Form 20-F for ViRexx Medical Corp.
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
o |
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, 2006
OR
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Commission
file number: 1-32608
ViRexx
Medical Corp.
(Exact
name of Registrant as specified in its charter)
Alberta,
Canada
(Jurisdiction
of incorporation or organization)
8223
Roper Road NW, Edmonton, Alberta, Canada T6E 6S4
(Address
of principal executive offices)
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
American Stock Exchange (“AMEX”)
Toronto
Stock Exchange (“TSX” )
|
Securities
registered or to be registered pursuant to Section 12(g) of the
Act.
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.
As
of
December 31, 2006, there were 72,760,717 outstanding common shares of
ViRexx.
Indicate
by check mark if the registrant is a well-known seasoned issuer as defined
in
Rule 405 of the Securities Act.
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.
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer.
o Large
Accelerated filer
|
o Accelerated
filer
|
x Non-accelerated
filer
|
Indicate
by check mark which financial statement item the registrant has elected to
follow.
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).
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of the securities under
a
plan confirmed by a court.
Table
of Contents
FORWARD
LOOKING STATEMENTS
|
5
|
PART
I
|
|
5
|
Item
1.
|
Identity
of Directors, Senior Management and Advisors
|
5
|
Item
2.
|
Offer
Statistics and Expected Timetable
|
5
|
Item
3.
|
Key
Information
|
5
|
A.
|
Selected
financial data
|
5
|
B.
|
Capitalization
and indebtedness
|
8
|
C.
|
Reasons
for the offer and use of proceeds
|
9
|
D.
|
Risk
factors
|
9
|
Item
4.
|
Information
on ViRexx
|
22
|
A.
|
History
and Development of ViRexx
|
22
|
B.
|
Business
overview
|
24
|
C.
|
Organizational
structure
|
41
|
D.
|
Property,
plants and equipment
|
42
|
Item
4A.
|
Unresolved
Staff Comments
|
42
|
Item
5.
|
Operating
and Financial Review and Prospects
|
42
|
Item
6.
|
Directors,
Senior Management and Employees
|
55
|
A.
|
Directors
and senior management
|
55
|
B.
|
Compensation
|
63
|
C.
|
Board
practices
|
64
|
D.
|
Employees
|
66
|
E.
|
Share
ownership
|
66
|
F.
|
Pension
and Retirement Plans and Payments upon Termination of
Employment
|
70
|
Item
7.
|
Major
Shareholders and Related Party Transactions
|
70
|
A.
|
Major
shareholders
|
70
|
B.
|
Related
party transactions
|
70
|
C.
|
Interests
of experts and counsel
|
70
|
Item
8.
|
Financial
Information
|
71
|
A.
|
Consolidated
Statements and Other Financial Information
|
71
|
B.
|
Significant
Changes
|
71
|
Item
9.
|
The
Offer and Listing
|
71
|
A.
|
Offer
and listing details
|
71
|
B.
|
Plan
of distribution
|
73
|
C.
|
Markets
|
73
|
D.
|
Selling
shareholders
|
73
|
E.
|
Dilution
|
73
|
F.
|
Expenses
of the issue
|
73
|
Item
10.
|
Additional
Information
|
74
|
A.
|
Share
capital
|
74
|
B.
|
Memorandum
and articles of association
|
74
|
C.
|
Material
contracts
|
78
|
D.
|
Exchange
controls
|
83
|
E.
|
Taxation
|
83
|
F.
|
Dividends
and paying agents
|
86
|
G.
|
Statement
by experts
|
86
|
H.
|
Documents
on display
|
86
|
I.
|
Subsidiary
Information
|
87
|
Item
11.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
87
|
Item
12.
|
Description
of Securities Other than Equity Securities
|
87
|
|
|
|
PART
II
|
|
87
|
|
|
|
Item
13.
|
Defaults,
Dividend Arrearages and Delinquencies
|
87
|
Item
14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
87
|
Item
15.
|
Controls
and Procedures
|
87
|
Item
16.
|
[Reserved]
|
88
|
Item
16A
|
—
Audit Committee Financial Expert
|
88
|
Item
16B
|
—
Code of Ethics
|
88
|
Item
16C
|
—
Principal Accountant Fees and Services
|
88
|
Item
16D
|
—
Exemption from the Listing Standards for Audit
Committees
|
89
|
Item
16E
|
—
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
|
89
|
|
|
|
PART
III
|
|
90
|
Item
17.
|
Financial
Statements
|
90
|
Item
18.
|
Financial
Statements
|
91
|
Item
19.
|
Exhibits
|
91
|
SIGNATURES
|
|
92
|
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 20-F (the “Annual Report”) contains “forward-looking
statements” within the meaning of the United States Private Securities
Litigation Reform Act of 1995. A holder of shares (“Shareholders”) can identify
these forward looking statements when they see us using words such as “expect”,
“anticipate”, “estimate”, “believe”, “may”, “potential”, “intends”, “plans” and
other similar expressions or statements incorporating a modal verb such that
an
action, event or result “will”, “may”, “could” or “should” be taken, occur or be
achieved, or the negative thereof, or other similar statements. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by these forward-looking
statements. Important factors that could cause or contribute to such differences
include our ability to successfully develop our product candidates and
commercialize them into saleable products, the introduction of competing
products, the difficulty of predicting Food and Drug Administration (“FDA”),
European Medicines Agency (“EMEA”) and other regulatory authority approvals, the
regulatory environment and changes in the health policies and structures of
various countries, our ability to successfully identify, consummate and
integrate acquisitions, our potential exposure to product candidates, product
liability claims, our dependence on patent and other protections for our product
candidates, fluctuations in currency, exchange and interest rates and operating
results and other risks and uncertainties described under “ Item 3 -
Key Information - Risk Factors”
and
elsewhere in this Annual Report.
Forward-looking
statements are based on the beliefs, opinions and expectations of our management
on the date the statements are made. Although we believe that the
forward-looking statements presented in this document are reasonable, we do
not
guarantee that they accurately or completely predict, reflect or state future
results, levels of activity, performance, achievements or occurrence and we
do
not assume responsibility for failure to do so. Except as required by law we
do
not undertake to update forward-looking information to reflect actual results,
new information, occurrence of future events, or changes in management’s
beliefs, opinions or expectations. No undue reliance should be placed on such
forward-looking statements.
PART
I
In
this Annual Report, except where otherwise indicated, all references to the
“Corporation,” “we,” “our” and “ViRexx” refer to ViRexx Medical Corp., its
subsidiaries, and where the context requires, its predecessors. References
to
“dollars” as “CDN$” or “$” are to Canadian dollars and references to “U.S.$” are
to United States dollars.
A.
|
Directors
and Senior Management
|
Not
applicable
Not
applicable.
Not
applicable.
Item
2.
|
OFFER
STATISTICS AND EXPECTED
TIMETABLE
|
Not
Applicable.
A.
|
Selected
Financial Data
|
The
selected consolidated financial data presented below is derived from the audited
annual financial statements for the years ended December 31, 2006, December
31, 2005, December 31, 2004, December 31, 2003 and December 31,
2002.
The
selected financial data should be read in conjunction with Item 5 -
“Operating and Financial Review and Prospects,” the financial statements and
other financial information included elsewhere in this Annual
Report.
We
prepared our Consolidated Financial Statements in accordance with Canadian
Generally Accepted Accounting Principles (“GAAP”). GAAP differs in certain
material respects from United States Generally Accepted Accounting Principles
(“U.S. GAAP”). For discussion of the principal differences between Canadian GAAP
and U.S. GAAP as they pertain to us, see Note 18 to our audited Consolidated
Financial Statements for the year ended December 31, 2006, included elsewhere
in
this Annual Report. Note 18 to our Consolidated Financial Statements also
provides a reconciliation of our Consolidated Financial Statements to United
States Generally Accepted Accounting Principles.
Our
fiscal year ends on December 31. We designate our fiscal year by the year in
which that fiscal year ends; e.g., fiscal year 2006 refers to our fiscal year
ended December 31, 2006.
(In
thousands, except per share data)
|
|
|
Years
ended December 31,
|
|
|
|
|
2006
(1)
|
|
|
2005
(1)
|
|
|
2004
(1)
|
|
|
2003
(1)
|
|
|
2002
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,786
|
|
|
4,692
|
|
|
1,727
|
|
|
383
|
|
|
272
|
|
Corporate
administration
|
|
|
4,523
|
|
|
3,251
|
|
|
1,577
|
|
|
682
|
|
|
816
|
|
Amortization
|
|
|
2,771
|
|
|
2,499
|
|
|
71
|
|
|
31
|
|
|
37
|
|
Fair
value of stock options issued to employees related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
151
|
|
|
58
|
|
|
70
|
|
|
-
|
|
|
-
|
|
Corporate
administration
|
|
|
454
|
|
|
399
|
|
|
311
|
|
|
211
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
13,685
|
|
|
10,899
|
|
|
3,756
|
|
|
1,307
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(13,685
|
)
|
|
(10,899
|
)
|
|
(3,756
|
)
|
|
(1,307
|
)
|
|
(1,125
|
)
|
Interest
income
|
|
|
400
|
|
|
222
|
|
|
143
|
|
|
8
|
|
|
-
|
|
Debenture
interest
|
|
|
-
|
|
|
(95
|
)
|
|
(62
|
)
|
|
(76
|
)
|
|
(40
|
)
|
Loss
(gain) on foreign exchange
|
|
|
(31
|
)
|
|
(46
|
)
|
|
15
|
|
|
4
|
|
|
|
|
Gain
(loss) on disposal of property and equipment
|
|
|
1
|
|
|
-
|
|
|
2
|
|
|
(13
|
)
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(13,315
|
)
|
|
(10,818
|
)
|
|
(3,658
|
)
|
|
(1,384
|
)
|
|
(1,260
|
)
|
Income
tax (expense) recovery
|
|
|
(4,179
|
)
|
|
3,358
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
(17,494
|
)
|
|
(7,460
|
)
|
|
(3,658
|
)
|
|
(1,384
|
)
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
(0.25
|
)
|
|
(0.13
|
)
|
|
(0.14
|
)
|
|
(0.15
|
)
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average no. shares outstanding
|
|
|
68,921
|
|
|
55,827
|
|
|
25,268
|
|
|
9,129
|
|
|
8,763
|
|
(In
thousands, except per share data)
|
|
|
Years
ended December 31,
|
|
|
|
|
2006
(1)
|
|
|
2005
(1)
|
|
|
2004
(1)
|
|
|
2003
(1)
|
|
|
2002
(1)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
10,742
|
|
|
5,572
|
|
|
9,463
|
|
|
2,709
|
|
|
131
|
|
Total
assets
|
|
|
38,950
|
|
|
36,286
|
|
|
45,722
|
|
|
3,742
|
|
|
1,093
|
|
Long-term
liabilities
|
|
|
5,352
|
|
|
1,168
|
|
|
6,750
|
|
|
35
|
|
|
657
|
|
Total
shareholders’ equity (deficit)
|
|
|
31,999
|
|
|
34,448
|
|
|
37,191
|
|
|
2,095
|
|
|
(56
|
)
|
(1)
Derived form the audited financial statements for the year then
ended.
Selected
U.S. GAAP Financial Data
(In
thousands, except per share data)
|
|
|
Years
ended December 31,
|
|
|
|
|
2006
(1)
|
|
|
2005
(1)
|
|
|
2004
(1)
|
|
|
2003
(1)
|
|
|
2002
(1)
|
|
Revenues
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
5,786
|
|
|
4,692
|
|
|
1,727
|
|
|
383
|
|
|
272
|
|
Corporate
administration
|
|
|
4,523
|
|
|
3,251
|
|
|
1,577
|
|
|
682
|
|
|
816
|
|
Amortization
|
|
|
150
|
|
|
142
|
|
|
69
|
|
|
29
|
|
|
35
|
|
Fair
value of stock options issued to employees related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
151
|
|
|
58
|
|
|
70
|
|
|
-
|
|
|
-
|
|
Corporate
administration
|
|
|
454
|
|
|
399
|
|
|
311
|
|
|
945
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
11,064
|
|
|
8,542
|
|
|
3,754
|
|
|
2,039
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(11,064
|
)
|
|
(8,542
|
)
|
|
(3,754
|
)
|
|
(2,039
|
)
|
|
(1,123
|
)
|
Interest
income
|
|
|
400
|
|
|
222
|
|
|
143
|
|
|
8
|
|
|
-
|
|
Debenture
interest
|
|
|
-
|
|
|
(95
|
)
|
|
(62
|
)
|
|
(76
|
)
|
|
(40
|
)
|
(Loss)
gain on foreign exchange
|
|
|
(31
|
)
|
|
(46
|
)
|
|
15
|
|
|
4
|
|
|
(1
|
)
|
Gain
(loss) on disposal of property and equipment
|
|
|
1
|
|
|
-
|
|
|
2
|
|
|
(13
|
)
|
|
(95
|
)
|
Acquired
intellectual property
Acquired
intellectual property
|
|
|
|
|
|
|
|
|
(27,804
|
)
|
|
(75
|
)
|
|
(131
|
)
|
Loss
before income taxes
|
|
|
(10,694
|
)
|
|
(8,461
|
)
|
|
(31,459
|
)
|
|
(2,191
|
)
|
|
(1,390
|
)
|
Income
tax (expense) recovery
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
(10,694
|
)
|
|
(8,461
|
)
|
|
(31,459
|
)
|
|
(2,191
|
)
|
|
(1,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
(0.16
|
)
|
|
(0.15
|
)
|
|
(1.25
|
)
|
|
(0.24
|
)
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average no. shares outstanding
|
|
|
68,921
|
|
|
55,827
|
|
|
25,268
|
|
|
9,129
|
|
|
8,763
|
|
(In
thousands, except per share data)
|
|
|
Years
ended December 31,
|
|
|
|
|
2006
(1)
|
|
|
2005
(1)
|
|
|
2004
(1)
|
|
|
2003
(1)
|
|
|
2002
(1)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
10,742
|
|
|
5,572
|
|
|
9,463
|
|
|
2,709
|
|
|
131
|
|
Total
assets
|
|
|
11,580
|
|
|
6,296
|
|
|
11,152
|
|
|
3,480
|
|
|
904
|
|
Long-term
liabilities
|
|
|
5
|
|
|
-
|
|
|
-
|
|
|
35
|
|
|
746
|
|
Total
shareholders’ equity (deficit)
|
|
|
9,977
|
|
|
5,626
|
|
|
9,311
|
|
|
1,774
|
|
|
(245
|
)
|
(1)
Derived form the audited financial statements for the year then ended.
