Option to Renew - Provided the Tenant is not then in default under the terms of the Lease and provided the Tenant and/or any of its Affiliates is in occupancy of at least fifty percent (50%) of the rentable area of Spaces “A” to “D” inclusively, the Tenant shall have the option to renew the Lease for the whole of Spaces “A” to “D” inclusively, but not only a portion thereof, for an additional term of five (5) years commencing on November 1, 2003 and expiring on October 31, 2008 inclusively (the “Renewal Period”) upon giving the Landlord a written notice at least twelve (12) months prior to the expiration of the Term, failing which this option to renew shall lapse and become null and void ipso facto.

All the terms and conditions of this Lease applicable to Spaces “A” to “D” inclusively shall apply to the Renewal Period, save and except for Sections 4.6, 18.1, 19.1, 19.2, 19.3 and 19.4 and this Option to Renew, all of which shall not apply to the Renewal Period. The net rentable rate for the Renewal Period shall be the average of the then prevailing market rates in the Building and at 1250 René-Lévesque Boulevard West, for similar premises granted for new leases of a similar term and commencing during the last twelve (12) months of the Term, less ten percent (10%). Notwithstanding the foregoing, in no event shall the net rental rate payable with respect to the Renewal Period be less than the net rental rate applicable during the last year of the Term to Spaces “A” to “D” inclusively. If, on February 1, 2003, the parties have not reached an agreement on the net rental rate(s) applicable to the Renewal Period, this option to renew shall then lapse and become null and void ipso facto.

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19.7 Security for Payment of Inducements - In the event the Landlord fails to meet its obligations pursuant to Section 4.6 of this Lease and/or Section 19.3 or fails to pay to the Tenant the amount of fifty-five dollars ($55.00) per square foot referred to in Subsection 19.1.1 and/or if the Landlord is unable to deliver Spaces “A” to “D” inclusively in accordance with Subsection 19.1.1 of this Lease by reason of the Landlord’s financial inability, then as a guarantee for payment and/or performance of said obligations, the Tenant shall have the right to deduct the amount of any unpaid inducements and/or reasonable and direct amounts paid by the Tenant on behalf of the Landlord in the construction of Spaces “A” to “D” inclusively (the amount of such unpaid inducements and direct amounts being hereinafter collectively called the “Unpaid Amounts”), from the Ne Rent payable pursuant to the Lease until such time a said Unpaid Amounts have been paid for in full. In accordance with the foregoing, if the Landlord is financially incapable of substantially completing the initial construction of Spaces “A” to “D” inclusively, the Tenant may take over the Landlord’s responsibilities for said construction. In such an event, the Landlord shall assign all of its obligations under the construction contract to the Tenant and the Tenant shall respect all of the terms and conditions contained in such contract, and shall furthermore indemnify the Landlord from any claims or damages relative to performance under the construction contract arising after the date of such assignment. It is further agreed that the balance of the Unpaid Amounts shall bear interest daily from the due date at the rate per annum which is three (3) percent above the “Prime Rate” as defined in the Lease, throughout the set-off period. Nothing contained herein shall be deemed as an ongoing right of the Tenant to set-off against any sum due under the Lease other than the Unpaid Amounts.

19.8 Storage Spaces - In addition to the Premises identified in Article 2 hereof, the Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord, upon the terms and conditions herein, the following storage spaces (hereinafter collectively referred to as the “Storage Spaces”):

19.8.1 Storage Space No. 85-4 located on level P2 of the Building and consisting of approximately 315 square feet of rentable area (“Storage Space No. 1”);

19.8.2 Storage Space No. 85-5 located on level P2 of the Building and consisting of approximately 515 square feet of rentable area (“Storage Space No. 2”);

19.8.3 Storage Space No. 85-6 located on level P2 of the Building and consisting of approximately 512 square feet of rentable area (“Storage Space No. 3”);

19.8.4 Storage Space No. 85-8 located on level P2 of the Building and consisting of approximately 150 square feet of rentable area (“Storage Space No. 4”).

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The term of this Lease shall commence in respect to Storage Space No. 1 on December 1, 1994, in respect to Storage Space No. 2 on November 1, 1994, in respect to Storage Space no. 3 on June 1, 1993 and in respect to Storage Space no. 4 on November 1, 1993. The term for the Stooge Spaces shall expire on October 31, 2003, unless terminated earlier pursuant to this Lease.

The Stooge Spaces shall be used by the Tenant only for the purpose of storage and for no other purpose.

The Tenant shall pay to the Landlord, for their respective Lease Year, in lawful money of Canada yearly throughout the term of this Lease for the Storage Spaces an annual rent calculated on the basis of FIFTEEN DOLLARS ($15.00) per square foot of the rentable area of the Storage Spaces, in equal and consecutive monthly installments of one twelfth (1/12) of the aforesaid annual rent, each in advance without set-off, compensation or deduction whatsoever, on the first day of each month.

The Tenant shall not be obliged to pay to the Landlord, in respect to the Storage Spaces, the Tenant’s Proportionate Share of Real Estate Taxes and the Tenant’s Proportionate Share of Operating Costs.

Section 4.6 and 19.1 to 19.6 inclusive shall not apply to the Storage Spaces.

The word “Premises” wherever it appears in the Lease shall also refer to the Storage Spaces hereby leased and all the terms and conditions contained in the Lease shall apply mutatis mutandis to the lease of the Storage Spaces, unless otherwise indicated in this Section 19.8 and save and except for Section 4.6.

ARTICLE 20

20 miscellaneous

20.1 Number, Gender, Liability - Where required by the context hereof, the singular shall include the plural and vice versa and the neuter gender, the masculine or feminine and vice versa. If the Tenant consists of more than one Person, the covenants of the tenant shall be deemed to be solidarily covenants of each such Person. If the Tenant is a partnership, each person who is presently a member of such partnership, and each Person who becomes a member of any successor partnership, shall be and continue to be liable solidarily for the performance of this Lease, whether or not such Person ceases to be a member of such partnership or successor partnership.

20.2 No Limitation - Whenever a statement or provision in this Lease is followed by words denoting inclusion or example (such as “including” or “such as”) and then a list of, or reference to, specific matters or items, such list or reference shall not be read so as to limit or restrict the generality of such statement or provision, even though words such as “without limitation” or “without limiting the generality of the foregoing” do not precede or follow such list or reference.

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20.3 Headings and Captions - The table of contents, Article numbers and Article headings are inserted for convenience of reference only and are not to be considered when interpreting this Lease.

20.4 Entire Agreement - This Lease and its Schedules shall constitute the entire agreement and understanding between the parties concerning the Premises and the Tenant and the Landlord acknowledge that there have been no promises, representations, agreements, conditions of understandings, either oral or written, between the parties hereto or their agents other than as herein set forth. This Lease may not be amended except by written agreement duly executed by both parties hereto.

20.5 Governing Law - This Lease shall be interpreted in accordance with and governed by the laws of the Province of Québec and the laws of Canada applicable therein.

20.6 Currency - All Rent and other amounts of money in this Lease are expressed in and refer to Canadian dollars and shall be paid in the lawful currency of Canada.

20.7 Severability - If for any reason whatsoever any term, obligation or condition of this Lease, or the application thereof to any person or circumstance is to any extent held or rendered invalid, unenforceable or illegal, then such term, obligation or condition shall be deemed to be independent, severable and divisible from the remainder of the Lease and its invalidity, un-enforceability or illegality shall not affect, impair or invalidate the remainder of the Lease.

20.8 Notices - Any notice, demand, statement or request (the “notice”), herein required or permitted to be given under this Lease shall be in writing and shall be made or given by registered mail or by telecopier to the respective parties as follows:

20.8.1 In the case of a notice to the Landlord:

1000 DE LA GAUCHETIÈRE WEST BUILDING INC.

1000 de La Gauchetière Street West

Suite MZ 100

Montréal, Québec H3B 4W5

Attention: General Manager

Telecopier number: (514) 397-1005

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20.8.2 In the case of notice to the Tenant:

after the Commencement Date, to it at the Premises and, prior thereto, to it at:

BCE Inc.

1000 de La Gauchetière Street West

Suite 3700

Montreal (Quebec)

H3B 4Y7

Attention: Corporate Secretary

Telecopier number: (514) 397-7223

Any such notice so delivered shall be deemed to have been validly and effectively given and received on the date of such delivery or transmittal by telecopier, or if mailed, on the third (3rd) Business Day following the date of such mailing. Notwithstanding the foregoing, during any interruption, threatened interruption or substantial delay in postal services, any notice shall be personally delivered. If a copy of any notice to the Tenant is to be sent to a second address or to a Person other than the Tenant, the failure to give any such copy shall not vitiate the delivery of the notice to the Tenant.

Any party may, from time to time, by notice to the other given in the manner set out above, change the address to which notices are to be given.

20.9 Registration of Lease - This Lease shall not be registered at length but only by mini-lease and then only after the form and terms of such mini-lease have been approved by the Landlord or its legal counsel, the whole at the cost of the Tenant, including the cost of registration, and providing a copy to the Landlord. Such mini-lease shall not contain any mention of financial conditions contained in the Lease. Should a min-lease be registered, the Tenant shall, at the termination thereof, cause same to be radiated at its expense and provide documentation of said radiation to the Landlord, at the Tenants’ expense, failing which the Landlord will, upon thirty (30) days prior written notice to the Tenant, have the right to cause such radiation and charge the Tenant with the cost of same.

20.10 Partial Payment of Rent - No payment by the Tenant or receipt by the Landlord of a lesser amount than the monthly payment of Net Rent herein stipulated is deemed to be other than on account of the earliest stipulated Net Rent, nor is any endorsement or statement on any cheque or any letter accompanying any payment or an accord and satisfaction, and the Landlord may accept and cash such cheque or payment without prejudice to the Landlord’s right to recover the balance of such Rent or pursue any other remedy.

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20.11 Exceeding the Term - No Tacit Renewal - Notwithstanding the provisions of the Civil Code of Québec, there shall be no tacit renewal of this Lease. Should the Tenant remain in possession of the Premises after the end of the Term without the written consent of the Landlord, such continued occupancy shall be at a monthly rate payable in advance on the first day of each month equal to one hundred and fifty percent (150%) of the monthly installment of Rent payable for the last month of the Term and otherwise upon the same terms, covenants and conditions as are set forth in this Lease insofar as these are applicable to a monthly tenancy, the whole without prejudice to the Landlord’s right to re-enter and take possession of the Premises and evict the Tenant therefrom without notice or indemnity to the Tenant and without prejudice to the Landlord’s other recourses hereunder or at law.

20.12 Unavoidable Delay - If and to the extent that the Landlord shall be prevented, delayed or restricted by reason of Unavoidable Delay in the fulfillment of any obligation thereunder, then the Landlord shall be deemed not to be in default in the performance of such covenant or obligation and any period for the performance of such obligation shall be extended accordingly and the Tenant shall not be entitled to compensation for any loss, inconvenience, nuisance or discomfort thereby occasioned, provided that in no event will the Tenant be relieved of its obligation to pay Rent as it becomes due. Furthermore, the Landlord agrees that if the Tenant is, in good faith, prevented, delayed or restricted in the fulfillment of any obligation or covenant hereunder by reason of an act of God, strikes, lockouts or other labour disputes, sabotage, war, blockades, insurrections, riots, civil disturbances, the enactment, amendment or repeal of any Applicable Laws, (collectively referred to as “Act of God”), then the performance by the Tenant of such obligation shall be extended accordingly, but it is expressly understood that the provisions of this Section 20.12 hereof will not be deemed to preclude the Tenant from any obligation of payment hereof when due and a lack of funds or financial inability of the Tenant shall not constitute an Act of God.

20.13 Waiver - If either the Landlord or the Tenant excuses or condones any default of the other of any obligation under this Lease, no waiver of such obligation shall be implied as a result of any continuing or subsequent default.

20.14 Metric Conversion - The Landlord may express any measurement in this Lease in metric measure in which case the following conversion factors apply:

1 meter	=	3.2808 feet;
1 square meter	=	10.7639 square feet;
1 foot	=	.3048 meter; and
1 square foot	=	.0929 square meter.

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20.15 Decision of Expert - The decision of any Expert whenever provided for under this Lease and any certificate related thereto shall be final and binding on the parties hereto and there shall be no further right of dispute or appeal.

20.16 Head Lease - The Tenant acknowledges that the Landlord is a lessee of the Lands and improvements thereon under a lease (the “Head Leases”) made as of the first (1st) day of May, nineteen hundred and eighty-nine (1989) between BCE Development Corporation (the rights and obligations of which were assumed by BCE Inc.), Prodevco Immobilière Inc. and Teleglobe Canada Inc., as lessors and the Landlord, as lessee, as the same may be amended from time to time. The Landlord covenants that the lessors under the Head Lease are the Co-owners as of the commencement of the Term. In the case of termination of the Head Lease, the Tenant hereby acknowledges that it will become bound towards the Co-owners for the then unexpired residue of the Term.

20.17 Reasonableness - Notwithstanding the terms and conditions of the Lease, and each person acting for the Landlord in making a determination, designation, calculation, estimate, conversion or allocation hereunder or under the Lease will act reasonably and in good faith and each accountant, architect (including the Architect), engineer or surveyor or other professional person employed or retained by the Landlord will act in accordance with the applicable principles and standards of the person’s profession and, in each instance where the Landlord’s consent or the consent of any person acting for the Landlord is required, such consent shall not be unreasonably withheld or delayed.

20.18 Quiet Enjoyment - Provided the Tenant is not in default hereunder beyond any period provided herein for curing such default, the Tenant shall peacefully hold and enjoy the Premises throughout the Term without hindrance or interruption by the Landlord. The Landlord hereby recognized the Tenant’s right to the peaceful enjoyment of the Premises throughout the Term and any renewal thereof, and, subject to the following, shall use all of its reasonable efforts to light the exterior of the Building in a manner which does disturb the Tenant. In accordance with the foregoing, the Landlord agrees to modify the light fixture located on the exterior of the Building in such a way that the visual appearance and/or any glare emanating from same do not interfere with the Tenant’s peaceful enjoyment of the Premises. In the event, the Landlord is unable to modify the large fixtures located outside the 12th and 36th floor in a manner which is satisfactory to the Tenant, acting reasonably, then the Landlord agrees that, as a last resort, the Landlord shall remove said large light fixtures. It is expressly understood that, subject to the foregoing provisions of this Section 20.18 and notwithstanding any removal of any exterior light fixture, the Landlord shall, at all times, retain its right to act in its sole discretion in lighting the exterior of the Building so long as the Tenant may peacefully hold and enjoy the Premises. The parties hereto agree to cooperate with one another to the fullest extend in making modifications which are to the mutual satisfaction of both parties, and the Landlord shall use all of its reasonable efforts to complete said modifications on or before the Commencement Date.

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20.19 Relationship of Parties - Notwithstanding any provisions of this Lease including, without limitation, the provisions pertaining to alterations and/or improvements to the Premises, nothing in this Lease shall be construed as constituting the Tenant the mandatary or contractor of the Landlord or the Co-owners in respect of the execution of the Tenant’s alterations and/or improvements or as creating any other relationship between the Landlord and the Tenant other than that of landlord and tenant.

20.20 Landlord’s release and waiver - The Landlord shall release and waive all claims for damages against the tenant and those for whom the Tenant is in law responsible to the extent of the amount recovered by the Landlord from its insurers or which should have been available to the Landlord if (i) the Landlord had prudently and diligently pursued any required claim under its insurance; and (ii) the Landlord had complied with its insurance obligations under the Lease and under hypothec, trust deed or superior lease affecting the Building. The Landlord shall also obtain a waiver of subrogation rights against the Tenant, and those for whom the Tenant is in law responsible, from its insurers under policies of insurance relating to the Building or under any hypothec, trust deed or superior lease affecting the Building.

20.21 Moveable Hypothec - As continuing and collateral security for the due and punctual performance of Tenant’s obligations under this Lease, the Tenant hypothecates in favour of Landlord, for a sum equal to the Net Rent and the Additional Rent payable by the Tenant during a two-year period under the Term of the Lease and interest thereon at the Prime Rate plus two percent (2%), calculated semi-annually and not in advance, a universality consisting of all moveable improvements, equipment, machinery, furniture, and fixtures of every kind now or hereafter located in, on or upon the Premises, including all indemnities or proceeds paid or payable to Tenant under insurance policies pertaining to or covering such movables. The hypothec herein created does not constitute a floating hypothec under Article 2715 of the Civil Code of Québec. Upon the occurrence of an event of default, the security hereby constituted shall become enforceable and Landlord shall be entitled to immediately exercise any and all rights arising from such hypothec without any notice or delay except as may be required by law. The hypothec referred to in this Section 20.21 shall constitute a first ranking charge on all the assets charged thereunder. However, should Tenant obtain a bona fide financing for the operation of its business in the Premises from a person acting at arm’s length with Tenant and the persons who control, directly or indirectly, Tenant (the “Tenant’s Lender”), Landlord shall execute, at Tenant’s cost, a subordination agreement in favour of Tenant’s Lender in a form and substance satisfactory to Landlord and its legal counsel, acting reasonably, provided that Tenant is not then in default and provided further that the security granted to Tenant’s Lender shall not affect any asset which is or may become, under the terms of this Lease, the property of Landlord.

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The Tenant covenants with Landlord to furnish the Premises with and maintain therein a sufficient quantity of furniture, fixtures and other moveable effects to secure the payment of twelve (12) months’ rent. The said furniture, fixtures and other effects shall at all times be and remain the absolute and exclusive property of Tenant free and clear of any privileges, liens, charges or encumbrances save for those in favor of Landlord.

The Tenant undertakes to execute, in favour of the Landlord and upon its request, a first ranking moveable hypothec of a value sufficient to secure the payment of twelve (12) months Rent, and to execute and sign promptly any document submitted by the Landlord to give effect to same.

20.22 Fees of Professionals - Each party herein shall bear its fees for all professionals hired with respect to the preparation and negotiation of this Lease.

20.23 Waiver of presumptions - The Tenant waives its rights to obtain a reduction of rent pursuant to Articles 1861 and 1863 of the Civil Code of Québec, as amended.

20.24 Brokerage Commission- The Tenant and the Landlord represent that no broker or agent has been engaged by either party with respect to this Lease transaction, nor negotiated or was instrumental in negotiation or consummating this Lease, and that no amounts including, without limitation, commissions are payable as a result of this transaction.

20.25 G.S.T./Q.S.T. - It is agreed that any sums payable by the Tenant to the Landlord or by the Landlord to the Tenant under this Lease shall be net of G.S.T./Q.S.T.

20.26 Act of a Third Party - Notwithstanding any law, usage or custom to the contrary, the Landlord shall not be liable to the Tenant for damages resulting from the act of a third person and the Tenant does hereby expressly waive any right or recourse it may have against the Landlord as a result of such act and, without limiting the generality of the foregoing, the Tenant renounces and waives its right to obtain a reduction of Rent, cancellation of the Lease or damages.

20.27 Language Clause - The parties have requested that this Agreement of Lease and its Schedules be prepared and drawn-up in the English language. Les parties ont demandé que la présente convention de bail ainsi que ses annexes soient rédigées en anglais.

TENANT declares having read this Lease and being satisfied therewith.

TENANT hereby accepts this Lease of the above described Premises to be held by it as Tenant subject to the covenants, conditions and restrictions above and in the Schedules attached hereto set forth.

AND IT IS AGREED, that the provisions hereof shall be binding upon and enure to the benefit of the successors, legal representatives and assigns of the parties, except as may be hereinabove otherwise provided, and if there is more than one tenant, the covenants herein contained on the part of Tenant shall be construed as being several as well as joint, and where necessary, the singular number shall be taken to include the plural, and the neuter, the masculine and/or the feminine gender.

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EX-10.18

Exhibit 10.18

RIVERSIDE CENTER

TWO RIVERSIDE CENTER

NEWTON, MASSACHUSETTS

OFFICE LEASE AGREEMENT

BETWEEN

HINES GLOBAL REIT RIVERSIDE CENTER, LLC,

a Delaware limited liability company

(“LANDLORD”)

AND

CLEMENTIA PHARMACEUTICALS USA, INC.,

a Delaware corporation

(“TENANT”)

OFFICE LEASE AGREEMENT

THIS OFFICE LEASE AGREEMENT (this “Lease”) is made and entered into as of February 13, 2019, by and between HINES GLOBAL REIT .RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”). The following exhibits and attachments are incorporated into and made a part of this Lease: Exhibit A (Outline and Location of Premises), Exhibit B (Expenses and Taxes), Exhibit C (Work Letter), Exhibit D (Commencement Letter), Exhibit E (Building Rules and Regulations), Exhibit F (Additional Provisions), and Exhibit G (Guaranty).

1.Basic Lease Information.

1.01“Building” shall mean the building located at 275 Grove Street, Newton, Massachusetts 02466, and commonly known as Riverside Center. Landlord and Tenant acknowledge that the “Building”, as defined herein, consists of three buildings commonly known as One Riverside Center, Two Riverside Center and Three Riverside Center. “Rentable Square Footage of the Building” is deemed to be 504,945 square feet.

1.02“Premises” shall mean the area shown on Exhibit A to this Lease. The Premises is located on the first (1st) floor of Two Riverside Center and known as Suite 2- 130. The “Rentable Square Footage of the Premises” is deemed to be 9,074 square feet. Landlord and Tenant stipulate and agree that the Rentable Square Footage of the Building and die Rentable Square Footage of the Premises are correct.

1.03“Base Rent”:

Rent Year*	Monthly Base Rent	Annual Base Rent per RSF
Commencement Date - Rent Commencement Date	$-0-	$-0-
Rent Year 1	$35,917.92	$47.50
Rent Year 2	$36,674.08	$48.50
Rent Year 3	$37,430.25	$49.50
Rent Year 4	$38,186.42	$50.50
Rent Year 5	$38,942.58	$51.50

*“Rent Year” shall be defined as a twelve-(12)-month period beginning on the Rent Commencement Date or an anniversary of the Rent Commencement Date, except that if the Rent Commencement Date does not fall on the first day of a calendar month, then the first Rent Year shall begin on the Rent Commencement Date and end on the last day of the month containing the first anniversary of the Rent Commencement Date, and each succeeding Rent Year shall begin on the day following the last clay of the prior Rent Year, and the Monthly Base Rent for the first month of such Rent Year shall be appropriately prorated.

1.04“Tenant’s Pro Rata Share”: 1.80%.

1.05“Base Year” for Taxes (defined in Exhibit B): Fiscal Year (defined below) 2020 (i.e., July 1, 2019, to June 30, 2020); “Base Year” for Expenses (defined in Exhibit B): calendar year 2019.

For purposes hereof, “Fiscal Year” shall mean the Base Year for Taxes and each period of July 1 to June 30 thereafter.

1.06“Term”: The period commencing on the Commencement Date (defined below) and, unless extended or terminated earlier in accordance with this Lease, ending on the last day of the sixty-first (61st) full calendar month following the Commencement Date (the “Termination Date”). The “Commencement Date” shall mean the date on which the Landlord Work (defined in Section 1.14) is Substantially Complete (defined in Exhibit C). The parties anticipate that the Landlord Work will be Substantially Complete oh or about May 1, 2019 (the “Target Commencement Date”). The “Rent Commencement Date” shall be the date that is one (1) month following the Commencement Date. Tenant shall have the option to extend the Term for one (1) additional period of five (5) years, as more particularly set forth in Section 2 of Exhibit F attached hereto.

1.07“Allowance”: An amount not to exceed $362,960.00, as further described in the attached Exhibit C.

1.08“Security Deposit”: $215,507.50 (i.e., six (6) Monthly Base Rent payments), as more fully described in Section 6.

1.09“Guarantor(s)”: Clementia Pharmaceuticals, Inc., a Quebec corporation.

1.10“Brokers”: Jones Lang LaSalle (“Tenant’s Broker”), which represented Tenant in connection with this transaction, and Cushman & Wakefield (“Landlord’s Broker”), which represented Landlord in connection with this transaction.

1.11“Permitted Use”: General Business Office.

1.12“Notice Address(es)”:

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Landlord:	Tenant:
Hines Global REIT Riverside Center, LLC c/o Hines Global REIT Inc. 2800 Post Oak Boulevard, Suite 4800 Houston, Texas 77056 Attention: Sherri Shugart	Prior to the Commencement Date: Clementia Pharmaceuticals USA, Inc. 275 Grove Street, Suite 2-400 Newton, MA 02466 Attention: Jeff Packman
With copies of any notices to Landlord shall be sent to:	With copies of any notices to Tenant to be sent via email to accounting@clementiapharma.com
Hines Interests Limited Partnership 275 Grove Street Newton, MA 02466 Attention: Property Manager And Goulston & Storrs, P.C. 400 Atlantic Avenue Boston, Massachusetts 02110 Attention: Riverside Center/Newton, Massachusetts	From and after the Commencement Date: Clementia Pharmaceuticals USA, Inc. 275 Grove Street, Suite 2-130 Newton, MA 02466 Attention: Jeff Packman With copies of any notices to Tenant to be sent via email to accounting@clementiapharma.com

1.13 “Business Day(s)” are Monday through Friday of each week, exclusive of New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (“Holidays”). Landlord may designate additional Holidays that are commonly recognized by other office buildings in the area where the Building is located. “Building Service Hours” are 8:00 A.M. to 6:00 P.M. on Business Days and 8:00 A.M. to 1:00 P.M. on Saturdays.

1.14“Landlord Work” means the work that Landlord is obligated to perform in the Premises pursuant to a separate agreement (the “Work Letter”) attached to this Lease as Exhibit C.

1.15“Property” means the Building and the parcel(s) of land on which it is located and, at Landlord’s discretion, the parking facilities and other improvements, if any, serving the Building and the parcel(s) of land on which they are located.

1.16Tenant shall not record this Lease or any memorandum or notice hereof without Landlord’s prior written consent. If this Lease is terminated before the Term expires, upon Landlord’s request, the parties shall execute, deliver and record an instrument acknowledging the above and the date of the termination of this Lease, and Tenant appoints Landlord its attorney-in-fact in its name and behalf to execute the instrument if Tenant shall fail to execute and deliver the instrument after Landlord’s request therefor within ten (10) days.

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2.Lease Grant.

Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. Tenant has the non-exclusive right, at no additional charge to Tenant, to use any portions of the Property that are designated by Landlord for the common use of tenants and others (the “Common Areas”).

3.Adjustment of Commencement Date; Possession.

3.01Subject to Landlord’s obligation to perform the Landlord Work, as hereinafter defined, and provide the Allowance, the Premises are accepted by Tenant in “as is” condition and configuration without any representations or warranties by Landlord. By taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition. Landlord shall not be liable for a failure to deliver possession of the Premises or any other space due to the holdover or unlawful possession of such space by another party, provided, however. Landlord shall use reasonable efforts to obtain possession of any such space. In such event, the Commencement Date for the Premises, or the commencement date for such other space, as applicable, shall be postponed until the date Landlord delivers possession of such space to Tenant free from occupancy by any party. Landlord’s failure to Substantially Complete (as hereinafter defined) the Landlord Work by the Target Commencement Date (described in Section 1.06) shall not be a default by Landlord or otherwise render Landlord liable for damages. Except as otherwise provided in this Lease, Tenant shall not be permitted to take possession of or enter the Premises prior to the Commencement Date without Landlord’s permission. If Tenant takes possession of or enters the Premises before the Commencement Date, Tenant shall be subject to the terms and conditions of this Lease; provided, however, except for the cost of services requested by Tenant (e.g., after hours HVAC service), Tenant shall not be required to pay Rent for any entry or possession before the Commencement Date during which Tenant, with Landlord’s approval, has entered, or is in possession of, the Premises for the sole purpose of performing improvements or installing furniture, equipment or other personal property.

3.02Promptly after the determination of the Commencement Date, Landlord and Tenant shall execute and deliver a commencement letter in the form attached as Exhibit D (the “Commencement Letter”). Tenant’s failure to execute and return the Commencement Letter, or to provide written objection to the statements contained in the Commencement Letter, within fifteen (15) days after the date of the Commencement Letter shall be deemed an approval by Tenant of the statements contained therein.

4.Rent.

4.01Tenant shall pay Landlord, without any setoff or deduction, unless expressly set forth in this Lease, all Base Rent and Additional Rent due for the Term (collectively referred to as “Rent”). “Additional Rent” means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord under this Lease. Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand, provided that the installment of Base Rent for the first full calendar month of the Term, and the first monthly installment of Additional Rent for Expenses and Taxes, shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before thirty (30) days after billing by Landlord. Rent shall be made payable to the entity, and sent to the address. Landlord designates and shall be made by good and sufficient check payable in United States of America currency or by other means acceptable to Landlord. If Tenant does not pay any Rent when due hereunder. Tenant shall pay Landlord an administration fee in the amount of $250.00, provided that Tenant shall be entitled to a grace period of up to five (5) days for the first late payment of Rent in a calendar year. In addition, past due Rent shall accrue interest at twelve percent (12%) per annum, and Tenant shall pay Landlord a reasonable fee for any checks returned by Tenant’s bank for any reason. Landlord’s acceptance of less than the correct amount of Rent shall be considered a payment on account of the oldest obligation due from Tenant hereunder, then to any current Rent then due hereunder, notwithstanding any statement to the contrary contained on or accompanying any such payment from Tenant. Rent for any partial month during the Term shall be prorated. No endorsement or statement on a check or letter accompanying payment shall be considered an accord and satisfaction. Tenant’s covenant to pay Rent is independent of every other covenant in this Lease.

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4.02Tenant shall pay Tenant’s Pro Rata Share of Taxes and Expenses in accordance with Exhibit B of this Lease.

5.Compliance with Laws; Use.