Currency
and Exchange Rates
The
following table sets out the exchange rates for U.S. dollars expressed in terms
of one Canadian dollar in effect at the end of the following periods, and the
average exchange rates (based on the average of the exchange rates on the last
day of each month in such periods)):
|
|
|
|
|
U.S.
Dollars Per One Canadian Dollar
Year
Ended December 31
|
|
|
January
- February 2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
End
of period
|
|
0.85
|
|
0.86
|
|
0.86
|
|
0.83
|
|
0.77
|
|
0.63
|
|
Average
for the period
|
|
0.85
|
|
0.88
|
|
0.82
|
|
0.76
|
|
0.71
|
|
0.63
|
|
The
following table sets out the high and low exchange rates for U.S. dollars
expressed in terms of one Canadian dollar in effect at the end of the following
periods:
|
U.S.
Dollars per One Canadian Dollar
|
|
|
February
2007
|
|
January
2007
|
|
December
2006
|
|
November
2006
|
|
October
2006
|
|
September
2006
|
|
High
for the month
|
|
0.86
|
|
0.86
|
|
0.88
|
|
0.89
|
|
0.90
|
|
0.90
|
|
Low
for the month
|
|
0.84
|
|
0.85
|
|
0.86
|
|
0.87
|
|
0.88
|
|
0.89
|
|
Exchange
rates are based upon the noon buying rate in New York City for cable transfers
in foreign currencies, as certified for customs purposes by the United States
Federal Reserve Bank of New York. The noon rate of exchange on March 2,
2007 as reported by the United States Federal Reserve Bank of New York for
the
conversion of Canadian dollars into United States dollars was CDN$1.00 =
U.S.$0.85.
B.
|
Capitalization
and Indebtedness
|
Common
Shares
We
are
authorized to issue an unlimited number of common shares. As of December 31,
2006, we had 72,760,717 common shares outstanding. A summary of transactions
during the twelve month period ended December 31, 2005 is outlined
below:
|
|
Common
shares
|
|
|
|
#
|
|
|
$
|
|
Balance
- December 31, 2005
|
|
58,443,445
|
|
|
45,989,189
|
|
Exercise
of stock options
|
|
590,000
|
|
|
439,341
|
|
Private
placements
|
|
13,527,272
|
|
|
9,032,430
|
|
Common
shares issued
|
|
200,000
|
|
|
148,000
|
|
Share
issue costs
|
|
-
|
|
|
(1,544,280)
|
|
Balance
- December 31, 2006
|
|
72,760,717
|
|
|
54,064,680
|
|
All
cash
proceeds from the issuance of common shares are used for general working capital
purposes.
Normal
Course Issuer Bid
On
December 21, 2004, we received approval for a Normal Course Issuer Bid allowing
ViRexx to repurchase up to 2,663,824 common shares during the period beginning
December 23, 2004 to December 22, 2005, at the market price at the time of
purchase. We repurchased 2,056,900 common shares at a weighted average price
of
$1.10 per share for the period January 1, 2005 to December 22, 2005, which
resulted in a charge of $1,645,113 to share capital and a charge of $610,663
to
the deficit. (See
Item
16E).
Stock
Options
See
Note
13 of Item 18. Our stock option plan permits the issuance of stock options
equivalent to 8,256,000 common shares. As at December 31, 2006, we had 6,096,241
stock options outstanding of which 5,282,401 are exercisable. The expiry dates
of outstanding stock options range from April 30, 2007 to March 28,
2016.
A
summary
of transactions during the period ending December 31, 2006 is outlined
below:
|
|
|
Stock
Options
|
|
|
Weighted
exercise price
|
|
|
|
|
# |
|
|
$ |
|
Outstanding
Balance - December 31, 2005
|
|
|
6,670,200
|
|
|
0.84
|
|
Granted
|
|
|
837,363
|
|
|
1.00
|
|
Cancelled
|
|
|
(821,322
|
)
|
|
0.91
|
|
Exercised
|
|
|
(590,000
|
)
|
|
0.50
|
|
Balance
- December 31, 2006
|
|
|
6,096,241
|
|
|
0.81
|
|
On
February 1, 2005, we granted 300,000 stock options as an inducement to an
individual to join ViRexx as an officer. The options are exercisable at $1.17
per share and expire on February 1, 2015. These options were not issued under
the Plan. One-third of these options vested immediately and the remaining
options will vest over a period of two years. Effective April 13, 2005, 30,000
options were granted as an inducement for an individual to join ViRexx. These
options expire on April 13, 2015 and are exercisable at a price of $1.46 per
share. Effective May 1, 2005, 50,000 options were granted to a consultant to
ViRexx. These options expire on May 1, 2007 and are exercisable at a price
of
$1.39 per share. Effective November 1, 2005, 60,000 options were granted as
partial inducement for an individual to join ViRexx as Director, Business
Development. The options are exercisable at $0.99 per share and expire on
November 1, 2015. These options vest over a period of three years. Effective
November 1, 2005, 500,000 options were granted as an inducement to another
individual to join ViRexx as Chief Executive Officer. These options are
exercisable at $0.99 per share and expire on November 1, 2015. These options
vest over a period of three years.
Warrants
See
Note
13 of Item 17. As at December 31, 2006, we had 17,077,471 warrants outstanding
at a weighted average price of $1.48. The expiry date of outstanding warrants
range from September 9, 2007 to December 6, 2008. A summary of transactions
during the period is outlined below:
|
|
Warrants
|
|
|
Weighted
exercise price
|
|
|
|
#
|
|
|
$
|
|
Balance
- December 31, 2005
|
|
2,819,299
|
|
|
1.56
|
|
Granted
|
|
14,618,172
|
|
|
1.48
|
|
Exercised
|
|
-
|
|
|
-
|
|
Cancelled/Expired
|
|
(360,000)
|
|
|
4.00
|
|
Balance
- December 31, 2006
|
|
17,077,471
|
|
|
1.48
|
|
C.
|
Reasons
for the Offer and Use of
Proceeds
|
Not
applicable.
An
investment in our common shares involves a high degree of risk and should be
considered speculative. You should carefully consider the risks and
uncertainties described below, as well as other information contained in this
Annual Report, including under Item 5: "Operating and Financial Review and
Prospects" and in our financial statements and accompanying notes, before making
any investment. If any of the following risks occur, our business, financial
condition, and results of operations could be seriously harmed and you could
lose all or part of your investment.
RISKS
RELATED TO OUR FINANCIAL CONDITION
THERE
IS
EXPRESSED DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY
HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.
Our
financial statements included in this Annual Report were prepared assuming
that
the Company will continue as a going concern. However, we have incurred
operating losses, expect to continue to incur significant losses, and have
not
achieved any significant revenues since our inception. During the fiscal year
ended December 31, 2006, we did secure $15,000,000 of additional financing.
While the proceeds of this financing have significantly aided our liquidity
difficulties, our ability to sustain operations for more than a 12 month period
without further financing cannot be assured. Without additional funding and
milestone payments from potential product out-licensing, we will have inadequate
funds to continue our existing corporate, administrative, and operational
functions beyond the fourth quarter of 2007. We also have commitments under
our
University of Alberta license agreement to make milestone payments of $250,000
when we enter Phase III clinical trials on each of the product candidates
derived from the intellectual property licensed under that
Agreement.
Our
ability to continue as a going concern is subject to our ability to generate
revenues, a profit and/or obtain necessary funding from outside sources,
including obtaining additional funding from the sale of our securities,
increasing sales or obtaining loans and grants from various financial
institutions where possible. The going concern uncertainty modification in
the
auditor's report increases the difficulty in meeting such goals and there can
be
no assurances that such methods will prove successful.
WE
MUST
RAISE MONEY FROM INVESTORS TO FUND OUR OPERATIONS. IF WE ARE UNABLE TO FUND
OUR
OPERATIONS, WE MAY CEASE DOING BUSINESS.
As
at
December 31, 2006, we had cash reserves, consisting of cash and short-term
investments, of $10,742,191. In fiscal year ended December 31, 2006, we incurred
a net loss of $17,493,375. In fiscal year ended December 31, 2005, we incurred
a
net loss of $7,459,714, and in fiscal year ended December 31, 2004, we incurred
a net loss of $ 3,657,760. In February 2006 we completed a private placement
of
10,909,090 units for $12,000,000 with the addition of broker warrants, and
as a
result of this financing there remains outstanding 11,999,990 common share
purchase warrants expiring on February 15, 2008, exercisable at $1.50 per share.
In March 2006 we completed a private placement of 800,000 units for $1,000,000
with the addition of broker warrants and as a result of this financing there
remains outstanding 800,000 common share purchase warrants expiring on April
7,
2008, exercisable at $1.75 per share. In December 2006 we completed a private
placement of 1,818,182 units for $2,000,000 with the addition of broker warrants
and as a result of this financing there remains outstanding 1,818,182 common
share purchase warrants expiring on December 6, 2008, exercisable at $1.25
per
share.
Without
additional funding and milestone payments from potential product out-licensing,
we will have inadequate funds to continue our existing corporate,
administrative, and operational functions beyond the fourth quarter of 2007.
We
also have commitments under our University of Alberta license agreement to
make
milestone payments of $250,000 when we enter Phase III clinical trials on each
of the product candidates derived from the intellectual property licensed under
that Agreement. The average monthly amount of cash that we are using, and expect
to use over the next 12-18 months for all of our operations, is approximately
$900,000. For a further discussion of our liquidity and capital resources,
you
should also refer to Item 5: "Operating and Financial Review and Prospects"
in
this Annual Report. We expect to continue to seek additional sources of funding
to finance operations into the future, through public or private equity or
debt
financings, collaborative arrangements with pharmaceutical companies and/or
from
other sources. We cannot assure you that additional financing will be available
or, even if it is available, that it will be sufficient and available on terms
acceptable to us.
WITH
THE
EXCEPTION OF MILESTONE PAYMENTS FROM POTENTIAL PRODUCT OUT-LICENSING, WE HAVE
NOT DERIVED ANY REVENUE TO DATE FROM THE COMMERCIAL SALE OF PRODUCT CANDIDATES,
HAVE NEVER HAD ANY REVENUES FROM COMMERCIAL SALES AND HAVE RELIED ON EQUITY
AND
DEBT FINANCINGS TO SUPPORT OUR OPERATIONS.
We
have
not derived any revenue to date from the commercial sale of product candidates
and have no product candidates for sale. Our future profitability will depend
upon our ability to enter into suitable licensing or partnering arrangements
to
commercialize our product candidates obtain regulatory approvals and bring
product candidates to market in a timely manner. We have relied solely on equity
and debt financing, government grants, and milestone payments from potential
product out-licensing to support our operations. We have not commercially
introduced any product candidates and the product candidates are in varying
stages of development and testing. Our ability to sell an approved commercial
product will depend upon our ability to develop products that are safe,
effective and commercially viable, to obtain regulatory approval for the
manufacture and sales of our product candidates and to license or otherwise
market our product candidates successfully. We may never commercialize an
approved product and may have to rely on equity and debt financings to support
ongoing operations.
WE
HAVE A
HISTORY OF OPERATING LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES. IF WE ARE
UNABLE TO ACHIEVE SIGNIFICANT REVENUES IN THE FUTURE, WE WILL CEASE DOING
BUSINESS.
Since
our
inception, we have incurred significant losses each year.. Our accumulated
loss
from inception to December 31, 2006 is CDN$32,444,237. Our accumulated deficit
from inception to December 31, 2006 is CDN$33,814,171. We expect to continue
to
incur significant operating losses as we continue our product-candidate research
and development and continue our clinical trials. These losses, among other
things, have had and will continue to have an adverse effect on our
shareholders’ equity and working capital. Unless we are able to generate
sufficient product revenue, we will continue to incur losses from operations
and
may not achieve or maintain profitability.
We
will
need to generate significant revenues in order to achieve and maintain
profitability. Our ability to generate revenue in the future is dependent,
in
large part, on completing product development, obtaining regulatory approvals,
and commercializing, or entering into agreements with third parties to
commercialize, our product candidates. We cannot assure you that we will ever
successfully commercialize or achieve revenues from sales of our therapeutic
product candidates if they are successfully developed or that we will ever
achieve or maintain profitability. Even if we do achieve profitability, we
may
not be able to sustain or increase profitability.
Until
we
receive regulatory approval for sales of product candidates incorporating our
licensed and/or patented technologies, we cannot sell our product candidates
and
will not have revenues from sales. The research, development, production, and
marketing of new products require the application of considerable technical
and
financial resources. However, any revenues generated from such product
candidates, assuming they are successfully developed, marketed, and sold, may
not be realized for a number of years.
WE
EXPECT
TO CONTINUE TO INCUR SIGNIFICANT EXPENSES.
We
expect
to continue to incur significant expenses connection with:
|
•
|
|
the
regulatory marketing authorization process to approve the sale of
OvaRex®
MAb in Europe and other jurisdictions. OvaRex® MAb will be the first of
our product candidates to complete Phase III trials in any jurisdiction
and the first of our product candidates for which we will seek marketing
authorization. The work involved in seeking regulatory marketing
authorization for OvaRex® MAb in theses jurisdictions is extensive, time
consuming and expensive;
|
|
•
|
|
our
expenses will increase as we commence new preclinical and clinical
trials
as we progress existing products to more advanced phases of pre-clinical
and of clinical development in the event that we are not able to
obtain a
licensing partner. The more advanced trials typically require more
clinical trial participants, clinical trial sites and research
investigators than earlier stage clinical trials and are consequently
more
expensive;
|
We
also
expect to incur significant general and administrative expenses in support
of
our increased operations as well as the ongoing costs to operate as a company
listed on the American Stock Exchange and on the Toronto Stock
Exchange.
Over
the
longer term, the costs referred to above will fluctuate, primarily dependant
on
the number and type of preclinical and clinical trials being undertaken at
any
one time and the number of regulatory marketing authorizations being sought.
Costs will also increase if we are able to progress any further product
candidates from preclinical testing to clinical trials or if we are able to
complete clinical trials in the event that we are not able to obtain a licensing
partner of any product candidates and seek regulatory marketing
authorizations.
WE
WILL
CONTINUE TO NEED SIGNIFICANT AMOUNTS OF ADDITIONAL CAPITAL THAT MAY NOT BE
AVAILABLE TO US ON FAVORABLE TERMS OR AT ALL OR WHICH MAY BE
DILUTIVE.
To
date,
we have funded our operations and capital expenditures with proceeds from the
sale of our securities, government grants and interest on
investments.
In
order
to achieve our goal of being a biotechnology company and to conduct the lengthy
and expensive research, preclinical studies, clinical trials, regulatory
approval process, manufacture, sales and marketing necessary to complete the
full development of our product candidates, we may require substantial
additional funds in addition to the funds received in connection with the US
private offerings and the various Canadian placements completed in
2006.
To
meet
these financing requirements, we may raise funds through public or private
equity offerings, debt financings, and through other means, including
collaborations and license agreements. Raising additional funds by issuing
equity or convertible debt securities may cause our shareholders to experience
significant additional dilution in their ownership interests. Raising additional
funds through debt financing, if available, may involve covenants that restrict
our business activities. Additional funding may not be available to us on
favorable terms, or at all. If we are unable to obtain additional funds, we
may
be forced to delay, reduce the scope of or terminate preclinical and/or clinical
trials and the development, manufacturing and marketing of our products. To
the
extent that we raise additional funds through collaborations and licensing
arrangements, we may have to relinquish valuable rights and control over our
technologies, research programs or product candidates, or grant licenses on
terms that may not be favorable to us.
IF
WE
FAIL TO OBTAIN ADDITIONAL FINANCING, WE MAY BE UNABLE TO FUND OUR OPERATIONS
AND
COMMERCIALIZE OUR PRODUCT CANDIDATES.
We
expect
that our cash expenditure will remain relatively constant over 2007 and 2008,
and that we will spend substantial amounts to complete the commercialization
of
OvaRex® MAb in Europe and for Occlusin™500 Device. We also expect to incur costs
in supporting the clinical development and to license other product candidates
from our T-ACT™ and Chimigen™ Platforms. We believe that our existing cash and
short-term investments will be sufficient to meet our projected operating
requirements to the fourth quarter of 2007.
Our
future funding requirements will depend on many factors, including:
|
•
|
|
the
scope, results, rate of progress, timing and costs of preclinical
studies
and clinical trials and other development activities. Specifically,
the
funding requirements for clinical trials of Occlusin™ 500 Device,
Occlusin™50 Injection and HepaVaxx B Vaccine are significant. The funding
requirements for the preclinical testing and potential future clinical
testing of our earlier-stage product candidates and any other testing
that
we may initiate are also significant. As a result, we will be looking
to
partner out product candidates prior to initiating Phase II clinical
trials and /or funding selected projects based on funding
availability;
|
|
•
|
|
the
costs and timing of seeking and obtaining regulatory
approvals;
|
|
•
|
|
the
costs of filing, prosecuting, defending and enforcing any patent
claims
and other intellectual property
rights;
|
|
•
|
|
the
costs of developing sales and marketing capabilities and establishing
distribution capabilities;
|
|
•
|
|
the
cost of developing our commercial-scale
capabilities;
|
|
•
|
|
the
cost of additional management, scientific, manufacturing, and sales
and
marketing personnel. We will be required to increase the number of
our
personnel over time;
|
|
•
|
|
the
terms, timing and cash requirements of any future acquisitions,
collaborative arrangements, licensing of product candidates or investing
in businesses, product candidates and
technologies;
|
|
•
|
|
the
costs of securing coverage, payment and reimbursement of our product
candidates, if any of our product candidates receive regulatory approval;
and
|
|
•
|
|
the
effects of competing clinical, technological and market
developments.
|
If
we are
not able to secure additional funding when needed, we may have to delay, reduce
the scope of, or eliminate one or more of our clinical trials or research and
development programs or future commercialization efforts.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
WE
ARE IN
THE EARLY STAGES OF PRODUCT CANDIDATE DEVELOPMENT. OUR PRODUCT CANDIDATES MAY
NOT BE EFFECTIVE AT A LEVEL SUFFICIENT TO SUPPORT A PROFITABLE BUSINESS VENTURE.
IF THEY ARE NOT, WE WILL BE UNABLE TO CREATE MARKETABLE PRODUCT CANDIDATES
AND
DERIVE ANY MEANINGFUL REVENUES. UNLESS WE ARE ABLE TO GENERATE SUFFICIENT
PRODUCT REVENUE, WE WILL CONTINUE TO INCUR LOSSES FROM OPERATIONS AND MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY AND WE WILL HAVE TO CEASE
OPERATIONS.
Some
of
our product candidates are in the preliminary development stage, have not been
approved for marketing by any regulatory authority and cannot be commercially
distributed in any markets until such approval is obtained. We cannot assure
you
that our monoclonal antibody therapies, Chimigen™ vaccines and tumor starvation
therapies will be effective at a level sufficient to support a profitable
business venture. The science on which our technologies are based may also
fail
due to flaws or inaccuracies in the data, or because the data is not predictive
of future results. The scientific theories, upon which our business is based,
like all science, will evolve over time and become increasingly predictive
of
the world in which we live. One potential consequence of imperfect theories
may
be that we will never be able to create a marketable product. If we are unable
to do so, we will not generate revenues, will have to cease operations, and
investors will be at risk of losing their entire investment.
In
addition, it takes a significant period of time for new vaccines, monoclonal
antibody therapies, medical devices and therapeutic drugs to be developed,
to
obtain the necessary regulatory approvals to permit sales, to establish
appropriate distribution channels and market acceptance, and to obtain insurer
reimbursement approval. This time period is generally not less than 10 years.
None of our therapeutic product candidates have been commercialized and
completion of the commercialization process for any of our product candidates
will require significant investments of time and funds. We cannot predict either
the total amount of funds that will be required, or assure you that we will
be
successful in obtaining the necessary funds. It is also not possible for us
to
predict the time required to complete the regulatory process or if there will
be
sufficient market demand at such time. If any of our product candidates are
approved, we cannot give assurances that it will be possible to produce them
in
commercial quantities at reasonable cost, successfully market them, or whether
any investment made by us in the commercialization of any product candidates
would be recovered through sales, license fees, or related royalties.
Furthermore, the time it takes for product candidates to reach market acceptance
exposes us to significant additional risks, including the development of
competing products, loss of investor interest, changing market needs, changes
in
personnel, and regulatory changes.
Since
the
process of discovering and developing cancer therapies and treatments for
chronic viral infections is our core business, we anticipate that we will remain
engaged in research and development for the foreseeable future. As one or two
product candidates advance to commercialization, we expect that other potential
products will replace them as research and development candidates. We estimate
that OvaRex® MAb if approved is a minimum of one year away from
commercialization in the U.S., Occlusin™ 500 Artificial Embolization Device if
approved is a minimum of one year away from commercialization in any
jurisdiction, and HepaVaxx B Vaccine, if approved, is a minimum of seven years
away from commercialization in any jurisdiction, although these processes could
take much longer.
WE
RELY
ON, AND INTEND IN THE FUTURE TO CONTINUE TO RELY ON, TECHNOLOGY LICENSES FROM
THIRD PARTIES AND ANY BREACH OR TERMINATION OF THESE LICENSE ARRANGEMENTS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS
OF OPERATIONS.
We
cannot
assure you that we will obtain any additional required licenses, that our
existing licenses or new licenses, if obtained, will not terminate, or that
they
will be renewed. The failure to obtain, the termination of, or the failure
to
renew any of these licenses would have a material adverse effect on our
pre-clinical and clinical programs and may cause us to suspend or cease our
operations. In addition, we cannot assure that these licenses will remain in
good standing or that the technology we have licensed under these agreements
has
been adequately protected or is free from claims of infringement of the
intellectual property rights of third parties.
Pursuant
to the terms of the licenses and any agreements we may enter into in the future,
we are and could be obligated to exercise diligence in bringing potential
products to market and to make license payments and certain potential milestone
payments that, in some instances, could be substantial. We are obligated and
may
in the future be obligated, to make royalty payments on the sales, if any,
of
product candidates resulting from licensed technology and, in some instances,
may be responsible for the costs of filing and prosecuting patent applications.
Because we require additional funding, we may not be able to make payments
under
current or future license agreements, which may result in our breaching the
terms of any such license agreements. Any breach or termination of any license
could have a material adverse effect on our business, financial condition,
and
results of operations.
OUR
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY OR OUR INFRINGEMENT ON THE PROPERTY
RIGHTS OF OTHERS MAY IMPEDE OUR ABILITY TO OPERATE FREELY.
We
continually evaluate our technology to determine whether to make further patent
filings and rely significantly upon proprietary technology. We protect our
intellectual property through patents, copyrights, trademarks, trade secrets
and
contractual agreements as appropriate. We own or exclusively license 8 issued
U.S. patents having expiration dates ranging from 2016 to 2021. As we develop
our product candidates, we may discover additional patentable subject matter
that we may elect to prosecute.
Prior
to
filing a patent, data developed by the Company or its licensees is held in
confidence, which confidence is secured by contractual arrangement. From time
to
time management may make a determination that superior economic gain made be
attained by perpetually protecting an invention as a trade secret rather than
disclosing it in a patent application. Inventions held as trade secrets can
be
independently discovered by others. In addition, the contractual agreements
by
which we protect our unpatented technology and trade secrets may be breached.
If
technology similar to ours is independently developed or our contractual
agreements are breached, our technology will lose value and our business will
be
irreparably harmed.
There
is
always a risk that issued patents may be subsequently invalidated, either in
whole or in part, and this could diminish or extinguish our patent protection
for key elements of our technology. We are not involved in any such litigation
or proceedings, nor are we aware of any basis for such litigation or
proceedings. We cannot be certain as to the scope of patent protection, if
any,
which may be granted on our patent applications.
Having
patents issued does not guarantee that our business activities are not
infringing intellectual property rights of third parties. Any claims against
us
or any purchaser or user of our potential products asserting that such product
or process infringes intellectual property rights of third parties could have
a
material effect on our business, financial condition or future operations.
Any
asserted claims of infringement, with or without merit, could be time consuming,
result in costly litigation, divert the efforts of our technical and management
personnel, or require us to enter into royalty or licensing agreements, any
of
which could materially adversely affect our operating results. Such royalty
or
licensing agreements, if required, may not be available on terms acceptable
to
us, if at all. In the event a claim is successful against us and we cannot
obtain a license to the relevant technology on acceptable terms, license a
substitute technology or redesign our potential products to avoid infringement,
our business, financial condition and operating results would be materially
adversely affected.
OUR
BUSINESS IS SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION AND FAILURE TO ACHIEVE
REGULATORY APPROVAL OF OUR DRUG CANDIDATES WOULD SEVERELY HARM OUR
BUSINESS.
The
U.S.
Food and Drug Administration ("FDA") regulates the development, testing,
manufacture, record-keeping, labeling, distribution, and promotion of
pharmaceutical products in the United States pursuant to the Food, Drug, and
Cosmetic Act and related regulations. We must receive approval by the FDA prior
to commercial sale in the U.S. of any of our product candidates. Similar
regulations are enforced by Health Canada, the European Medicines Agency
(“EMEA”) and by other regulatory agencies in each jurisdiction in which we seek
to do business. The regulatory review process is lengthy and expensive, and
the
outcome of the approval process is uncertain. Before receiving approval we
must
acquire
and submit extensive preclinical and clinical data and supporting information
for each indication to establish the safety and efficacy of our drug candidates.
In addition, we must show that we can produce our drug candidates consistently
at quality levels suitable for administration in humans in accordance with
a
complex set of regulations known in the U.S. as current Good Manufacturing
Practices (cGMP’s). Premarket approval is a lengthy and expensive process and
takes several years. Future legislation or changes in FDA policy may change
during the period of potential product development and clinical trials. We
may
not be able to obtain FDA approval or approval from other regulatory agencies
for any commercial sale of any drug candidate. We may encounter delays or
rejections in the regulatory approval process at any time. Even if approval
is
obtained, agencies may determine that additional clinical trials are required
after marketing has begun. Except for any potential licensing or marketing
arrangements with other pharmaceutical or biotechnology companies, we will
not
generate any revenues in connection with our drug candidates unless and until
we
obtain clearance from the FDA, Health Canada, EMEA, or comparable agencies
to
commercialize our product candidates. Given the uncertainty, extensive time,
and
financial expenditures involved in moving a drug through the regulatory and
clinical trial process in the United States, Canada, and Europe and elsewhere,
we may never be able to successfully develop safe, commercially viable products.
If we are unable to do so, we may have to cease operations.
WE
ARE
DEPENDENT ON THE SUCCESSFUL OUTCOME OF PRECLINICAL TESTING AND CLINICAL
TRIALS.
None
of
our product candidates are currently approved for sale by the FDA, EMEA, and
Health Canada or by any other regulatory agency in the world, and they may
never
receive approval for sale or become commercially viable. Before obtaining
regulatory approval for sale, each of our product candidates must be subjected
to extensive preclinical and clinical testing to demonstrate safety and efficacy
for each proposed indication for human use. Our success will depend on the
successful outcome of these preclinical testing and clinical trials. There
are
multiple risk factors associated with conducting clinical trials of our
investigational drug and device product candidates. There may be unforeseen
delays in identifying and reaching agreement on acceptable terms with
Institutional Review Boards of clinical trial providers with respect to proposed
clinical study protocols. There may also be delays in reaching satisfactory
financial agreements with prospective clinical trial sites and the investigators
themselves.
There
may
be regulatory delays of clinical trials related to obtaining FDA, Health Canada,
European Medicines Agency ("EMEA"),, or other regulatory agency clearance to
begin patient treatment in a clinical trial. A common issue in conducting a
clinical trial is that delays encountered in the enrollment of patients may
significantly prolong the length of time required to conduct clinical
studies.
A
prime
risk factor of clinical trials is that the study outcome may reveal that the
product candidate does not demonstrate the anticipated level of effectiveness
in
the target patient population. Such outcomes may adversely affect the
approvability of the potential product by regulatory agencies. Similarly,
clinical trials may show that an investigational product causes unacceptable
adverse events in the patient population to be treated with the
drug.
Historically,
the results from preclinical testing and from early clinical trials often have
not always been predictive of results obtained in later clinical trials.
Frequently, drugs that have shown promising results in preclinical or early
clinical trials subsequently fail to demonstrate sufficient evidence of safety
or effectiveness necessary to obtain regulatory approval. Our success will
depend on the success of our current clinical trials and subsequent clinical
trials that have not yet begun. Moreover, regulatory agencies such as the FDA,
EMEA and Health Canada may impose specific standards on the evaluation of
disease response in individual patients which may differ from those anticipated
by ViRexx or its clinical advisors. These different standards may lead the
regulatory agency to conclude that study subjects receiving any of our product
candidates have had a more modest clinical response than that determined by
ViRexx or its clinical advisors.