The Premises shall be used for the Permitted Use and for no other use whatsoever. Tenant shall comply with all statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity whether in effect now or later, including the Americans with Disabilities Act (“Law(s)”), regarding the operation of Tenant’s business, the use, condition, configuration and occupancy of the Premises and the Building systems located in or exclusively serving the Premises. In addition, Tenant shall, at its sole cost and expense, promptly comply with any Laws that relate to the “Base Building” (defined below), but only to the extent such obligations are triggered by Tenant’s use of the Premises, other than for general office use, or Alterations or improvements in the Premises performed or requested by Tenant. “Base Building” shall include the structural portions of the Building, the public restrooms and the Building mechanical, electrical and plumbing systems and equipment located in the internal core of the Building on the floor or floors on which the Premises are located. Tenant shall promptly provide Landlord with copies of any notices it receives regarding an alleged violation of Law. Tenant shall not exceed the standard density limit for the Building. Tenant shall comply with the rules and regulations of the Building attached as Exhibit E and such other reasonable rules and regulations adopted by Landlord from time to time, including rules and regulations for the performance of Alterations (defined in Section 9.03).

6.Security Deposit.

The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenant’s obligations. The Security Deposit is not an advance payment of Rent or a measure of damages. Landlord may from time to time and without prejudice to any other remedy provided in this Lease or by Law, use all or a portion of the Security Deposit to the extent necessary to satisfy past due Rent or to satisfy any other loss or damage resulting from Tenant’s breach under this Lease. If Landlord uses any portion of the Security Deposit, Tenant, within five (5) business days after demand, shall restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within thirty (30) days after the later to occur of: (a) determination of the final Rent due from Tenant; or (b) the later to occur of the Termination Date or the date Tenant surrenders the Premises to Landlord in compliance with Section 25. Landlord may assign the Security Deposit to a successor or transferee and, following the assignment. Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts.

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7.Building Services.

7.01Landlord shall furnish Tenant with the following services: (a) water for use in the Base Building lavatories; (b) customary heat and air conditioning in season during Building Service Hours, although (i) Tenant shall have the right to receive HVAC service during hours other than Building Service Hours by paying Landlord’s then standard charge for additional HVAC service and providing such prior notice as is reasonably specified by Landlord, and (ii) if Tenant is permitted to connect any supplemental HVAC units to the Building’s condenser water loop or chilled water line, such permission shall be conditioned upon Landlord having adequate excess capacity from time to time and such connection and use shall be subject to Landlord’s reasonable approval and reasonable restrictions imposed by Landlord, and Landlord shall have the right to charge Tenant a connection fee and/or a monthly usage fee, as reasonably determined by Landlord; (c) standard janitorial service on Business Days; (d) elevator service; (e) electricity in accordance with the terms and conditions in Section 7.02; (f) access to the Building for Tenant and its employees twenty-four (24) hours per day, seven (7) per week, subject to the terms of this Lease and such protective services or monitoring systems, if any, as Landlord may reasonably impose, including, without limitation, sign-in procedures and/or presentation of identification cards; and (g) such other services as Landlord reasonably determines are necessary or appropriate for the Property. If Landlord, at Tenant’s request, provides any services which are not Landlord’s express obligation under this Lease, including, without limitation, any repairs which are Tenant’s responsibility pursuant to Section 9 below, Tenant shall pay Landlord, or such other party designated by Landlord, the cost of providing such service plus a reasonable administrative charge.

7.02Electricity used by Tenant in the Premises shall be paid for by Tenant by a separate monthly charge payable by Tenant to Landlord as estimated by Landlord (and reconciled annually). Without the consent of Landlord, Tenant’s use of electrical service shall not exceed the Building standard usage, per square foot, as reasonably determined by Landlord, based upon the Building standard electrical design load. Landlord shall, at Landlord’s expense, install and measure electrical usage by commonly accepted methods, including the installation of measuring devices such as submeters and check meters. If it is determined that Tenant is using electricity in such quantities or during such periods as to cause the total cost of Tenant’s electrical usage, on a monthly, per-rentable-square-foot basis, to materially exceed that which Landlord reasonably deems to be standard for the Building, Tenant shall pay Landlord Additional Rent for the cost of such excess electrical usage and, if applicable, for the cost of purchasing and installing the measuring device(s).

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7.03Landlord’s failure to furnish, or any interruption, diminishment or termination of services due to the application of Laws, the failure of any equipment, the performance of maintenance, repairs, improvements or alterations, utility interruptions or the occurrence of an event of Force Majeure (defined in Section 26.03) (collectively a “Service Failure”) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. However, if the Premises, or a material portion of the Premises, are made untenantable for a period in excess of three (3) consecutive Business Days as a result of a Service Failure that is reasonably within the control of Landlord to correct, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the fourth (4th) consecutive Business Day of the Service Failure and ending on the day the service has been restored. If the entire Premises have not been rendered untenantable by the Service Failure, the amount of abatement shall be equitably prorated.

8.Leasehold Improvements.

All improvements in and to the Premises, including any Alterations (defined in Section 9.03) (collectively, “Leasehold Improvements”) shall remain upon the Premises at the end of the Term without compensation to Tenant, provided that Tenant, at its expense, shall remove any Cable (defined in Section 9.01 below). In addition, Landlord, by written notice to Tenant at least sixty (60) days prior to the Termination Date, may require Tenant, at Tenant’s expense, to remove any Landlord Work or Alterations that, in Landlord’s reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (the Cable and such other items collectively are referred to as “Required Removables”). Required Removables shall include, without limitation, internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications. The Required Removables shall be removed by Tenant before the Termination Date. Tenant shall repair damage caused by the installation or removal of Required Removables. If Tenant fails to perform its obligations in a timely manner, Landlord may perform such work at Tenant’s expense. Tenant, at the time it requests approval for a proposed Alteration, including any Initial Alterations or Landlord Work, as such terms may be defined in the Work Letter attached as Exhibit C, may request in writing that Landlord advise Tenant whether the Alteration, including any Initial Alterations or Landlord Work, or any portion thereof, is a Required Removable. Within seven (7) days after receipt of Tenant’s request, Landlord shall advise Tenant in writing as to which portions of the alteration or other improvements are Required Removables.

9.Repairs and Alterations.

9.01Tenant shall periodically inspect the Premises to identify any conditions that are dangerous or in need of maintenance or repair. Tenant shall promptly provide Landlord with notice of any such conditions. Tenant, at its sole cost and expense, shall perform all maintenance and repairs to the Premises that are not Landlord’s express responsibility under this Lease, and keep the Premises in good condition and repair, reasonable wear and tear excepted. Tenant’s repair and maintenance obligations include, without limitation, repairs to: (a) floor covering; interior partitions; (c) doors; (d) the interior side of demising walls; (e) Alterations (described in Section 9.03); (1) supplemental air conditioning units, kitchens, including hot water heaters, plumbing, and similar facilities exclusively serving Tenant, whether such items are installed by Tenant or are currently existing in the Premises; and (g) electronic, fiber, phone and data cabling and related equipment that is installed by or for the exclusive benefit of Tenant (collectively, “Cable”). AM repairs and other work performed by Tenant or its contractors, including that involving Cable, shall be subject to the terms of Section 9.03 below. If Tenant fails to make any repairs to the Premises for more than fifteen (15) days after notice from Landlord (although notice shall not be required in an emergency), Landlord may make the repairs, and, within thirty (30) days after demand, Tenant shall pay the reasonable cost of the repairs, together with an administrative charge in an amount equal to ten percent (10%) of the cost of the repairs.

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9.02Landlord shall keep and maintain in good repair and working order and perform maintenance upon the: (a) structural elements of the Building; (b) mechanical (including HVAC), electrical, plumbing and tire/life safety systems serving the Building in general; (c) Common Areas; (d) roof of the Building; (e) exterior windows of the Building; and (f) elevators serving the Building. Landlord shall promptly make repairs for which Landlord is responsible.

9.03Tenant shall not make alterations, repairs, additions or improvements or install any Cable (collectively referred to as “Alterations”) without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed. However, Landlord’s consent shall not. be required for any Alteration that satisfies all of the following criteria (a “Cosmetic Alteration”): (a) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (b) is not visible from the exterior of the Premises or Building; (c) will not affect the Base Building (defined in Section 5); and (d) does not require work to be performed inside the walls or above the ceiling of the Premises. Cosmetic Alterations shall be subject to all the other provisions of this Section 9.03. Prior to starting work, Tenant shall furnish Landlord with plans and specifications (which shall be in CAD format if requested by Landlord); names of contractors reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Base Building and vertical Cable, as may be described more fully below); required permits and approvals; evidence of contractor’s and subcontractor’s insurance in amounts reasonably required by Landlord and naming Landlord and the managing agent for the Building (or any successor(s)) as additional insureds; and any security for performance in amounts reasonably required by Landlord. Landlord may designate specific contractors with respect to oversight, installation, repair, connection to, and removal of vertical Cable. All Cable shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Cable with wire) to show Tenant’s name, suite number, and the purpose of such Cable (i) every 6 feet outside the Premises (specifically including, but not limited to, the electrical room risers and any Common Areas), and (ii) at the termination point(s) of such Cable. Changes to the plans and specifications must also be submitted to Landlord for its approval. Alterations shall be constructed in a good and workmanlike manner using materials of a quality reasonably approved by Landlord, and Tenant shall ensure that no Alteration impairs any Building system or Landlord’s ability to perform its obligations hereunder. Tenant shall reimburse Landlord for any sums paid by Landlord for third party examination of Tenant’s plans for non-Cosmetic Alterations. In addition, Tenant shall pay Landlord a fee for Landlord’s oversight and coordination of any non-Cosmetic Alterations equal to five percent (5%) of the cost of the non-Cosmetic Alterations. Upon completion, Tenant shall furnish “as-built” plans (in CAD format, if requested by Landlord) for non-Cosmetic Alterations, completion affidavits and full and final waivers of lien. Landlord’s approval of an Alteration shall not be deemed a representation by Landlord that the Alteration complies with Law.

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10.Entry by Landlord.

Landlord may enter the Premises to inspect, show or clean the Premises or to perform or facilitate the performance of repairs, alterations or additions to the Premises or any portion of the Building. Except in emergencies or to provide Building services. Landlord shall provide Tenant with reasonable prior verbal notice of entry and shall use reasonable efforts to minimize any interference with Tenant’s use of the Premises. If reasonably necessary, Landlord may temporarily close all or a portion of the Premises to perform repairs, alterations and additions. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after Building Service Hours. Entry by Landlord shall not constitute a constructive eviction or entitle Tenant to an abatement or reduction of Rent.

11.Assignment and Subletting.

11.01Except in connection with a Business Transfer (defined in Section 11.04), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a “Transfer”) without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed if Landlord does not exercise its recapture rights under Section 11.02. Without limitation, it is agreed that Landlord’s consent shall not be considered unreasonably withheld if the proposed transferee is a governmental entity or an occupant of the Building or an occupant of any other buildings within the same project or if the proposed transferee, whether or not an occupant of the Building or an occupant of any other buildings within the same project, is in discussions with Landlord regarding the leasing of space within the Building or within any other buildings within the same project. If the entity(ies) which directly or indirectly controls the voting shares/rights of Tenant (other than through the ownership of voting securities listed on a recognized securities exchange) changes at any time, such change of ownership or control shall constitute a Transfer. Any Transfer in violation of this Section shall, at Landlord’s option, be deemed a Default by Tenant as described in Section 18, and shall be voidable by Landlord. In no event shall any Transfer, including a Business Transfer (as defined in Section 11.04), release or relieve Tenant from any obligation under this Lease, and Tenant shall remain primarily liable for the performance of the tenant’s obligations under this Lease, as amended from time to time.

11.02Tenant shall provide Landlord with financial statements for the proposed transferee (or, in the case of a change of ownership or control, for the proposed new controlling entity(ies)), a fully executed copy of the proposed assignment, sublease or other Transfer documentation and such other information as Landlord may reasonably request. Within fifteen (15) Business Days after receipt of the required information and documentation, Landlord shall either: (a) consent to the Transfer by execution of a consent agreement in a form reasonably designated by Landlord; (b) reasonably refuse to consent to the Transfer in writing; or (c) in the event of an assignment of this Lease or subletting of more than twenty percent (20%) of the Rentable Square Footage of the Premises for more than fifty percent (50%) of the remaining Term (excluding unexercised options), recapture the portion of the Premises that Tenant is proposing to Transfer. If Landlord exercises its right to recapture, this Lease shall automatically be amended (or terminated if the entire Premises is being assigned or sublet) to delete the applicable portion of the Premises effective on the proposed effective date of the Transfer, although Landlord may require Tenant to execute a reasonable amendment or other document reflecting such reduction or termination. Tenant shall pay Landlord a review fee of $1,500.00 for Landlord’s review of any requested Transfer.

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11.03Tenant shall pay Landlord fifty percent (50%) of all rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer. Tenant shall pay Landlord for Landlord’s share of the excess within thirty (30) days after Tenant’s receipt of the excess. In determining the excess due Landlord, Tenant may deduct from the excess, on a straight-line basis, all reasonable and customary expenses directly incurred by Tenant attributable to the Transfer. If Tenant is in Default, Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of Tenant’s share of payments received by Landlord.

11.04Tenant may assign this Lease to a successor to Tenant by merger, consolidation or the purchase of substantially all of Tenant’s assets, or assign this Lease or sublet all or a portion of the Premises to an Affiliate (defined below), without the consent of Landlord, provided that all of the following conditions are satisfied (a “Business Transfer”): (a) Tenant must not be in Default; (b) Tenant must give Landlord written notice at least fifteen (15) Business Days before such Transfer; and (c) except in the case of an assignment or sublease to an Affiliate, the Credit Requirement (defined below) must be satisfied. Tenant’s notice to Landlord shall include information and documentation evidencing the Business Transfer and showing that each of the above conditions has been satisfied. If requested by Landlord, Tenant’s successor shall sign and deliver to Landlord a commercially reasonable form of assumption agreement. “Affiliate” shall mean an entity controlled by, controlling or under common control with Tenant. The “Credit Requirement” shall be deemed satisfied if, as of the date immediately preceding the date of the Business Transfer, the financial strength of (i) the entity with which Tenant is to merge or consolidate or (ii) the purchaser of substantially all of the assets of Tenant is not less than that of Tenant, as determined (x) based on credit ratings of such entity and Tenant by both Moody’s and Standard & Poor’s (or by either such agency alone, if applicable ratings by the other agency do not exist), or (y) if such credit ratings do not exist, then in accordance with Moody’s KMV RiskCalc (i.e., the on-line software tool offered by Moody’s for analyzing credit risk) based on CFO-certified financial statements for such entity and Tenant covering their last two (2) fiscal years ending before the Transfer.

11.05Notwithstanding anything to the contrary contained in this Section 11, neither Tenant nor any other person having a right to possess, use, or occupy (for convenience, collectively referred to in this subsection as “Use”) the Premises shall enter into any lease, sublease, license, concession or other agreement for Use of all or any portion of the Premises which provides for rental or other payment for such Use based, in whole or in part, on the net income or profits derived by any person that leases, possesses, uses, or occupies all or any portion of the Premises (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a transfer of any right or interest in the Use of all or any part of the Premises.

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12.Liens.

Tenant shall not permit mechanics’ or other liens to be placed upon the Property, Premises or Tenant’s leasehold interest in connection with any work or service done or purportedly done by or for the benefit of Tenant or its subtenants or transferees. Tenant shall give Landlord notice at least fifteen (15) days prior to the commencement of any work in the Premises to afford Landlord the opportunity, where applicable, to post and record notices of non-responsibility. Tenant, within ten (10) days of notice from Landlord, shall fully discharge any lien by settlement, by bonding or by insuring over the lien in the manner prescribed by the applicable lien Law and, if Tenant fails to do so, Tenant shall be deemed in Default under this Lease and, in addition to any other remedies available to Landlord as a result of such Default by Tenant, Landlord, at its option, may bond, insure over or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord, including, without limitation, reasonable attorneys’ fees. Landlord shall have the right to require Tenant to post a performance or payment bond in connection with any work or service done or purportedly done by or for the benefit of Tenant. Tenant acknowledges and agrees that all such work or service is being performed for the sole benefit of Tenant and not for the benefit of Landlord.

13.Indemnity and Waiver of Claims.

Except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord and Landlord Related Parties harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys’ fees and other professional fees (if and to the extent permitted by Law) (collectively referred to as “Losses”), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties by any third party and arising out of or in connection with any damage or injury occurring in the Premises or any acts or omissions (including violations of Law) of Tenant, its trustees, managers, members, principals, beneficiaries, partners, officers, directors, employees and agents (the “Tenant Related Parties”) or any of Tenant’s transferees, contractors or licensees. Tenant hereby waives all claims against and releases Landlord and its trustees, managers, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagees (defined in Section 23) and agents (the “Landlord Related Parties”) from all claims for any injury to or death of persons, damage to property or business loss in any manner related to (a) Force Majeure, (b) acts of third parties, (c) the bursting or leaking of any tank, water closet, drain or other pipe, (d) the inadequacy or failure of any security or protective services, personnel or equipment, or (e) any matter not within the reasonable control of Landlord.

14.Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts:

14.01Commercial General Liability Insurance covering claims of bodily injury, personal injury and property damage arising out of Tenant’s operations and contractual liabilities, including coverage formerly known as broad form, on an occurrence basis, with minimum primary limits of $2,000,000 each occurrence and $4,000,000 annual aggregate and a minimum excess/umbrella limit of $3,000,000.

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14.02Property insurance covering (i)all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property in the Premises installed by, for, or at the expense of Tenant (“Tenant’s Property”), and (ii) any Leasehold Improvements installed by or for the benefit of Tenant, whether pursuant to this Lease or pursuant to any prior lease or other agreement to which Tenant was a party (“Tenant-Insured Improvements”). Such insurance shall be written on a special cause of loss form for physical loss or damage, for the full replacement cost value (subject to reasonable deductible amounts) without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance, and shall include coverage for damage or other loss caused by fire or other peril, including vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion, and providing business interruption coverage for a period of one year.

14.03Worker’s Compensation and Employer’s Liability or other similar insurance to the extent required by Law.

14.04Form of Policies. The minimum limits of insurance required to be carried by Tenant shall not limit Tenant’s liability. Such insurance shall (i) be issued by an insurance company that has an A.M. Best rating of not less than A-VIII; (ii) be in form and content reasonably acceptable to Landlord; and (iii) provide that it shall not be canceled or materially changed without thirty (30) days’ prior notice to Landlord, except that ten (10) days’ prior notice may be given in the case of nonpayment of premiums. Tenant’s Commercial General Liability Insurance shall (a) name Landlord, Landlord’s managing agent, and any other party designated by Landlord (“Additional Insured Parties”) as additional insureds; and (b) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and non-contributing with Tenant’s insurance. Landlord shall be designated as a loss payee with respect to Tenant’s Property insurance on any Tenant-Insured Improvements. Tenant shall deliver to Landlord, on or before the Commencement Date and at least fifteen (15) days before the expiration dates thereof, certificates from Tenant’s insurance company on the forms currently designated “ACORD 28” (Evidence of Commercial Property Insurance) and “ACORD 25-S” (Certificate of Liability Insurance) or the equivalent. Attached to the ACORD 25-S (or equivalent) there shall be an endorsement naming the Additional Insured Parties as additional insureds which shall be binding on Tenant’s insurance company and shall expressly require the insurance company to notify each Additional Insured Party in writing at least thirty (30) days before any termination or material change to the policies, except that ten (10) days’ prior notice may be given in the case of nonpayment of premiums. Upon Landlord’s request, Tenant shall deliver to Landlord, in lieu of such certificates, copies of the policies of insurance required to be carried under Section 14.01 showing that the Additional Insured Parties are named as additional insureds.

14.05Tenant shall maintain such increased amounts of the insurance required to be carried by Tenant under this Section 14, and such other types and amounts of insurance covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord, but not in excess of the amounts and types of insurance then being required by landlords of buildings comparable to and in the vicinity of the Building.

14.06Landlord makes no representation or warranty to Tenant that the amount of insurance required to be carried by Tenant under the terms of this Lease is adequate to fully protect Tenant’s interests. Tenant is encouraged to evaluate its insurance needs and obtain whatever additional types or amounts of insurance that it may deem desirable or appropriate.

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15.Subrogation.

Notwithstanding anything to the contrary set forth in this Lease, each party waives, and shall cause its insurance carrier to waive, any right of recovery against the other for any loss of or damage to property which loss or damage is (or, if the insurance required hereunder had been carried, would have been) covered by insurance. For purposes of this Section 15, any deductible with respect to a party’s insurance shall be deemed covered by, and recoverable by such party under, valid and collectable policies of insurance.

16.Casualty Damage.

16.01If all or any portion of the Premises becomes untenantable or inaccessible by fire or other casualty to the Premises or the Common Areas (collectively a “Casualty”), Landlord, with reasonable promptness, shall cause a general contractor selected by Landlord to provide Landlord with a written estimate of the amount of time required, using standard working methods, to substantially complete the repair and restoration of the Premises and any Common Areas necessary to provide access to the Premises (“Completion Estimate”). Landlord shall promptly forward a copy of the Completion Estimate to Tenant. If the Completion Estimate indicates that the Premises or any Common Areas necessary to provide access to the Premises cannot be made tenantable within two hundred seventy (270) days from the date the repair is started, then either party shall have the right to terminate this Lease upon written notice to the other within ten (10) days after Tenant’s receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the Casualty was caused by the negligence or intentional misconduct of Tenant or any Tenant Related Parties. In addition, Landlord, by notice to Tenant within ninety (90) days after the date of the Casualty, shall have the right to terminate this Lease if: (1) the Premises have been materially damaged and there is less than two (2) years of the Term remaining on the date of the Casualty; (2) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (3) a material uninsured loss to the Building or Premises occurs.

16.02If this Lease is not terminated, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, restore the Premises and Common Areas. Such restoration shall be to substantially the same condition that existed prior to the Casualty, except for modifications required by Law or any other modifications to the Common Areas deemed desirable by Landlord. Notwithstanding Section 15 above, upon notice from Landlord, Tenant shall assign or endorse over to Landlord (or to any party designated by Landlord) all property insurance proceeds payable to Tenant under Tenant’s insurance with respect to any Leasehold Improvements performed by or for the benefit of Tenant; provided if the estimated cost to repair such Leasehold Improvements exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, the excess cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s commencement of repairs. Within fifteen (15) days of demand. Tenant shall also pay Landlord for any additional excess costs that are determined during the performance of the repairs to such Leasehold Improvements. In no event shall Landlord be required to spend more for the restoration of the Premises and Common Areas than the proceeds received by Landlord, whether insurance proceeds or proceeds from Tenant. Landlord shall not be liable for any inconvenience to Tenant, or injury to Tenant’s business resulting in any way from the Casualty or the repair thereof. Provided that Tenant is not in Default, during any period of time that all or a material portion of the Premises is rendered untenantable as a result of a Casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant.

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17.Condemnation.

Either party may terminate this Lease if any material part of the Premises is taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a “Taking”). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Property which would have a material adverse effect on Landlord’s ability to profitably operate the remainder of the Building. The terminating party shall provide written notice of termination to the other party within forty-five (45) days after it first receives notice of the Taking. The termination shall be effective as of the effective date of any order granting possession to, or vesting legal title in, the condemning authority. If this Lease is not terminated, Base Rent and Tenant’s Pro Rata Share shall be appropriately adjusted to account for any reduction in the square footage of the Building or Premises. All compensation awarded for a Taking shall be the property of Landlord. The right to receive compensation, or proceeds are expressly waived by Tenant, provided, however, Tenant may file a separate claim for Tenant’s Property and Tenant’s reasonable relocation expenses, provided the filing of the claim does not diminish the amount of Landlord’s award. If only a part of the Premises is subject to a Taking and this Lease is not terminated. Landlord, with reasonable diligence, will restore the remaining portion of the Premises as nearly as practicable to the condition immediately prior to the Taking.

18.Events of Default.

In addition to any other default specifically described in this Lease, each of the following occurrences shall be a “Default”: (a) Tenant’s failure to pay any portion of Rent when due, if the failure continues for three (3) days after written notice to Tenant (“Monetary Default”); (b) Tenant’s failure (other than a Monetary Default) to comply with any term, provision, condition or covenant of this Lease, if the failure is not cured within ten (10) days after written notice to Tenant provided, however, if Tenant’s failure to comply cannot reasonably be cured within ten (10) days, Tenant shall be allowed additional time (not to exceed sixty (60) days) as is reasonably necessary to cure the failure so long as Tenant begins the cure within ten (10) days and diligently pursues the cure to completion; (c) Tenant permits a Transfer without Landlord’s required approval or otherwise in violation of Section 11 of this Lease; (d) Tenant or any Guarantor becomes insolvent, makes a transfer in fraud of creditors, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts when due or forfeits or loses its right to conduct business; (e) the leasehold estate is taken by process or operation of Law; (f) in the case of any ground floor or retail Tenant, Tenant does not take possession of or abandons or vacates all or any portion of the Premises; or (g) Tenant is in default beyond any notice and cure period under any other lease or agreement with Landlord at the Building or Property. If Landlord provides Tenant with notice of Tenant’s failure to comply with any specific provision of this Lease on three (3) separate occasions during any twelve-(12)-month period, Tenant’s subsequent violation of such provision shall, at Landlord’s option, be an incurable Default by Tenant. All notices sent under this Section shall be in satisfaction of, and not in addition to, notice required by Law.

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19.Remedies.

19.01Upon Default, Landlord shall have the right to pursue any one or more of the following remedies:

(a)Terminate this Lease, in which case Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to surrender the Premises, Landlord, in compliance with Law, may enter upon and take possession of the Premises and remove Tenant, Tenant’s Property and any party occupying the Premises. Tenant shall pay Landlord, on demand, all past due Rent and other losses and damages Landlord suffers as a result of Tenant’s Default, including, without limitation, all Costs of Reletting (defined below) and any deficiency that may arise from reletting or the failure to relet the Premises. “Costs of Reletting” shall include all reasonable costs and expenses incurred by Landlord in reletting or attempting to relet the Premises, including, without limitation, legal fees, brokerage commissions, the cost of alterations and the value of other concessions or allowances granted to a new tenant.

(b)Terminate Tenant’s right to possession of the Premises and, in compliance with Law, remove Tenant, Tenant’s Property and any parties occupying the Premises. Landlord may (but shall not be obligated to) relet all or any part of the Premises, without notice to Tenant, for such period of time and on such terms and conditions (which may include concessions, free rent and work allowances) as Landlord in its absolute discretion shall determine. Landlord may collect and receive all rents and other income from the reletting. Tenant shall pay Landlord on demand all past due Rent, all Costs of Reletting and any deficiency arising from the reletting or failure to relet the Premises. The re-entry or taking of possession of the Premises shall not be construed as an election by Landlord to terminate this Lease.

19.02In lieu of calculating damages under Section 19.01, Landlord may elect to receive as damages the sum of (a) all Rent accrued through the date of termination of this Lease or Tenant’s right to possession, and (b) an amount equal to the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at the Prime Rate (defined below) then in effect, minus the then present fair rental value of the Premises for the remainder of the Term, similarly discounted, after deducting all anticipated Costs of Reletting. “Prime Rate” shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the state in which the Building is located.

19.03If Tenant is in Default of any of its non-monetary obligations under this Lease, Landlord shall have the right to perform such obligations. Tenant shall reimburse Landlord for the cost of such performance upon demand together with an administrative charge equal to ten percent (10%) of the cost of the work performed by Landlord. The repossession or re-entering of all or any part of the Premises shall not relieve Tenant of its liabilities and obligations under this Lease. No right or remedy of Landlord shall be exclusive of any other right or remedy. Each right and remedy shall be cumulative and in addition to any other right and remedy now or subsequently available to Landlord at Law or in equity.

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20.Limitation of Liability.

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) SHALL BE LIMITED TO THE LESSER OF (A) THE INTEREST OF LANDLORD IN THE PROPERTY, OR (B) THE EQUITY INTEREST LANDLORD WOULD HAVE IN THE PROPERTY IF THE PROPERTY WERE ENCUMBERED BY THIRD PARTY DEBT IN AN AMOUNT EQUAL TO SEVENTY PERCENT (70%) OF THE VALUE OF THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORD’S INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD OR ANY LANDLORD RELATED PARTY. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY, AND IN NO EVENT SHALL LANDLORD OR ANY LANDLORD RELATED PARTY BE LIABLE TO TENANT FOR ANY LOST PROFIT, DAMAGE TO OR LOSS OF BUSINESS OR ANY FORM OF SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGE. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN SECTION 23 BELOW), NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL LANDLORD OR ANY MORTGAGEES OR LANDLORD RELATED PARTIES EVER BE LIABLE FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES OR ANY LOST PROFITS OF TENANT.

21.Intentionally Omitted.

22.Holding Over.

If Tenant fails to surrender all or any part of the Premises at the termination of this Lease, occupancy of the Premises after termination shall be that of a tenancy at sufferance. Tenant’s occupancy shall be subject to all the terms and provisions of this Lease, and Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to one hundred fifty percent (150%) of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Tenant or payment by Tenant after the termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. If Landlord is unable to deliver possession of the Premises to a new tenant or to perform improvements for a new tenant as a result of Tenant’s holdover and Tenant fails to vacate the Premises within fifteen (15) days after notice from Landlord, Tenant shall be liable for all damages that Landlord suffers from the holdover.

23.Subordination to Mortgages; Estoppel Certificate.

23.01Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, deeds to secure debt, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a “Mortgage”). The party having the benefit of a Mortgage shall be referred to as a “Mortgagee”. This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. As an alternative, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. Upon request, Tenant, without charge, shall attorn to any successor to Landlord’s interest in this Lease. Landlord and Tenant shall each, within ten (10) days after receipt of a written request from the other, execute and deliver a commercially reasonable estoppel certificate to those parties as are reasonably requested by the other (including a Mortgagee or prospective purchaser). Without limitation, such estoppel certificate may include a certification as to the status of this Lease, the existence of any defaults and the amount of Rent that is due and payable.

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23.02In the event Mortgagee enforces it rights under the Mortgage, Tenant, at Mortgagee’s option, will attorn to Mortgagee or its successor; provided, however, that Mortgagee or its successor shall not be liable for or bound by (i) any payment of any Rent installment which may have been made more than thirty (30) days before the due date of such installment, (ii) any act or omission of or default by Landlord under this Lease (but Mortgagee, or such successor, shall be subject to the continuing obligations of landlord under the Lease to the extent arising from and after such succession to the extent of Mortgagee’s, or such successor’s, interest in the Property), (iii) any credits, claims, setoffs or defenses which Tenant may have against Landlord or (iv) any obligation under this Lease to maintain a fitness facility at the Building, if any. Tenant, upon the reasonable request by Mortgagee or such successor in interest, shall execute and deliver an instrument or instruments confirming such attornment.

24.Notice.

All demands, approvals, consents or notices (collectively referred to as a “notice”) shall be in writing and delivered by hand or sent by registered, express, or certified mail, with return receipt requested or with delivery confirmation requested from the U.S. postal service, or sent by overnight or same day courier service at the party’s respective Notice Address(es) set forth in Section 1; provided, however, notices sent by Landlord regarding general Building operational matters may be posted in the Building mailroom or the general Building newsletter or sent via e- mail to the e-mail address provided by Tenant to Landlord for such purpose. In addition, if the Building is closed (whether due to emergency, governmental order or any other reason), then any notice address at the Building shall not be deemed a required notice address during such closure, and, unless Tenant has provided an alternative valid notice address to Landlord for use during such closure, any notices sent during such closure may be sent via e-mail or in any other practical manner reasonably designed to ensure receipt by the intended recipient. Each notice shall be deemed to have been received on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or any other Notice Address of Tenant without providing a new Notice Address, three (3) days after notice is deposited in the U.S. mail or with a courier service in the manner described above. Either party may, at any time, change its Notice Address (other than to a post office box address) by giving the other party written notice of the new address.

25.Surrender of Premises.

At the termination of this Lease or Tenant’s right of possession, Tenant shall remove Tenant’s Property from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear and damage which Landlord is obligated to repair hereunder excepted. If Tenant fails to remove any of Tenant’s Property, or to restore the Premises to the required condition, within two (2) days after termination of this Lease or Tenant’s right to possession. Landlord, at Tenant’s sole cost and expense, shall be entitled (but not obligated) to remove and store Tenant’s Property and/or perform such restoration of the Premises. Landlord shall not be responsible for the value, preservation or safekeeping of Tenant’s Property. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred. If Tenant fails to remove Tenant’s Property from the Premises or storage, within thirty (30) days after notice, Landlord may deem all or any part of Tenant’s Property to be abandoned and, at Landlord’s option, title to Tenant’s Property shall vest in Landlord or Landlord may dispose of Tenant’s Property in any manner Landlord deems appropriate.

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26.Miscellaneous.

26.01This Lease shall be interpreted and enforced in accordance with the Laws of the state or commonwealth in which the Building is located and Landlord and Tenant hereby irrevocably consent to the jurisdiction and proper venue of such state or commonwealth, If any term or provision of this Lease shall to any extent be void or unenforceable, the remainder of this Lease shall not be affected. If there is more than one Tenant or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities, and requests or demands from any one person or entity comprising Tenant shall be deemed to have been made by all such persons or entities. Notices to any one person or entity shall be deemed to have been given to all persons and entities. Tenant represents and warrants to Landlord, and agrees, that each individual executing this Lease on behalf of Tenant is authorized to do so on behalf of Tenant and that the entity(ies) or individual(s) constituting Tenant or Guarantor or which may own or control Tenant or Guarantor or which may be owned or controlled by Tenant or Guarantor are not and at no time will be (i) in violation of any Laws relating to terrorism or money laundering, or (ii) among the individuals or entities identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terrorists or on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treasury.gov/resource-center/sanctions/SDN-List/‌Pages/default.aspx or any replacement website or other replacement official publication of such list.

26.02If Landlord retains an attorney or institutes legal proceedings due to Tenant’s failure to pay Rent when due, then Tenant shall be required to pay Additional Rent in an amount equal to the reasonable attorneys’ fees and costs actually incurred by Landlord in connection therewith. Notwithstanding the foregoing, in any action or proceeding between Landlord and Tenant, including any appellate or alternative dispute resolution proceeding, the prevailing party shall be entitled to recover from the non-prevailing party all of its costs and expenses in connection therewith, including, but not limited to, reasonable attorneys’ fees actually incurred. Landlord and Tenant hereby waive any right to trial by jury in any proceeding based upon a breach of this Lease. No failure by either party to declare a default immediately upon its occurrence, nor any delay by either party in taking action for a default, nor Landlord’s acceptance of Rent with knowledge of a default by Tenant, shall constitute a waiver of the default, nor shall it constitute an estoppel.

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26.03Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant (other than the payment of the Security Deposit or Rent), the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, terrorist acts, pandemics, civil disturbances and other causes beyond the reasonable control of the performing party (“Force Majeure”).

26.04Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building and Property. Upon transfer, Landlord shall be released from any further obligations hereunder and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations, provided that any successor pursuant to a voluntary, third party transfer (but not as part of an involuntary transfer resulting from a foreclosure or deed in lieu thereof) shall have assumed Landlord’s obligations under this Lease from and after the date of the transfer.

26.05Landlord has delivered a copy of this Lease to Tenant for Tenant’s review only and the delivery of it does not constitute an offer to Tenant or an option. Tenant represents that it has dealt directly with and only with the Broker (described in Section 1.10) as a broker, agent or finder in connection with this Lease. Tenant shall indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers, agents or finders claiming to have represented Tenant in connection with this Lease. Landlord shall indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers, agents or finders claiming to have represented Landlord in connection with this Lease.

26.06Time is of the essence with respect to Tenant’s exercise of any expansion, renewal or extension rights granted to Tenant. The expiration of the Term, whether by lapse of time, termination or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or termination of this Lease.

26.07Tenant may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building.

26.08This Lease does not grant any rights to light or air over or about the Building. Landlord excepts and reserves exclusively to itself any and all rights not specifically granted to Tenant under this Lease. Landlord reserves the right to make changes to the Property, Building and Common Areas as Landlord deems appropriate. This Lease constitutes the entire agreement between the parties and supersedes all prior agreements and understandings related to the Premises, including all lease proposals, letters of intent and other documents. Neither party is relying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by an authorized representative of Landlord and Tenant. Wherever this Lease requires Landlord to provide a customary service or to act in a reasonable manner (whether in incurring an expense, establishing a rule or regulation, providing an approval or consent, or performing any other act), this Lease shall be deemed also to provide that whether such service is customary or such conduct is reasonable shall be determined by reference to the practices of owners of buildings that (i) are comparable to the Building in size, age, class, quality and location, and (ii) at Landlord’s option, have been, or are being prepared to be, certified under the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system or a similar rating system.

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26.09Submission of this Lease by Landlord is not an offer to enter into this Lease but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Lease until Landlord has executed and delivered the same to Tenant. Tenant agrees that its execution of this Lease constitutes a firm offer to enter the same, which may not be withdrawn for a period of thirty (30) days after delivery to Landlord (or such oilier period as may be expressly provided in any other agreement signed by the parties).

26.10If Landlord is advised by its counsel at any time that any part of the payments by Tenant to Landlord under this Lease may be characterized as unrelated business income under the United States Internal Revenue Code and its regulations, then Tenant shall enter into any amendment proposed by Landlord to avoid such income, so long as the amendment does not require Tenant to make more payments or accept fewer services from Landlord, than this Lease provides.

26.11This Lease may be executed in counterparts and shall constitute an agreement binding on all parties notwithstanding that all parties are not signatories to the original or the same counterpart provided that all parties are furnished a copy or copies thereof reflecting the signature of all parties. Transmission of a facsimile or by email of a pdf copy of the signed counterpart of the Lease shall be deemed the equivalent of the delivery of the original, and any party so delivering a facsimile or pdf copy of the signed counterpart of the Lease by email transmission shall in all events deliver to the other party an original signature promptly upon request.

26.12Landlord shall have no right to relocate Tenant during the initial Term or any extension thereof.

26.13Concurrent with the execution of this Lease, Tenant shall cause Guarantor to deliver to Landlord one (1) original of the lease guaranty (“Guaranty”) in the form attached hereto as Exhibit G duly executed on behalf of Guarantor. Any failure by Guarantor to perform any of its obligations under the Guaranty shall be deemed to be a Default by Tenant of its obligations under this Lease.

Landlord and Tenant have executed this Lease under seal in two or more counterparts as of the day and year first above written.

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EXHIBIT A

OUTLINE AND LOCATION OF PREMISES

This Exhibit is attached to and made a part of the Office Lease Agreement (the “Lease”) by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”), for space in the Building located at 275 Grove Street, Newton, Massachusetts 02466.

See attached.

A-1

 

A-2

EXHIBIT B

EXPENSES AND TAXES

This Exhibit is attached to and made a part of the Office Lease Agreement (the “Lease”) by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”), for space in the Building located at 275 Grove Street, Newton, Massachusetts 02466. Capitalized terms used but not defined herein shall have the meanings given in the Lease.

1.Payments

1.01Tenant shall pay tenant’s Pro Rata Shae of the amount, if any, by which Expenses (defined below) for each calendar year during the Term exceed Expenses for the Base Year (the “Expense Excess”) and also the amount, if any, by which Taxes (defined below) for each Fiscal Year during the Term exceed Taxes for the Base Year (the “Tax Excess”). If Expenses or Taxes in any calendar year or Fiscal Year decrease below the amount of Expenses or Taxes for the Base Year, Tenant’s Pro Rata Share of Expenses or Taxes, as the case may be, for that calendar year or Fiscal Year shall be $0. Landlord shall provide Tenant with a good faith estimate of the Expense Excess and of the Tax Excess for each calendar year or Fiscal Year during the Term. On or before the first day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenant’s Pro Rata Share of Landlord’s estimate of both the Expense Excess and Tax Excess. If Landlord determines that its good faith estimate of the Expense Excess or of the Tax Excess was incorrect by a material amount, Landlord may provide Tenant with a revised estimate. After its receipt of a revised estimate. Tenant’s monthly payments shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the Expense Excess or the Tax Excess by the first day of a calendar year or Fiscal Year, as the case may be, Tenant shall continue to pay monthly installments based on the previous year’s estimate(s) until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment shall be made for any month for which Tenant paid monthly installments based on the previous year’s estimate. Tenant shall pay Landlord the amount of any underpayment within thirty (30) days after receipt of the new estimate. Any overpayment shall be refunded to Tenant within thirty (30) days or credited against the next due future installment(s) of Additional Rent.

1.02As soon as is practical following the end of each calendar year or Fiscal Year, as the case may be, Landlord shall furnish Tenant with a statement of the actual Expenses and Expense Excess and the actual Taxes and Tax Excess for the prior calendar year or Fiscal Year, as the case may be. If the estimated Expense Excess or estimated Tax Excess for the prior calendar year or Fiscal Year, as the case may be, is more than the actual Expense Excess or actual Tax Excess for the prior calendar year or Fiscal Year, as the case may be, Landlord shall either provide Tenant with a refund or apply any overpayment by Tenant against Additional Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated Expense Excess or estimated Tax Excess for the prior calendar year or Fiscal Year, as the case may be, is less than the actual Expense Excess or actual Tax Excess, for such prior calendar year or Fiscal Year, as the case may be, Tenant shall pay Landlord, within thirty (30) days after its receipt of the statement of Expenses or Taxes, any underpayment for the prior calendar year or Fiscal Year, as the case may be.

B-1

2.Expenses.

2.01“Expenses” means all costs and expenses incurred in each calendar year in connection with operating, maintaining, repairing, and managing the Building and the Property. Landlord shall act in a reasonable manner in incurring Expenses. Expenses include, without limitation: (a) all labor and labor related costs, including wages, salaries, bonuses, taxes, insurance, uniforms, training, retirement plans, pension plans and other employee benefits; (b) management fees in an amount equal to three percent (3%) of the gross revenues from the Building and the Property; (c) the cost of equipping, staffing and operating an on-site and/or off-site management office for the Building, provided if the management office services one or more other buildings or properties, the shared costs and expenses of equipping, staffing and operating such management office(s) shall be equitably prorated and apportioned between the Building and the other buildings or properties; (d) accounting costs; (e) the cost of services; (f) rental and purchase cost of parts, supplies, tools and equipment; (g) insurance premiums and deductibles; (h) electricity, gas and other utility costs; and (i) the amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made subsequent to the Base Year which are: (1) intended to effect economies in the operation or maintenance of the Property, reduce current or future Expenses, enhance the safety or security of the Property or its occupants, or enhance the environmental sustainability of the Property’s operations, (2) replacements or modifications of nonstructural items located in the Base Building or Common Areas that are required to keep the Base Building or Common Areas in good condition, or (3) required under any Law. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or the useful life of the capital improvement as reasonably determined by Landlord. The amortized cost of capital improvements may, at Landlord’s option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. “Payback Period” means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement. Landlord, by itself or through an affiliate, shall have the right to directly perform, provide and be compensated for any services under the Lease. If Landlord incurs Expenses for the Building or Property together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Building and Property and the other buildings or properties.

2.02Expenses shall not include: the cost of capital improvements (except as set forth above); depreciation; principal payments of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds; costs in connection with leasing space in the Building, including brokerage commissions; lease concessions, rental abatements and construction allowances granted to specific tenants; costs incurred in connection with the sale, financing or refinancing of the Building; fines, interest and penalties incurred due to the late payment of Taxes or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; or any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases.

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2.03If at any time during a calendar year the Building is not at least ninety-five percent (95%) occupied (or a service provided by Landlord to tenants of the Building generally is not provided by Landlord to a tenant that provides such service itself, or any tenant of the Building is entitled to free rent, rent abatement or the like), Expenses shall, at Landlord’s option, be determined as if the Building had been ninety-five percent (95%) occupied (and all services provided by Landlord to tenants of the Building generally had been provided by Landlord to all tenants, and no tenant of the Building had been entitled to free rent, rent abatement or the like) during that calendar year. If Expenses for a calendar year are determined as provided in the prior sentence. Expenses for the Base Year shall also be determined in such manner. Notwithstanding the foregoing, Landlord may calculate the extrapolation of Expenses under this Section based on one hundred percent (100%) occupancy and service so long as such percentage is used consistently for each year of the Term. The extrapolation of Expenses under this Section shall be performed in accordance with the methodology specified by the Building Owners and Managers Association.

3.“Taxes” shall mean: (a) all real property taxes and other assessments on the Building and/or Property, including, but not limited to, gross receipts taxes, assessments for special improvement districts and building improvement districts, governmental charges, fees and assessments for police, fire, traffic mitigation or other governmental service of purported benefit to the Property, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the Property’s share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Property; (b) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Property; and (c) all costs and fees incurred in connection with seeking reductions in any tax liabilities described in (a) and (b), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall be determined without regard to any “green building” credit and shall not include any income, capital levy, transfer, capital stock, gift, estate or inheritance tax. If a change in Taxes is obtained for any year of the Term during which Tenant paid Tenant’s Pro Rata Share of any Tax Excess, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. Likewise, if a change is obtained for Taxes for the Base Year, Taxes for the Base Year shall be restated and the Tax Excess for all subsequent years shall be recomputed. Tenant shall pay Landlord the amount of Tenant’s Pro Rata Share of any such increase in the Tax Excess within thirty (30) days after Tenant’s receipt of a statement from Landlord.

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EXHIBIT C

WORK LETTER.

This Exhibit is attached to and made a part of the Office Lease Agreement (the “Lease”) by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”), for space in the Building located at 275 Grove Street, Newton, Massachusetts 02466. Capitalized terms used but not defined herein shall have the meanings given in the Lease.

As used in this Work Letter, the “Premises” shall be deemed to mean the Premises, as initially defined in the attached Lease.

I. LANDLORD WORK

1. Definition: Landlord’s Allowance towards Cost of the Landlord Work. This Work Letter shall set forth the obligations of Landlord and Tenant with respect to the improvements to be performed pursuant to this Lease. All improvements described in this Work Letter to be constructed in and upon the Premises by Landlord are hereinafter referred to collectively as the “Landlord Work”. The Landlord Work consists of (x) Base Building Work, as defined in the last sentence of Paragraph 3 of this Section 1, and (y) the leasehold improvements to the Premises to be made by Landlord pursuant to this Work Letter (“Tenant Improvement Work”). It is agreed that: (i) Landlord shall bear the entire cost of the Base Building Work, and (ii) while the construction of the Tenant Improvement Work is intended to be “turn-key”, Tenant shall bear the cost of the Tenant Improvement Work, subject to Landlord’s Allowance. Notwithstanding the foregoing, Landlord and Tenant acknowledge that Plans (hereinafter defined) for the Tenant Improvement Work have not yet been prepared and, therefore, it is impossible to determine the exact cost of the Tenant Improvement Work at this time. Accordingly, Landlord and Tenant agree that:

a. Landlord shall provide an allowance (the “Allowance”) to pay for the cost of the Tenant Improvement Work, inclusive of the cost of preparing Plans (as hereinafter defined), obtaining permits, and other related costs (“Permitted Costs”) up to a maximum amount of $362,960.00 (i.e., $40.00 per rentable square foot of the Premises) (the “Maximum Amount”); and

b. Tenant shall pay to Landlord the amount, if any (the “Excess Costs”) by which the cost of the Tenant Improvement Work, including, without limitation, the amount of any applicable state sales or use tax, if any, and the costs incurred by Landlord in connection with the Tenant Improvement Work for permits, design and construction management fees (collectively the “Cost of Tenant Improvement Work”) to the extent that it exceeds the Maximum Amount. Hines Interests Limited Partnership, as manager for Landlord, will charge Landlord a fee equal to four percent (4%) of the hard and soft costs of the Tenant Improvement Work for its services in managing the design and construction of the Tenant Improvement Work, and such fee will be included in the Cost of Tenant Improvement Work.

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2. Plans for the Landlord Work. Landlord shall perform the Landlord Work, in accordance with the plans and specifications and scope of work (the “Plans”) to be prepared by Landlord, which Plans shall be substantially in accordance with the fit plan dated December 21, 2018, prepared by Sierra Architects (the “Fit Plan”), which is attached hereto as Exhibit C-l. The Plans shall be subject to Tenant’s written approval, which approval shall not be unreasonably withheld or conditioned. Tenant shall respond in writing (i.e., by either approving such Plans or disapproving such Plans and setting forth with specificity Tenant’s reasons for such disapproval) to any request from Landlord to approve the Plans within three (3) Business Days of Tenant’s receipt of such request. Tenant shall approve the Plans to the extent that they are consistent with the Fit Plan, and Tenant shall otherwise not unreasonably withhold or conditioned such approval.

3. Construction Contract: Bids for Major Trades. Landlord shall enter into a direct contract (“Construction Contract”) for the Landlord Work with JDL Corporate Interiors. In addition, Landlord shall have the right to select and/or approve of any subcontractors used in connection with the Landlord Work. Landlord shall use reasonable efforts to obtain at least three (3) competitive bids for each of the Major Trades, as hereinafter defined. “Major Trades” are listed on Exhibit C-2. Landlord’s supervision or performance of any work for or on behalf of Tenant shall not be deemed a representation by Landlord that the improvements constructed in accordance with the Plans and any revisions thereto will be adequate for Tenant’s use. Landlord shall perform the Landlord Work in a good and workmanlike manner, in compliance with all applicable laws, and Landlord shall be responsible for obtaining all permits required in connection with such work. Landlord shall give Tenant at least seven (7) days’ notice of the anticipated Substantial Completion Date of the Landlord Work. As part of the Landlord Work, Landlord shall demise or otherwise separate the Premises from the other tenant spaces on the floor, including, but not limited to, installing insulated drywall partitions, doors, frames, hardware, window coverings, and shall segregate all existing HVAC, fire alarm, fire sprinkler, and electrical systems (collectively “Base Building Work”).

4. Approval of Estimate of the Cost of the Tenant Improvement Work. After Landlord has obtained the bids for the Major Trades, Landlord shall provide Landlord’s estimate of the cost of the Tenant Improvement Work (“Estimate”). The Estimate shall be provided to Tenant on an open book basis (i.e., Landlord shall make available to Tenant the economic terms of the Construction Contract (including, without limitation, the cost of labor and materials, contractor’s fees and permit fees), as well as all bids received by Landlord for the Tenant Improvement Work, and reasonable documentation supporting Landlord’s Estimate of all other Permitted Costs. Within three (3) Business Days thereafter. Tenant shall either notify Landlord in writing of its approval of the Estimate, or Tenant shall have a one-time right to specify its objections thereto and any desired changes to the proposed Landlord Work. The cost of revising the Plans, as aforesaid and obtaining a revised Estimate shall be included in Permitted Costs and in the Cost of Tenant Improvement Work. Any changes proposed by Tenant (other than those necessary to make the Plans conform to the Fit Plan) shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld or conditioned. Subject to Landlord’s approval of such revisions, as aforesaid: (i) Landlord shall have the Plans revised in accordance with the approved revisions, and (ii) Landlord shall submit a revised Estimate to Tenant. Tenant, within five (5) Business Days, shall notify Landlord in writing whether it desires to proceed with such revisions. If Tenant fails to approve such revisions and revised Estimate within such five-(5)-Business-Day period; such failure shall be deemed to be a Tenant Delay. Any delays arising from further changes to the Plans requested by Tenant shall be deemed to be Tenant Delays.

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5. Changes Requested by Tenant. If Tenant shall request any changes to the Plans after Tenant, as contemplated under Paragraph 4 above, either: (i) approves the Plans and the initial Estimate (or revised Plans and revised Estimate, as the case may be), or (ii) fails timely to approve the revised Plans and revised Estimate in accordance with the penultimate sentence of Section 4, then such changes (other than those necessary to make the Plans conform to the Fit Plan) shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld or conditioned. Landlord shall have the plans for any approved change prepared and shall submit an Estimate of the costs to be incurred by Landlord in connection with such proposed change. Such Estimate shall include a breakdown and show direct costs of labor and materials, general conditions, fees and insurance, each of which Landlord agrees shall not be charged at rates which exceed the percentages payable for such items for the initial scope of work shown on the Plans. Tenant, within three (3) Business Days, shall notify Landlord in writing whether it desires to proceed with such change. In the absence of such written authorization. Landlord shall have the option to continue work on the Premises disregarding the requested revision. As an alternative to the foregoing, and in order to ensure that construction is not delayed, Tenant may in its sole discretion provide Landlord with approval to proceed with Tenant requested changes prior to completion of revisions to the Plans therefor on a “time and materials” basis. Any delay in the performance of the Landlord Work arising from any change proposed by Tenant shall be deemed to be a Tenant Delay, and all costs incurred by Landlord as the result of any change proposed by Tenant shall be included in Permitted Costs and the Cost of Tenant Improvement Work.

6. Substantial Completion. “Substantial Completion” of the Landlord Work shall be deemed to have occurred (and the Landlord Work shall be deemed to be “Substantially Complete”), on the date that (i) all Landlord Work has been performed in accordance with the terms of this Exhibit C, other than any details of construction, mechanical adjustment or any other similar matter, the non-completion of which does not materially interfere with Tenant’s lawful use of, or access to, the Premises for first-class business office use; (ii) Landlord has obtained and delivered to Tenant a permanent or temporary certificate of occupancy with respect to the Premises, except to the extent the same cannot be obtained by reason of the incompletion of installations or other work that is the responsibility of Tenant, such as, but not limited to, the installation and making operational of Tenant’s furniture systems and telecommunications equipment, in which case Landlord shall obtain the same within a reasonable time after the same can be obtained; and (iii) Landlord satisfies the Delivery Conditions, as defined in Section 11 below. When Landlord believes the Landlord Work is Substantially Complete, Landlord shall notify Tenant thereof in writing and Tenant’s and Landlord’s construction representatives shall at a mutually convenient date and time conduct a joint walk-through of the Premises in order to review the Landlord Work. Notwithstanding anything to the contrary herein contained, if the Landlord Work is delayed by reason of any Tenant Delay, then the Landlord Work shall be deemed to be Substantially Complete on the day that Landlord would have achieved Substantial Completion of the Landlord Work but for such Tenant Delay. Based upon said walk-through, Landlord’s and Tenant’s construction representative shall prepare a “punch-list.” setting forth any items of the Landlord Work which are incomplete or not in accordance with the Plans or the requirements hereof, and, subject to Tenant Delays, causes beyond Landlord’s reasonable control and long-lead time items, Landlord shall complete such “punch-list” items within forty-five (45) days after such joint walk-through.

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7. Tenant Delay. “Tenant Delay,” as used herein, shall mean any actual delay in the performance of the Landlord Work with respect to the Premises to the extent (i) due to changes in the Plans requested by Tenant, as set forth in Paragraphs 3 and 4 above, (ii) caused by Tenant through the delay of Tenant in supplying information, approving plans, specifications or estimates, giving authorizations or otherwise within the time specified herein or in the Lease for Tenant to take such action (and where no time is so specified, Tenant shall have three (3) Business Days to act), (iii) any delays arising from long lead time items requested by Tenant and identified by Landlord to Tenant in writing at the time that Landlord approves such items, (iv) caused by delay on the part of Tenant or its contractors who are permitted access to the Premises prior to Substantial Completion of the Landlord Work, including, without limitation, the utility companies and other entities furnishing communications, data processing or other service or equipment), and (v) any delays arising from any default under the Lease by Tenant or any Tenant Party. Except with respect to Tenant Delays where a Tenant fails to act within a time period which is set forth in the Lease for Tenant’s action, Tenant shall not be charged with any period of Tenant Delay prior to the time that Landlord gives Tenant written notice of such Tenant Delay.

8. This Exhibit shall not be deemed applicable to any additional space added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the original Term of the Lease, whether by any options under the Lease or otherwise, unless expressly so provided in the Lease or any amendment or supplement to the Lease. As used, in this Work Letter, the “Premises” shall be deemed to mean the Premises, as initially defined in the attached Lease.

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II. BASE BUILDING WORK

Without in any way limiting Landlord’s obligations to perform the Landlord Work, Landlord shall deliver the Premises to Tenant so that they satisfy the following conditions (“Delivery Conditions”): free of all tenancies, with all Base Building Systems, as hereinafter defined, serving the Premises in good working order and condition and in full compliance with all laws, building codes, and ordinances which govern the use and occupancy of office buildings with respect to the Premises. “Base Building Systems” shall include the structural portions of the Building, the public restrooms, elevators, and the Building HVAC, mechanical, electrical, plumbing, fire and life safety systems and equipment located in the internal core of the Building on the floor on which the Premises is located.

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EXHIBIT C-1

FIT PLAN

See attached.

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EXHIBIT D

commencement letter

(EXAMPLE)

Date 

Tenant Address 

Re:	Commencement Letter with respect to that certain Lease dated as of                       , 20__, by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company, as Landlord, and                       , as Tenant, for                        rentable square feet on the                        floor of                        Riverside Center located at 275 Grove Street, Newton, Massachusetts 02466.
	Lease Id:
	Business Unit Number:

Dear                       :

In accordance with the terms and conditions of the above referenced Lease, Tenant accepts possession of the Premises and acknowledges:

1.The Commencement Date of the Lease is	;
2.The Termination Date of the Lease is	.

Please acknowledge the foregoing and your acceptance of possession by signing both counterparts of this Commencement Letter in the space provided and returning a fully executed counterpart to my attention. Tenant’s failure to execute and return this letter, or to provide written objection to the statements contained in this letter, within thirty (30) days after the date of this letter shall be deemed an approval by Tenant of the statements contained herein.

Sincerely,

_____________________________

Authorized Signatory

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Acknowledged and Accepted:

Tenant:  

By:

Name:

Title:

Date:

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EXHIBIT E

BUILDING RULES AND REGULATIONS

This Exhibit is attached to and made a part of the Office Lease Agreement (the “Lease”) by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”), for space in the Building located at 275 Grove Street, Newton, Massachusetts 02466. Capitalized terms used but not defined herein shall have the meanings given in the Lease.

The following rules and regulations shall apply, where applicable, to the Premises, the Building, the parking facilities (if any), the Property and the appurtenances. In the event of a conflict between the following rules and regulations and the remainder of the terms of the Lease, the remainder of the terms of the Lease shall control.

1.Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by Tenant or used by Tenant for any purpose other than ingress and egress to and from the Premises. No rubbish, litter, trash, or material shall be placed, emptied, or thrown in those areas. At no time shall Tenant permit Tenant’s employees to loiter in Common Areas or elsewhere about the Building or Property.

2.Plumbing fixtures and appliances shall be used only for the purposes for which designed and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed in the fixtures or appliances.

3.No signs, advertisements or notices shall be painted or affixed to windows, doors or other parts of the Building, except those of such color, size, style and in such places as are first approved in writing by Landlord. All tenant identification and suite numbers at the entrance to the Premises shall be installed by Landlord, at Tenant’s cost and expense, using the standard graphics for the Building. Except in connection with the hanging of lightweight pictures and wall decorations, no nails, hooks or screws shall be inserted into any part of the Premises or Building except by the Building maintenance personnel without Landlord’s prior approval, which approval shall not be unreasonably withheld.

4.Landlord may provide and maintain in the first floor (main lobby) of the Building an alphabetical directory board or other directory device listing tenants and no other directory shall be permitted unless previously consented to by Landlord in writing.