In
addition to the risks mentioned, there are a number of other difficulties and
risks associated with clinical trials. The possibility exists that:
(a)
|
we
may discover that our product candidates may cause, alone or in
combination with another therapy, unacceptable side effects or are
not
effective at all;
|
(b)
|
we
may discover that our product candidates, alone or in combination
with
another therapy, do not exhibit the expected therapeutic results
in
humans;
|
(c)
|
results
from early trials may not be predictive of results that will be obtained
from large-scale, advanced clinical trials as mentioned
above;
|
(d)
|
we
or the FDA or other regulatory agencies may suspend the clinical
trials of
one or more of our product candidates;
|
(e)
|
patient
recruitment may be slower than expected;
|
(f)
|
patients
may drop out of our clinical trials; and
|
(g)
|
there
may be cost overruns.
|
Although
the FDA and EMEA have granted OvaRex®MAb Orphan Drug Status for its use in
ovarian cancer, this status does not diminish any of the requirements for market
approval. Given the uncertainty surrounding the regulatory and clinical trial
process, we may not be able to develop safety, efficacy or manufacturing data
necessary for approval of this or any of our product candidates. In addition,
even if we receive
approval,
such approval may be limited in scope and affect the commercial viability of
such product candidate. If we are unable to successfully obtain approval to
commercialize any product candidate, this would materially harm our business,
impair our ability to generate revenues and adversely impact our stock
price.
DELAYS
IN
CLINICAL TRIALS WILL CAUSE US TO INCUR ADDITIONAL COSTS, WHICH COULD JEOPARDIZE
THE TRIALS AND ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL
RESULTS.
For
internally funded clinical trials and the due to the associated high costs,
a
delay for any reason, will require us to spend additional funds to keep our
product candidates moving through the regulatory process. If we do not have
or
cannot raise the necessary additional funds, the testing of our product
candidates could be cancelled. If we are required to spend additional funds,
it
will require us to spend funds that could have been used for other purposes
and
could adversely affect our liquidity and financial results. Delays in obtaining
clinical -trial results will also delay profitability from commercialization
of
any given product candidate and accordingly negatively effects our financial
results.
WE
RELY
ON CLINICAL INVESTIGATORS AND CONTRACT RESEARCH ORGANIZATIONS TO CONDUCT OUR
CLINICAL TRIALS.
We
rely,
in part, on independent clinical investigators and contract research
organizations to conduct our clinical trials. Contract research organizations
also assist us in the collection and analysis of the data generated from these
clinical trials. These investigators and contract research organizations are
not
our employees and we cannot control, other than by contract, the amount of
resources, including time that they devote to our product candidates and our
clinical trials. If independent investigators fail to devote sufficient
resources to our clinical trials, or if their performance is substandard, these
factors may delay any possible approval and commercialization of our product
candidates and could harm our chances of obtaining regulatory approval. Further,
most regulatory agencies require that we comply with standards, commonly
referred to as Good Clinical Practice (“GCP”) for conducting, recording, and
reporting clinical trials to assure that data and reported results are credible
and accurate and that the rights, integrity, and confidentiality of trial
subjects are protected.
If
our
independent clinical investigators and contract research organizations fail
to
comply with GCP, the results of our clinical trials could be called into
question and the clinical development of our product candidates could be delayed
or halted. The failure of clinical investigators and contract research
organizations to meet their obligations to us or comply with good clinical
practice procedures could adversely affect the clinical development of our
product candidates, and have a material adverse effect on our business,
financial condition, and results of operations.
THERE
ARE
RISKS INHERENT IN RELYING ON SOLE SOURCE SUPPLIER FOR SOME OF OUR
MATERIALS.
We
are
reliant upon the supply of raw materials from key suppliers in the manufacture
of our product candidates. These key suppliers currently meet our manufacturing
requirements but they could default in the supply of the raw material for
several reasons, including insolvency, lack of regulatory compliance, inability
to manufacture sufficient quantities of the raw material, fire, and natural
disasters. Although we have made every effort to identify alternate source
suppliers of these raw materials, there is no guarantee that supply agreements
would be established with these suppliers if the primary supplier defaults
in
the supply of raw material. If we are unable to procure the requisite raw
materials for the manufacture of product candidates, then we might not be able
to manufacture sufficient quantities of the drug candidate for pre-clinical
and
clinical testing purposes.
WE
ARE
DEPENDENT ON STRATEGIC PARTNERS, SUCH AS UNITHER AND THE SIGMA TAU GROUP OF
COMPANIES, AS PART OF OUR PRODUCT CANDIDATE DEVELOPMENT STRATEGY, AND WE WOULD
BE NEGATIVELY AFFECTED IF WE ARE NOT ABLE TO INITIATE OR MAINTAIN THESE
RELATIONSHIPS.
In
April
2002, our subsidiary, AltaRex Medical Corp., entered into an Exclusive License
Agreement with Unither Pharmaceuticals Inc. (“Unither”), a wholly owned
subsidiary of United Therapeutics for the development and commercialization
of
OvaRex® MAb and four other antibody-based products worldwide, with the major
exception of certain member nations of the European Union and certain other
countries. In August of 2003, the Exclusive License Agreement was extended
to
include Germany. Under the Exclusive License Agreement, Unither is responsible
for the development of our intellectual property with respect to the five
antibodies, including the commercialization of the five antibodies in the
licensed territory. Unither has agreed to pay us certain amounts based upon
the
achievement of specified milestones together with royalties based upon sales
of
products utilizing or incorporating the licensed technology sold in the licensed
territory. If Unither does not devote the resources necessary or does not
advance the clinical development of the potential products, particularly OvaRex®
MAb, we would be materially adversely affected. Under the Exclusive License
Agreement, Unither is permitted to develop intellectual property with respect
to
five antibodies but has granted AltaRex an exclusive royalty-free license to
use
these new technologies outside of the Unither territories.
In
November 2006, we entered into a License and Supply Agreement with Defiante
Farmaceutica, Lda. (“Defiante”), a subsidiary of Sigma Tau Farmaceutica (“Sigma
Tau”) for the marketing of OvaRex® MAb for the remaining unlicensed countries in
Europe. At the same time, ViRexx International Corp. Limited entered into a
Manufacturing and Supply Agreement with Tecnogen S.C.p.A (“Tecnogen”), another
subsidiary of Sigma Tau, for Tecnogen to manufacture OvaRex® MAb for most of
Europe and the Middle East. If Sigma Tau and Tecnogen do not devote the
resources necessary or do not advance the scale up and manufacture of OvaRex®
MAb, we will be materially adversely affected.
Once
any
of our product candidates advance to a Phase II clinical trial stage, we intend
to enter into strategic partnerships whereby third parties will finance further
clinical development. We cannot assure, however, that we will be able to find
partners and establish such relationships on favorable terms, if at all, or
that
any such future arrangements will be successful.
Should
any partner fail to develop or commercialize successfully any product candidates
to which we have licensed product rights, our business, financial condition,
and
results of operations may be adversely affected. The failure of any
collaborative partner to continue funding any particular program, for any
reason, could delay or halt the development or commercialization of any
potential product arising out of a particular program. In addition, we cannot
assure that any of our future partners would not pursue alternative technologies
or develop alternative product candidates either on their own or in
collaboration with others, including our competitors, as a means for developing
treatments for the diseases targeted by our programs.
WE
RELY
ON COLLABORATIVE ARRANGEMENTS FOR MANUFACTURING OUR TRIAL MATERIAL AND PRODUCT
CANDIDATES
We
are
reliant upon Unither for all manufacturing responsibilities for OvaRex® MAb and
the four other monoclonal antibodies included in the Unither Agreement for
their
territories. We are reliant upon Tecnogen for all manufacturing responsibilities
for OvaRex® MAb in our territories. We can make no assurance that delays will
not be encountered in the manufacturing activities required for regulatory
filings for OvaRex® MAb and the other antibodies, or that Unither’s and/or
Tecnogen’s manufacturing decisions would be appropriate for ViRexx and its other
collaborators.
ViRexx
has made arrangements with contract manufactures for producing OvaRex® MAb
Europe. However, if long-term arrangements for the production of the other
antibody-based products cannot be entered into, we may experience delays in
the
development and commercialization of our product candidates. In addition, if
these contract suppliers fail to perform under the terms of the agreement,
we
may incur significant costs.
Successful
scale-up of production and producing multiple consistency lots of cell
culture-derived materials will enable us, Unither, and Tecnogen to further
pursue regulatory approval and commercialization of OvaRex® MAb and the other
antibodies. Such regulatory approval and commercialization is dependent upon
our, Unither’s and Tecnogen’s ability to achieve such improvements in
production.
EVEN
IF
OUR PRODUCT CANDIDATES RECEIVE ALL OF THE REQUIRED REGULATORY APPROVALS, WE
HAVE
NO GUARANTEE OF MARKET ACCEPTANCE OR COMMERCIALIZATION OF THE RESULTING PRODUCT
CANDIDATES, WHICH WILL BE DETERMINED BY OUR SALES, MARKETING, AND DISTRIBUTION
CAPABILITIES AND THE POSITIONING AND COMPETITIVENESS OF OUR PRODUCT CANDIDATES
COMPARED WITH ANY ALTERNATIVES.
Even
if
our product candidates receive all necessary regulatory approvals and
clearances, they may not gain market acceptance among physicians, patients,
healthcare payers, and the medical community. The degree of market acceptance
of
any product candidate that we may develop will depend on a number of factors,
including marketing and distribution support for the product candidates,
establishment and demonstration of the cost-effectiveness of the product
candidates, and the potential advantage of our product candidates over any
alternatives. Even after successful commercialization of one or more product
candidates, we may never achieve profitability. We currently depend on our
Licensees for their sales, marketing, or distribution capabilities, and
therefore must rely on these third parties to perform these services optimally.
These
distribution partners may not promote our product candidates as aggressively
as
we would like, may not be successful in their sales and distribution efforts,
may experience financial difficulty or lack the marketing or financial ability
to adequately market our product candidates, or may fail to promote our product
candidates altogether. Third party marketers may be involved in the sale of
competing products and fail to market our product candidates due to this
conflict. In addition, if the profit margins on our product candidates do not
favorably compare with other products being marketed by a third party marketer,
our product candidates may not be promoted as readily. As in the case of any
contractual relationship if either party defaults under the marketing agreement,
sales of our product candidates may suffer. If we terminate a marketer of our
product candidates, we may not be able to find an immediate replacement. Any
of
these events would have a material adverse effect on our business, financial
condition, and results of operations. These events may also lead us to try
to
establish our own marketing and sales force. The acquisition or development
of a
sales and distribution infrastructure would require substantial resources,
which
may divert the attention of our management and key personnel, and have a
negative impact on our potential product development efforts. Moreover, we
may
not be able to establish in-house sales and distribution capabilities or
relationships with third parties.
If
successfully developed, our product candidates will compete with a number of
drugs and therapies currently manufactured and marketed by major pharmaceutical
and biotechnology companies. Our product candidates may also compete with new
products currently under development by other pharmaceutical and biotechnology
companies, and with products which may cost less than our product candidates
or
that may be more effective than our product candidates. If our product
candidates do not achieve significant market acceptance, our business, financial
condition, and results of operations will be materially adversely
affected.
REIMBURSEMENT
PROCEDURES AND FUTURE HEALTHCARE REFORM MEASURES ARE UNCERTAIN AND MAY ADVERSELY
AFFECT OUR ABILITY TO SUCCESSFULLY SELL OR LICENSE ANY PHARMACEUTICAL PRODUCT
CANDIDATE.
If
any of
our potential products is approved for commercialization by national regulatory
authorities, the extent of sales will depend upon the availability of
reimbursement from third-party payers such as Medicare in the United States
and
similar government health administration authorities in other countries, as
well
as private health insurers and other organizations. Our ability to successfully
sell or license any pharmaceutical product candidate will depend in part on
the
extent to which government health administration authorities, private health
insurers and other organizations will reimburse patients or providers for the
costs of any future pharmaceutical product candidates and related treatments.
Each jurisdiction has its own regulatory requirements. Significant variation
exists as to the reimbursement status of newly approved healthcare products,
and
we cannot assure you that adequate third party coverage will be available to
establish price levels sufficient for us to realize an appropriate return on
our
investment in developing new product candidates or for existing product
candidates. Increasingly, government and other third-party payers are attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic product candidates. Reimbursement levels
may
be related to issues of cost-effectiveness, which are evaluated differently
in
different jurisdictions. Inadequate coverage or reimbursement could adversely
affect market acceptance of our product candidates. Recently, the prices of
medical products and services have been examined and challenged by third parties
and consumers of such products and services. Successful challenges or government
reform in this area could negatively affect our profitability.
In
the
United States, government and other third-party payers have sought to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new pharmaceutical products approved for marketing by the FDA. In some cases,
these may place conditions on the use of new products which limit their market
penetration or may refuse to provide any coverage for uses of approved products
to treat medical conditions even though the FDA has granted marketing approval.
Healthcare reform may increase these cost containment efforts. U.S. managed
care
organizations and government health insurance programs may seek to restrict
the
use of new products, delay authorization to use new products or limit coverage.
New rule making by the Center for Medicare and Medicaid Services could affect
drug coverage and payments by Medicare. Internationally, where government
healthcare systems are prevalent, little if any funding may be available for
new
products, and cost containment and cost reduction efforts can be more pronounced
than in the United States.
COMPETITIVE
PRODUCTS AND TECHNOLOGIES MAY REDUCE DEMAND FOR OUR PRODUCT CANDIDATES AND
TECHNOLOGIES.
Our
success depends upon maintaining our competitive position in the research,
development, and commercialization of products and technologies in our area
of
expertise. Competition from pharmaceutical, chemical and biotechnology companies
as well as universities and research institutes, is intense and is expected
to
increase. Many of these competitors have substantially greater research and
development capabilities, more experience in manufacturing and marketing, as
well as superior financial and managerial resources than we do and represent
significant competition for us.
We
cannot
assure you that developments by others will not render our product candidates
or
technologies non-competitive or obsolete, or that we will be able to achieve
the
level of acceptance within the medical community necessary to compete
successfully. We are aware of several potential competitors that are at various
stages of development or that have commercial sales of products that may address
similar indication as do our products. The success of our competitors and their
products may have a material adverse impact on our business, financial
condition, and results of operations.