5.Tenant shall not place any lock(s) on any door in the Premises or Building without Landlord’s prior written consent, which consent shall not be unreasonably withheld, and Landlord shall have the right at all times to retain and use keys or other access codes or devices to all locks within and into the Premises. A reasonable number of keys to the locks on the entry doors in the Premises shall be furnished by Landlord to Tenant at Tenant’s cost and Tenant shall not make any duplicate keys. All keys shall be returned to Landlord at the expiration or early termination of the Lease.

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6.All contractors, contractor’s representatives and installation technicians performing work in the Building shall be subject to Landlord’s prior approval, which approval shall not be unreasonably withheld, and shall be required to comply with Landlord’s standard rules, regulations, policies and procedures, which may be revised from time to time. Landlord has no obligation to allow any particular telecommunication service provider to have access to the Building or to the Premises. If Landlord permits access, Landlord may condition the access upon the payment to Landlord by the service provider of fees assessed by Landlord in Landlord’s sole discretion.

7.Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of merchandise or materials requiring the use of elevators, stairways, lobby areas or loading dock areas, shall be performed in a manner and restricted to hours reasonably designated by Landlord. Tenant shall obtain Landlord’s prior approval by providing a detailed listing of the activity, including the names of any contractors, vendors or delivery companies, which approval shall not be unreasonably withheld. Tenant shall assume all risk for damage, injury or loss in connection with the activity.

8.Landlord shall have the right to approve the weight, size, or location of heavy equipment or articles in and about the Premises, which approval shall not be unreasonably withheld; provided that approval by Landlord shall not relieve Tenant from liability for any damage in connection with such heavy equipment or articles.

9.Corridor doors, when not in use, shall be kept closed.

10.Tenant shall not: (a) make or permit any improper, objectionable or unpleasant noises or odors in the Building, or otherwise interfere in any way with other tenants or persons having business with them; (b) solicit business or distribute or cause to be distributed, in any portion of the Building, handbills, promotional materials or other advertising; or (c) conduct or permit other activities in the Building that might, in Landlord’s sole opinion, constitute a nuisance.

11.No animals, except those assisting handicapped persons, shall be brought into the Building or kept in or about the Premises.

12.No inflammable, explosive or dangerous fluids or substances shall be used or kept by Tenant in the Premises, Building or about the Property, except for those substances as are typically found in similar premises used for general office purposes and are being used by Tenant in a safe manner and in accordance with all applicable Laws. Tenant shall not, without Landlord’s prior written consent, use, store, install, spill, remove, release or dispose of, within or about the Premises or any other portion of the Property, any asbestos-containing materials or any solid, liquid or gaseous material now or subsequently considered toxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq., M.G.L. c. 21C, M.G.L. c. 21E or any other applicable environmental Law which may now or later be in effect. Tenant shall comply with all Laws pertaining to and governing the use of these materials by Tenant and shall remain solely liable for the costs of abatement and removal.

13.Tenant shall not use or occupy the Premises in any manner or for any purpose which might injure the reputation or impair the present or future value of the Premises or the Building. Tenant shall not use, or permit any part of the Premises to be used for lodging, sleeping or for any illegal purpose.

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14.Tenant shall not take any action which would violate Landlord’s labor contracts or which would cause a work stoppage, picketing, labor disruption or dispute or interfere with Landlord’s or any other tenant’s or occupant’s business or with the rights and privileges of any person lawfully in the Building (“Labor Disruption”). Tenant shall take the actions necessary to resolve the Labor Disruption, and shall have pickets removed and, at the request of Landlord, immediately terminate any work in the Premises that gave rise to the Labor Disruption, until Landlord gives its written consent for the work to resume. Tenant shall have no claim for damages against Landlord or any of the Landlord Related Parties nor shall the Commencement Date of the Term be extended as a result of the above actions.

15.Tenant shall not install, operate or maintain in the Premises or in any other area of the Building, electrical equipment that would overload the electrical system beyond its capacity for proper, efficient and safe operation as determined solely by Landlord. Tenant shall not furnish cooling or heating to the Premises, including, without limitation, the use of electric or gas heating devices, without Landlord’s prior written consent. Tenant shall not use more than its proportionate share of telephone lines and other telecommunication facilities available to service the Building.

16.Tenant shall not operate or permit to be operated a coin or token operated vending machine or similar device (including, without limitation, telephones, lockers, toilets, scales, amusement devices and machines for sale of beverages, foods, candy, cigarettes and other goods), except for machines for the exclusive use of Tenant’s employees and invitees.

17.Bicycles and other vehicles are not permitted inside the Building or on the walkways outside the Building, except in areas designated by Landlord.

18.Landlord may from time to time adopt systems and procedures for the security and safety of the Building and Property, their occupants, entry, use and contents. Tenant, its agents, employees, contractors, guests and invitees shall comply with Landlord’s systems and procedures.

19.Landlord shall have the right to prohibit the use of the name of the Building or any other publicity by Tenant that in Landlord’s sole opinion may impair the reputation of the Building or its desirability. Upon written notice from Landlord, Tenant shall refrain from and discontinue such publicity immediately.

20.Neither Tenant nor its agents, employees, contractors, guests or invitees shall smoke or permit smoking in the Common Areas, unless a portion of the Common Areas have been declared a designated smoking area by Landlord, nor shall the above parties allow smoke from the Premises to emanate into the Common Areas or any other part of the Building. Landlord shall have the right to designate the Building (including the Premises) as a non¬smoking building.

21.Landlord shall have the right to designate and approve standard window coverings for the Premises and to establish rules to assure that the Building presents a uniform exterior appearance. Tenant shall ensure, to the extent reasonably practicable, that window coverings are closed on windows in the Premises while they are exposed to the direct rays of the sun.

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22.Deliveries to and from the Premises shall be made only at the times in the areas and through the entrances and exits reasonably designated by Landlord. Tenant shall not make deliveries to or from the Premises in a manner that might interfere with the use by any other tenant of its premises or of the Common Areas, any pedestrian use, or any use which is inconsistent with good business practice.

23.The work of cleaning personnel shall not be hindered by Tenant after 5:30 P.M., and cleaning work may be done at any time when the offices are vacant. Windows, doors and fixtures may be cleaned at any time. Tenant shall provide adequate waste and rubbish receptacles to prevent unreasonable hardship to the cleaning service.

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EXHIBIT F

ADDITIONAL PROVISIONS

This Exhibit is attached to and made a part of the Office Lease Agreement (the “Lease”) by and between HINES GLOBAL REIT RIVERSIDE CENTER, LLC, a Delaware limited liability company (“Landlord”), and CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation (“Tenant”), for space in the Building located at 275 Grove Street, Newton, Massachusetts 02466. Capitalized terms used but not defined herein shall have the meanings given in the Lease.

1. Parking.

1.01. During the initial Term and any extension thereof. Tenant shall have the right to use up to twenty-seven (27) unreserved parking spaces in the parking facility garage and surface lots (“Unreserved Parking”) and two (2) allotted spaces (“Reserved Parking”) in the underground executive parking garage under Building One (the “Garage”) (collectively, the “Spaces”). The Unreserved Parking shall be on a non-exclusive first-come, first-served basis, for the use of Tenant and its employees, in the parking facility and surface lots, and the Reserved Parking shall be in the underground executive parking garage under Building One owned by Landlord that serve the Building (collectively, the “Parking Facility”). No deductions or allowances shall be made for days when Tenant or any of its employees does not utilize the Parking Facility or for Tenant utilizing less than all of the Spaces. Tenant shall not have the right to lease or otherwise use more than the number of reserved and unreserved Spaces set forth above,

1.02. There is currently no charge for Reserved Parking in the underground executive parking garage. Landlord reserves the right from time to time to assess a commercially reasonable charge for the use of spaces in the Garage, which charge, shall reflect the then current rate for parking in the Garage; provided, however, that Landlord agrees not to charge Tenant for Reserved Parking during the Initial Term of the Lease.

1.03. Except for particular spaces and areas designated by Landlord for reserved parking, all parking in the Parking Facility shall be on an unreserved, first-come, first-served basis.

1.04. Landlord shall not be responsible for money, jewelry, automobiles or other personal property lost in or stolen from the Parking Facility regardless of whether such loss or theft occurs when the Parking Facility is locked or otherwise secured. Except as caused by the negligence or willful misconduct of Landlord and without limiting the terms of the preceding sentence, Landlord shall not be liable for any loss, injury or damage to persons using the Parking Facility or automobiles or other property therein, it being agreed that, to the fullest extent permitted by law, the use of the Spaces shall be at the sole risk of Tenant and its employees.

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1.05. Landlord shall have the right from time to time to designate the location of the Spaces and to promulgate reasonable rules and regulations regarding the Parking Facility, the Spaces and the use thereof, including, but not limited to, rules and regulations controlling the flow of traffic to and from various parking areas, the angle and direction of parking and the like. Tenant shall comply with and cause its employees to comply with all such rules and regulations as well as all reasonable additions and amendments thereto.

1.06. Tenant shall not store or permit its employees to store any automobiles in the Parking Facility without the prior written consent of Landlord. Except for emergency repairs. Tenant and its employees shall not perform any work on any automobiles while located in the Parking Facility or on the Property. If it is necessary for Tenant or its employees to leave an automobile in the Parking Facility overnight, Tenant shall provide Landlord with prior notice thereof designating the license plate number and model of such automobile.

1.07. Landlord shall have the right to temporarily close the Parking Facility or certain areas therein in order to perform necessary repairs, maintenance and improvements to the Parking Facility.

1.08. Tenant shall not assign or sublease any of the Spaces without the consent of Landlord. Landlord shall have the right to terminate this Parking Agreement with respect to any Spaces that Tenant desires to sublet or assign.

1.09. Landlord may elect to provide parking cards or keys to control access to the Parking Facility. In such event, Landlord shall provide Tenant with one card or key for each Space that Tenant is leasing hereunder, provided that Landlord shall have the right to require Tenant or its employees to place a deposit on such access cards or keys and to pay a fee for any lost or damaged cards or keys.

1.10. Landlord hereby reserves the right to enter into a management agreement or lease with an entity for the Parking Facility (“Parking Facility Operator”). In such event, Tenant, upon request of Landlord, shall enter into a parking agreement with the Parking Facility Operator and pay the Parking Facility Operator the monthly charge established hereunder, and Landlord shall have no liability for claims arising through acts or omissions of the Parking Facility Operator unless caused by Landlord’s negligence or willful misconduct. It is understood and agreed that the identity of the Parking Facility Operator may change from time to time during the Term. In connection therewith, any parking lease or agreement entered into between Tenant and a Parking Facility Operator shall be freely assignable by such Parking Facility Operator or any successors thereto.

2. Extension Option.

A.Grant of Potion: Conditions. Tenant shall have, subject to the following terms and conditions, the right to extend the Term (the “Extension Option”) for one (1) additional period of five (5) years, commencing on the day following the Termination Date of the initial Term, and ending on the fifth (5th) anniversary of the Termination Date (the “Extension Term”), if:

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(i) Landlord receives notice of exercise (“Initial Extension Notice”) not less than twelve (12) full calendar months prior to the expiration of the initial Term, and not more than fifteen (15) full calendar months prior to the expiration of the initial Term; and

(ii) Tenant is not in Default under the Lease beyond any applicable cure periods at the time that Tenant delivers its Initial Extension Notice, or at the time Tenant delivers its Binding Notice (as defined below); and

(iii) No part of the Premises is sublet (other than pursuant to a Business Transfer) at the time that Tenant delivers its Initial Extension Notice, or at the time Tenant delivers its Binding Notice; and

(iv) The Lease has not been assigned (other than pursuant to a Business Transfer, as defined in Article 11 of the Lease) prior to the date that Tenant delivers its Initial Extension Notice, or prior to the date Tenant delivers its Binding Notice.

B.Terms Applicable to Premises during Extension Term.

(i) The Lease of the Premises for the Extension shall be upon all of the same terms and conditions as set forth in the Lease for the initial Term, except that (a) Tenant shall have no further option to extend the Term, and (b) the initial Base Rent rate per rentable square foot for the Premises during the Extension Term shall equal the Prevailing Market rate (hereinafter defined) per rentable square foot for the Premises. Base Rent during the Extension Term may increase in accordance with the increases assumed in the determination of Prevailing Market rate. Base Rent attributable to the Premises shall be payable in monthly installments in accordance with the terms and conditions of Article 4 of the Lease. The Base Year for Expenses and the Base Year for Taxes during the Extension Term shall be the calendar year and fiscal year, respectively, in which the Extension Term commences.

(ii) Tenant shall pay Additional Rent (i.e., Taxes and Expenses) for the Premises during the Extension Term in accordance with the terms of Article 4 of the Lease, and the manner and method in which Tenant reimburses Landlord for Tenant’s share of Taxes and Expenses and the Base Year, if any, applicable to such matter, shall be some of the factors considered in determining the Prevailing Market rate for the Extension Term.

C.Initial Procedure for Determining Prevailing Market. Within thirty (30) days after receipt of Tenant’s Initial Extension Notice, Landlord shall advise Tenant of the applicable Base Rent rate for the Premises for the Extension Term. Tenant, within fifteen ( 15) days after the date on which Landlord advises Tenant of the applicable Base Rent rate for the Extension Term, shall either (i) give Landlord final binding written notice (“Binding Notice”) of Tenant’s exercise of its Extension Option, or (ii) if Tenant disagrees with Landlord’s determination, provide Landlord with written notice of rejection (the “Rejection Notice”). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such fifteen-(15)-day period, Tenant shall be deemed to have provided a Binding Notice. If Tenant provides or is deemed to have provided Landlord with a Binding Notice, Landlord and Tenant shall enter into the Extension Amendment (as defined below) upon the terms and conditions set forth herein. If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market rate for the Premises during the Extension Term. Upon agreement, Landlord and Tenant shall enter into the Extension Amendment in accordance with the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and Tenant fail to agree upon the Prevailing Market rate within thirty (30) days after the date Tenant provides Landlord with the Rejection Notice, then the Prevailing Market rate shall be determined in accordance with the arbitration procedures described in Section D below.

F-3

D.Arbitration Procedure.

(i) If Landlord and Tenant have failed to reach agreement as to the Prevailing Market rate within thirty (30) days after the date of the Rejection Notice, then, within five (5) days after the expiration of such thirty-(30)-day period, Landlord and Tenant shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the Premises during the Extension Term (collectively referred to as the “Estimates”). If the higher of such Estimates is not more than I 05% of the lower of such Estimates, then Prevailing Market rate shall be the average of the two Estimates. If the Prevailing Market rate is not resolved by the exchange of Estimates, then, within seven (7) days after the exchange of Estimates, Landlord and Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Premises during the Extension Term. Each appraiser so selected shall be certified as an MAI appraiser or as an ASA appraiser and shall have had at least five (5) years’ experience within the previous ten (10) years as a real estate appraiser working in the Newton/Wellesley, Massachusetts area, with working knowledge of current rental rates and practices. For purposes hereof, an “MAI” appraiser means an individual who holds an MAI designation conferred by, and is an independent member 01: the American Institute of Real Estate Appraisers ( or its successor organization, or in the event there is no successor organization, the organization and designation most similar), and an “ASA” appraiser means an individual who holds the Senior Member designation conferred by, and is an independent member of, the American Society of Appraisers ( or its successor organization, or, in the event there is no successor organization, the organization and designation most similar).

(ii) Upon selection, Landlord’s and Tenant’s appraisers shall work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Premises. The Estimate chosen by such appraisers shall be binding on both Landlord and Tenant as the Base Rent rate for the Premises during the Extension Term. If either Landlord or Tenant fails to appoint an appraiser within the seven-(7)-day period referred to above, and such failure continues for three (3) Business Days after written notice thereof, the appraiser appointed by the other party shall be the sole appraiser for the purposes hereof. If the two appraisers cannot agree upon which of the two Estimates most closely reflects the Prevailing Market within twenty (20) days after their appointment, then, within ten (10) days after the expiration of such twenty-(20)-day period, the two appraisers shall select a third appraiser meeting the aforementioned criteria. Once the third appraiser (i.e. arbitrator) has been selected as provided for above, then, as soon thereafter as practicable but in any case within fourteen (14) days, the arbitrator shall make his determination of which of the two Estimates most closely reflects the Prevailing Market rate and such Estimate shall be binding on both Landlord and Tenant as the Base Rent for the Premises. If the arbitrator believes that expert advice would materially assist him, he may retain one or more qualified persons to provide such expert advice. The parties shall share equally in the costs of the arbitrator and of any experts retained by the arbitrator. Any fees of any appraiser, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, counsel or expert.

F-4

(iii) If the Prevailing Market rate has not been determined by the commencement date of the Extension Term, Tenant shall pay Base Rent upon the terms and conditions in effect during the last month of the initial Term for the Premises until such time as the Prevailing Market rate has been determined. Upon such determination, the Base Rent for the Premises shall be retroactively adjusted to the commencement of the Extension Term for the Premises. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within thirty (30) days after the determination thereof.

E.Extension Amendment. If Tenant is entitled to and properly exercises its Extension Option, Landlord shall prepare an amendment (the “Extension Amendment”) to reflect changes in the Base Rent, Term, Termination Date and other appropriate terms. The Extension Amendment shall be sent to Tenant within a reasonable time after receipt of the Binding Notice, or Rejection Notice, as the case may be, and Tenant shall execute and return the Extension Amendment to Landlord within fifteen (15) days after Tenant’s receipt of same, but, upon delivery of the Initial Extension Notice, an otherwise valid exercise of the Extension Option shall be fully effective whether or not the Extension Amendment is executed.

F.Prevailing Market. For purposes hereof, “Prevailing Market” shall mean the arm’s length fan- market annual rental rate per rentable square foot under extension leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and office buildings comparable to the Building in the Newton/Wellesley, Massachusetts area. The determination of Prevailing Market shall take into account any material economic differences between the terms of this Lease and any comparison lease or amendment, such as rent abatements, construction costs and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes.

F-5

3. Signage. Landlord shall install tenant identification on the ground floor lobby directory and at the entrance to the Premises, using the standard graphics for the Building. The initial listing of Tenant’s name shall be at Landlord’s cost and expense. Any changes, replacements or additions by Tenant to such directory shall be at Tenant’s sole cost and expense.

F-6

EXHIBIT G

GUARANTY OF LEASE

FOR VALUE RECEIVED and in consideration for and as an inducement to HINES GLOBAL REIT RIVERSIDE CENTER, LLC., a Delaware limited liability company (“Landlord”) to lease certain real property to CLEMENTIA PHARMACEUTICALS USA, INC., a Delaware corporation, as tenant (“Tenant”), pursuant to a lease of even date herewith (the “Lease”) by and between Landlord and Tenant, CLEMENTIA PHARMACEUTICALS, INC., a Quebec corporation (“Guarantor”), does hereby unconditionally and irrevocably guarantee to Landlord the punctual payment of all Rent (as such term is defined in the Lease) payable by Tenant under the Lease throughout the term of the Lease and any and all renewals and extensions thereof in accordance with and subject to the provisions of the Lease, and the full performance and observance of all other terms, covenants, conditions and agreements therein provided to be performed and observed by Tenant under the terms of the Lease, for which the undersigned shall be jointly and severally liable with Tenant. If any default on the part of Tenant shall occur under the Lease, the undersigned do hereby covenant and agree to pay to Landlord in each and every instance such sum or sums of money and to perform each and every covenant, condition and agreement under the Lease as Tenant is and shall become liable for or obligated to pay or perform under the Lease, together with the costs reasonably incurred by Landlord in connection therewith, including, without limitation, reasonable attorneys’ fees. Such payments of Rent and other sums shall be made monthly or at such other intervals as the same shall or may become payable under the Lease, including any accelerations thereof, all without requiring any notice from Landlord (other than any notice required by the Lease) of such non-payment or non¬performance, all of which the undersigned hereby expressly waives.

The maintenance of any action or proceeding by Landlord to recover any sum or sums that may be or become due under the Lease and to secure the performance of any of the other terms, covenants and conditions of the Lease shall not preclude Landlord from thereafter instituting and maintaining subsequent actions or proceedings for any subsequent default or defaults of Tenant under the Lease. The undersigned does hereby consent that without affecting the liability of the undersigned under this Guaranty and without notice to the undersigned, time may be given by Landlord to Tenant for payment of Rent and such other sums and performance of said other terms, covenants and conditions, or any of them, and such time extended and indulgence granted, from time to time, or Tenant may be dispossessed or Landlord may avail itself of or exercise any or all of the rights and remedies against Tenant provided by law or by the Lease, and may proceed either against Tenant alone or jointly against Tenant and the undersigned, or against the undersigned alone without first prosecuting or exhausting any remedy or claim against Tenant. The undersigned does hereby further consent to any subsequent change, modification or amendment of the Lease in any of its terms, covenants or conditions, or in the Rent payable thereunder, or in the premises demised thereby, or in the term thereof, and to any assignment or assignments of the Lease, and to any subletting or sublettings of the premises demised by the Lease, and to any renewals or extensions thereof, all of which may be made without notice to or consent of the undersigned and without in any manner releasing or relieving the undersigned from liability under this Guaranty.

G-1

The undersigned does hereby agree that the bankruptcy of Tenant shall have no effect on the obligations of the undersigned hereunder. The undersigned does hereby further agree that in respect of any payments made by the undersigned hereunder, the undersigned shall not have any rights based on suretyship, subrogation or otherwise to stand in the place of Landlord so as to compete with Landlord as a creditor of Tenant, unless and until all claims of Landlord under the Lease shall have been fully paid and satisfied.

Neither this Guaranty nor any of the provisions hereof can be modified, waived or terminated, except by a written instrument signed by Landlord and the undersigned. The provisions of this Guaranty shall apply to, bind and inure to the benefit of the undersigned and Landlord and its legal representatives, successors and assigns. If Landlord should retain counsel and/or institute any suit against Guarantor to enforce this Guaranty or any covenants or obligations hereunder, then Guarantor shall pay to Landlord, upon demand, all reasonable attorneys’ fees, costs and expenses, including, without limitation, court costs, filing fees, recording costs, and all other costs and expenses incurred in connection therewith (all of which are referred to herein as “Enforcement Costs”), in addition to all other amounts due hereunder.

Guarantor further agrees that the validity of this Guaranty and the obligations hereunder shall in no way be terminated, affected or impaired by reason of the assertion or waiver by Landlord of any of the rights or remedies reserved to Landlord pursuant to the terms of the Lease. This Guaranty shall be governed by and construed in accordance with the internal substantive laws of the Commonwealth of Massachusetts (without regard to the conflict of law provisions thereof).

Guarantor hereby: (i) irrevocably consents and submits to the jurisdiction of the Superior or District Court of Middlesex (South) County and the United States Federal District Court for Massachusetts in respect to any action or proceeding brought therein by Landlord against Guarantor concerning any matters arising out of or in any way relating to this Guaranty or the Lease; (ii) expressly waives any rights of Guarantor pursuant to the laws of any other jurisdiction by virtue of which exclusive jurisdiction of the courts of any other jurisdiction might be claimed; (iii) irrevocably waives personal service of any summons and complaint, and consents to the service upon Guarantor of process in any such action or proceeding by the mailing of such process by first class, registered or certified mail, postage prepaid, to Guarantor at the address set forth above and hereby irrevocably designates CT Corporation System, with an address of 111 Eight Avenue, New York, New York, 10011 (“Agent”) to accept service of any process on Guarantor’s behalf and hereby agrees that such service shall be deemed sufficient; (iv) irrevocably waives all objections as to venue or inconvenient forum and any and all rights Guarantor may have to seek a change of venue with respect to any such action or proceeding; (v) agrees that the laws of the Commonwealth of Massachusetts (without giving effect to the conflicts of laws doctrines thereof) shall govern in any such action or proceeding, and waives any defense to any action or proceeding granted or allowed by the laws of any other country or jurisdiction unless such defense is also allowed by the laws of the Commonwealth of Massachusetts; and (vi) agrees that any final judgment rendered against Guarantor in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law, and expressly consents to the affirmation of the validity of any such judgment by the courts of any other jurisdiction so as to permit execution thereon. Guarantor further agrees that any action or proceeding by Guarantor against Landlord with respect to any matters arising out of or in any way relating to the Lease shall be brought only in the Superior or District Court of Middlesex (South) County and the United States Federal District Court for Massachusetts. Guarantor hereby represents and agrees that Guarantor will interpose no defense or claim against and shall consent to the issuance of all necessary documents by the courts of any other jurisdiction in order to execute upon any such judgment. Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, trial by jury in any action or proceeding arising out of or relating to this Guaranty.

G-2

Any notice or other communication to be given to Landlord or the undersigned hereunder shall be in writing and sent in accordance with the notice provisions of the Lease. Notices to Landlord shall be delivered to Landlord’s address as set forth in the Lease. Notices to the undersigned shall be addressed as follows:

Clementia Pharmaceuticals, Inc.

1000, de la Gauchetière, suite 1200

Montréal, Québec, Canada H3B 4W5

If Guarantor’s notice address as set forth above changes, Guarantor agrees to provide written notice to Landlord of such change in address in accordance with the notice provisions of the Lease.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE ON FOLLOWING PAGE]

G-3

IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date of the Lease.

 

(Acknowledgement of Guarantor)

Province of Quebec

ss:

City of Montreal

On the 1st day of February in the year 2019 before me the undersigned, a notary public in and for said state, personally appeared Steve Forte, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the corporation upon behalf of which the individual(s) acted, executed the instrument.

G-4

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Clarissa Desjardins, certify that:

1. I have reviewed this annual report on Form 20-F of Clementia Pharmaceuticals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 28, 2019

By:   /s/ Clarissa Desjardins                            

Clarissa Desjardins

President and Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Steve Forte, certify that:

1. I have reviewed this annual report on Form 20-F of Clementia Pharmaceuticals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 28, 2019

By:   /s/ Steve Forte                            

Steve Forte

Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report on Form 20-F of Clementia Pharmaceuticals Inc. (the “Company”) for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clarissa Desjardins, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(i)	The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 28, 2019

/s/ Clarissa Desjardins

Clarissa Desjardins

President and Chief Executive Officer

(Principal Executive Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 20-F or as a separate disclosure document.

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this annual report on Form 20-F of Clementia Pharmaceuticals Inc. (the “Company”) for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Forte, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(i)	The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 28, 2019

/s/ Steve Forte

Steve Forte

Chief Financial Officer

(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 20-F or as a separate disclosure document.

EX-23.1

Exhibit 23.1

 

XML

Document And Entity Information	12 Months Ended
	Dec. 31, 2018 shares
Document Information [Line Items]
Entity Registrant Name	Clementia Pharmaceuticals Inc.
Entity Central Index Key	0001647320
Trading Symbol	cmta
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding (in shares)	37,864,068
Document Type	20-F
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Shell Company	false

XML

Consolidated Statements of Financial Position - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Current assets
Cash	$ 94,972,524	$ 36,230,343
Short-term investments	75,000,000	30,000,000
Interest receivable	564,584	575,499
Sales tax and other receivables	161,100	94,497
Income tax and tax credits receivable	1,034,808	977,901
Prepaid expenses	2,406,868	3,023,125
Total current assets	174,139,884	70,901,365
Non-current assets
Long-term investments		75,000,000
Long-term prepaid expenses	1,038,606	775,757
Property and equipment	8,186	33,084
Intangible assets	1,657,705	1,715,192
Total non-current assets	2,704,497	77,524,033
Total assets	176,844,381	148,425,398
Current liabilities
Accounts payable and accrued liabilities	12,412,420	6,718,666
Total liabilities	12,412,420	6,718,666
Equity
Common shares	306,556,943	230,659,692
Contributed surplus	7,613,658	2,659,348
Deficit	(149,738,640)	(91,612,308)
Total equity	164,431,961	141,706,732
Total equity and liabilities	$ 176,844,381	$ 148,425,398

XML

Consolidated Statements of Changes in Equity - USD ($)	Issued capital [member]	Share premium [member]	Retained earnings [member]	Total
Balance (in shares) at Dec. 31, 2015	2,351,347
Balance at Dec. 31, 2015	$ 272,391	$ 324,052	$ (91,930,991)	$ (91,334,548)
Statement Line Items [Line Items]
Share-based compensation (note 9)		174,419		174,419
Net loss and comprehensive loss			(57,511,979)	(57,511,979)
Balance (in shares) at Dec. 31, 2016	2,351,347
Balance at Dec. 31, 2016	$ 272,391	498,471	(149,442,970)	(148,672,108)
Statement Line Items [Line Items]
Share-based compensation (note 9)		2,180,915		2,180,915
Net loss and comprehensive loss			(115,455,193)	(115,455,193)
Issuance of common shares upon public offering (in shares)	9,191,000
Issuance of common shares upon public offering	$ 137,865,000			137,865,000
Share issuance costs	$ (10,236,593)			(10,236,593)
Conversion of preferred shares (note 7) (in shares)	20,076,224
Conversion of preferred shares (note 7)	$ 102,707,268			102,707,268
Excess of carrying value of preferred shares and embedded derivatives liabilities, over the stated capital of the preferred shares (note 7)		173,285,855		173,285,855
Deficit reduction (note 7)		(173,285,855)	173,285,855
Exercise of stock options (in shares)	99,013
Exercise of stock options	$ 51,626	(20,038)		31,588
Balance (in shares) at Dec. 31, 2017	31,717,584
Balance at Dec. 31, 2017	$ 230,659,692	2,659,348	(91,612,308)	141,706,732
Statement Line Items [Line Items]
Share-based compensation (note 9)		5,069,694		5,069,694
Net loss and comprehensive loss			(58,126,332)	(58,126,332)
Issuance of common shares upon public offering (in shares)	6,095,000
Issuance of common shares upon public offering	$ 80,758,750			80,758,750
Share issuance costs	$ (5,172,599)			(5,172,599)
Exercise of stock options (in shares)	51,484
Exercise of stock options	$ 311,100	(115,384)		195,716
Balance (in shares) at Dec. 31, 2018	37,864,068
Balance at Dec. 31, 2018	$ 306,556,943	$ 7,613,658	$ (149,738,640)	$ 164,431,961

XML

Consolidated Statements of Net Loss and Comprehensive Loss - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Expenses
Research and development expenses	$ 43,903,393	$ 27,405,648	$ 16,851,974
Tax credits	(1,038,712)	(1,237,028)	(139,212)
	42,864,681	26,168,620	16,712,762
General and administrative expenses	16,491,989	9,287,036	3,405,615
Interest income	(2,357,593)	(1,082,030)	(398,559)
Financial expenses	161,404	80,437,802	37,645,707
Net loss before income taxes	57,160,481	114,811,428	57,365,525
Income tax expense	965,851	643,765	146,454
Net loss and comprehensive loss	$ (58,126,332)	$ (115,455,193)	$ (57,511,979)
Basic and diluted loss per share (in dollars per share)	$ (1.78)	$ (7.93)	$ (24.46)
Weighted average number of outstanding basic and diluted shares (in shares)	32,714,234	14,560,482	2,351,347

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Operating activities
Net loss	$ (58,126,332)	$ (115,455,193)	$ (57,511,979)
Adjusting items
Interest income recognized in net loss	(2,357,593)	(1,082,030)	(398,559)
Depreciation of property and equipment	18,808	25,297	35,055
Amortization of intangible assets	193,472	179,392	137,526
Loss on write-off of property and equipment	10,510
Transaction costs recognized in net loss		35,175
Embedded derivative loss recognized in net loss		77,902,663	33,982,042
Accretion of preferred shares		2,479,162	3,742,178
Share-based compensation	5,069,694	2,180,915	174,419
Net foreign exchange loss (gain)	127,909	(40,913)	(82,589)
Income tax expense recognized in net loss	965,851	643,765	146,454
Income taxes received (paid)	15,954	(392,620)	(98,218)
Tax credit	(601,227)	(330,000)
Net changes in working capital
Sales tax and other receivables	(78,909)	3,641	(48,207)
Income tax and tax credits receivable	(437,485)	(761,999)	238,690
Prepaid expenses	353,408	(3,146,724)	350,129
Accounts payable and accrued liabilities	5,701,228	2,193,009	504,976
Net operating cash flows	(49,144,712)	(35,566,460)	(18,828,083)
Investing activities
Interest income received	2,368,508	814,110	95,526
Acquisition of short-term investments	(25,000,000)	(134,000,000)	(40,000,000)
Maturity of short-term investments	55,000,000	59,000,000	10,000,000
Acquisition of property and equipment	(4,420)	(20,218)	(27,918)
Acquisition of intangible assets	(135,985)	(1,000,000)
Net investing cash flows	32,228,103	(75,206,108)	(29,932,392)
Financing activities
Issuance of common shares	195,716	31,588
Proceeds of public offering	80,758,750	137,865,000
Net financing cash flows	75,781,867	137,530,555
Net increase (decrease) in cash	58,865,258	26,757,987	(48,760,475)
Cash, beginning of year	36,230,343	9,434,495	58,106,885
Effect of exchange rate fluctuations on cash held	(123,077)	37,861	88,085
Cash, end of year	94,972,524	36,230,343	$ 9,434,495
Ordinary shares [member]
Financing activities
Issuance costs	$ (5,172,599)	(10,236,593)
Series C preferred shares [member]
Financing activities
Issuance costs		(129,520)
Issuance of Preferred Shares		$ 10,000,080

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Note 1 - General Information

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of general information about financial statements [text block]

1. General information

Clementia Pharmaceuticals Inc. (the Company or Clementia) is a clinical stage biopharmaceutical company innovating new treatments for people with ultra-rare bone disorders and other diseases. The Company’s lead product candidate, palovarotene, is an oral small molecule that has shown potent activity in preventing abnormal new bone formation as well as fibrosis in a variety of tissues. The Company is developing palovarotene for the treatment of Fibrodysplasia Ossificans Progressiva (FOP), Multiple Osteochondromas (MO) and other diseases. The Company intends to file a New Drug Application (NDA) for palovarotene for the treatment of FOP in the

second

half of

2019.

On

February 24, 2019,

the Company entered into an agreement (the Arrangement Agreement) with Ipsen S.A. (Ipsen), a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and a wholly-owned subsidiary of Ipsen (the Purchaser, and together with Ipsen, the Purchaser Parties), pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of

US$25.00

per share in cash upfront, plus a contingent value right (CVR) of

US$6.00

per share related to the multiple osteochondroma indication for a total transaction value of up to

US$1.31

billion (Plan of Arrangement). Completion of the transaction is anticipated to occur in the

second

quarter of

2019,

subject to satisfaction or waiver of all closing conditions (see Note

18

). As of the date of these financial statements, the arrangement (the Arrangement) contemplated in the Arrangement Agreement has

not

yet been approved or completed.

In

July 2017,

the Company amended its articles of incorporation to effect a

11.99

-for-

1

stock-split of all of the Company’s common shares. The stock-split became effective on

July 19, 2017

and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in these consolidated financial statements have been retrospectively adjusted to reflect this stock-split for all periods presented.

In

August 2017,

the Company completed its initial public offering (IPO) and issued

9,191,000

common shares at

$15

per share, including the underwriters’ over-allotment option, for total gross proceeds of

$137,865,000.

The Company’s common shares are listed and traded on the Nasdaq Global Select Market under the symbol CMTA.

In

October 2018,

the Company completed a follow-on offering and issued

6,095,000

common shares at

$13.25

per share, for total gross proceeds of

$80,758,750.

In

October 2018,

the Company also filed an At-The-Market (ATM) offering prospectus for

$40,000,000

of additional common shares for a period of

24

months. The ATM permits the Company to sell common shares having an aggregate offering price of up to

$40,000,000

from time to time at prevailing market prices. The underwriters’ commission will be

3%

of the amount of funds raised. There were

no

draws on this ATM offering prospectus as at the date the financial statements were authorized for issuance.

Clementia is a development stage company and has

not

generated any product revenues to date. The Company has incurred net losses in each year since its inception. Net losses were

$58,126,332,

$115,455,193,

and

$57,511,979

for the years ended

December 31, 2018,

2017

and

2016,

respectively, resulting primarily from non-cash finance charges incurred in connection with the accounting of our preferred shares and embedded derivatives for

2017

and

2016,

as well as costs incurred in connection with research and development activities and general and administrative costs associated with operations.

As of

December 31, 2018,

the Company had an accumulated deficit of

$149,738,640.

In

August 2017,

all outstanding Class A, B and C redeemable preferred shares were converted on a

one

-for-

one

basis into common shares of the Company. In connection therewith, the Company eliminated the

$173,285,855

contributed surplus created by the conversion of the preferred shares into common shares, an amount equal to the excess of the carrying value of the preferred share liabilities and embedded derivatives liabilities immediately prior to the conversion over the amount that was accounted for as share capital, being the stated capital of the preferred shares, and reduced its deficit in the

third

quarter of

2017

by a corresponding amount of

$173,285,855.

Operating activities used

$49,144,712,

$35,566,460,

and

$18,828,083

in cash for the years ended

December 31, 2018,

2017

and

2016,

respectively.

We expect to incur significant expenses and continued operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, particularly as we advance clinical development of palovarotene by conducting clinical trials; continue research and development efforts to support clinical development of additional RARγ agonist candidates; continue to engage contract manufacturing organizations (CMOs) to manufacture our clinical study materials and to develop large-scale manufacturing capabilities; seek regulatory approval for our product candidates; add personnel to support our product development and future commercialization; add operational, financial and management information systems; maintain, leverage and expand our intellectual property portfolio; and continue to operate as a public company.

We do

not

expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for palovarotene or any other product candidate, which we expect would occur

no

earlier than in the

second

half of

2020

and is subject to significant uncertainty. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. As a result, we

may

need additional financing to support our continuing operations.

Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which

may

include collaborations with

third

parties. Arrangements with collaborators or others

may

require us to relinquish certain rights related to our technologies or product candidates. Adequate additional financing

may

not

be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. The Company will need to generate significant revenue to achieve profitability and it

may

never do so.

Clementia is incorporated under the laws of Canada. The address of the Company’s registered head office is

1000

De La Gauchetière Street West, Suite

1200,

Montréal, Québec, Canada,

H3B

4W5.

The consolidated financial statements of the Company as at

December 31, 2018

and

2017,

and for the years ended

December 31, 2018,

2017

and

2016

were approved by the board of directors of the Company and authorized for issue on

March 28, 2019.

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Note 2 - Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of significant accounting policies [text block]

2. Significant accounting policies

a. Statement of compliance and basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These consolidated financial statements have been prepared on the historical cost basis except for the valuation of the preferred shares, embedded derivatives, as well as the share-based payment transactions as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services at the time of acquisition.

Fair value is the price that would be received in selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

In addition, for financial reporting purposes, fair value measurements are categorized into Level

1,

2,

or

3

based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

· Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

· Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

During the year ended

December 31, 2018,

the Company corrected an immaterial error that resulted in a reclassification from current prepaid expenses to long-term prepaid expenses of

$775,757

as at

December 31, 2017.

b. Basis of consolidation

These consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc. and Clementia Pharmaceuticals France SARL, together, the “Group”. Clementia Pharmaceuticals USA Inc. is an entity incorporated in the state of Delaware, with a registered office in Newton, Massachusetts, United States. Clementia Pharmaceuticals France SARL is an entity incorporated in France, with a registered office in Paris, France.

Subsidiaries are fully consolidated from the date of creation or acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved when the Company has the power over the investee; is exposed or has the rights to variable returns from its involvement with the investee; and has the ability to use its power to affect its return. The Company reassesses whether or

not

it controls an investee if facts and circumstances indicate that there are changes to

one

or more of the

three

elements of control listed beforehand.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transaction between members of the Group are eliminated in full on consolidation.

c. Functional and presentation currency

Items included in the consolidated financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These consolidated financial statements are presented in United States dollars (USD), which is the Company’s functional and presentation currency.

d. Foreign currency transactions

In preparing these consolidated financial statements, transactions in currencies other that the Company’s functional currency are recognized at rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are

not

retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

e. Cash

Cash is limited to current balances with banks and similar institutions that have an insignificant risk of change in value.

f. Short and long-term investments

Short-term investments are highly liquid investments with an original maturity greater than

three

months but less than

one

year. Long-term investments are highly liquid investments with an original maturity greater than

one

year. Our investment portfolio consists of guaranteed investment certificates.

g. Property and equipment

Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of such items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit and loss in the period in which they are incurred.

Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their estimated useful lives, using the straight-line method as follows.

Computer hardware	Straight-line over 2 years
Office equipment	Straight-line over 2 years
Furniture	Straight-line over 5 years
Leasehold improvements	Straight-line over the term of the lease

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognized upon disposal or when

no

future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

h. Intangible assets

Intangible assets with finite useful lives that are acquired separately or developed externally are carried at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is recognized on a straight-line basis over their estimated useful lives ranging from

5

years for software and from

9

to

20

years for in-licensed patents. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. All intangible assets have been purchased from or developed by

third

parties and have

not

been internally generated.

An intangible asset is derecognized on disposal, or when

no

future economic benefits are expected from use or disposal. Gains or losses from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

i. Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is

not

possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount of a cash-generating unit is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have

not

been adjusted. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not

exceed the carrying amount that would have been determined had

no

impairment loss been recognized for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss.

j. Government assistance

Government assistance, consisting of investment tax credits and orphan drug tax credits, is recorded as a reduction of the related expense or against the cost of the asset acquired. Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved research program, when there is reasonable assurance that benefits will be received and all attached conditions have been complied with.

Investment tax credits consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s research and development programs. Research and development costs are expensed as incurred. Overhead expenses comprise general and administrative support provided to the research and development program and involve costs associated with support activities such as office services, information technology and human resources. Orphan drug tax credits consist of direct expenditures associated with the Company’s orphan drug clinical trials.

Investment tax credits and orphan drug tax credits are recorded based on management estimates of amounts for which there is reasonable assurance that they will be received and are subject to audit by the taxation authorities and, accordingly, these amounts

may

vary materially which could result in adjustments to profits or losses.

k. Share-based payments

Equity-settled share-based payments to employees and directors providing similar services are measured at the fair value of the equity instruments at the grant date.

The Company recognizes the compensation cost of share-based payments using a graded vesting method where each installment that vests is treated as its own award and each installment is measured and recognized separately. The fair value determined at the grant date for each tranche of the equity-settled share-based payments is expensed over its vesting period on a straight-line basis, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in contributed surplus.

At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.

l. Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares and stock options are recognized as a deduction from share capital, net of any tax effects.

m. Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profits differ from profits or losses as reported in the consolidated statements of net loss and comprehensive loss because items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflect the tax consequences that would flow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The effect of a change in tax rates is recognized in the period during which the tax rate change occurs.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. In the Company’s case, recurring operating losses expected to be incurred throughout the development years create tax assets that

may

reduce future taxable earnings, if any. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is

no

longer probable that sufficient taxable profits will be available to allow all or a part of the asset to be recovered.

In assessing whether deferred tax assets

may

be realized, management considers the likelihood that some portion or all of the tax assets will be realized. The ultimate use of net deferred tax assets is dependent upon the generation of future taxable income or available tax planning strategies in making this assessment. Since the Company is a development stage company, the generation of future taxable income is dependent on the successful commercialization of its products and technologies. Management has determined that it is

not

“more likely than

not”

that the benefits of the deferred tax assets will be recovered and these have thus

not

been recorded.

n. Loss per share

Loss per share is determined using the weighted average number of common shares outstanding during the period.

Diluted loss per share is determined by adjusting the loss and the weighted average number of common shares for the effects of all dilutive potential common shares, which comprise the preferred shares and employee stock options.

o. Employee benefits

Short-term employee benefit obligations are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Company has a present, legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

p. Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes party to the contractual obligations of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities other than financial assets and financial liabilities at fair value through profit or loss are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial instruments are classified into the following specified categories: amortised cost or fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). The classification depends on the cash flow characteristics of the financial instrument and the business model and is determined at the time of initial recognition. The Company’s financial instruments have been classified as follows:

Financial instrument	Classification of financial assets and financial liabilities
Cash	Amortized cost
Short and long-term investments	Amortized cost
Interest and other receivables	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Preferred shares	Amortized cost
Embedded derivatives	FVTPL

For financial assets measured at amortized cost, the impairment model reflects expected credit losses. The Company recognizes, if any, loss allowances for expected credit losses and changes in those expected credit losses. At each reporting date, financial assets carried at amortized cost are assessed to determine whether they are credit-impaired. A financial asset is credit-impaired when

one

or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Loss allowances for financial assets measured at amortized cost, if any, are deducted from the gross carrying amount of the assets. The gross carrying amount of a financial asset is written off to the extent that there is

no

realistic prospect of recovery.

Financial liabilities other than those at FVTPL are initially recognized at fair value, net of directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest method. A financial liability is derecognized when the obligation underlying the liability is discharged or cancelled or expires.

Financial liabilities at FVTPL are recognized and subsequently measured at fair value at each reporting date with changes in fair value recorded in profit and loss in the period in which they arise. Transaction costs are allocated to financial liabilities at FVTPL and are expensed in profit and loss at inception.

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Embedded derivatives

An embedded derivative is a feature within a contract, such that the cash flows associated with that feature behave in a similar fashion to a stand-alone derivative. Embedded derivatives that are separated from the host contract are accounted for at FVTPL.

The terms of the preferred shares include an embedded conversion feature which provides for the conversion of the preferred shares into common shares at a variable rate due to a price protection feature (down-round protection). The Company determined that the conversion feature was an embedded derivative liability that required separation from the financial liability host contract. The embedded derivative liability is recognized and measured at fair value at each reporting date with changes in fair value recorded in financial expenses in profit and loss in the period in which they arise. The liability component is determined at inception by deducting the fair value of the embedded derivative from the fair value of the instrument as a whole.

Transaction costs that relate to the issue of the preferred shares are allocated to the liability and embedded derivative components in proportion to the allocation of the gross proceeds. Transaction costs relating to the embedded derivative liability component are expensed directly in profit and loss and transaction costs relating to the financial liability component are included in the carrying amount of the liability component and are amortized over the expected lives of the convertible instrument using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including transaction costs and other premiums or discounts) through the expected term of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

q. Interest income

The Company earns interest on its cash in current bank accounts and on its short and long-term investments. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of interest can be measured reliably.

Interest income is accrued on a time basis, by reference to the principal amount outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

r. Leases

The Company’s leases are operating leases. The leased assets are

not

recognized in the Company’s consolidated statements of financial position as the Company did

not

substantially assume all risks and rewards of ownership of the leased assets. Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

In the event that lease incentives were received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives has been recognized as a reduction of rental expense on a straight-line basis.

XML

Note 3 - Critical Accounting Judgements and Key Sources of Estimation Uncertainty

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of accounting judgements and estimates [text block]

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenditures, assets and liabilities. Actual results could differ from those estimates.

On an ongoing basis, estimates and judgements are evaluated. The Company bases its estimates on the most probable set of economic conditions and planned course of action, historical experience, known trends and events, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are

not

readily apparent from other sources. Actual results

may

differ from these estimates under different assumptions or conditions. Uncertainty about these assumptions and estimates could result in outcomes that require material adjustments to the carrying amount of the asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which these estimates are revised and in any future periods affected.

Balances and transactions that are subject to a high degree of estimation are the estimation of accrued expenses, the valuation of the embedded derivatives of the preferred shares and the estimation of share-based compensation.

a. Estimation of accrued expenses

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has

not

yet been invoiced or otherwise notified of the actual cost.

The majority of service providers invoice the Company in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. The Company estimates its accrued expenses as of each statement of financial position date in its financial statements based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with service providers and makes adjustments if necessary.

Examples of accrued research and development expenses include fees paid to: i) contract research organizations in connection with performing research and development services on the Company’s behalf; ii) investigative sites or other providers in connection with clinical trials; iii) vendors in connection with non-clinical development activities; iv) vendors related to product manufacturing, development and distribution of clinical supplies; and v) various external consultants.

The Company bases its expenses related to clinical trials on its estimate of the services received and efforts expended pursuant to contracts with multiple contract research organizations that conduct and manage non-clinical studies and clinical trials on the Company’s behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and

may

result in uneven payment flows. There

may

be instances in which payments to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. The majority of prepaid expenses relate to these instances. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

In accruing service fees, the Company estimates the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of efforts varies from its estimate, the Company adjusts the accrual or prepaid expense accordingly. Although the Company does

not

expect its estimates to be materially different from amounts actually incurred, if its estimates of the status and timing of services performed differs from the actual status and timing of services performed, the Company

may

report amounts that are too high or too low in any particular period.

b. Valuation of the embedded derivative of the preferred shares

As part of assessing whether an instrument is a hybrid financial instrument and contains an embedded derivative, significant judgement is required in evaluating whether the host contract is more akin to debt or equity and whether the embedded derivative is clearly and closely related to the underlying host contract. The Company concluded that the host instrument of the preferred shares was a debt host due in part to the holder’s right to redeem the instrument at a point in time in the future based only on passage of time. The Company determined that the conversion option was

not

closely related to the debt host, and that the conversion option was required to be separated from the host instrument and accounted for as an embedded derivative due to its down-round protection feature. In applying its judgement, the Company relies primarily on the economic characteristics and risks of the instrument as well as the substance of the contractual arrangement.

The initial fair values of the embedded derivative conversion options and subsequent re-measurements at fair value at each reporting date were determined by using the Monte Carlo simulation model. The Monte Carlo simulation model better reflects non-static inputs, such as the anti-dilution (down-round protection) features of the preferred shares. A Monte Carlo simulation model is a valuation model that relies on random sampling and is often used when modeling systems with a large number of inputs and where there is a significant uncertainty in the future value of inputs and where the movement in inputs can be independent of each other.

Moreover, the use of this valuation model requires highly subjective assumptions. These assumptions are determined as of the measurement date and include the risk-free interest rate, the expected dividend yield, the expected volatility, the timing and amounts of subsequent rounds of financing, the expected timing and probability of exit events, and the underlying value of the Company. Assumptions with regards to volatility, subsequent rounds of financing, time to exit and underlying value of the Company are particularly important and sensitive, requiring significant judgement by management. Accordingly, any changes in the assumptions used in this model could significantly impact the values recognized as embedded derivative conversion options at inception and on subsequent re-measurement at each reporting date.

The risk-free rate is the rate of return on the US Department of Treasury daily treasury yield curve rates over a period equal to the expected timing of an exit event. The expected dividend yield is

nil

as the Company does

not

expect to pay dividends in the near future. The expected volatility reflects the assumption that the volatility used in estimating the value of the embedded derivative is indicative of future trends, which

may

not

necessarily be the actual outcome. Due to the lack of a public market for the trading of the Company’s shares and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. For these analyses, the Company has selected companies with comparable characteristics to it including risk profiles, orphan drugs within their portfolios, positions within the industry and with historical share price information sufficient to meet the expected timing of an exit event.

The expected timing and amounts of subsequent rounds of financing reflect management’s best estimate of subsequent rounds of financing based on contracted commitments for subsequent rounds of financing; the Company’s financial condition, including cash on hand; and the Company’s historical and forecasted performance and budgeted cash burn.

The expected timing of exit events are based on management’s best estimate of possible exit events and their likelihood, considering the progress of the Company’s research and development programs, including the status of non-clinical studies and clinical trials for the Company’s product candidates; the Company’s stage of development and its commercialization and business strategy; the Company’s financial condition, including cash on hand; the Company’s historical and forecasted performance and operating results; the likelihood of achieving a liquidity event, such as a sale of the Company or an IPO given prevailing market conditions; external market conditions affecting the biopharmaceutical industry; and trends within the biopharmaceutical industry.

In the absence of a public trading market, the underlying value of the Company was performed using methodologies, approaches and assumptions consistent with the

American Institute of Certified Public Accounts Audit and Accounting Practice Aid Series

, with the assistance of a

third

-party specialist, and is subject to estimation based on the valuation techniques selected and an evaluation of the inputs used in creating the valuation. Valuation techniques used include the probability-weighted expected return method and the option-pricing method or a hybrid of both methods. In addition, various objective and subjective factors were also considered, including the prices at which the Company sold preferred shares and the superior rights and preferences of the preferred shares relative to the Company’s common shares; the progress of the Company’s research and development programs; the Company’s stage of development and its commercialization and business strategy; the Company’s financial condition, including cash on hand; the Company’s historical and forecasted performance and operating results; the lack of an active public market for the Company’s common shares and preferred shares; the likelihood of achieving a liquidity event, such as a sale of the Company or an IPO given prevailing market conditions; the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry; external market conditions affecting the biopharmaceutical industry; and trends within the biopharmaceutical industry.

There are significant judgements and estimates inherent in these valuations. These judgements and estimates include assumptions regarding the Company’s future operating performance, the timing and likelihood of potential liquidity events and the determination of the appropriate valuation methodology at each valuation date. If different assumptions had been made, the Company’s fair value of embedded derivatives and the resulting preferred share liability and accretion expense, as well as the re-measurement of the embedded derivatives could have been materially different.

c. Estimation of share-based compensation expenses

The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option pricing model that was developed to estimate the fair value of freely tradable, fully transferrable stock options without vesting restrictions. The terms of the share-based awards that have been awarded by the Company differ significantly from actual options that the Black-Scholes model was designed to evaluate.

The Black-Scholes model requires the input of highly subjective assumptions, which affect the calculated values. The most subjective assumptions are the expected volatility of the Company’s stock and the expected life of the award. Other assumptions include the risk-free interest rate and expected dividends. The assumptions used represent the Company’s best estimates at the time of grant.

The expected volatility reflects the assumption that the volatility used in estimated the fair value of share-based compensation is indicative of future trends, which

may

not

necessarily be the actual outcome. Due to the limited historical trading of the Company’s common shares and a lack of company implied volatility data, the Company has based its estimate of expected volatility on the weighting of historical volatility of a group of similar companies that are publicly traded and the volatility of its share price for the period for which the Company has been listed. For these analyses, companies selected had comparable characteristics to the Company, including risk profiles, orphan drugs within their portfolios and position within the industry. This process will continue to be applied until a sufficient amount of historical information regarding the volatility of the Company’s own stock price becomes available. Prior to the year ended

December 31, 2018,

the Company only used the historical volatility of a group of similar companies that are publicly traded.

The expected life of the options reflects the assumption that the expected life of the options used in estimating the fair value of share-based compensation is indicative of future exercise patterns that

may

occur which

may

not

necessarily be the actual outcome. The Company has limited historical exercise patterns on which to base this estimate.

The risk-free interest rates for periods within the expected life of the option are based on the U.S. Department of Treasury daily treasury yield curve rates in effect at grant date for time periods approximately equal to the expected life of the option.

The expected dividend yield has been estimated at

nil

as the Company has never paid cash dividends and does

not

expect to do so in the foreseeable future.

The Company also has to assess, at each reporting date, whether the achievement of the applicable milestone in performance awards is probable of achievement, which requires management judgement. If it is assessed as probable, compensation expense is recorded to the extent the award has vested and if it is assessed as

not

probable,

no

compensation expense is recorded.

XML

Note 4 - Future Changes in Accounting Policies

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of expected impact of initial application of new standards or interpretations [text block]

4. Recently adopted and future changes in accounting policies

On

January 1, 2018,

the Company adopted Financial Instruments (IFRS

9

), which replaces the requirements in IAS

39,

Financial Instruments, Recognition and Measurement for classification and measurement of financial assets and liabilities. IFRS

9

introduces a single classification and measurement approach for financial instruments, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements and results in a single impairment model being applied to all financial instruments. IFRS

9

also modifies the hedge accounting model to incorporate the risk management practices of an entity. Additional disclosures are also required under the new standards. The expected credit loss related to the Company’s financial assets is

not

considered material because the Company’s principal financial assets are cash and investments (note

5

) which do

not

have material expected credit losses due to the counterparty Canadian and U.S. chartered banks that have high credit ratings and low default rates.

The IASB has also issued new standards that are

not

effective for the year ended

December 31, 2018,

and although early adoption is permitted, they have

not

been applied in these consolidated financial statements.

Leases

(IFRS

16

), effective for annual periods beginning on or after

January 1, 2019,

provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It supersedes IAS

17

Leases and its associated interpretive guidance. Significant changes were made to lessee accounting with the distinction between operating and finance leases removed and assets and liabilities recognized in respect of all leases (subject to limited exceptions for short-term leases and leases of low value assets). Earlier application of IFRS

16

is permitted for companies that have also adopted IFRS

15,

Revenue from Contracts with Customers.

The Company will recognize a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove underlying assets or to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the term of the lease.

The lease liability is initially measured at the present value of the lease payments that are

not

paid at the commencement date, typically discounted using the Company’s estimated incremental borrowing rate. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in rate or index. When the lease liability is remeasured this way, a corresponding adjustment is generally made to the carrying amount of the right-of-use asset.

The Company had non-cancellable operating lease commitments with regards to

two

operating leases for its head office in Montreal expiring in

2020

and additional office space in Newton expiring in

2019.

The Company has terminated its head office lease expiring in

2020

and entered into a new lease for head office space in Montreal effective

January 2019

and expiring

October 2023.

The Company has also entered into a new lease for office space in Newton with an expected effective date of

May 2019

and expected expiry of

June 2024.

The Company has adopted the requirements of IFRS

16

effective

January 1, 2019,

using a modified retrospective approach and therefore, comparative information will

not

be restated and will continue to be reported under IAS

17.

The Company has also applied the short-term lease practical expedient to its existing leases to

not

recognize a right-of-use asset or lease liability for its existing leases as these were either terminated or have a lease term ending within

12

months of the date of application. Because the Company only had short-term leases at

December 31, 2018,

there was

no

cumulative effect on retained earnings on

January 1, 2019.

The Company will recognize right-of-use assets and lease liabilities for its new lease commitments effective

2019,

but has

not

yet finalized its analysis. In addition, the nature of expenses related to these new leases will now change as IFRS

16

replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.

XML

Note 5 - Investments

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of investments other than investments accounted for using equity method [text block]

5. Investments

Term deposits, bearing interest at rates varying between

1.71%

and

1.88%

and maturing on various dates up to

October 1, 2019,

were classified as follows.

	December 31, 2018		December 31, 2017		December 31, 2016
Short-term investments	$	75,000,000	$	30,000,000	$	30,000,000
Long-term investments		-	$	75,000,000		-
	$	75,000,000	$	105,000,000	$	30,000,000

The objective for holding term deposits is to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to the Company’s interest-bearing operating bank accounts with limited risk to the principal amount invested. The Company intends to match the maturities of its term deposits with the cash requirements of the Company’s operating activities.

XML

Note 6 - Intangible Assets

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of intangible assets [text block]

6. Intangible assets

	2018		2017		2016
Cost:
Opening balance as at January 1,		2,388,399		1,388,399		1,388,399
Additions		135,985		1,000,000		-
Closing balance as at December 31,		2,524,384		2,388,399		1,388,399
Accumulated amortization:
Opening balance as at January 1,		673,207		493,815		356,289
Amortization		193,472		179,392		137,526
Closing balance as at December 31,		866,679		673,207		493,815
Net book value as at December 31,		1,657,705		1,715,192		894,584

Intangible assets are comprised of licensing agreements and external software development costs.