OUR
INDUSTRY IS CHARACTERIZED BY RAPID CHANGE AND A FAILURE BY US TO REACT TO THESE
CHANGES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
The
biotechnology industry is characterized by rapid and substantial technological
change. Alternative forms of medical treatment may render our technologies
or
product candidates of low or no value in the future. Our future success depends
on our ability to adapt to this change and keep pace with new technological
developments and emerging industry standards, and we cannot assure that we
will
be able to do so.
IF
WE
FAIL TO HIRE OR RETAIN NEEDED PERSONNEL, THE IMPLEMENTATION OF OUR BUSINESS
PLAN
COULD SLOW AND FUTURE GROWTH COULD SUFFER.
Our
success depends in large part upon our ability to attract and retain highly
qualified scientific and management personnel. Competition to retain personnel
in the biotechnology field from other companies, academic institutions,
government entities, and other organizations is intense. We cannot assure that
we will retain our current personnel and will be able to continue to attract
qualified personnel, and any failure to do so could slow implementation of
our
business plan or future growth. To date, however, we have had no difficulties
attracting and retaining highly qualified scientific and management personnel.
Additionally, none of our scientific or management personnel have indicated
that
they have plans to retire or leave our company in the foreseeable
future.
THE
LOSS
OF THE SERVICES OF OUR CHIEF EXECUTIVE/CHIEF SCIENTIFIC OFFICER COULD HAVE
A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We
are
highly dependent on the knowledge and services of our Chief Executive/Chief
Scientific Officer. If we were to lose his services, it would be difficult
and
costly to find a replacement, and it may have a severe impact on the
implementation of our business plans.
WE
ARE
RELIANT ON KEY EMPLOYEES, OUR SENIOR EXECUTIVES AND QUALIFIED MANAGERS,
EMPLOYEES AND TECHNOLOGISTS, WHOSE DEPARTURES COULD LIMIT OUR GROWTH AND MAY
HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND OPERATIONS.
We
believe that Dr. Lorne Tyrrell, Mr. Marc Canton, Dr. Hubert Eng and Mr. Michael
Stewart are the only persons employed by us that we would consider key employees
upon whom we are critically dependent. Dr. Tyrrell occupies the dual roles
of
Chief Executive Officer and Chief Scientific Officer. Dr. Marc Canton, our
President and Chief Operating Officer, also carries a major role in Business
Development. He will play a key role in working with our licensing partners
in
Europe, our major territory for commercialization of OvaRex® MAb. Dr. Hubert Eng
is the key individual coordinating technology transfer from Unither to our
European partners for the production and licensing of OvaRex® MAb in Europe. Mr.
Michael Stewart is leading the development of our T-ACT™ products - Occlusin™ 50
Injection and Occlusin™ 500 Artificial Embolization Device. These key
individuals play critical roles in bringing our near-term product candidates
to
market.
We
do not
have “key person” insurance with respect to Dr. Tyrrell, Mr. Canton, Dr. Eng, or
Mr. Stewart. While we have entered into employment agreements with each Dr.
Tyrrell, Mr. Canton, Dr. Eng, and Mr. Stewart, such may be terminated by either
party upon proper and timely written notice without cause or by us without
prior
notice for reasons of just cause. The terms of each of the employment agreements
are continuing terms until either party chooses to terminate the employment
agreement.
WE
CONDUCT CERTAIN ELEMENTS OF OUR BUSINESS INTERNATIONALLY, AND THE DECISIONS
OF
SOVEREIGN GOVERNMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
CONDITION.
We
may
conduct certain elements of our business internationally. We intend to, and
may
conduct clinical trials in other jurisdictions. Sovereign governments, including
Canada, may establish laws or regulations that will be deleterious to our
interests or that will affect our ability, as a foreign corporation, to obtain
access to regulatory agencies in foreign jurisdictions. Governments have also,
from time to time, established foreign exchange controls which could have a
material adverse effect on our business, financial condition, and results of
operations. To date, neither our operations nor our financial conditions have
been detrimentally affected in any material way due to laws or regulations
of
sovereign governments.
OUR
OPERATING RESULTS MAY BE SUBJECT TO CURRENCY FLUCTUATIONS, AS OUR OPERATIONS
ARE
BASED LARGELY IN CANADA, WHILE SOME OF OUR EXPENSES ARE IN U.S. DOLLARS OR
OTHER
FOREIGN CURRENCIES.
Our
operations are based in Canada, while some of our expenses, in particular those
related to manufacturing clinical products, are in U.S. dollars or currencies
other than Canadian dollars. As at December 31, 2006, approximately 60% of
our
payments made in relation to accounts payable were made in Canadian dollars,
approximately 40% were made in U.S. dollars. Currency fluctuations could,
therefore, cause our costs to increase and revenues to decline. The exchange
rates of the Canadian dollar to the U.S. dollar, the British pound and the
European Euro have fluctuated in recent years. In circumstances where the
Canadian dollar devalues against any or all of the U.S. dollar, the British
pound or the European Euro, this may have an adverse effect on our costs
incurred in either the U.S. or Europe (as applicable) but may have a positive
effect on any revenues which we source from the U.S. or Europe (as applicable).
The same principles apply in respect of our costs and revenues in other
jurisdictions. In addition, we manufacture some of our product candidates
outside of Canada, which exposes us to potential cost increases resulting from
fluctuations in exchange rates. We do not currently have any plans to hedge
the
effect of currency fluctuations on our overseas expenditures. We manage our
currency risks by settling foreign currency payables immediately upon
recognition of a foreign currency liability.
OUR
INSURANCE MAY NOT BE SUFFICIENT AND WE MAY BE EXPOSED TO LAWSUITS AND OTHER
CLAIMS RELATED TO OUR PRODUCT CANDIDATES IN CLINICAL STUDIES AND PRODUCT
LIABILITY WHICH COULD INCREASE OUR EXPENSES, HARM OUR REPUTATION, AND KEEP
US
FROM GROWING OUR BUSINESS.
The
sale
and use of human therapeutic products, including those product candidates we
are
developing, involve an inherent risk of product liability claims and adverse
publicity. Clinical studies involve trials on humans. These studies create
a
risk of liability for side effects to participants resulting from an adverse
reaction to the product candidates being tested or resulting from negligence
or
misconduct. While we currently maintain limited insurance related to our ongoing
clinical trials, we cannot assure you that this insurance will continue to
be
available to us on commercially reasonable terms. Any claims might also exceed
the amounts of this coverage. If we are unable to obtain our insurance at
reasonable rates or otherwise protect ourselves against potential liability
proceedings, we may be required to slow down any future development of product
candidates or may even be prevented from developing the product candidates
at
all. Our obligation to pay indemnities or withdraw a product candidate from
clinical trials following complaints could have a material adverse effect on
our
business, financial condition, and results of operations. Claims against us,
regardless of their merit or potential outcome, may also result in severe public
relations problems that could seriously damage our reputation and business
viability.
In
addition, certain drug retailers require minimum product liability insurance
coverage as a condition of purchasing or accepting products for retail
distribution. If any of our product candidates are successfully developed and
approved for commercial sale, it is our intention to obtain adequate product
liability insurance before the product candidates are marketed. Failure to
satisfy these insurance requirements could impede our ability or that of any
potential distributors of our product candidates to achieve broad retail
distribution of these product candidates, which would have a material adverse
effect on our business, financial condition, and results of
operations.
WE
USE
HAZARDOUS MATERIALS THAT ARE HIGHLY REGULATED AND WE MAY BE EXPOSED TO POTENTIAL
LIABILITY IN THE EVENT OF AN ACCIDENT INVOLVING THESE MATERIALS; OUR COMPLIANCE
WITH ENVIRONMENTAL REGULATIONS COULD BE COSTLY IN THE FUTURE.
Our
discovery and development processes involve the controlled use of radioactive
and hazardous materials. We are subject to Canadian federal, provincial, and
local laws and regulations governing the use, manufacture, storage, handling
and
disposal of these materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In
the event of an accident of this nature, we could be held liable for any damages
that result and any liability of this kind could exceed our resources and,
if
so, we may have to cease operations. We have general liability insurance but
it
may not be sufficient to cover the cost of any injuries or other damage
sustained in respect of these risks. Our coverage limitations under our
insurance policies are described above under "OUR
INSURANCE MAY NOT BE SUFFICIENT AND WE MAY BE EXPOSED TO LAWSUITS AND OTHER
CLAIMS RELATED TO OUR PRODUCT CANDIDATES IN CLINICAL STUDIES AND PRODUCT
LIABILITY WHICH COULD INCREASE OUR EXPENSES, HARM OUR REPUTATION, AND KEEP
US
FROM GROWING OUR BUSINESS".
We
cannot assure that we will not be required to incur significant costs to comply
with environmental laws and regulations in the future, or that our operations,
business, or assets will not be materially adversely affected by current or
future environmental laws or regulations.
IT
IS
POSSIBLE THAT OUR AIT™, CHIMIGEN™ AND T-ACT™ TECHNOLOGIES HAVE ADVERSE SIDE
EFFECTS OR CAUSE UNDESIRABLE REACTIONS ALTHOUGH WE ARE NOT AWARE OF ANY AT
PRESENT.
AIT™
platform
The
AIT™
platform is based on the delivery of small amounts of a murine monoclonal
antibody to patients with cancer. There is a risk that a patient may develop
an
anaphylactic adverse event upon exposure to this foreign antibody. This risk
is
tempered by preliminary studies with OvaRex® MAb in more than 700 ovarian cancer
patients demonstrating a benign safety profile for this product
candidate.
Chimigen™
Platform
Since
the
Chimigen™ protein incorporates a portion of a murine (foreign) antibody
fragment; it is possible that patients receiving a Chimigen™ Vaccine could
develop an anaphylactic adverse event similar to that discussed for the AIT™
platform above. This risk is mitigated somewhat by the completion of the 15
patient Phase I safety trial which showed the benign safety properties of
HepaVaxx B Vaccine. In addition, a Chimigen™ Vaccine is designed to induce both
humoral and cellular immune responses against the viral antigen epitope(s)
contained in the vaccine. These immune responses can lead to the death of cells
infected with the target virus. Patients chronically infected with hepatitis
B
or C viruses could suffer adverse events associated with the destruction of
liver cells following immunization with a Chimigen™ Vaccine such as the HepaVaxx
B Vaccine or HepaVaxx C Vaccine. This could be important in patients that have
impaired liver function and could render a patient ineligible to receive a
Chimigen™ platform-based therapy.
T-ACT™
platform
T-ACT™
technology is based on the induction of a specific platelet-dependent clot
at a
desired location. A potential risk of this technology is that a clot may
break-up and localize to other locations in the body. Another potential risk
is
that with Occlusin™ product candidates, injected material could reach the
systemic circulation through arterio-venous shunts in the target vasculature.
These risks are mitigated using angiographic imaging of the target blood vessels
prior to treatment.
All
of
these risks will be continuously monitored during the conduct of all phases
of
clinical trials and should any serious adverse event occur, this event will
be
reported to the appropriate regulatory agencies for immediate
action.
WE
FACE
COSTS ASSOCIATED WITH IMPORTING OUR PRODUCTS INTO MARKETS OUTSIDE OF
CANADA.
We
may
face difficulties importing our products into various jurisdictions as a result
of, among other things, import inspections, incomplete or inaccurate import
documentation or defective packaging. There will be increased costs associated
with importing/exporting our product.
IF
THERE
ARE FEWER INDIVIDUALS IN OUR TARGET MARKETS THAN WE ESTIMATE, WE MAY NOT
GENERATE SUFFICIENT REVENUES TO CONTINUE DEVELOPMENT OF OUR PRODUCT CANDIDATES
OR CONTINUE OPERATIONS.
Our
estimate of the patient population of our target markets is based on published
studies as well as internal analyses and studies we have commissioned. If the
results of these studies or our analysis of them do not accurately reflect
the
number of patients in our target markets, our assessment of the market may
be
wrong, making it difficult or impossible for us to meet our revenue goals.
In
addition, it is difficult to determine the portion of the patient population
that might use our other product candidates.
WE
WILL
NEED TO SIGNIFICANTLY INCREASE THE SIZE OF OUR ORGANIZATION, AND WE MAY
EXPERIENCE DIFFICULTIES IN MANAGING GROWTH.
We
are
currently a small company with 25 full time employees as of December 31, 2006.
In order to continue our preclinical and clinical trials and commercialize
our
product candidates, including manufacturing commercial quantities and marketing
and selling OvaRex® MAb, we will need to increase our operations, including
expanding our employee base. Our future financial performance and our ability
to
commercialize our products and to compete effectively will depend, in part,
on
our ability to manage any future growth effectively. To that end, we must be
able to:
|
•
|
|
manage
our preclinical and clinical trials
effectively;
|
|
•
|
|
undertake
and manage the manufacturing of products
effectively;
|
|
•
|
|
undertake
and manage sales and marketing
effectively;
|
|
•
|
|
integrate
current and additional management, administrative, financial and
sales and
marketing personnel;
|
|
•
|
|
develop
our administrative, accounting and management information systems
and
controls; and
|
|
•
|
|
hire
and train additional qualified
personnel.
|
RISKS
RELATING TO A POTENTIAL CHANGE IN THE MAJORITY OF OUR BOARD OF
DIRECTORS.
We
were
made aware that a Schedule 13D dated February 12, 2007, was filed with the
United States Securities and Exchange Commission on February 14, 2007 followed
by an amended Schedule 13D filed on February 21, 2007 by a Bahamian company,
Smetek, Van Horn & Cormack, Inc. The Schedule 13DA states that on February
12, 2007 the holders of 27,744,105 common shares of ViRexx, purportedly
representing 40% of our issued and outstanding shares (the “Smetek Group”) held
a telephone conference and have agreed to vote in favor of a change in the
majority of our Board of Directors.
Pursuant
to our By-laws, at each annual meeting of shareholders at which an election
of
directors is required or at a special meeting of our shareholders called for
that purpose, the shareholders, by ordinary resolution, must elect directors
to
hold office for a term expiring not later than the close of the next annual
meeting of our shareholders following the election. At every meeting of our
shareholders, all questions proposed for the consideration of shareholders
must
be decided by the majority of votes, unless otherwise required by the Act or
the
Articles. Should the Smetek Group elect to vote as a group for the purpose
of
effecting a change in the majority of our Board of Directors, and such change
is
actually effected via attainment of a sufficient number of votes, the
constitution of our Board of Directors may change, and our corporate and
operations focus might also change as a result.