On

March 29, 2017

the Company entered into an exclusive licensing agreement with Galderma Research & Development SNC (Galderma) to obtain access to retinoic acid receptor gamma agonist compounds and was granted exclusive rights to use these in non-dermatological indications. In accordance with this agreement, the Company paid a

one

-time license fee of

$1

million, which was recorded as an intangible asset, and is committed to making certain future payments based on successful achievement of specific development and commercialisation milestones related to the licensed Galderma compounds (see note

14

).

During the year ended

December 31, 2018,

the Company recorded

$135,985

of external software development costs as an intangible asset.

XML

Note 7 - Preferred Shares

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of preferred shares [text block]

7. Preferred shares

The Company has an unlimited number of voting and participating Preferred Shares authorized for issuance in series and without par value.

On

March 16, 2017,

the Company completed a

$10,000,080

Class C financing with a new investor. Under the agreed terms, the Company issued

841,410

Class C redeemable convertible preferred shares at

$11.88

per share for a total consideration of

$10,000,080,

less

$129,520

in share issuance costs.

Class A, B and C redeemable and convertible preferred shares had substantially the same terms. The preferred shares were convertible into common shares any time at the option of the holder, on a

one

-to-

one

basis subject to normal and customary anti-dilutive provisions, but were mandatorily convertible upon closing of a qualified IPO, defined as an IPO with a minimum multiple of the original issue price of the preferred shares and with a minimum gross proceeds threshold. Also, the preferred shares were redeemable at face value at the option of the holder at any time commencing

seven

years after the Class B issuance in

June 2015.

The preferred shares also had a liquidation preference whereby upon dissolution or sale of the Company, the preferred shares were redeemable prior to the distribution of the remaining property, profits and surplus assets of the Company to preferred and common shareholders.

The preferred shares carried an

8%

fixed, non-cumulative, preferential dividend, as and when declared by the Company’s board of directors. In order to maximize the full value of the Company’s assets and its ongoing development efforts, the Company did

not

pay out any dividends.

The preferred shares also contained provisions that protected the holders from a decline in the issue price of the Company’s shares (or down-round provisions). These down-round provisions reduced the conversion price of the preferred shares if the Company issued a subsequent round of financing at a price that was lower than the conversion price of the preferred shares. As a result, the Company accounted for the conversion options of the preferred shares as embedded derivative liabilities, measured at FVTPL. The difference between the fair values allocated to the embedded derivative liabilities at inception and the proceeds received were accounted for as financial liabilities due to their redemption features. The financial liabilities were being accreted back to their face values through a charge to financial expenses over their expected term using the effective interest rate method.

In

August 2017,

immediately prior to its qualifying IPO, all of the outstanding Class A, B and C redeemable convertible preferred shares were converted on a

one

-for-

one

basis into

20,076,224

common shares of the Company. In connection therewith, in the

third

quarter of

2017

the Company i) included the original stated capital of the preferred shares in share capital, ii) included the excess of the total carrying value of the preferred shares and the embedded derivative liabilities over the original stated capital of the preferred shares in contributed surplus and iii) eliminated the contributed surplus created by the conversion of the preferred shares into common shares and recorded a corresponding reduction in deficit (as resolved by the Company’s board of directors).

As at

December 31, 2018,

there were

no

Class A redeemable convertible preferred shares issued and outstanding (

nil

at

December 31, 2017,

and

13,409,796

as at

December 31, 2016

at a price of

$2.44

per share),

no

Class B redeemable convertible preferred shares issued and outstanding (

nil

at

December 31, 2017

and

5,825,018

as at

December 31, 2016

at a price of

$10.30

per share) and

no

Class C redeemable convertible preferred shares issued and outstanding (

nil

as at

December 31, 2017

and

2016

).

Changes in preferred shares and embedded derivatives for the years ended

December 31, 2017

and

2016

were as follows:

	Preferred shares									Embedded derivatives
		Class A			Class B			Class C			Class A			Class B			Class C
Balance, December 31, 2015	$	23,801,078		$	40,337,696		$	-		$	61,893,086		$	21,949,483		$	-
Accretion during the year		1,192,408			2,549,770			-			-			-			-
Loss on re-measurement at fair value		-			-			-			21,462,384			12,519,658			-
Balance, December 31, 2016	$	24,993,486		$	42,887,466		$	-		$	83,355,470		$	34,469,141		$	-
Issuance of preferred shares		-			-			7,284,269			-			-			2,715,811
Transaction costs		-			-			(94,345	)		-			-			-
Accretion during the year		730,576			1,575,843			172,743			-			-			-
Loss (gain) on re-measurement at fair value		-			-			-			85,089,013			(7,093,016	)		(93,334	)
Original stated capital of preferred shares reclassified as share capital upon conversion		(32,708,047	)		(59,999,141	)		(10,000,080	)		-			-			-
Excess reclassified as contributed surplus (total $173,285,855)		6,983,985			15,535,832			2,637,413			(168,444,483	)		(27,376,125	)		(2,622,477	)
Balance, December 31, 2017	$	-		$	-		$	-		$	-		$	-		$	-

The fair values of the embedded derivative conversion options prior to

March 16, 2017

were estimated using a Monte Carlo simulation model.

The fair values of the embedded derivative conversion options at

March 31, 2017,

and at inception for the Class C preferred shares, were estimated using a hybrid of the probability-weighted expected return method (PWERM), weighted at

75%,

and a Monte Carlo simulation model, weighted at

25%.

The Company integrated a PWERM model into its valuation methodology during the

first

quarter of

2017

as it had undertaken tangible steps towards a qualifying IPO and it believed this model to be a more accurate estimation method of the conversion option.

Under the PWERM methodology, the fair value was estimated based upon the future implied equity values using a range of low, medium and high exit multiples. Exit multiples were derived from comparable public company transactions that compared the invested capital (being the aggregate of debt and shares) to the pre-IPO equity values. The estimated implied equity value was discounted back from the estimated time to exit to the valuation date.

The fair values of the embedded derivative conversion options at

June 30, 2017

were estimated using a hybrid of the PWERM method, weighted at

95%,

and a liquidation scenario, weighted at

5%.

The shift in weight towards the PWERM model considered the Company’s continued progress towards a qualifying IPO.

The fair values of the embedded derivative conversion options in

August 2017,

immediately prior to the conversion of the Class A, B and C redeemable convertible preferred shares on a

one

-for-

one

basis into common shares pursuant to the Company’s qualifying IPO, were based on the public offering price of

$15

per share over the conversion price of the Class A, B and C redeemable convertible preferred shares, being their stated price per share.

The fair value of the embedded derivative conversion options were estimated at inception and on a recurring basis using the Monte Carlo simulation model or PWERM methodology with the following key assumptions, including a

nil

dividend yield:

	August 2017						2017 (inception)				December 31, 2016
		Class A		Class B		Class C		Class C				Class A			Class B		Class C
Fair value of embedded derivative per share	$	12.56	$	4.70	$	3.12			$3.23		$	6.22		$	5.92		-
PWERM assumptions:
Range of exit multiples		-		-		-		3.4	-	4.1		-			-		-
Time to exit (in years)		-		-		-			0.50			-			-		-
Monte Carlo assumptions:
Starting equity value (in millions of $)		-		-		-			$298.1		$	249.6		$	249.6		-
Volatility		-		-		-			74%			68	%		68	%	-
Weighted average time to exit (in years)		-		-		-			0.75			0.85			0.85		-

These derivative liabilities were classified as a Level

3

in the fair value hierarchy. A reasonably possible movement in the estimated starting equity value, expected volatility or expected time to exit could significantly impact the fair value of the embedded derivative.

XML

Note 8 - Share Capital

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of issued capital [text block]

8. Share capital

The Company has an unlimited number of voting and participating common shares authorized for issuance without par value.

In

July 2017,

the Company amended its articles of incorporation to effect a

11.99

-for-

1

stock-split of all of the Company’s common shares. The stock-split became effective on

July 19, 2017

and, as a result, all issued and outstanding common shares, preferred shares, stock options and per share amounts contained in these consolidated financial statements have been retrospectively adjusted to reflect this stock-split for all periods presented.

In

August 2017,

immediately prior to its qualifying IPO, all outstanding Class A, B and C redeemable convertible preferred shares were converted on a

one

-for-

one

basis into

20,076,224

common shares of the Company (see note

7

).

In

August 2017,

the Company completed its IPO and issued

9,191,000

common shares at

$15

per share, including the underwriters’ over-allotment option, for total gross proceeds of

$137,865,000.

Financing costs, consisting of legal and other advisory costs in the amount of

$1,436,356,

were allocated to the listing of the Company’s common shares existing immediately prior to the IPO and were expensed as incurred under general and administrative expenses. Financing costs, consisting of legal and other advisory costs in the amount of

$586,043,

were allocated to new common shares issued in conjunction with the IPO and are reflected in share capital as a reduction of the IPO proceeds, along with underwriter fees of

$9,650,550.

In

October 2018,

the Company completed a follow-on offering and issued

6,095,000

common shares at

$13.25

per share, including the underwriters’ over-allotment option, for total gross proceeds of

$80,758,750.

Financing costs, consisting of legal and other advisory costs in the amount of

$327,074

and underwriter fees of

$4,845,525

are reflected in share capital as a reduction of the follow-on offering proceeds.

In

October 2018,

the Company also filed an At-The-Market (ATM) offering prospectus for

$40,000,000

of additional common shares for a period of

24

months. This ATM permits the Company to sell common shares having an aggregate offering price of up to

$40,000,000

from time to time at prevailing market prices. The underwriters’ commission will be

3%

of the amount of funds raised. There were

no

draws on this ATM offering prospectus as at the date these consolidated financial statements were authorized for issuance.

XML

Note 9 - Share-based Payments

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of share-based payment arrangements [text block]

9. Share-based payments

Under the Company’s Employee Stock Option Plan (ESOP), the Company could grant to its directors, management and employees non-transferrable stock options for the purchase of common shares. Up until completion of the IPO, the maximum number of common shares that were available for issuance under the ESOP was limited to

3,786,886,

of which

2,720,709

remain issued and outstanding as at

December 31, 2018 (

2,997,836

as at

December 31, 2017

and

2,453,586

as at

December 31, 2016).

Upon completion of its IPO, the Company adopted the

2017

Omnibus Plan (Omnibus) under which all future equity-based awards are now granted. Employees, directors and consultants are eligible to participate in the Omnibus. The maximum number of common shares available for issuance under the Omnibus was limited to

3,659,308

as at

December 31, 2018.

This number will automatically increase by an annual amount to be added on the

first

day of each year, beginning

January 1, 2018

and continuing until, and including, the year ending

December 31, 2027,

equal to the lower of

4%

of the number of common shares outstanding as of

December 31

of the prior calendar year and an amount determined by the Company’s board of directors. The annual amount added on

January 1, 2019

was established at

4%

of the common shares outstanding at

December 31, 2018,

or

1,514,563,

thus bringing the maximum number of common shares available for issuance under the Omnibus to

5,173,871

as of

January 1, 2019.

The Omnibus provides for awards of stock options, stock appreciation rights, unrestricted stock, stock units (including restricted stock units), performance awards, deferred share units, elective deferred share units and other awards convertible into or otherwise based on the Company’s common shares. As at

December 31, 2018,

there were

1,673,065

stock options outstanding under the Omnibus (

27,990

as at

December 31, 2017

and

nil

as at

December 31, 2016).

The Omnibus is substantially consistent with the ESOP as it pertains to stock options. Stock options granted under the ESOP expire

10

years after their initial grant date and those granted under the Omnibus expire

7

years after their initial grant date. Time-based stock options under either plan generally vest over a period of

4

years:

25%

cliff vesting after

one

year with monthly vesting over the subsequent

36

months. Outstanding performance-based stock options vest in part upon achievement of a milestone event and in part over a time period subsequent to the achievement of the milestone event.

The exercise price for stock option grants is determined at the date of grant by the Company’s board of directors and cannot be less than the fair value of the Company’s common shares. This fair value was previously established by various valuation analyses prior to the Company’s IPO and will now be based on the Company’s stock’s closing price on the day prior to option grant.

Changes in the number of stock options outstanding are as follows:

	December 31, 2018					December 31, 2017					December 31, 2016
	Options			Weighted average exercise price		Options			Weighted average exercise price		Options			Weighted average exercise price
Balance at beginning of year		3,025,826		$	2.61		2,453,586		$	0.44		2,462,914		$	0.44
Issued during the year		1,869,400		$	14.16		671,253		$	10.22		-			-
Exercised during the year		(51,484	)	$	3.80		(99,013	)	$	0.32		-			-
Forfeited during the year		(449,968	)	$	10.13		-			-		(9,328	)	$	0.69
Balance at end of period		4,393,774		$	6.74		3,025,826		$	2.61		2,453,586		$	0.44

The following table summarizes the information related to outstanding stock options as at

December 31, 2018.

	Outstanding stock options						Exercisable stock options
Range of exercise prices	Number of stock options outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number of exercisable stock options		Weighted average exercise price
$0.29 - $0.69		2,182,548		5.3	$	0.34		1,965,049	$	0.34
$4.81		35,704		6.9	$	4.81		25,125	$	4.81
$8.61 - $9.58		35,000		6.6	$	8.75		-		-
$9.70 - $10.04		502,457		8.3	$	9.97		263,723	$	9.97
$11.86 - $12.28		258,980		6.5	$	11.90		3,331	$	12.28
$13.40 - $14.38		866,720		6.3		13.76		12,655	$	13.61
$15.95 - $16.50		405,365		6.3	$	15.97		8,913	$	16.39
$17.00 - $18.98		107,000		6.3	$	17.77		-		-
		4,393,774		6.0	$	6.74		2,278,796	$	1.66

During the year ended

December 31, 2018,

the Company recorded a stock-based compensation expense of

$4,800,597

(

$2,180,915

in

2017

and

$174,419

in

2016

) of which

$3,354,609

(

$1,495,174

in

2017

and

$64,998

in

2016

) was recorded in general and administrative expenses and

$1,445,988

(

$685,741

in

2017

and

$109,421

in

2016

) in research and development expenses.

As at

December 31, 2018,

the Company had approximately

$6.1

million of total unrecognized stock-based compensation expense, net of related forfeiture estimates, which is expected to be recognized over a weighted-average remaining vesting period of approximately

1.4

years.

As at

December 31, 2018,

there were

404,250

performance-based stock options outstanding for which

no

share-based compensation expense was recorded. The Company had approximately

$3.7

million of unrecognized share-based compensation expenses related to these. Subsequent to

December 31, 2018,

the Company’s board of directors approved a modification to the milestone associated with these performance options, with all other terms remaining the same. Based on this modification, management has revised its assessment of achieving the milestone as being probable and expects to record cumulative share-based compensation expense related to these options in the

first

quarter of

2019

and thereafter until the awards are vested.

The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	2018			2017			2016
Grant (number of stock options)		1,869,400			671,253			-
Weighted average fair value of stock options	$	8.38		$	6.80			-
Weighted average exercise price	$	14.16		$	10.22			-
Weighted average assumptions:
Share price	$	14.16		$	10.22			-
Risk-free interest rate		2.68	%		1.96	%		-
Expected dividend yield		-			-			-
Volatility factor		74.86	%		77.13	%		-
Expected life (in years)		4.40			5.85			-

Deferred share units (DSUs)

Under the Company’s Omnibus, directors

may

elect to take all,

none

or a portion of their director compensation as DSUs. DSUs have

no

voting rights, but accrue dividends, if any, as additional DSUs at the same rate as dividends are paid on the Company’s shares. There are

no

vesting requirements relating to DSUs. DSUs are settled when a director leaves the Company’s board of directors, in either cash or the Company’s common shares issued from treasury or purchased on the open market, at the Company’s option. DSUs issued were treated as equity-settled DSUs, due to the Company’s current intent to settle outstanding DSUs in shares, whereby the fair value of services received is credited against contributed surplus, with the corresponding share-based compensation being recorded under general and administrative expenses. DSUs are

not

remeasured subsequent to grant date.

During the year ended

December 31, 2018,

the Company granted

21,568

DSUs to directors in lieu of payment of their board fees at an average grant date fair value of

$12.47,

based on the closing price of the Company’s shares, and recognized an expense of

$269,097

in general and administrative expenses for the year ended

December 31, 2018 (

nil

for the years ended

December 31, 2017

and

2016

).

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Note 10 - Loss Per Share

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Earnings per share [text block]

10. Loss per share

For the years ended

December 31, 2018,

2017

and

2016,

diluted loss per share is the same as basic loss per share as the effect of stock options and preferred shares would have been anti-dilutive.

XML

Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of income tax [text block]

11. Income taxes

The effective tax rate on the Company’s net loss differs from the expected amount that would arise using the statutory income tax rates. A reconciliation of the difference is as follows:

	2018			2017			2016
Loss before income taxes	$	(57,160,481	)	$	(114,811,428	))	$	(57,365,525	)
Statutory income tax rate		26.7	%		26.8	%		26.9	%
Computed income tax recovery		(15,261,848	)		(30,769,463	)		(15,431,326	)
Adjustment in income taxes resulting from:
Unrecorded potential tax benefits		14,420,791			9,434,421			5,165,985
Decrease in deferred tax assets resulting from a reduction in tax rate		108,306			106,805			217,675
Income taxable at a different foreign tax rate		34,550			115,247			43,494
Accounting charges not deducted for tax and other		1,664,052			21,756,755			10,150,626
Current income tax expense	$	965,851		$	643,765		$	146,454

The Company’s applicable statutory tax rate is the Canadian combined rate applicable in the jurisdictions in which the Company operates. The Company’s statutory income tax rate decreased from

26.8%

to

26.7%

as a result of a provincial decrease in income tax rates from

2017

to

2018

and from

26.9%

to

26.8%

from

2016

to

2017.

The income tax effect of temporary differences that give rise to net deferred tax assets and deferred tax liabilities is presented below.

	2018			2017			2016
Deferred tax assets
Net operating loss carryforwards	$	35,883,150		$	21,923,593		$	12,938,264
Unused research and development expenditures		2,766,408			1,807,596			1,178,910
Financing costs		1,896,242			2,470,787			17,201
Costs relating to patents and others		119,314			139,380			118,564
Property and equipment		442,866			258,423			174,725
		41,107,980			26,599,779			14,427,664
Deferred tax liabilities
Property and equipment		-			-			(3,209	)
Net deferred income tax assets		41,107,980			26,599,779			14,424,455
Unrecorded deferred income tax assets		(41,107,980	)		(26,599,779	)		(14,424,455	)
	$	-		$	-		$	-

As at

December 31, 2018,

the Company had the following loss carryforwards and unclaimed deductions and credits available for carryforward. Investment tax credits, orphan drug tax credits, loss carryforwards and scientific research and experimental development expenditure amounts are based on management estimates and are subject to verification by taxation authorities. Accordingly, these amounts

may

vary significantly.

	Provincial		Federal
Research and development expenditures, without time limitation	$	11,322,445	$	9,762,179
Losses carried forward, expiring
2029	$	39,492	$	39,508
2030		153,102		153,353
2031		88,677		89,381
2032		77,368		92,095
2033		2,631,911		2,722,029
2034		7,902,544		8,103,485
2035		18,705,985		18,980,654
2036		18,711,295		19,046,349
2037		33,829,690		33,978,229
2038		52,370,269		52,905,565
	$	134,510,333	$	136,110,648
Unused tax credits, expiring
2033			$	76,818
2034				260,594
2035				203,856
2036				154,272
2037				354,563
2038				654,025
			$	1,704,128

		US Federal
Orphan drug tax credits, expiring
2037	$	900,109
2038		3,075,708
	$	3,975,817

	State
Massachusetts R&D tax credits, expiring
2038	$	1,080,814

XML

Note 12 - Additional Information on the Consolidated Statements of Net Loss and Comprehensive Loss

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of additional information on the consolidated statements of net loss and comprehensive loss [text block]

12. Additional information on the consolidated statements of net loss and comprehensive loss

	2018		2017		2016
Included in research and development expenses:
Employee benefits expense		6,530,389	$	4,475,640	$	2,352,591
Depreciation of property and equipment		11,602	$	16,879	$	20,544
Rent expense		466,604	$	444,427	$	360,565
Included in general and administrative expenses:
Employee benefits expense		6,950,520	$	3,759,584	$	1,677,808
Depreciation of property and equipment		7,206	$	8,418	$	14,511
Amortization of intangible assets		193,472	$	179,392	$	137,526
Rent expense		182,804	$	120,261	$	132,110

XML

Note 13 - Financial Expenses

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of finance income (cost) [text block]

13. Financial expenses

	2018		2017		2016
Transaction costs – embedded derivatives	$	-	$	35,175	$	-
Accretion – preferred shares		-		2,479,162		3,742,178
Loss on re-measurement at fair value – embedded derivatives		-		77,902,663		33,982,042
Bank charges and other interest		17,360		14,320		11,487
Foreign exchange losses (gains)		144,044		6,482		(90,000	)
Total financial expenses	$	161,404	$	80,437,802	$	37,645,707

XML

Note 14 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of commitments and contingent liabilities [text block]

14. Commitments and contingencies

The following table summarizes our contractual obligations at

December 31, 2018:

	2019		2020		2021		2022		2023		More than 5 years		Total
Lease commitments	$	152,880		-		-		-		-		-	$	152,880
Other commitments	$	75,000	$	75,000		-		-		-		-	$	150,000
													$	302,880

Other items

not

reflected in the above table include:

In

October 2018,

the Company terminated its head office lease in Montreal, Quebec, Canada originally expiring in

2020,

effective

January 31, 2019.

A lease termination fee of

$62,000,

accrued for as rent expense as at

December 31, 2018,

was paid in

January 2019.

In

December 2018,

the Company entered into a new lease commitment for head office space in Montreal, Quebec, Canada, effective

January 2019

and expiring

October 2023,

with annual payments averaging approximately

$400,000/year

throughout the lease term (

not

reflected in the above table).

The Company’s current lease in Newton, Massachusetts, USA expires in

April 2019.

In

March 2019,

the Company extended its current lease to expire in

July 2019,

with monthly payments of approximately

$50,000

due from

May 1, 2019

to

July 31, 2019 (

not

reflected in the above table). In

February 2019,

the Company entered into a new lease commitment for office space in Newton, Massachusetts, USA, with an expected effective date of

May 2019

and expected expiry of

June 2024,

and annual payments averaging approximately

$465,000/year

throughout the lease term (

not

reflected in the above table).

In accordance with an exclusive licensing agreement with Hoffman–La Roche (Roche), the Company is committed to pay Roche (i) a total of

$1,000,000

in milestone payments upon the achievement of certain clinical milestones, (ii) up to a total of

$11,000,000

in milestone payments upon the achievement of certain regulatory milestones in connection with the

three

clinical trial programs currently underway, with an additional

$1,000,000

in milestone payments upon the achievement of certain regulatory milestones in connection with each subsequent indication, if any, and (iii) up to a total of

$37,500,000

million in milestone payments upon the achievement of certain sales milestones. The Company achieved the clinical milestone in

December 31, 2017

and paid Roche the

$1,000,000

milestone in

January 2018.

This amount was recorded as research and development expenses in the year ended

December 31, 2017

and was included in accounts payable and accrued liabilities as at

December 31, 2017.

Upon filing a new drug application (NDA) with the FDA for palovarotene in FOP, the Company would incur a

$2

million regulatory milestone pursuant to this agreement. Future royalty payments, in the low teens, based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is unknown at this time.

In accordance with a licensing agreement with the Thomas Jefferson University (TJU), the Company is committed to make a total of

$100,000

in milestone payments upon the achievement of certain clinical milestones and a total of

$250,000

in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the

first

licensed product or licensed process that meets the relevant milestones. The Company achieved the clinical milestone and paid TJU the

$100,000

milestone in

December 2017.

This amount was recorded as research and development expenses in the year ended

December 31, 2017.

Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. Annual license maintenance royalties are also required as per the terms of the TJU licensing agreement. Such maintenance royalties are non-refundable but can be applied to royalties owing on sales per calendar year. The likelihood and timing of these payments is unknown at this time.

In accordance with a licensing agreement with Yamaguchi University in Japan, the Company is committed to make a total of

$75,000

in milestone payments upon the achievement of certain clinical milestones and a total of

$150,000

in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the

first

licensed product that meets the relevant milestones. Future low single digit royalty payments based on net sales are also stipulated in the licensing agreement. The Company also has a royalty buy-out option pursuant to which it can terminate its obligation to pay royalties to Yamaguchi University under the license agreement at any time and at its sole discretion upon payment of a certain amount to Yamaguchi. The likelihood and timing of these payments is unknown at this time.

In accordance with an exclusive option agreement signed with Galderma on

April 1, 2016,

the Company was evaluating certain Galderma retinoic acid receptor gamma agonist compounds in exchange for technology access payments with a potential aggregate amount of

$0.7

million during a

two

-year option period. The technology access fees were being expensed over the period to which they related and terminated when the Company decided to enter into a pre-negotiated and exclusive licensing agreement.

On

March 29, 2017,

the Company entered into an exclusive licensing agreement with Galderma to obtain access to retinoic acid receptor gamma agonist compounds and was granted exclusive rights for use in non-dermatological indications. In accordance with this agreement, the Company is committed to pay Galderma a total of

$2,000,000

in milestone payments upon the achievement of clinical milestones and up to a total of

$25,500,000

in milestone payments upon the achievement of certain regulatory milestones, in each case in connection with the

first

product that meets the relevant milestones. Future single digit royalty payments based on net sales are also stipulated in the licensing agreement. The likelihood and timing of these payments is unknown at this time.

The Company enters into contracts in the normal course of business with contract research organizations for preclinical research and clinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancellable contracts.

XML

Note 15 - Related Party Transactions

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of related party [text block]

15. Related party transactions

The Company has

not

been party to any material related party transactions which might reasonably be expected to influence decisions made by the users of these consolidated financial statements, other than the following.

During the year ended

December 31, 2016,

one

of the Company’s executive officers provided limited services to a company controlled by an investor. The salary and related expenses incurred, such as travel costs, totaled

$59,022

for the year ended

December 31, 2016,

and were invoiced to the company controlled by an investor, all of which was receivable at

December 31, 2016

and collected in

2017.

The Company recorded this expense reimbursement as a reduction of general and administrative expenses in the year ended

December 31, 2016.

This transaction was measured at the exchange amount, being the consideration established and agreed to by the related parties.

Accounts payable and accrued liabilities, including accumulated payroll, vacation and bonus accruals for key management personnel, as well as business expense reimbursements for key management personnel amounted to

$875,643

as at

December 31, 2018 (

$589,787

as at

December 31, 2017

and

$355,327

as at

December 31, 2016).

Compensation of key management personnel

The Executive Committee, comprised of all C-Suite executives, and the members of the Board of Directors are considered to be key management personnel. The aggregate compensation for the years ended

December 31, 2018,

2017

and

2016

to key management personnel of the Company is set out below:

	2018		2017		2016
Short-term benefits	$	2,800,188	$	2,176,345	$	1,742,021
Director fees		276,410		116,398		45,540
		3,076,598		2,292,743		1,787,561
Stock-based compensation		2,737,711		1,083,160		83,270
	$	5,814,309	$	3,375,903	$	1,870,831

XML

Note 16 - Financial Instruments

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of financial instruments [text block]

16. Financial instruments

a. Capital management

The Company’s primary objective when managing capital is to ensure its ability to continue as a going concern in order to pursue the development of its product candidates.

The capital structure consists of equity offset by cash and short-term investments.

Cash in excess of immediate working capital requirements is invested in accordance with the Company’s investment policy, primarily with a view to liquidity and capital preservation. At

December 31, 2018,

short-term investments are held in guaranteed investment certificates with a Canadian chartered bank.

The Company monitors its cash requirements and market conditions to anticipate the timing of requiring additional capital to finance the development of its product candidates.

The Company has incurred losses and cumulative negative operating cash flows since its inception. The Company anticipates that it will continue to incur losses for at least the next several years in order to fund its operations. The Company expects its research and development, general and administrative and commercial expenses to increase and, as a result, the Company will need additional capital to fund its operations, which it

may

raise through any

one

or a combination of equity offerings, debt financings, other

third

-party funding, marketing and distribution arrangements and other collaborations, strategic alliance and licensing arrangements.

To date, the Company has financed its cash requirements primarily from the issuance of common shares, preferred shares and convertible notes. The Company believes that its current liquidities will

not

be sufficient to fund operations until profitability is achieved.

If the Company is unable to secure additional financing, it will be required to curtail some or all of its operations. There can be

no

assurance that such financing will materialize on a timely basis or be obtained on acceptable terms.

In order to maximize the full value of the Company’s assets and its ongoing development efforts, the Company does

not

pay out dividends.

The Company is

not

subject to any externally imposed restrictions, covenants or capital requirements.

b. Fair value of financial instruments

The Company has determined that the carrying amount of its cash, short-term investments, interest receivable, other receivables and accounts payable and accrued liabilities approximates their fair value because of the relatively short periods to maturity of these instruments.

c. Financial risk management objectives

The Company is exposed to certain financial risks, including liquidity risk, foreign currency risk, interest rate risk and credit risk. Management is responsible for setting acceptable levels of risk and reviewing risk management activities as necessary.

d. Liquidity risk management

Liquidity risk is the risk that the Company will

not

be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in note

16

a) above.

The balance of accounts payable and accrued liabilities is due within

one

year. For information on the maturity of commitments and contingencies, see note

14.

e. Foreign currency risk management

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company incurs a portion of its expenses in Canadian dollars and in Euros as well as other currencies to a lesser extent. A change in the currency exchange rates between the US dollar relative to the Canadian dollar or the Euro could have a significant effect on the Company’s results of operations, financial position or cash flows. The Company does

not

have in place any tools to manage its foreign exchange risk, other than keeping expected foreign currency cash requirements in the foreign currency to form a natural hedge.

The Company is exposed to currency risk through its cash, interest, sales tax and other receivables and accounts payable and accrued liabilities denominated in Canadian dollars and Euros as follows.