Currently
we are discussing with external advisors our possible actions in light of the
filing of the aforementioned Schedule 13D, and intend to continue to focus
our
resources on our operations and business development. As of the date of this
Annual Report, we have not yet determined the date of our 2007 annual meeting,
but expect to hold it before June 30, 2007.
RISKS
RELATING TO OUR COMMON SHARES
AS
WE ARE
A CANADIAN COMPANY, THERE MAY BE LIMITATIONS ON THE ENFORCEMENT OF CERTAIN
CIVIL
LIABILITIES AND JUDGMENTS OBTAINED IN THE UNITED STATES AGAINST US.
We
are
amalgamated under the laws of the province of Alberta, Canada and our assets
are
located outside of the United States. Except for one of our directors, all
of
our directors and officers, as well as the expert named in this Annual Report,
are residents of Canada, and all or a substantial portion of the assets of
these
persons are located outside of the United States. As a result, it may not be
possible for shareholders to enforce against us or them in the United States
judgments obtained in U.S. courts based upon the civil liability provisions
of
the U.S. Federal securities laws or other laws of the U.S. Therefore, it may
not
be possible to enforce those actions against us, most of our directors and
officers or the expert named in this Annual Report. In addition, there is doubt
as to the enforceability, in original actions in Canadian courts, of liabilities
based upon the U.S. Federal securities laws.
WE
HAVE
NOT PAID, AND DO NOT INTEND TO PAY, ANY CASH DIVIDENDS ON OUR COMMON SHARES
AND
THEREFORE OUR SHAREHOLDERS MAY NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES
UNLESS THEY SELL THEM.
We
have
never paid dividends on our common shares and we do not expect to have the
ability to pay dividends in the foreseeable future. If we generate earnings
in
the future, we expect that they will be retained to finance further growth.
Our
Board of Directors will determine if and when dividends should be declared
and
paid in the future based on our financial position and other factors relevant
at
the particular time. Until we pay dividends, which we may never do, you will
not
be able to receive a return on your investment in our common shares unless
you
sell them, which you may only be able to do at less than the price you paid
for
them.
THE
MARKET PRICE AND TRADING VOLUME OF OUR COMMON SHARES MAY BE
VOLATILE.
The
market price and trading volume of our common shares on the TSX and since we
listed on the AMEX on December 22, 2005, has experienced significant
volatility and will likely continue to do so, which has been or could be in
response to numerous factors, including:
(a)
macroeconomic factors such as a change in the bank rate;
(b) quarterly
variations in operating results;
(c)
market conditions in the industry;
(d)
announcements of results of testing, technological
innovations;
(e)
announcements by our customers or competitors, developments affecting government
regulations, developments concerning proprietary
rights, litigation, and public concerns as to the safety of our product
candidates;
(f)
announcements of acquisitions;
(g)
general fluctuations in the stock market; and
(h)
revenues and results of operations below the expectations of the public
market.
Any
of
these factors could result in a sharp decline in the market price of our common
shares.
From
January 1, 2005, to December 31, 2006, the trading price of our common shares
has ranged from a low of $0.66 per share to a high of $1.62 per share on the
TSX
and from December 22, 2005, to December 31, 2006, it has ranged from U.S.$0.50
to U.S.$1.43 per share on the AMEX.
During
2006 and the first two months of 2007 an average of approximately 43,584 of
our
shares traded per day on the TSX and following our listing on the AMEX an
average of 49,900 of our shares per day traded on the AMEX. On some trading
days
our shares have had limited trading volume. In addition, stock markets have
occasionally experienced extreme price and volume fluctuations. Historically,
the market prices for the securities of biotech companies, including ours,
have
been particularly affected by these market fluctuations, and these effects
have
often been unrelated to the operating performance of these particular companies.
These broad market fluctuations may cause a decline in the market price of
our
common shares.
THE
SIGNIFICANT COSTS THAT WE WILL INCUR AS A RESULT OF BEING A PUBLIC COMPANY
IN
THE UNITED STATES AND CANADA COULD ADVERSELY AFFECT OUR BUSINESS.
We
have
listed our common shares on AMEX, and therefore we will incur significant legal,
accounting and other expenses as a public company on both AMEX and the TSX.
These expenses include, among others, costs with respect to preparing securities
regulatory filings, costs in connection with compliance with the internal
control audit provisions of the Sarbanes-Oxley Act of 2002 and Canadian Bill
52-109, costs in connection with other provisions of the Sarbanes-Oxley Act
and
52-109, AMEX listing fees and potentially higher director and officer insurance
premiums. In addition, the requirements we face by being listed on AMEX will
impose significant time demands on our management. Although it has not yet
been
a problem for us, becoming subject to the reporting obligations of the Exchange
Act could make it more difficult for us to attract and retain qualified
individuals to serve on our Board of Directors or as our executive officers.
AS
A
FOREIGN PRIVATE ISSUER, WE ARE SUBJECT TO DIFFERENT U.S. SECURITIES LAWS AND
RULES THAN A DOMESTIC ISSUER, WHICH MAY, AMONG OTHER THINGS, LIMIT THE
INFORMATION AVAILABLE TO HOLDERS OF OUR SECURITIES.
As
a
foreign private issuer, we are subject to requirements under the Securities
Act
and the Securities Exchange Act of 1934, as amended, or the Exchange Act, which
are different from the requirements applicable to domestic U.S. issuers. For
example, 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 there under with respect to their purchases and
sales
of our common shares. The periodic disclosure required of foreign private
issuers is more limited than the periodic disclosure required of U.S. issuers
and therefore there may be less publicly available information about us than
is
regularly published by or about U.S. public companies in the United States.
Also, we are not required to comply with Regulation FD, which restricts the
selective disclosure of material information.
Item
4. Information on
ViRexx
A.
History
and Development of ViRexx
The
legal
and commercial name of the Corporation is ViRexx Medical Corp.
ViRexx
is
a corporation amalgamated under the laws of the Province of Alberta, Canada
pursuant to the provisions of the Alberta Business
Corporations Act
(“ABCA”). Our head office is located at 8223 Roper Road, Edmonton, Alberta,
Canada, T6E 6S4, and our registered office is located at 1500 Manulife Place,
10180 - 101 Street, Edmonton, Alberta, Canada T5J 4K1. Our common shares are
listed and posted for trading on the Toronto Stock Exchange (“TSX”) under the
symbol “VIR” and the American Stock Exchange (“AMEX”) under the symbol
“REX”.
ViRexx
is
the corporation resulting from the amalgamation of ViRexx Research Inc. (“ViRexx
Research”), Norac Industries Inc. (“Norac”) and Norac Acquisitions Inc. (“NAI”),
a wholly owned subsidiary of Norac, under the ABCA on December 23, 2003 (the
“ViRexx Amalgamation”). Pursuant to the ViRexx Amalgamation holders of Norac
subordinate voting shares (the “Norac A Shares”) received 0.2244667 common
shares of ViRexx (“ViRexx Shares”) for each Norac A Share held and holders of
Norac multiple voting shares (the “Norac B Shares”) received 0.0000004 ViRexx
Shares for each Norac B Share held. The issued and outstanding class A shares
of
NAI (the “NAI Shares”) was cancelled without any repayment of capital in respect
of such shares as part of the ViRexx Amalgamation, and therefore Norac, as
the
sole shareholder of NAI, did not receive any ViRexx Shares. Holders of shares
of
ViRexx Research received 0.5285974 ViRexx Shares for each share of ViRexx
Research held.
Norac
was
incorporated under the ABCA on September 22, 1986. Norac has been a reporting
issuer in the Province of Alberta since October 2, 1986, pursuant to the
issuance of a receipt for a final prospectus under the Securities Act (Alberta).
The Norac A Shares began trading on the TSXV (formerly, the Canadian Venture
Exchange and prior to that the Alberta Stock Exchange) in April 1987 under
the
symbol “NRC.A” which was subsequently changed to the symbol “NRC.T”. On June 23,
2003, trading of Norac’s securities was halted upon the announcement of the
ViRexx Amalgamation. On August 18, 2003, Norac’s listing was moved to the NEX
board of the TSX Venture Exchange (“TSXV”) as a result of its inactive status,
and Norac’s symbol was changed to “NRC.H”. Norac has been a reporting issuer in
the Province of British Columbia since November 26, 1999.
ViRexx
Research was the corporation resulting from the amalgamation of Novolytic Corp.
and ViRexx Research Inc. (“Original ViRexx”) under the ABCA on August 1, 2002.
On August 1, 2002, immediately prior to the said amalgamation, the shareholders
of Original ViRexx exchanged the 1,000,000 issued and outstanding class A common
shares of Original ViRexx for 16,746,007 common shares of Novolytic Corp. and
as
a result Original ViRexx became a wholly owned subsidiary of Novolytic Corp.
The
share exchange ratio for the amalgamation of Original ViRexx and Novolytic
Corp.
was established by agreement between their respective boards of directors in
consultation with an independent investment banking firm.
Novolytic
Corp. was incorporated under the laws of the State of Nevada, U.S.A. on October
30, 2000 and was continued into the Province of Alberta as a corporation subject
to the ABCA on May 31, 2002. On June 1, 2002, Novolytic Corp. was amalgamated
under the laws of Alberta with Novolytic Inc. with the amalgamated corporation
continuing under the name “Novolytic Corp.” On June 1, 2002, immediately prior
to the amalgamation of Novolytic Corp. and Novolytic Inc. the shareholders
of
Novolytic Inc. exchanged the 100 issued and outstanding shares of Novolytic
Inc.
for 100 class “A” common shares of Novolytic Corp. with Novolytic thereby
becoming a wholly owned subsidiary of Novolytic Corp.
Novolytic
Inc. was incorporated under the ABCA on April 8, 1999 under the name “A.C.T.
Technologies Corp.”, and on November 10, 1999 changed its name to Novolytic
Inc.
The
original ViRexx was incorporated as “ViRexx Corporation” under the ABCA on June
6, 2001, and on October 26, 2001 changed its name to “ViRexx Research
Inc.”
On
December 10, 2004, ViRexx completed a plan of arrangement pursuant to Section
193 of the ABCA involving ViRexx and AltaRex Medical Corp. (“AltaRex”), whereby
amongst other things, ViRexx acquired all of the outstanding common shares
of
AltaRex (the “AltaRex Arrangement”). For each common share of AltaRex owned,
AltaRex shareholders received one half of one ViRexx Share. Also pursuant to
the
arrangement, all outstanding AltaRex stock options and warrants were deemed
transferred to ViRexx (free of any claims) in consideration of new stock options
or warrants for ViRexx Shares on the basis of one stock option or warrant for
a
ViRexx Share for every two AltaRex stock options or warrants with the exercise
price of the such new ViRexx stock options and warrants being the price of
the
prior AltaRex stock options or warrants multiplied by two.
AltaRex
was incorporated pursuant to the provisions of the ABCA as “AltaRex Medical
Corp.” on December 8, 2003. Effective December 23, 2003, AltaRex amended its
articles of incorporation to remove its private company restrictions and
restrictions on share transfer.
On
February 3, 2004, AltaRex completed a plan of arrangement pursuant to Section
193 of the ABCA involving AltaRex, AltaRex Corp., the holders of the securities
of AltaRex Corp. and Nova Bancorp Investments Ltd. (the “Bancorp Arrangement”)
whereby, amongst other things, AltaRex acquired substantially all the assets
of
AltaRex Corp. with a legally effective date of December 31, 2003, and has since
carried on the business substantially as carried on by AltaRex Corp. prior
to
the completion of the Bancorp Arrangement.
Prior
to
the AltaRex Arrangement, the AltaRex common shares were listed and posted for
trading on the Toronto Stock Exchange (“TSX”) under the symbol “ALT”. AltaRex
was delisted from the TSX on December 16, 2004 as a result of the AltaRex
Arrangement and ceased to be a reporting issuer in Canadian jurisdictions.
ViRexx has not made any capital acquisitions or divestitures other than as
described above and all of the funds it has in Treasury will be used to further
its research and development programs.
On
December 22, 2005, our common shares were listed on the AMEX. In 2006, we
incorporated our wholly owned subsidiary named ViRexx International Corp under
the laws of Ireland.
The
principal capital expenditures for the last three fiscal years of ViRexx were
as
follows:
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Equipment
|
|
$
|
22,960
|
|
$
|
5,783
|
|
$
|
290,422
|
|
Leasehold
Improvements
|
|
|
-
|
|
|
2,125
|
|
|
36,303
|
|
Office
Furniture & Equipment
|
|
|
8,440
|
|
|
44,310
|
|
|
32,269
|
|
Computer
hardware
|
|
|
37,812
|
|
|
56,600
|
|
|
32,269
|
|
Computer
software
|
|
|
23,272
|
|
|
23,173
|
|
|
12,101
|
|
|
|
$
|
92,484
|
|
$
|
131,991
|
|
$
|
403,364
|
|
The
expenditures were incurred in Canada. We do not expect any material increase
in
our capital expenditures in the current year.
We
are
a
Canadian-based biotechnology company focused on the development of novel
therapeutic products for the treatment of cancer and chronic viral infections.
Our most advanced clinical programs include drug candidates for the treatment
of
ovarian cancer, chronic hepatitis B and C infection and solid tumours. These
product candidates can be categorized using our three proprietary technology
platforms:
|
1.
|
The
AIT (Antibody-based Immunotherapy) platform, which enhances the ability
of
the patient’s immune system to produce a highly specific and effective
anti-tumor response. This technology allows a patient to break tolerance
to cancer-associated antigens by altering the recognition pathway
used by
the host immune system.
|
|
2.
|
The
T-ACT (Targeted Autothrombogenic Cancer Therapy) platform, which
is a
tumor starvation technology that offers multiple mechanisms of solid
tumor
destruction. This technology causes thrombus formation at the site
of a
hypervascular tumor, thereby interrupting the blood supply to the
tumor
and causing tumor death.
|
|
3.
|
The
Chimigen™ Platform, which is a highly versatile technology designed to
induce broad immune responses by using chimeric molecules that are
fusion
proteins, adding any that consist of a relevant antigen fused to
a
“xenotypic” murine monoclonal antibody fragment. This technology is used
to induce broad immune responses against viruses and cancers that
are
normally unrecognized by the host immune system.
|
AIT™
Technology
Based
on
the AIT™ platform the Company’s lead product candidate is OvaRex® MAb
(monoclonal antibody). OvaRex® MAb represents a first-in-class therapy,
fulfilling a currently unmet medical need; a need for which there is no existing
treatment. OvaRex® MAb is intended for the treatment of ovarian cancer during
the ‘Watchful Waiting’ period - that period of time after surgery and
chemotherapy when the patient is waiting for the cancer to return, which occurs
in more than 80% of patients. In Phase IIB studies, OvaRex® MAb demonstrated a
delay in disease relapse (an extension of the watchful waiting period) by
approximately 13 months versus placebo in patients who had undergone successful
front line therapy (surgery and chemotherapy). The two ongoing Phase III
studies, being funded by development partner Unither Pharmaceuticals, a
subsidiary of United Therapeutics, are fully recruited and results are expected
in the second half of 2007. OvaRex® MAb has been licensed worldwide, the most
recent agreements being struck with Defiante Farmaceutica and Tecnogen, both
subsidiaries of Sigma Tau of Rome, Italy, for the manufacturing, supply and
distribution of OvaRex® MAb throughout most of Europe and the Middle
East.
Other
products in development using the AIT™ technology include BrevaRex® MAb for
breast cancer and ProstaRex® MAb for prostate cancer.
T-ACT™
Platform Technology
The
T-ACT™ platform is designed to interrupt the blood supply to hypervascular
tumors, leading to tumor tissue starvation and tumor death. The lead product
candidate of the T-ACT™ platform is Occlusin™ 50 Injection, a treatment for
primary cancer of the liver. The Occlusin™ 50 Injection safety trial is being
conducted at the Toronto General Hospital under the direction of Dr. Morris
Sherman and at the Foothills Hospital in Calgary, Alberta by Dr. Kelly Burak.
The trial is designed to examine the safety of Occlusin™ 50 Injection when used
as an embolizing agent as part of the transcatheter arterial chemoembolization
(“TACE”) procedure used for the treatment of liver cancer. Ten patients had
received treatment as of December 31, 2006. Interim data analysis demonstrated
a
decrease in tumor volume in four of the five patients treated with Occlusin™ 50
Injection. The adverse events experienced by the study patients were similar
to
those normally encountered by patients undergoing the TACE procedure with
standard embolic devices. Total costs expended in 2006 for the T-ACT™ Platform
were $1,639,985. Partnering discussions have been initiated with numerous
companies interested in Occlusin™ 50 Injection. Specifically, ViRexx is
evaluating potential partners interested in licensing the marketing and
distribution rights to Occlusin™ 50 Injection for Asia, where the prevalence of
liver cancer is higher than anywhere else in the world. Successful completion
of
an agreement with a partner for this territory will result in an accelerated
clinical development program for Occlusin™ 50 Injection. The Corporation
estimates the market for Occlusin™ 50 Injection in Asia at more than $300
million.
Chimigen™
Platform Technology
The
lead
product candidate from the Chimigen™ platform is HepaVaxx B Vaccine, a
therapeutic vaccine for the treatment of chronic hepatitis B infection. In
early
2005, the Corporation entered into an agreement with a contract manufacturer,
Protein Sciences Corporation (“PSC”) of Meriden, Connecticut, for the production
of HepaVaxx B Vaccine. PSC successfully manufactured GMP product in the fourth
quarter of 2005. The treatment of normal, healthy volunteers in a Phase I safety
study was completed in the third quarter of 2006. Our second Chimigen™ vaccine
candidate, HepaVaxx C Vaccine, will be a therapeutic vaccine for the treatment
of chronic hepatitis C infection. Continued efforts in 2007 will be directed
to
select a Chimigen™ hepatitis C therapeutic vaccine candidate for clinical
testing. Partnering discussions have also been initiated for HepaVaxx B Vaccine.
Specifically; ViRexx is targeting potential partners with a strong presence
in
Asia where almost three quarters of the world’s chronic hepatitis B sufferers
exist. The Corporation estimates the market for a successful therapeutic vaccine
in Asia at more than $1 billion.
A
summary
of the development stage for each of the drug candidates is as
follows:
Business
Strategy
As
announced on November 28, 2006, we have adopted a strategy of prioritizing
research activities to focus on the completion of existing product candidates
within its existing technology pipeline that provide near term potential revenue
stream. As the development of OvaRex® MAb has progressed towards a potential
market launch, we have invested in management and human resources personnel
with
expertise and experience in handling the commercialization process. This
represents an increased commitment to anticipated commercialization needs in
addition to meeting the traditional scientific and development requirements.
Based on our analysis of existing resources, we have reduced our internal
research budget by over 65% of its original budget for 2007/2008, and increased
business development budget by 62% over that of 2006.
Our
strategic plan includes the following:
• Focus
research expenditures on near term product opportunities,
•
Control
expenditures on longer term opportunities by partnering or licensing earlier
stage programs to strong development and commercialization
partners,
• Reduce
overall expenditures to minimize the level of additional capital required,
and
• Maximize
the allocation of existing capital prior to the data analysis of the two ongoing
Phase III OvaRex® MAb trials.
Key
Milestones
Our
strategic plan calls for the achievement of a number of significant milestones
over the next 12 months:
• Release
of the results of the Phase III clinical trials of OvaRex® MAb;
• Completion
of GMP manufacturing of a clinical batch of Occlusin’
500
Artificial Embolization Device;
• Completion
of an ongoing Phase II study of OvaRex® MAb in combination with frontline
chemotherapy;
•
Submission of an application to Health Canada for an Investigational Testing
Authorization (CTA) for a pilot study I of the Occlusin’
500
Artificial Embolization Device and
• Initiation
of a Phase I pilot study of for Occlusin’
500
Artificial Embolization Device;
• Completion
of the ongoing Phase I HepaVaxx B Vaccine trial.
Our
main
focus in 2007-2008 is to concentrate our resources on two products,
Occlusin’
500
Artificial Embolization Device and OvaRex® MAb, both expected to be launched at
approximately the same time, in 2008-2009.
Following
the anticipated commercialization of OvaRex® MAb and Occlusin™ 500 Artificial
Embolization Device, we may search for possible strategic in-licensing of
potential product candidates to supplement our existing technologies. The
Corporation will also continue to develop its existing technologies. The
projected income streams from OvaRex® MAb and the Occlusin™ 500 Artificial
Embolization Device, in the midterm and from HepaVaxx B Vaccine and Occlusin™ 50
Injection product licensing and sales in the long term are expected to fund
the
ongoing development of the Corporation’s product pipeline.
In
order
to minimize expenditures in the short to mid-term time period for product
candidates that have a launch window of 2010 and later, we will accelerate
business development efforts to identify a development partner for its lead
Chimigen™ product candidate, HepaVaxx B Vaccine. Partnering the
HepaVaxx B Vaccine program prior to a Phase II trial will provide the
benefit of a partner with late-stage clinical development expertise and
commercial expertise in regions that have the highest incidence of
hepatitis B infection, such as Asia, while minimizing some of our
development costs.
AIT™
Platform Technology
Technology
Overview
Harnessing
the Immune System
Monoclonal
antibodies (MAbs) were once thought to be magic bullets that would bind to
tumor
cells and thereby deliver therapeutic entities to a tumor. One of the historical
challenges to the monoclonal antibody (MAb) field has been the natural shedding
by tumors of antigens into the bloodstream. Once in circulation, these shed
tumor antigens bind with the MAbs before they reach their destination (the
tumor) to provide a direct pharmacological effect. When select monoclonal
antibodies bind to the antigen in circulation our antibodies trigger the immune
system to recognize and attack epitopes of the antigen which are also found
on
the tumor cells. Our research has further demonstrated that our antibody-based
products facilitate and modify tumor antigen processing to trigger T-cell
immunity.
OvaRex®
MAb
Product
Candidate Overview
OvaRex®
MAb is a murine antibody-based product that has a high degree of specificity
to
the tumor associated antigen CA125 that is over-expressed on tumor cells in
over
80% of women with stage III/IV ovarian cancer. We believe that OvaRex® MAb acts
as an immunotherapeutic agent by inducing and/or amplifying the human body’s
immune response against ovarian cancer.
OvaRex®
MAb
§ Based
on a fully foreign monoclonal antibody (MAb) that targets CA125 in
circulation
|
§ Induces
broad immune responses against CA125 and consequently against the
patient’s CA125 positive ovarian
tumors
|
§ in
final stages of clinical development - ongoing Phase II and Phase
III
trials
|
§ benign
safety profile and good quality of life during
treatment
|
|
§ has
been granted Orphan Drug status in U.S. and Europe and Fast Track
status
in U.S.
|
OvaRex®
MAb has shown promise in treating cancer patients in both remission and
recurrent stages of the disease. It will primarily be used in patients who
only
have a residual tumor burden following surgery and chemotherapy.
Our
data
suggests that a positive correlation exists between the extent of the
immunogenic response against CA125 and the progression-free and survival times
of patients. OvaRex® MAb recognizes only a single epitope on the CA125 molecule,
yet following administration of OvaRex® MAb the patient is able to generate
antibodies directed against multiple epitopes (distinct submolecular regions)
of
CA125, indicating that a highly effective immune response has been brought
on by
the product candidate.
Over
700
ovarian cancer patients have participated in seven comprehensive OvaRex® MAb
clinical trials conducted in North America and Germany. Clinical results have
demonstrated an increase in time to disease relapse, coupled with a benign
safety profile. Results from five studies have been reported, including results
from the Corporation’s largest study in 345 ovarian cancer patients in the
“Watchful Waiting” period, the interval of disease remission following
first-line treatment of surgery and chemotherapy. These clinical results
demonstrate a six-to-ten month prolongation in time to disease relapse for
OvaRex® MAb-treated patients (versus placebo) in well-defined populations of
29%-48% of the 345 patients in the study. These well-defined populations also
demonstrate a 19%-41% reduced risk of relapse for OvaRex® MAb treated patients
(versus placebo). A decreased risk of relapse of 20%-25% is generally considered
clinically significant by practicing physicians. A snapshot of the clinical
development program for OvaRex® MAb is provided in the following
figure.
Unither
Pharmaceuticals (Unither) has initiated two identical Phase III pivotal trials
to study the effect of OvaRex® MAb treatment in advanced ovarian cancer during
the “watchful waiting” period. Currently there are no approved therapies for the
treatment of ovarian cancer in the “watchful waiting” period. The trials are
being conducted in the U.S. on Stage III/IV ovarian cancer patients who have
successfully completed surgery and chemotherapy. Treatment will continue until
disease relapse occurs. The studies are randomized, placebo-controlled trials
and will each enroll 177 patients randomized 2:1 to OvaRex® MAb and placebo
treatment. In December 2005, Unither announced the first of two Phase III
OvaRex® MAb trials (IMPACT I) had reached its target enrolment of 177 patients.
In
June
2006, the
second Phase III trial (IMPACT II) was
fully
enrolled. The studies could take up to an additional year or longer to complete,
depending on how long it takes to reach
118
relapse events in IMPACT II. As of October 20, 2006, the reported number of
relapse events was 117 and 96, respectively, in each of the trials.
The
Orphan Drug Designation for OvaRex® MAb is intended for the treatment of ovarian
cancer during the “watchful waiting period”. This affords 7 years marketing
exclusivity in the United States and 10 years marketing exclusivity in Europe.
Although the incidence of ovarian cancer is relatively low in North America
with
16,210 projected deaths in 2005 based on the American Cancer Society (“ACS”)
latest report and 40,000 new cases in Europe, based on GLOBOCAN 2002 statistics,
there is no approved therapy for the treatment of ovarian cancer in the
“watchful waiting” period. The Corporation has issued patents and patents
pending protecting the AIT™ technology. Benchmark monoclonal antibody-based
therapy reimbursements to treat other solid tumors suggest that the Corporation
could receive a premium for its OvaRex® MAb in the treatment of ovarian cancer
patients. However, there is no guarantee that the Corporation or its licensees
including Unither will receive sufficient reimbursement to justify continued
development of OvaRex® MAb.
Market
Overview
Ovarian
cancer is a malignant growth located in the ovaries in the female reproductive
system. In the U.S., Canada, and Europe, ovarian cancer causes more deaths
than
any other cancer of the female reproductive tract, representing 4% of all
cancers among women, and is the fifth most common cause of cancer fatality
for
women, according to statistics compiled by the American Cancer Society (ACS).
Specifically, the ACS estimates that there were 22,491,491 new cases and 16,210
deaths resulting from ovarian cancer in 2006. Approximately 3,000 new cases
of
ovarian cancer are reported in Canada each year.
Although
detection of ovarian cancer at an early stage is now associated with an improved
chance for successful treatment, survival figures have not changed significantly
over the past 15 years. This is partially due to a lack of efficient diagnostic
methods or markers for routine tests that could increase the number of patients
diagnosed at the early stage of their disease. Consequently, in approximately
three quarters of diagnosed patients, the tumor has already progressed to an
advanced stage (Stage III/IV) (ASC 2003), making treatment
difficult.
In
estimating the global market for treating ovarian cancer we have conducted
the
following analysis. We have started with a conservatively estimate that there
are 70,000 new ovarian cancer patients per year in only those countries with
top
tier medical systems. Of these patients, approximately 27,500 will be eligible
for treatment with OvaRex®MAb, during the “watchful waiting period’ for which
there currently is currently no approved therapy.
In
2006,
Monoclonal Antibody therapies commercially available in the U.S. range in price
(ex-factory) from U.S.$25,000/patient/year to U.S.$43,000/patient/year. OvaRex®
MAb is expected to be priced at the upper end of this range, at about
U.S.$39,000/patient/year. At this price, the U.S. market for the ‘watchful
waiting’ indication is estimated at U.S.$47 million per year, and the global
market at U.S.$1.1 billion per year. A second indication is being explored
for
OvaRex® MAb for frontline use in conjunction with front line chemotherapy. This
indication could open up the ovarian cancer market to the full 70,000
patients/year and therefore translates to a market size of U.S.$1.9 billion
annually.
OvaRex®
MAb has been granted Orphan Drug status in the U.S. and Europe and Fast Track
designation in the U.S. The timeline for regulatory submission of OvaRex® MAb
will be determined by United Therapeutics for their licensed territories (as
per
the April 17, 2002 licensing agreement). The Orphan Drug Designation for OvaRex®
MAb is for the treatment of ovarian cancer during the “watchful waiting period”
(i.e. after treatment by chemotherapy and surgical removal of the tumor). This
affords 7years marketing exclusivity in the United States and 10 years marketing
exclusivity in Europe. Further, ViRexx has issued patents and patents pending
that will afford further protection from competitors in this segment of the
cancer treatment market. Benchmark monoclonal antibody-based therapy
reimbursements to treat other solid tumors suggest that ViRexx could receive
a
premium for its OvaRex® MAb in the treatment of ovarian cancer patients.