	December 31, 2018			December 31, 2017			December 31, 2016
	CA$			CA$			CA$
Cash		2,950,552			954,965			931,082
Interest, sales tax and other receivables		219,508			118,790			42,930
Accounts payable and accrued liabilities		(1,286,712	)		(1,303,339	)		(569,958	)
Net exposure		1,883,348			(229,584	)		404,054

	December 31, 2018			December 31, 2017			December 31, 2016
	EUR			EUR			EUR
Cash		96,689			139,056			98,060
Accounts payable and accrued liabilities		(1,000,853	)		(637,369	)		(421,451	)
Net exposure		(904,164	)		(498,313	)		(358,418	)

Based on the above net exposures as at

December 31, 2018,

and assuming that all other variables remain constant, a

10%

depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase/decrease of

$138,087

on the Company’s net loss.

Based on the above net exposures as at

December 31, 2018,

and assuming that all other variables remain constant, a

10%

depreciation or appreciation of the US dollar against the Euro would result in an increase/decrease of

$103,681

on the Company’s net loss.

The following exchange rates applied during the year ended

December 31, 2018:

	Average rate		Reporting date rate
CA$ - US$		0.7719		0.7332
EURO – US$		1.1809		1.1467

f. Interest rate risk management

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to interest rate risk on its short-term investments. The objective of holding term deposits is to invest the Company’s excess cash resources in investment vehicles that provide a better rate of return compared to current interest-bearing operating bank accounts with limited risk to the principal amount invested.

The Company intends to match the maturities of its term deposits with the cash requirements of its operating activities. The Company does

not

have in place any tools to manage its interest rate risk. The risk of a sudden, significant change in market interest rates relative to the interest rates earned on the Company’s short-term investments having an impact on the Company’s results of operations or cash flows is limited owing to the relative short-term nature of these investments.

g. Credit risk management

Credit risk arises from cash, short-term investments, interest, and other receivables. The Company holds its cash and short-term investments at Canadian and US chartered banks. The credit risk of cash, short-term investments and interest receivable from short-term investments is limited because the counter-parties are chartered banks with high credit ratings assigned by international credit rating agencies.

XML

Note 17 - Operating Segments

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of operating segments [text block]

17. Operating segments

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions, being the biopharmaceutical segment. The Company’s singular focus is on advancing treatments for people living with rare diseases, including FOP and MO, as well as other diseases.

All of the Company’s intangible assets are held in Canada. The Company’s property and equipment are held as follows:

92%

held in Canada and

8%

in the United States.

XML

Note 18 - Subsequent Events

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of events after reporting period [text block]

18. Subsequent events

Leases

a. Effective January 31, 2019, the Company terminated its head office lease in Montreal, Quebec, Canada originally expiring in 2020. A lease termination fee of $62,000, accrued for as rent expense as at December 31, 2018, was paid in January 2019. In December 2018, the Company entered into a new lease commitment for head office space in Montreal, Quebec, Canada, effective January 2019 and expiring October 2023, with annual payments averaging approximately $400,000/year throughout the lease term.

b. In February 2019, the Company entered into a new lease commitment for office space in Newton, Massachusetts, USA, with an expected effective date of May 2019 and expected expiry of June 2024, and annual payments averaging approximately $465,000/year throughout the lease term. In March 2019, the Company extended its current lease in Newton expiring April 2019 by three -months to July 2019, with monthly payments of approximately $50,000 throughout May 1, 2019 to July 31, 2019.

Stock options

a. From January 1, 2019 to March 28, 2019, the Company granted 1,629,250 stock options at a weighted average exercise price of $14.60.

b. Subsequent to December 31, 2018, the Company’s board of directors approved a modification to the milestone associated with outstanding performance options, with all other terms remaining the same. Based on this modification, management has revised its assessment of achieving the performance milestone as being probable and expects to record cumulative share-based compensation expense related to these performance options in the first quarter of 2019 and thereafter until the awards are vested.

Plan of Arrangement

On

February 24, 2019,

the Company entered into an agreement (Arrangement Agreement) with Ipsen S.A., a global specialty-driven biopharmaceutical group organized under the laws of France and listed in Paris (Euronext: IPN), and the Purchaser, pursuant to which Ipsen would acquire, through the Purchaser, all outstanding shares of Clementia for a purchase price of

US$25.00

per share in cash upfront, plus a contingent value right (CVR) of

US$6.00

per share related to the multiple osteochondroma indication for a total transaction value of up to

US$1.31

billion.

Completion of the transaction is anticipated to occur in the

second

quarter of

2019,

subject to satisfaction or waiver of all closing conditions. The acquisition is expected to proceed by way of a court-approved plan of arrangement pursuant to the Canada Business Corporation Act and will require, at the special meeting of Clementia shareholders expected to be held on

April 9, 2019,

the approval of at least

66

2/3%

of the votes cast by Clementia’s shareholders present in person or represented by proxy as well as the approval of a majority of the votes cast by Clementia’s disinterested shareholders present in person or represented by proxy. A proxy circular relating to the special meeting of shareholders of Clementia has been mailed to Clementia’s shareholders.

In addition to shareholders’ and court approvals, the Arrangement is also subject to other customary closing conditions. The Arrangement Agreement is subject to customary “fiduciary out” provisions, and a right in favor of Ipsen to match any superior proposal. A termination fee of

$35

million is payable to Ipsen in certain specific circumstances, including if it fails to exercise its right to match in the context of a superior proposal supported by Clementia.

Under the Plan of Arrangement, each unvested option will be deemed to be vested as of the effective date of the arrangement and subsequently transferred in exchange for the purchase price less the applicable exercise price. As such, the Company expects to record share-based compensation expense related to the accelerated vesting of all stock options in

2019.

The estimated fees, costs and expenses of the Company in connection with the Plan of Arrangement contemplated including, without limitation, financial advisors’ fees, filing fees, legal and accounting fees, proxy solicitation fees and printing and mailing costs, but excluding payments made by the Company pursuant to the plan of arrangement in respect of outstanding stock options and DSUs, are anticipated to be approximately

$25.7

million.

As of the date of these financial statements, the Arrangement contemplated in the agreement has

not

yet been approved or completed.

DSUs

In connection with the Plan of Arrangement, on

February 24, 2019,

the Company approved the issuance of

39,225

DSUs to non-executive directors of the Company to replace long-term incentive grants which would otherwise have been made in

2019

to non-executive directors of the Company in the normal course of business.

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Discloure of Significant Accounting Policies

Description of accounting policy for statement of compliance and basis of preparation [text block]

a. Statement of compliance and basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These consolidated financial statements have been prepared on the historical cost basis except for the valuation of the preferred shares, embedded derivatives, as well as the share-based payment transactions as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services at the time of acquisition.

Fair value is the price that would be received in selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

In addition, for financial reporting purposes, fair value measurements are categorized into Level

1,

2,

or

3

based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

· Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

· Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

· Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

During the year ended

December 31, 2018,

the Company corrected an immaterial error that resulted in a reclassification from current prepaid expenses to long-term prepaid expenses of

$775,757

as at

December 31, 2017.

Description of accounting policy for basis of consolidation [text block]

b. Basis of consolidation

These consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries, Clementia Pharmaceuticals USA Inc. and Clementia Pharmaceuticals France SARL, together, the “Group”. Clementia Pharmaceuticals USA Inc. is an entity incorporated in the state of Delaware, with a registered office in Newton, Massachusetts, United States. Clementia Pharmaceuticals France SARL is an entity incorporated in France, with a registered office in Paris, France.

Subsidiaries are fully consolidated from the date of creation or acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved when the Company has the power over the investee; is exposed or has the rights to variable returns from its involvement with the investee; and has the ability to use its power to affect its return. The Company reassesses whether or

not

it controls an investee if facts and circumstances indicate that there are changes to

one

or more of the

three

elements of control listed beforehand.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transaction between members of the Group are eliminated in full on consolidation.

Description of accounting policy for functional currency [text block]

c. Functional and presentation currency

Items included in the consolidated financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These consolidated financial statements are presented in United States dollars (USD), which is the Company’s functional and presentation currency.

Description of accounting policy for foreign currency translation [text block]

d. Foreign currency transactions

In preparing these consolidated financial statements, transactions in currencies other that the Company’s functional currency are recognized at rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are

not

retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

Description of accounting policy for restricted cash and cash equivalents [text block]

e. Cash

Cash is limited to current balances with banks and similar institutions that have an insignificant risk of change in value.

Description of accounting policy for investments other than investments accounted for using equity method [text block]

f. Short and long-term investments

Short-term investments are highly liquid investments with an original maturity greater than

three

months but less than

one

year. Long-term investments are highly liquid investments with an original maturity greater than

one

year. Our investment portfolio consists of guaranteed investment certificates.

Description of accounting policy for property, plant and equipment [text block]

g. Property and equipment

Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of such items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit and loss in the period in which they are incurred.

Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their estimated useful lives, using the straight-line method as follows.

Computer hardware	Straight-line over 2 years
Office equipment	Straight-line over 2 years
Furniture	Straight-line over 5 years
Leasehold improvements	Straight-line over the term of the lease

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognized upon disposal or when

no

future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Description of accounting policy for intangible assets other than goodwill [text block]

h. Intangible assets

Intangible assets with finite useful lives that are acquired separately or developed externally are carried at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is recognized on a straight-line basis over their estimated useful lives ranging from

5

years for software and from

9

to

20

years for in-licensed patents. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. All intangible assets have been purchased from or developed by

third

parties and have

not

been internally generated.

An intangible asset is derecognized on disposal, or when

no

future economic benefits are expected from use or disposal. Gains or losses from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

Description of accounting policy for impairment of non-financial assets [text block]

i. Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is

not

possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount of a cash-generating unit is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have

not

been adjusted. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

When an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not

exceed the carrying amount that would have been determined had

no

impairment loss been recognized for the asset or cash-generating unit in prior periods. A reversal of an impairment loss is recognized immediately in profit or loss.

Description of accounting policy for government grants [text block]

j. Government assistance

Government assistance, consisting of investment tax credits and orphan drug tax credits, is recorded as a reduction of the related expense or against the cost of the asset acquired. Government assistance is recognized when there is reasonable assurance that the Company has met the requirements of the approved research program, when there is reasonable assurance that benefits will be received and all attached conditions have been complied with.

Investment tax credits consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s research and development programs. Research and development costs are expensed as incurred. Overhead expenses comprise general and administrative support provided to the research and development program and involve costs associated with support activities such as office services, information technology and human resources. Orphan drug tax credits consist of direct expenditures associated with the Company’s orphan drug clinical trials.

Investment tax credits and orphan drug tax credits are recorded based on management estimates of amounts for which there is reasonable assurance that they will be received and are subject to audit by the taxation authorities and, accordingly, these amounts

may

vary materially which could result in adjustments to profits or losses.

Description of accounting policy for share-based payment transactions [text block]

k. Share-based payments

Equity-settled share-based payments to employees and directors providing similar services are measured at the fair value of the equity instruments at the grant date.

The Company recognizes the compensation cost of share-based payments using a graded vesting method where each installment that vests is treated as its own award and each installment is measured and recognized separately. The fair value determined at the grant date for each tranche of the equity-settled share-based payments is expensed over its vesting period on a straight-line basis, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in contributed surplus.

At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.

Description of accounting policy for issued capital [text block]

l. Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares and stock options are recognized as a deduction from share capital, net of any tax effects.

Description of accounting policy for income tax [text block]

m. Income taxes

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profits differ from profits or losses as reported in the consolidated statements of net loss and comprehensive loss because items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflect the tax consequences that would flow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The effect of a change in tax rates is recognized in the period during which the tax rate change occurs.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. In the Company’s case, recurring operating losses expected to be incurred throughout the development years create tax assets that

may

reduce future taxable earnings, if any. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is

no

longer probable that sufficient taxable profits will be available to allow all or a part of the asset to be recovered.

In assessing whether deferred tax assets

may

be realized, management considers the likelihood that some portion or all of the tax assets will be realized. The ultimate use of net deferred tax assets is dependent upon the generation of future taxable income or available tax planning strategies in making this assessment. Since the Company is a development stage company, the generation of future taxable income is dependent on the successful commercialization of its products and technologies. Management has determined that it is

not

“more likely than

not”

that the benefits of the deferred tax assets will be recovered and these have thus

not

been recorded.

Description of accounting policy for earnings per share [text block]

n. Loss per share

Loss per share is determined using the weighted average number of common shares outstanding during the period.

Diluted loss per share is determined by adjusting the loss and the weighted average number of common shares for the effects of all dilutive potential common shares, which comprise the preferred shares and employee stock options.

Description of accounting policy for employee benefits [text block]

o. Employee benefits

Short-term employee benefit obligations are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Company has a present, legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

Description of accounting policy for interest income and expense [text block]

q. Interest income

The Company earns interest on its cash in current bank accounts and on its short and long-term investments. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of interest can be measured reliably.

Interest income is accrued on a time basis, by reference to the principal amount outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Description of accounting policy for financial instruments [text block]

p. Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes party to the contractual obligations of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets or financial liabilities other than financial assets and financial liabilities at fair value through profit or loss are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial instruments are classified into the following specified categories: amortised cost or fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). The classification depends on the cash flow characteristics of the financial instrument and the business model and is determined at the time of initial recognition. The Company’s financial instruments have been classified as follows:

Financial instrument	Classification of financial assets and financial liabilities
Cash	Amortized cost
Short and long-term investments	Amortized cost
Interest and other receivables	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Preferred shares	Amortized cost
Embedded derivatives	FVTPL

For financial assets measured at amortized cost, the impairment model reflects expected credit losses. The Company recognizes, if any, loss allowances for expected credit losses and changes in those expected credit losses. At each reporting date, financial assets carried at amortized cost are assessed to determine whether they are credit-impaired. A financial asset is credit-impaired when

one

or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Loss allowances for financial assets measured at amortized cost, if any, are deducted from the gross carrying amount of the assets. The gross carrying amount of a financial asset is written off to the extent that there is

no

realistic prospect of recovery.

Financial liabilities other than those at FVTPL are initially recognized at fair value, net of directly attributable transaction costs, and subsequently measured at amortized cost using the effective interest method. A financial liability is derecognized when the obligation underlying the liability is discharged or cancelled or expires.

Financial liabilities at FVTPL are recognized and subsequently measured at fair value at each reporting date with changes in fair value recorded in profit and loss in the period in which they arise. Transaction costs are allocated to financial liabilities at FVTPL and are expensed in profit and loss at inception.

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Embedded derivatives

An embedded derivative is a feature within a contract, such that the cash flows associated with that feature behave in a similar fashion to a stand-alone derivative. Embedded derivatives that are separated from the host contract are accounted for at FVTPL.

The terms of the preferred shares include an embedded conversion feature which provides for the conversion of the preferred shares into common shares at a variable rate due to a price protection feature (down-round protection). The Company determined that the conversion feature was an embedded derivative liability that required separation from the financial liability host contract. The embedded derivative liability is recognized and measured at fair value at each reporting date with changes in fair value recorded in financial expenses in profit and loss in the period in which they arise. The liability component is determined at inception by deducting the fair value of the embedded derivative from the fair value of the instrument as a whole.

Transaction costs that relate to the issue of the preferred shares are allocated to the liability and embedded derivative components in proportion to the allocation of the gross proceeds. Transaction costs relating to the embedded derivative liability component are expensed directly in profit and loss and transaction costs relating to the financial liability component are included in the carrying amount of the liability component and are amortized over the expected lives of the convertible instrument using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including transaction costs and other premiums or discounts) through the expected term of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Description of accounting policy for leases [text block]

r. Leases

The Company’s leases are operating leases. The leased assets are

not

recognized in the Company’s consolidated statements of financial position as the Company did

not

substantially assume all risks and rewards of ownership of the leased assets. Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

In the event that lease incentives were received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives has been recognized as a reduction of rental expense on a straight-line basis.

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Note 2 - Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of useful lives or depreciation rates, property, plant and equipment [text block]

Computer hardware	Straight-line over 2 years
Office equipment	Straight-line over 2 years
Furniture	Straight-line over 5 years
Leasehold improvements	Straight-line over the term of the lease

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Note 5 - Investments (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of term deposits [text block]

	December 31, 2018		December 31, 2017		December 31, 2016
Short-term investments	$	75,000,000	$	30,000,000	$	30,000,000
Long-term investments		-	$	75,000,000		-
	$	75,000,000	$	105,000,000	$	30,000,000

XML

Note 6 - Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of detailed information about intangible assets [text block]

	2018		2017		2016
Cost:
Opening balance as at January 1,		2,388,399		1,388,399		1,388,399
Additions		135,985		1,000,000		-
Closing balance as at December 31,		2,524,384		2,388,399		1,388,399
Accumulated amortization:
Opening balance as at January 1,		673,207		493,815		356,289
Amortization		193,472		179,392		137,526
Closing balance as at December 31,		866,679		673,207		493,815
Net book value as at December 31,		1,657,705		1,715,192		894,584

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Note 7 - Preferred Shares (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of changes in Preferred Shares and Embedded Derivatives [text block]

	Preferred shares									Embedded derivatives
		Class A			Class B			Class C			Class A			Class B			Class C
Balance, December 31, 2015	$	23,801,078		$	40,337,696		$	-		$	61,893,086		$	21,949,483		$	-
Accretion during the year		1,192,408			2,549,770			-			-			-			-
Loss on re-measurement at fair value		-			-			-			21,462,384			12,519,658			-
Balance, December 31, 2016	$	24,993,486		$	42,887,466		$	-		$	83,355,470		$	34,469,141		$	-
Issuance of preferred shares		-			-			7,284,269			-			-			2,715,811
Transaction costs		-			-			(94,345	)		-			-			-
Accretion during the year		730,576			1,575,843			172,743			-			-			-
Loss (gain) on re-measurement at fair value		-			-			-			85,089,013			(7,093,016	)		(93,334	)
Original stated capital of preferred shares reclassified as share capital upon conversion		(32,708,047	)		(59,999,141	)		(10,000,080	)		-			-			-
Excess reclassified as contributed surplus (total $173,285,855)		6,983,985			15,535,832			2,637,413			(168,444,483	)		(27,376,125	)		(2,622,477	)
Balance, December 31, 2017	$	-		$	-		$	-		$	-		$	-		$	-

Disclosure of assumptions used to determine the fair value of embedded derivative [text block]

	August 2017						2017 (inception)				December 31, 2016
		Class A		Class B		Class C		Class C				Class A			Class B		Class C
Fair value of embedded derivative per share	$	12.56	$	4.70	$	3.12			$3.23		$	6.22		$	5.92		-
PWERM assumptions:
Range of exit multiples		-		-		-		3.4	-	4.1		-			-		-
Time to exit (in years)		-		-		-			0.50			-			-		-
Monte Carlo assumptions:
Starting equity value (in millions of $)		-		-		-			$298.1		$	249.6		$	249.6		-
Volatility		-		-		-			74%			68	%		68	%	-
Weighted average time to exit (in years)		-		-		-			0.75			0.85			0.85		-

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Note 9 - Share-based Payments (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of number and weighted average exercise prices of share options [text block]

	December 31, 2018					December 31, 2017					December 31, 2016
	Options			Weighted average exercise price		Options			Weighted average exercise price		Options			Weighted average exercise price
Balance at beginning of year		3,025,826		$	2.61		2,453,586		$	0.44		2,462,914		$	0.44
Issued during the year		1,869,400		$	14.16		671,253		$	10.22		-			-
Exercised during the year		(51,484	)	$	3.80		(99,013	)	$	0.32		-			-
Forfeited during the year		(449,968	)	$	10.13		-			-		(9,328	)	$	0.69
Balance at end of period		4,393,774		$	6.74		3,025,826		$	2.61		2,453,586		$	0.44

Disclosure of range of exercise prices of outstanding share options [text block]

	Outstanding stock options						Exercisable stock options
Range of exercise prices	Number of stock options outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number of exercisable stock options		Weighted average exercise price
$0.29 - $0.69		2,182,548		5.3	$	0.34		1,965,049	$	0.34
$4.81		35,704		6.9	$	4.81		25,125	$	4.81
$8.61 - $9.58		35,000		6.6	$	8.75		-		-
$9.70 - $10.04		502,457		8.3	$	9.97		263,723	$	9.97
$11.86 - $12.28		258,980		6.5	$	11.90		3,331	$	12.28
$13.40 - $14.38		866,720		6.3		13.76		12,655	$	13.61
$15.95 - $16.50		405,365		6.3	$	15.97		8,913	$	16.39
$17.00 - $18.98		107,000		6.3	$	17.77		-		-
		4,393,774		6.0	$	6.74		2,278,796	$	1.66

Disclosure of indirect measurement of fair value of goods or services received, share options granted during period [text block]

	2018			2017			2016
Grant (number of stock options)		1,869,400			671,253			-
Weighted average fair value of stock options	$	8.38		$	6.80			-
Weighted average exercise price	$	14.16		$	10.22			-
Weighted average assumptions:
Share price	$	14.16		$	10.22			-
Risk-free interest rate		2.68	%		1.96	%		-
Expected dividend yield		-			-			-
Volatility factor		74.86	%		77.13	%		-
Expected life (in years)		4.40			5.85			-

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Note 11 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of reconciliation of average effective tax expenses and applicable tax expenses [text block]

	2018			2017			2016
Loss before income taxes	$	(57,160,481	)	$	(114,811,428	))	$	(57,365,525	)
Statutory income tax rate		26.7	%		26.8	%		26.9	%
Computed income tax recovery		(15,261,848	)		(30,769,463	)		(15,431,326	)
Adjustment in income taxes resulting from:
Unrecorded potential tax benefits		14,420,791			9,434,421			5,165,985
Decrease in deferred tax assets resulting from a reduction in tax rate		108,306			106,805			217,675
Income taxable at a different foreign tax rate		34,550			115,247			43,494
Accounting charges not deducted for tax and other		1,664,052			21,756,755			10,150,626
Current income tax expense	$	965,851		$	643,765		$	146,454

Disclosure of temporary difference, unused tax losses and unused tax credits [text block]

	2018			2017			2016
Deferred tax assets
Net operating loss carryforwards	$	35,883,150		$	21,923,593		$	12,938,264
Unused research and development expenditures		2,766,408			1,807,596			1,178,910
Financing costs		1,896,242			2,470,787			17,201
Costs relating to patents and others		119,314			139,380			118,564
Property and equipment		442,866			258,423			174,725
		41,107,980			26,599,779			14,427,664
Deferred tax liabilities
Property and equipment		-			-			(3,209	)
Net deferred income tax assets		41,107,980			26,599,779			14,424,455
Unrecorded deferred income tax assets		(41,107,980	)		(26,599,779	)		(14,424,455	)
	$	-		$	-		$	-

Disclosure of loss carryforwards, unclaimed deductions and credits available for carryforwards [text block]

	Provincial		Federal
Research and development expenditures, without time limitation	$	11,322,445	$	9,762,179
Losses carried forward, expiring
2029	$	39,492	$	39,508
2030		153,102		153,353
2031		88,677		89,381
2032		77,368		92,095
2033		2,631,911		2,722,029
2034		7,902,544		8,103,485
2035		18,705,985		18,980,654
2036		18,711,295		19,046,349
2037		33,829,690		33,978,229
2038		52,370,269		52,905,565
	$	134,510,333	$	136,110,648
Unused tax credits, expiring
2033			$	76,818
2034				260,594
2035				203,856
2036				154,272
2037				354,563
2038				654,025
			$	1,704,128

		US Federal
Orphan drug tax credits, expiring
2037	$	900,109
2038		3,075,708
	$	3,975,817

	State
Massachusetts R&D tax credits, expiring
2038	$	1,080,814

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Note 12 - Additional Information on the Consolidated Statements of Net Loss and Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of supplemental information of comprehensive income (loss) [text block]

	2018		2017		2016
Included in research and development expenses:
Employee benefits expense		6,530,389	$	4,475,640	$	2,352,591
Depreciation of property and equipment		11,602	$	16,879	$	20,544
Rent expense		466,604	$	444,427	$	360,565
Included in general and administrative expenses:
Employee benefits expense		6,950,520	$	3,759,584	$	1,677,808
Depreciation of property and equipment		7,206	$	8,418	$	14,511
Amortization of intangible assets		193,472	$	179,392	$	137,526
Rent expense		182,804	$	120,261	$	132,110

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Note 13 - Financial Expenses (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of total financial expenses [text block]

	2018		2017		2016
Transaction costs – embedded derivatives	$	-	$	35,175	$	-
Accretion – preferred shares		-		2,479,162		3,742,178
Loss on re-measurement at fair value – embedded derivatives		-		77,902,663		33,982,042
Bank charges and other interest		17,360		14,320		11,487
Foreign exchange losses (gains)		144,044		6,482		(90,000	)
Total financial expenses	$	161,404	$	80,437,802	$	37,645,707

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Note 14 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of contractual obligations [text block]

	2019		2020		2021		2022		2023		More than 5 years		Total
Lease commitments	$	152,880		-		-		-		-		-	$	152,880
Other commitments	$	75,000	$	75,000		-		-		-		-	$	150,000
													$	302,880

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Note 15 - Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of compensation for key management personnel [text block]

	2018		2017		2016
Short-term benefits	$	2,800,188	$	2,176,345	$	1,742,021
Director fees		276,410		116,398		45,540
		3,076,598		2,292,743		1,787,561
Stock-based compensation		2,737,711		1,083,160		83,270
	$	5,814,309	$	3,375,903	$	1,870,831

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Note 16 - Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

Statement Line Items [Line Items]

Disclosure of currency risk [text block]

	December 31, 2018			December 31, 2017			December 31, 2016
	CA$			CA$			CA$
Cash		2,950,552			954,965			931,082
Interest, sales tax and other receivables		219,508			118,790			42,930
Accounts payable and accrued liabilities		(1,286,712	)		(1,303,339	)		(569,958	)
Net exposure		1,883,348			(229,584	)		404,054

	December 31, 2018			December 31, 2017			December 31, 2016
	EUR			EUR			EUR
Cash		96,689			139,056			98,060
Accounts payable and accrued liabilities		(1,000,853	)		(637,369	)		(421,451	)
Net exposure		(904,164	)		(498,313	)		(358,418	)

Disclosure of exchange rates

	Average rate		Reporting date rate
CA$ - US$		0.7719		0.7332
EURO – US$		1.1809		1.1467

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Note 1 - General Information (Details Textual)	1 Months Ended			3 Months Ended	12 Months Ended
	Oct. 31, 2018 USD ($) $ / shares shares	Aug. 31, 2017 USD ($) $ / shares shares	Jul. 31, 2017	Sep. 30, 2017 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Feb. 25, 2019 USD ($) $ / shares
Statement Line Items [Line Items]
Stock split, conversion ratio			11.99
Issuance of common stock | shares	6,095,000	9,191,000
Shares issued, price per share | $ / shares	$ 13.25	$ 15
Proceeds from initial public offering	$ 80,758,750	$ 137,865,000			$ 80,758,750	$ 137,865,000
Issue of equity					80,758,750	137,865,000
Total comprehensive income					(58,126,332)	(115,455,193)	$ (57,511,979)
Retained earnings					(149,738,640)	(91,612,308)
Convertible instrument, conversion ratio		1
Reduction of Deficit
Increase (decrease) through excess of carrying value of preferred shares and embedded derivatives liabilities over the stated capital of the preferred shares				$ 173,285,855		173,285,855
Net cash flows from (used in) operating activities					(49,144,712)	(35,566,460)	(18,828,083)
Share premium [member]
Statement Line Items [Line Items]
Issue of equity
Total comprehensive income
Reduction of Deficit		$ (173,285,855)				(173,285,855)
Increase (decrease) through excess of carrying value of preferred shares and embedded derivatives liabilities over the stated capital of the preferred shares						$ 173,285,855
Agreement with Ipsen [member]
Statement Line Items [Line Items]
Plan of arrangement, purchase price | $ / shares								$ 25
Plan of arrangement, contingent value right | $ / shares								$ 6
Plan of arrangement, maximum transaction value								$ 1,310,000,000
Major ordinary share transactions [member]
Statement Line Items [Line Items]
Shares issued, price per share | $ / shares	$ 13.25
Major ordinary share transactions [member] | At the market equity offering [member]
Statement Line Items [Line Items]
Sale of stock maximum offering value	$ 40,000,000
Equity issuance commission percentage	3.00%
Issue of equity	$ 0

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Note 2 - Significant Accounting Policies (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Statement Line Items [Line Items]
Current prepaid expenses	$ 2,406,868	$ 3,023,125
Non-current prepaid expenses	$ 1,038,606	$ 775,757
Computer software [member]
Statement Line Items [Line Items]
Amortisation method, intangible assets other than goodwill	5 years
Copyrights, patents and other industrial property rights, service and operating rights [member] | Bottom of range [member]
Statement Line Items [Line Items]
Amortisation method, intangible assets other than goodwill	9 years
Copyrights, patents and other industrial property rights, service and operating rights [member] | Top of range [member]
Statement Line Items [Line Items]
Amortisation method, intangible assets other than goodwill	20 years
Increase (decrease) due to corrections of prior period errors [member] | December 31, 2017 [member]
Statement Line Items [Line Items]
Current prepaid expenses	$ (775,757)
Non-current prepaid expenses	$ 775,757

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Note 2 - Significant Accounting Policies - Estimated Useful Lives (Details)	12 Months Ended
	Dec. 31, 2018
Computer equipment [member]
Statement Line Items [Line Items]
Estimated useful lives	Straight-line over 2 years
Office equipment [member]
Statement Line Items [Line Items]
Estimated useful lives	Straight-line over 2 years
Furniture [member]
Statement Line Items [Line Items]
Estimated useful lives	Straight-line over 5 years
Leasehold improvements [member]
Statement Line Items [Line Items]
Estimated useful lives	Straight-line over the term of the lease

XML

Note 5 - Investments (Details Textual)	12 Months Ended
	Dec. 31, 2018
Bottom of range [member]
Statement Line Items [Line Items]
Term deposits, interest rate	1.71%
Top of range [member]
Statement Line Items [Line Items]
Term deposits, interest rate	1.88%

XML

Note 5 - Investments - Term Deposits (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Short-term investments	$ 75,000,000	$ 30,000,000	$ 30,000,000
Long-term investments		75,000,000
Total deposit assets	$ 75,000,000	$ 105,000,000	$ 30,000,000

XML

Note 6 - Intangible Assets (Details Textual) - USD ($)		12 Months Ended
	Mar. 29, 2017	Dec. 31, 2018	Dec. 31, 2017
Statement Line Items [Line Items]
Purchase of intangible assets		$ 135,985	$ 1,000,000
Licences [member] | Galderma [member]
Statement Line Items [Line Items]
Purchase of intangible assets	$ 1,000,000

XML

Note 6 - Intangible Assets - Intangible Assets (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Intangible assets other than goodwill at end of period	$ 1,715,192	$ 894,584
Intangible assets other than goodwill at end of period	1,657,705	1,715,192	$ 894,584
Gross carrying amount [member]
Statement Line Items [Line Items]
Intangible assets other than goodwill at end of period	2,388,399	1,388,399	1,388,399
Additions	135,985	1,000,000
Intangible assets other than goodwill at end of period	2,524,384	2,388,399	1,388,399
Accumulated depreciation and amortisation [member]
Statement Line Items [Line Items]
Intangible assets other than goodwill at end of period	673,207	493,815	356,289
Amortization	193,472	179,392	137,526
Intangible assets other than goodwill at end of period	$ 866,679	$ 673,207	$ 493,815

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Note 7 - Preferred Shares (Details Textual)		1 Months Ended	3 Months Ended		12 Months Ended
	Mar. 16, 2017 USD ($) $ / shares shares	Aug. 31, 2017 $ / shares shares	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2018 $ / shares shares	Dec. 31, 2017 USD ($) shares	Oct. 31, 2018 $ / shares	Dec. 31, 2016 shares
Statement Line Items [Line Items]
Shares issued, price per share | $ / shares		$ 15					$ 13.25
Preferred shares, conversion ratio		1			1
Preferred shares, dividend rate					8.00%
Conversion of convertible preferred shares		20,076,224
Embedded derivative, fair value assumption, probability-weighted expected return method, weighted percentage			95.00%	75.00%
Embedded derivative, fair value assumption, Monte Carlo simulation model, weighted percentage			5.00%	25.00%
Public Offering Price | $ / shares		$ 15
Series C preferred shares [member]
Statement Line Items [Line Items]
Proceeds from issue of preference shares | $	$ 10,000,080					$ 10,000,080
Number of preferred shares issued during period	841,410
Shares issued, price per share | $ / shares	$ 11.88
Payments for share issue costs | $	$ 129,520					$ 129,520
Number of shares outstanding at end of period					0	0		0
Total number of shares issued					0	0		0
Series A preferred shares [member]
Statement Line Items [Line Items]
Shares issued, price per share | $ / shares					$ 2.44
Number of shares outstanding at end of period					0	0		13,409,796
Total number of shares issued					0	0		13,409,796
Series B preferred shares [member]
Statement Line Items [Line Items]
Shares issued, price per share | $ / shares					$ 10.30
Number of shares outstanding at end of period					0	0		5,825,018
Total number of shares issued					0	0		5,825,018

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Note 7 - Preferred Shares - Changes in Preferred Shares and Embedded Derivatives (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Embedded derivatives derived from series A preferred shares [member]
Statement Line Items [Line Items]
Balance		$ 83,355,470
Balance	83,355,470	61,893,086
Loss (gain) on re-measurement at fair value	85,089,013	21,462,384
Issuance of preferred shares
Excess reclassified as contributed surplus (total $173,285,855)	(168,444,483)
Embedded derivatives derived from series B preferred shares [member]
Statement Line Items [Line Items]
Balance		34,469,141
Balance	34,469,141	21,949,483
Loss (gain) on re-measurement at fair value	(7,093,016)	12,519,658
Issuance of preferred shares
Excess reclassified as contributed surplus (total $173,285,855)	(27,376,125)
Embedded derivatives derived from series C preferred shares [member]
Statement Line Items [Line Items]
Balance
Balance
Loss (gain) on re-measurement at fair value	(93,334)
Issuance of preferred shares	2,715,811
Excess reclassified as contributed surplus (total $173,285,855)	(2,622,477)
Series A preferred shares [member]
Statement Line Items [Line Items]
Balance	24,993,486	23,801,078
Accretion during the year	730,576	1,192,408
Loss on re-measurement at fair value
Issuance of preferred shares
Transaction costs
Original stated capital of preferred shares reclassified as share capital upon conversion	(32,708,047)
Excess reclassified as contributed surplus (total $173,285,855)	6,983,985
Balance		24,993,486
Series B preferred shares [member]
Statement Line Items [Line Items]
Balance	42,887,466	40,337,696
Accretion during the year	1,575,843	2,549,770
Loss on re-measurement at fair value
Issuance of preferred shares
Transaction costs
Original stated capital of preferred shares reclassified as share capital upon conversion	(59,999,141)
Excess reclassified as contributed surplus (total $173,285,855)	15,535,832
Balance		42,887,466
Series C preferred shares [member]
Statement Line Items [Line Items]
Balance
Accretion during the year	172,743
Loss on re-measurement at fair value
Issuance of preferred shares	7,284,269
Transaction costs	(94,345)
Original stated capital of preferred shares reclassified as share capital upon conversion	(10,000,080)
Excess reclassified as contributed surplus (total $173,285,855)	2,637,413
Balance

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Note 7 - Preferred Shares - Changes in Preferred Shares and Embedded Derivatives (Details) (Parentheticals) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2017
Statement Line Items [Line Items]
Excess of carrying value of preferred shares and embedded derivatives liabilities, over the stated capital of the preferred shares	$ 173,285,855	$ 173,285,855
Series A preferred shares [member]
Statement Line Items [Line Items]
Excess of carrying value of preferred shares and embedded derivatives liabilities, over the stated capital of the preferred shares		$ 173,285,855

XML

Note 7 - Preferred Shares - Key Assumptions (Details) $ / shares in Units, $ in Millions		1 Months Ended	12 Months Ended
	Mar. 16, 2017 USD ($) $ / shares	Aug. 31, 2017 $ / shares	Dec. 31, 2016 USD ($) $ / shares
Series A preferred shares [member]
Statement Line Items [Line Items]
Fair value of embedded derivative per share (in dollars per share) | $ / shares		$ 12.56	$ 6.22
Series A preferred shares [member] | Monte Carlo assumptions [member]
Statement Line Items [Line Items]
Time to exit (in years) (Year)			310 days
Starting equity value (in millions of $) | $			$ 249.6
Volatility			68.00%
Series B preferred shares [member]
Statement Line Items [Line Items]
Fair value of embedded derivative per share (in dollars per share) | $ / shares		4.70	$ 5.92
Series B preferred shares [member] | Monte Carlo assumptions [member]
Statement Line Items [Line Items]
Time to exit (in years) (Year)			310 days
Starting equity value (in millions of $) | $			$ 249.6
Volatility			68.00%
Series C preferred shares [member]
Statement Line Items [Line Items]
Fair value of embedded derivative per share (in dollars per share) | $ / shares	$ 3.23	$ 3.12
Series C preferred shares [member] | PWERM assumptions [member]
Statement Line Items [Line Items]
Range of exit multiples		3.4
Time to exit (in years) (Year)	182 days
Series C preferred shares [member] | PWERM assumptions [member] | Bottom of range [member]
Statement Line Items [Line Items]
Range of exit multiples	3.4
Series C preferred shares [member] | PWERM assumptions [member] | Top of range [member]
Statement Line Items [Line Items]
Range of exit multiples	4.1
Series C preferred shares [member] | Monte Carlo assumptions [member]
Statement Line Items [Line Items]
Time to exit (in years) (Year)
Starting equity value (in millions of $) | $	$ 298.1
Volatility	74.00%
Series C preferred shares [member] | Monte Carlo assumptions [member] | Weighted average [member]
Statement Line Items [Line Items]
Time to exit (in years) (Year)	273 days

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Note 8 - Share Capital (Details Textual)		1 Months Ended			12 Months Ended
	Aug. 31, 2017 USD ($) $ / shares	Oct. 31, 2018 USD ($) $ / shares shares	Aug. 31, 2017 USD ($) $ / shares shares	Jul. 31, 2017	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Statement Line Items [Line Items]
Stock split, conversion ratio				11.99
Preferred shares, conversion ratio			1		1
Conversion of convertible preferred shares | shares			20,076,224
Issuance of common stock | shares		6,095,000	9,191,000
Shares issued, price per share | $ / shares	$ 15	$ 13.25	$ 15
Proceeds from initial public offering		$ 80,758,750	$ 137,865,000		$ 80,758,750	$ 137,865,000
Legal and other advisory costs			$ 1,436,356
Financing costs, legal and other advisory costs	$ 586,043
Financing costs, underwriter fees	$ 9,650,550
Issue of equity					$ 80,758,750	$ 137,865,000
Advisory costs [member]
Statement Line Items [Line Items]
Payments for share issue costs		327,074
Underwriter fees [member]
Statement Line Items [Line Items]
Payments for share issue costs		$ 4,845,525
Major ordinary share transactions [member]
Statement Line Items [Line Items]
Shares issued, price per share | $ / shares		$ 13.25
Total number of shares issued | shares		6,095,000
Proceeds from issue of ordinary shares, gross		$ 80,758,750
Major ordinary share transactions [member] | At the market equity offering [member]
Statement Line Items [Line Items]
Sale of stock maximum offering value		$ 40,000,000
Equity issuance commission percentage		3.00%
Issue of equity		$ 0

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Note 9 - Share-based Payments (Details Textual)		12 Months Ended
	Jan. 01, 2019 shares	Dec. 31, 2018 USD ($) shares	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015
Statement Line Items [Line Items]
Number of share options outstanding in share-based payment arrangement at end of period		4,393,774	3,025,826	2,453,586	2,462,914
Share-based compensation arrangement, time-based options, vesting period		4 years
Share-based compensation arrangement, time-based options, vesting percentage, after one year with monthly vesting over the subsequent 36 months		25.00%
Expense from share-based payment transactions with employees		$ 4,800,597	$ 2,180,915	$ 174,419
Expense from share-based payment transactions with employees, allocated to general and administrative expenses		3,354,609	1,495,174	64,998
Expense from share-based payment transactions with employees, allocated to research and development expenses		1,445,988	$ 685,741	$ 109,421
Unrecognized share-based compensation expense, net of related forfeiture estimates		$ 6,100,000
Unrecognized share-based compensation expense, period for recognition		1 year 146 days
Employee stock option plan [member[
Statement Line Items [Line Items]
Number of share options available for issuance | shares		3,786,886
Number of share options outstanding in share-based payment arrangement at end of period		2,720,709	2,997,836	2,453,586
Share-based compensation arrangement, options, expiration period		10 years
2017 Omnibus Plan [member]
Statement Line Items [Line Items]
Number of share options available for issuance | shares	5,173,871
Number of share options outstanding in share-based payment arrangement at end of period		1,673,065	27,990	0
Number of share options available for issuance, increase, lower limit, percentage of common shares outstanding	4.00%		4.00%
Number of share options available for issuance, increase, lower limit, shares | shares		1,514,563
Share-based compensation arrangement, options, expiration period		7 years
2017 Omnibus Plan [member] | Top of range [member]
Statement Line Items [Line Items]
Number of share options available for issuance | shares		3,659,308
Performance-based stock options granted [member]
Statement Line Items [Line Items]
Number of share options outstanding in share-based payment arrangement at end of period		404,250
Expense from share-based payment transactions with employees		$ 0
Unrecognized share-based compensation expense		3,700,000
Deferred share units (DSUs) [member]
Statement Line Items [Line Items]
Expense from share-based payment transactions with employees, allocated to general and administrative expenses		$ 269,097	$ 0	$ 0
Number of other equity instruments granted in share-based payment arrangement		21,568
Weighted average exercise price of other equity instruments granted in share-based payment arrangement		$ 12.47

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Note 9 - Share-based Payments - Number of Stock Options Outstanding (Details)	12 Months Ended
	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Statement Line Items [Line Items]
Balance at beginning of year, options	3,025,826	2,453,586	2,462,914
Balance at beginning of year, weighted average exercise price	$ 2.61	$ 0.44	$ 0.44
Grant (number of stock options)	1,869,400	671,253
Issued during the year, weighted average exercise price	$ 14.16	$ 10.22
Exercised during the year, options	(51,484)	(99,013)
Exercised during the year, weighted average exercise price	$ 3.80	$ 0.32
Forfeited during the year, options	(449,968)		(9,328)
Forfeited during the year, weighted average exercise price	$ 10.13		$ 0.69
Balance at end of period, options	4,393,774	3,025,826	2,453,586
Balance at end of period, weighted average exercise price	$ 6.74	$ 2.61	$ 0.44

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Note 9 - Share-based Payments - Summary of Outstanding Stock Options (Details)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Statement Line Items [Line Items]
Number of stock options outstanding	4,393,774	3,025,826	2,453,586	2,462,914
Weighted average remaining contractual life	6
Weighted average remaining exercise price	$ 6.74	$ 2.61	$ 0.44	$ 0.44
Number of exercisable stock options	2,278,796
Weighted average exercise price	$ 1.66
Range 1 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	2,182,548
Weighted average remaining contractual life	5.3
Weighted average remaining exercise price	$ 0.34
Number of exercisable stock options	1,965,049
Weighted average exercise price	$ 0.34
Range 2 [member]
Statement Line Items [Line Items]
Exercise price	$ 4.81
Number of stock options outstanding	35,704
Weighted average remaining contractual life	6.9
Weighted average remaining exercise price	$ 4.81
Number of exercisable stock options	25,125
Weighted average exercise price	$ 4.81
Range 3 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	35,000
Weighted average remaining contractual life	6.6
Weighted average remaining exercise price	$ 8.75
Number of exercisable stock options
Weighted average exercise price
Range 4 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	502,457
Weighted average remaining contractual life	8.3
Weighted average remaining exercise price	$ 9.97
Number of exercisable stock options	263,723
Weighted average exercise price	$ 9.97
Range 5 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	258,980
Weighted average remaining contractual life	6.5
Weighted average remaining exercise price	$ 11.90
Number of exercisable stock options	3,331
Weighted average exercise price	$ 12.28
Range 6 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	866,720
Weighted average remaining contractual life	6.3
Weighted average remaining exercise price	$ 13.76
Number of exercisable stock options	12,655
Weighted average exercise price	$ 13.61
Range 7 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	405,365
Weighted average remaining contractual life	6.3
Weighted average remaining exercise price	$ 15.97
Number of exercisable stock options	8,913
Weighted average exercise price	$ 16.39
Range 8 [member]
Statement Line Items [Line Items]
Number of stock options outstanding	107,000
Weighted average remaining contractual life	6.3
Weighted average remaining exercise price	$ 17.77
Number of exercisable stock options
Weighted average exercise price
Bottom of range [member] | Range 1 [member]
Statement Line Items [Line Items]
Exercise price	0.29
Bottom of range [member] | Range 3 [member]
Statement Line Items [Line Items]
Exercise price	8.61
Bottom of range [member] | Range 4 [member]
Statement Line Items [Line Items]
Exercise price	9.70
Bottom of range [member] | Range 5 [member]
Statement Line Items [Line Items]
Exercise price	11.86
Bottom of range [member] | Range 6 [member]
Statement Line Items [Line Items]
Exercise price	13.40
Bottom of range [member] | Range 7 [member]
Statement Line Items [Line Items]
Exercise price	15.95
Bottom of range [member] | Range 8 [member]
Statement Line Items [Line Items]
Exercise price	17
Top of range [member] | Range 1 [member]
Statement Line Items [Line Items]
Exercise price	0.69
Top of range [member] | Range 3 [member]
Statement Line Items [Line Items]
Exercise price	9.58
Top of range [member] | Range 4 [member]
Statement Line Items [Line Items]
Exercise price	10.04
Top of range [member] | Range 5 [member]
Statement Line Items [Line Items]
Exercise price	12.28
Top of range [member] | Range 6 [member]
Statement Line Items [Line Items]
Exercise price	14.38
Top of range [member] | Range 7 [member]
Statement Line Items [Line Items]
Exercise price	16.50
Top of range [member] | Range 8 [member]
Statement Line Items [Line Items]
Exercise price	$ 18.98

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Note 9 - Share-based Payments - Fair Value Assumptions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Grant (number of stock options)	1,869,400	671,253
Weighted average fair value of stock options (in dollars per share)	$ 8.38	$ 6.80
Weighted average exercise price	$ 14.16	$ 10.22
Share price	$ 14.16	$ 10.22
Risk-free interest rate	2.68%	1.96%
Expected dividend yield
Volatility factor	74.86%	77.13%
Expected life (in years)	4.4	5.85

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Note 11 - Income Taxes (Details Textual)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Applicable tax rate	26.70%	26.80%	26.90%

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Note 11 - Income Taxes - Reconciliation of Income Tax (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Loss before income taxes	$ (57,160,481)	$ (114,811,428)	$ (57,365,525)
Statutory income tax rate	26.70%	26.80%	26.90%
Computed income tax recovery	$ (15,261,848)	$ (30,769,463)	$ (15,431,326)
Unrecorded potential tax benefits	14,420,791	9,434,421	5,165,985
Decrease in deferred tax assets resulting from a reduction in tax rate	108,306	106,805	217,675
Income taxable at a different foreign tax rate	34,550	115,247	43,494
Accounting charges not deducted for tax and other	1,664,052	21,756,755	10,150,626
Current income tax expense	$ 965,851	$ 643,765	$ 146,454

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Note 11 - Income Taxes - Changes in Deferred Tax Liabilities (Asset) (Details) - USD ($)	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Deferred tax assets	$ 41,107,980	$ 26,599,779	$ 14,427,664
Deferred tax liability (asset)	41,107,980	26,599,779	14,424,455
Unrecorded deferred income tax assets	(41,107,980)	(26,599,779)	(14,424,455)
Unused tax losses [member]
Statement Line Items [Line Items]
Deferred tax assets	35,883,150	21,923,593	12,938,264
Unused research and development expenditures [member]
Statement Line Items [Line Items]
Deferred tax assets	2,766,408	1,807,596	1,178,910
Financing costs [member]
Statement Line Items [Line Items]
Deferred tax assets	1,896,242	2,470,787	17,201
Costs relating to patents and others [member]
Statement Line Items [Line Items]
Deferred tax assets	119,314	139,380	118,564
Property and equipment [member]
Statement Line Items [Line Items]
Deferred tax assets	442,866	258,423	174,725
Deferred tax liabilities			$ (3,209)

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Note 11 - Income Taxes - Loss Carryforwards, Unclaimed Deductions and Credits Available for Carryforward (Details)	Dec. 31, 2018 USD ($)
Statement Line Items [Line Items]
Losses carried forward, provincial	$ 134,510,333
Losses carried forward, federal	136,110,648
Unused tax credits, federal	1,704,128
Unused tax losses, expiring 2029 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	39,492
Losses carried forward, federal	39,508
R&D Tax Credits [member]
Statement Line Items [Line Items]
Unused tax credits, state	1,080,814
Unused tax losses, expiring 2030 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	153,102
Losses carried forward, federal	153,353
Unused tax losses, expiring 2031 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	88,677
Losses carried forward, federal	89,381
Unused tax losses, expiring 2032 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	77,368
Losses carried forward, federal	92,095
Unused tax losses, expiring 2033 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	2,631,911
Losses carried forward, federal	2,722,029
Unused tax losses, expiring 2034 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	7,902,544
Losses carried forward, federal	8,103,485
Unused tax losses, expiring 2035 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	18,705,985
Losses carried forward, federal	18,980,654
Unused tax losses, expiring 2036 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	18,711,295
Losses carried forward, federal	19,046,349
Unused tax losses, expiring 2037 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	33,829,690
Losses carried forward, federal	33,978,229
Unused tax losses, expiring 2038 [member]
Statement Line Items [Line Items]
Losses carried forward, provincial	52,370,269
Losses carried forward, federal	52,905,565
Unused tax credits, federal	654,025
Unused tax credits, Expiring 2033 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	76,818
Unused tax credits, Expiring 2034 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	260,594
Unused tax credits, Expiring 2035 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	203,856
Unused tax credits, Expiring 2036 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	154,272
Unused tax credits, Expiring 2037 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	354,563
Orphan drug tax credits, Expiring 2037 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	900,109
Orphan drug tax credits, Expiring 2038 [member]
Statement Line Items [Line Items]
Unused tax credits, federal	3,075,708
Orphan drug tax credits [member]
Statement Line Items [Line Items]
Unused tax credits, federal	$ 3,975,817

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Note 12 - Additional Information on the Consolidated Statements of Net Loss and Comprehensive Loss - Net Loss and Comprehensive Loss (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Employee benefits expense, included in research and development expenses	$ 6,530,389	$ 4,475,640	$ 2,352,591
Depreciation of property and equipment, included in research and development expenses	11,602	16,879	20,544
Rent expense, included in research and development expenses	466,604	444,427	360,565
Employee benefits expense, included in general and administrative expenses	6,950,520	3,759,584	1,677,808
Depreciation of property and equipment, included in general and administrative expenses	7,206	8,418	14,511
Amortization of intangible assets, included in general and administrative expenses	193,472	179,392	137,526
Rent expense, included in general and administrative expenses	$ 182,804	$ 120,261	$ 132,110

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Note 13 - Financial Expenses - Financial Expenses (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Transaction costs – embedded derivatives		$ 35,175
Accretion of preferred shares		2,479,162	3,742,178
Loss on re-measurement at fair value – embedded derivatives		77,902,663	33,982,042
Bank charges and other interest	17,360	14,320	11,487
Foreign exchange losses (gains)	144,044	6,482	(90,000)
Total financial expenses	$ 161,404	$ 80,437,802	$ 37,645,707

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Note 14 - Commitments and Contingencies (Details Textual) - USD ($)		1 Months Ended			12 Months Ended
	Jan. 31, 2019	Mar. 31, 2019	Feb. 28, 2019	Jan. 31, 2018	Dec. 31, 2018	Dec. 31, 2017	Mar. 29, 2017	Oct. 31, 2018
Statement Line Items [Line Items]
Purchase of intangible assets					$ 135,985	$ 1,000,000
Hoffman-La Roche [member]
Statement Line Items [Line Items]
Contractual commitments for acquisition of intangible assets					1,000,000
Accounts payable, as result of achievement of a clinical development milestone					11,000,000
Additional contractual commitments for acquisition of intangible assets					1,000,000
Addition Contractual Commitments for Potential Royalties					37,500,000
Purchase of intangible assets				$ 1,000,000
Contractual commitments for acquisition of intangible assets, clinical milestones					2,000,000
Thomas Jefferson University [member]
Statement Line Items [Line Items]
Contractual commitments for acquisition of intangible assets					100,000
Accounts payable, as result of achievement of a clinical development milestone					250,000
Purchase of intangible assets					100,000
Yamaguchi University [member]
Statement Line Items [Line Items]
Contractual commitments for acquisition of intangible assets, clinical milestones					75,000
Contractual commitments for acquisition of intangible assets, regulatory milestones					150,000
Galderma [member]
Statement Line Items [Line Items]
Contractual commitments for acquisition of intangible assets, clinical milestones							$ 2,000,000
Contractual commitments for acquisition of intangible assets, regulatory milestones							25,500,000
Technology Access Fees							$ 700,000
Head office lease in Montreal, Quebec, Canada [member]
Statement Line Items [Line Items]
Lease termination fee, accrued					$ 62,000			$ 62,000
Head office lease in Montreal, Quebec, Canada [member] | Entering into significant commitments or contingent liabilities [member]
Statement Line Items [Line Items]
Lease annual payment	$ 400,000
Office space in Newton Massachusetts [member] | Entering into significant commitments or contingent liabilities [member]
Statement Line Items [Line Items]
Lease annual payment			$ 465,000
Lease monthly payment		$ 50,000

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Note 14 - Commitments and Contingencies - Minimum Annual Payments of Leases (Details)	Dec. 31, 2018 USD ($)
Statement Line Items [Line Items]
Lease commitments	$ 152,880
Other commitments	150,000
	302,880
Not later than one year [member]
Statement Line Items [Line Items]
Lease commitments	152,880
Other commitments	75,000
Later than one year and not later than two years [member]
Statement Line Items [Line Items]
Lease commitments
Other commitments	75,000
Later than two years and not later than three years [member]
Statement Line Items [Line Items]
Lease commitments
Other commitments
Later than three years and not later than four years [member]
Statement Line Items [Line Items]
Lease commitments
Other commitments
Later than four years and not later than five years [member]
Statement Line Items [Line Items]
Lease commitments
Other commitments
Later than five years [member]
Statement Line Items [Line Items]
Lease commitments
Other commitments

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Note 15 - Related Party Transactions (Details Textual) - USD ($)	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Company controlled by an investor [member]
Statement Line Items [Line Items]
Amounts receivable, related party transactions			$ 59,022
Key management personnel of entity or parent [member]
Statement Line Items [Line Items]
Amounts payable, related party transactions	$ 875,643	$ 589,787	$ 355,327

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Note 15 - Related Party Transactions - Compensation of Key Management Personnel (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement Line Items [Line Items]
Short-term benefits	$ 2,800,188	$ 2,176,345	$ 1,742,021
Director fees	276,410	116,398	45,540
	3,076,598	2,292,743	1,787,561
Stock-based compensation	2,737,711	1,083,160	83,270
	$ 5,814,309	$ 3,375,903	$ 1,870,831

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Note 16 - Financial Instruments (Details Textual)	12 Months Ended
	Dec. 31, 2018 USD ($)
Statement Line Items [Line Items]
Foreign currency risk, gain (loss) on 10% depreciation or appreciation of US dollar against the Canadian dollar	$ 138,087
Foreign currency risk, gain (loss) on 10% depreciation or appreciation of US dollar against the Euro	$ 103,681

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Note 16 - Financial Instruments - Exposed to Currency Risk (Details)	Dec. 31, 2018 CAD ($)	Dec. 31, 2018 EUR (€)	Dec. 31, 2017 CAD ($)	Dec. 31, 2017 EUR (€)	Dec. 31, 2016 CAD ($)	Dec. 31, 2016 EUR (€)
Statement Line Items [Line Items]
Cash	$ 2,950,552	€ 96,689	$ 954,965	€ 139,056	$ 931,082	€ 98,060
Interest, sales tax and other receivables	219,508		118,790		42,930
Accounts payable and accrued liabilities	(1,286,712)	(1,000,853)	(1,303,339)	(637,369)	(569,958)	(421,451)
Net exposure	$ 1,883,348	€ (904,164)	$ (229,584)	€ (498,313)	$ 404,054	€ (358,418)

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Note 16 - Financial Instruments - Exchange Rates (Details)	12 Months Ended
	Dec. 31, 2018
Canada, Dollars
Statement Line Items [Line Items]
Average rate	0.7719
Reporting date rate	0.7332
Euro Member Countries, Euro
Statement Line Items [Line Items]
Average rate	1.1809
Reporting date rate	1.1467

XML

Note 17 - Operating Segments (Details Textual)	Dec. 31, 2018
Statement Line Items [Line Items]
Percentage of property and equipment located at Canada	92.00%
Percentage of property and equipment located at United States	8.00%

XML

Note 18 - Subsequent Events (Details Textual)			1 Months Ended			2 Months Ended	3 Months Ended	12 Months Ended
	Feb. 25, 2019 USD ($) $ / shares	Jan. 31, 2019 USD ($)	Mar. 31, 2019 USD ($)	Feb. 28, 2019 USD ($)	Jan. 31, 2019 USD ($)	Feb. 27, 2019	Mar. 28, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Feb. 24, 2019 shares	Oct. 31, 2018 USD ($)
Statement Line Items [Line Items]
Number of share options granted in share-based payment arrangement								1,869,400	671,253
Weighted average exercise price of share options granted in share-based payment arrangement								$ 14.16	$ 10.22
Major ordinary share transactions [member]
Statement Line Items [Line Items]
Number of share options granted in share-based payment arrangement						3	1,629,250
Weighted average exercise price of share options granted in share-based payment arrangement							$ 14.60
Agreement with Ipsen [member]
Statement Line Items [Line Items]
Plan of arrangement, purchase price | $ / shares	$ 25
Plan of arrangement, contingent value right | $ / shares	$ 6
Plan of arrangement, maximum transaction value	$ 1,310,000,000
Plan of arrangement, termination fee payable in special circumstances	35,000,000
Plan of arrangement, estimated fess and costs	$ 25,700,000
Agreement with Ipsen [member] | Deferred share units (DSUs) [member]
Statement Line Items [Line Items]
Number of shares authorised | shares											39,225
Head office lease in Montreal, Quebec, Canada [member]
Statement Line Items [Line Items]
Lease termination fee, accrued								$ 62,000				$ 62,000
Head office lease in Montreal, Quebec, Canada [member] | Entering into significant commitments or contingent liabilities [member]
Statement Line Items [Line Items]
Lease annual payment		$ 400,000
Head office lease in Montreal, Quebec, Canada [member] | Ordinary transactions [member]
Statement Line Items [Line Items]
Payments for lease termination fee					$ 62,000
Office space in Newton Massachusetts [member] | Entering into significant commitments or contingent liabilities [member]
Statement Line Items [Line Items]
Lease annual payment				$ 465,000
Lease monthly payment			$ 50,000