However, there is no guarantee that ViRexx or its licensees, including Unither,
will receive sufficient reimbursement to justify continued development of
OvaRex® MAb. Further, there is no guarantee that a competitor will not develop a
therapeutic agent that will directly compete with OvaRex® MAb for the specified
target market.
Treatment
Ovarian
cancer typically exhibits vague symptoms, and is therefore called “The Disease
That Whispers”. It is particularly difficult to detect given the location of the
ovaries and is often not diagnosed until at a late stage in the disease, at
which point, it has already spread to other parts of the body. Consequently,
only approximately 25% of ovarian cancers are diagnosed in the early stages
(Am
Cancer Soc 2003).
Treatments
and patient prognosis are highly dependent upon the type of ovarian cancer
and
the extent to which the disease has spread prior to diagnosis. More than 80%
of
Stage III/IV patients express the tumor associated antigen CA125 an antigen
that
is self produced and is highly associated
with ovarian cancer. The therapeutic approach prescribed for these patients
whose tumors have progressed to an advanced stage consists of surgery to remove
all visible cancerous growth followed by adjuvant chemotherapy. The procedure
may also involve the removal of one or both ovaries and fallopian tubes
(salpingo-oopharectomy), as well as the uterus
(hysterectomy).
In
recent
years, new chemotherapeutic agents used either as single treatments or in
combination with other therapeutic agents have demonstrated an increase in
survival time. Despite their apparent positive effect on survival time, these
agents are associated with significant toxicity and side effects that reduce
the
patient’s quality of life. Currently, the most common chemotherapy for patients
with newly diagnosed ovarian cancer is carboplatin (Paraplatin®) or cisplatin
(Platinol®) with paclitaxel (Taxol®). Carboplatin and cisplatin are “platinum
agents” (chemicals that contain platinum). Given the rigors of repeated
chemotherapeutic treatments, and taking into account the modest effect on
prolonging survival time, patient quality of life has become a major issue.
This
is increasingly true as ovarian cancer affects a larger number of older and
postmenopausal women.
Competition
To
our
knowledge, the only known potential competitor is Menarini Group, an Italian
company, who currently has a product candidate in Phase III stage trial that
commenced in approximately December of 2006. There are no products available
for
commercial sale for the treatment of advanced ovarian cancer in the “watchful
waiting” period.
Chimigen™
Platform Technology
Technology
Overview
In
a
healthy individual, foreign antigens (such as proteins derived from a bacterium,
virus or parasite) normally elicit an immune response. This immune response
consists of two components:
Humoral
(Antibody) Response: Antibodies produced by B-cells are secreted into the blood
and/or lymph in response to an antigenic stimulus. The antibody then neutralizes
the pathogen (virus, bacteria or parasite) by binding specifically to antigens
on its surface, marking it for destruction by phagocytic cells and/or
complement-mediated mechanisms.
Cellular
Response: The cellular immune response leads to the selection and expansion
of
specific helper and killer T-cell clones capable of directly eliminating cells
that carry the antigen.
In
some
individuals, the immune system does not respond normally to certain antigens
or
pathogens. When an antigen does not stimulate the production of a specific
antibody and/or cellular response, the immune system is not able to ward off
the
resultant infection. As a result, the host will develop tolerance to the
infectious agent and thus becomes a chronic carrier of the disease.
Chimigen™
vaccines contain two domains, the “Target Binding Domain” and the “Immune
Response Domain”. The Target Binding Domain targets the Chimigen™ vaccine to
specific receptors on antigen presenting cells and the Immune Response Domain
contains selected antigens. These vaccines can be produced as fusion proteins
using recombinant methods. Our recombinant technology allows for efficient
substitution of a desired antigen (the Immune Response Domain) onto the Target
Binding Domain backbone of the Chimigen™ Vaccine. This enhances our ability to
produce highly desirable and effective multivalent vaccines. Thus the Chimigen™
is a platform that lends itself to the development of multiple products
incorporating antigens that occur in a number of disease conditions including
cancer.
We
are in
the process of testing the efficacy of our Chimigen™ vaccines to induce both
arms of the body’s immune system to attack the infectious agent. We hope that
the tests will show the Chimigen™ therapeutic vaccines will break tolerance to
the infectious agent and stimulate the immune system to eliminate infected
cells
as well as the disease-causing agent located in the circulation.
HepaVaxx
B Vaccine
Product
Candidate Overview
HepaVaxx
B Vaccine is a Chimigen™ therapeutic vaccine developed by ViRexx for the
treatment of chronic hepatitis B viral infections. In the candidate being
tested, the Immune Response Domain is a hepatitis B viral antigen and the Target
Binding Domain is created from select segments of a murine monoclonal antibody.
Expression of HepaVaxx B Vaccine insect cells enhances the “foreignness” of the
protein composition. Validation of the uptake, processing and activation of
the
cells responsible for modulating the immune response was conducted by us using
specialized assay systems.
Market
Overview
The
market for ViRexx’s HepaVaxx B is global as shown in the chart below:
Hepatitis
B Virus Market Size
|
Globally
|
|
U.S.
|
People
Chronically Infected
|
370
million
|
|
1.25
million
|
New
Cases Per Year
|
Not
Available
|
|
78,000
|
Source:
Center for Disease Control Hepatitis B Fact Sheet (2003)
Source:
World Health Organization 2000
Hepatitis
B is one of the major diseases of mankind and is a serious global public health
problem. The World Health Organization estimates that one out of every three
people have been infected with the Hepatitis B Virus (“HBV”) of whom
approximately 350 million have developed a chronic HBV infection.
The
virus
is very common in Asia, (especially Southeast Asia), Africa, and the Middle
East
where there are more than 350 million chronically infected carriers representing
approximately 5% of the world’s population. Approximately 1.25 million chronic
carriers of HBV live in the U.S. an estimated 10 to 30 million people worldwide
will be newly infected with the virus each year.
People
with a chronic hepatitis infection are at risk for significant liver damage.
Approximately 20-30% of chronically infected people (30-35% of chronically
infected males) develop cirrhosis of the liver and/or liver carcinoma over
a
20-30 year time period. There are approximately one million deaths each year
attributed to chronic HBV infection.
Competition
At
least
28 companies including several major international pharmaceutical companies
are
developing new and novel products for the treatment or prevention of chronic
hepatitis B virus infection. The developmental strategies being employed by
these biotech and pharmaceutical companies may be categorized as (a) nucleoside
reverse transcriptase inhibitors of viral replication (e.g., Entecavir), (b)
non-nucleoside reverse transcriptase inhibitors of viral replication (e.g.
Robustaflavone), (c) monoclonal antibodies (HepX TM
-B), (d)
vaccines (e.g., Hepatitis B DNA vaccine), and (e) other immunologic therapies
(e.g., EHT899).
We
believe that the majority of these approaches do not eradicate the reservoir
of
the HBV that remains inside the patient’s cells and therefore frequently do not
permanently cure the patient of hepatitis B viral infection. The approaches
noted above will likely reduce the viral load in the patient’s blood, but
unfortunately for the majority of patients, once the therapy is stopped the
hepatitis virus will begin to replicate again within the
patient’s cells that contain the viral “covalently closed circular” (ccc) DNA.
In contrast, we believe that HepaVaxx B Vaccine will elicit both humoral and
cellular immune responses in chronic hepatitis B patients and that a strong
cellular immune response directed against hepatitis B antigens will have the
potential to eradicate the patient’s cells that harbor hepatitis B viral
DNA.
Furthermore,
experience has shown that during long term therapy with existing antiviral
agents (e.g., lamivudine), the patients that had the best chance of eliminating
the virus were the patients who had an immune response to the virus prior to
starting the antiviral agent. We believe the predicted humoral and cellular
immune responses induced by HepaVaxx B Vaccine will increase the effectiveness
of antiviral therapy when used in combination with antiviral agents such as
lamivudine.
HepaVaxx
C
Product
Candidate Overview
HepaVaxx
C Vaccine is a Chimigen™ vaccine being developed for the treatment of chronic
hepatitis C viral infections. HepaVaxx C Vaccine is a recombinant chimeric
molecule containing the elements of both hepatitis C viral antigen and a murine
antibody fragment. The molecule is designed to target antigen presenting cells,
especially dendritic cells that play a dominant role in the body’s immune
system. Plans are in place for the pre-clinical evaluation of vaccine candidates
using specialized assay systems.
Market
Overview
The
market for ViRexx’s HepaVaxx C is global.
HCV
Market Size
|
|
|
|
|
Globally
|
|
U.S.
|
People
Chronically Infected
|
170
million
|
|
2.7
million
|
New
Cases Per Year
|
3-4
million
|
|
25,000
|
Sources:
World Health Organization Fact Sheet WHO/164 - October (2000)
Source:
World Health Organization (2000)
The
World
Health Organization estimates that 170 million people are chronically infected
with HCV (more than four times as many as infected with HIV) and conservatively
3 to 4 million people are newly infected each year. (Source: WHO Fact Sheet
WHO/164 - October 2000.)
An
estimated 4 million people have been infected with HCV in the U.S., of whom
2.7
million are chronically infected. According to the U.S. Centre for Disease
Control and Prevention (“CDC”), new infections in the U.S. have dropped from
approximately 240,000 annually in the 1980s to less than 25,000 in 2001. This
is
largely due to the availability of a diagnostic antibody test, which was
introduced in 1990 to screen and eliminate HCV-infected blood from the nation’s
blood supply. (Source: Centre for Disease Control Hepatitis C Fact Sheet
(2003).
Since
1990, all donated blood in the U.S. has been screened for the presence of the
virus, thus eliminating almost all cases of transmission through transfusion.
While this screening test has also been adopted by many other industrialized
nations, the rest of the world is still at risk from transfusions as well as
the
other common routes of transmission (especially contaminated needles). In the
absence of blood screening, many, if not most carriers, have no idea that they
are infected, or that they should take precautions against infecting
others.
While
the
incidence of infection in the U.S. has decreased since the 1980s, the rate
of
deaths attributable to HCV continues to increase as people infected decades
ago
begin to manifest the disease. According to the CDC, 8,000 to 10,000 people
currently die each year from HCV-related liver disease. HCV continues to be
the
number one reason for liver transplants. The CDC has previously predicted that
the death toll will triple by the year 2010 and exceed the number of U.S. deaths
due to AIDS. In addition, HCV is now the most common blood-borne infection
in
the U.S.
According
to Hepatitis Central, chronic HCV is predicted to become a major burden on
the
health care system over the next 10 to 20 years as many patients who are
currently asymptomatic will progress to end-stage liver disease and cancer.
Approximately 75% to 85% of individuals infected with HCV will develop a chronic
infection, of which approximately 15% to 20% will develop chronic liver disease
progressing to cirrhosis. Between 1% and 5% of people with chronic infections
will develop liver cancer over a period of 20 to 30 years. Predictions in the
U.S. indicate that there will be a 60% increase in the incidence of cirrhosis,
a
68% increase in hepatoma, a 279% increase in hepatic decomposition, a 528%
increase in the need for transplantation, and a 223% increase in liver death
rate.
At
present there is neither a therapeutic or prophylactic vaccine commercially
available to treat or prevent hepatitis C infections. Current therapy for
hepatitis C infection uses interferon and ribavirin. However, this combination
is expensive, has significant side effects and is only effective in
approximately 40% - 50% of a select group of patients. The epidemic proportions
of HCV infection, the limited efficacy and expensive nature of approved
therapeutics, the high cost of liver transplants (about $250,000 each) and
the
huge burden on the healthcare system in Canada alone (about $600 million in
1998, just in medical and work-loss costs), all point to the need for
prophylactic vaccines and new therapies to treat the disease. (Source: Health
Canada News Release, September 18, 1998 and Fields Virology (2000) Volumes
I and
II (Fourth Edition).
The
specific target population that can be treated with HepaVaxx C Vaccine will
be
defined through the clinical development process. HepaVaxx C Vaccine is
currently in the pre-clinical stage of development.
Competition
We
believe the Chimigen™ can potentially be used to develop a therapeutic vaccine
as well as a prophylactic vaccine against Hepatitis C infection.
We
have
determined that there are more than 14 companies, including several major
international pharmaceutical companies (e.g. Roche, Schering-Plough, and Eli
Lilly), developing innovative drugs for the treatment of hepatitis C. The
development strategies can be categorized as (a) biological response modifiers
(e.g.
interferon α-2b), (b) antiviral nucleosides
(e.g.,
Viramidine), (c) immune globulins (e.g., Civacir™
hepatitis C immune globulin), (d) monoclonal antibodies (e.g., XTL-002), (e)
ribozymes (e.g.. Heptazyme™),
(f)
antisense drugs (e.g. ISIS 14803), (g) small molecule protease inhibitors (e.g.,
LY570310 / BILN2061, VX-950), (h) polymerase inhibitors (e.g. NM283) and (i)
other strategies (e.g. human recombinant lactoferrin).
Among
these developmental strategies, the biological response modifiers “(BRMs”)
(e.g., interferon-alpha) have promise for treatment of hepatitis C infection.
BRMs enhance, direct or restore the body’s ability to fight disease and provide
a non-specific boost to the patient’s immune system, which will then mount an
attack on cells harboring the hepatitis C viruses. Although BRMs such as
interferon-alpha impart a general immune boost that is effective in some
patients, the side effect profile is very poor and many patients choose to
discontinue therapy because they cannot tolerate the adverse
effects.
We
believe that the side effect profile associated with treatment of chronic
hepatitis C patients with HepaVaxx C Vaccine may be very mild. Furthermore,
we
believe that the HepaVaxx C Vaccine will elicit both humoral and cellular immune
responses in chronic hepatitis C patients that may eliminate the hepatitis
C
infection from the body.
Chiron
Corporation
Chiron
Corporation is developing prophylactic and therapeutic vaccines using
recombinant HCV antigens and adjuvants.
Schering-Plough
Corp.:
Schering-Plough
Corp.’s (“Schering-Plough”) interferon product (“alpha-interferon”),
PEG-INTRON®, is currently the preferred treatment for HCV because it appears to
be less toxic than Rebetol®.
Schering-Plough has developed a combination therapy with this product and
ribavirin that was approved by European regulators in March 2001 and has been
approved by the FDA.
F.
Hoffman-La Roche Ltd.
:
F.
Hoffman-La Roche Ltd. (“Roche”) has a therapeutic for the treatment of HCV
infections. In a head-to-head Phase III clinical trial conducted by researchers
at the University of Carolina, it was found that patients treated with Roche’s
PEG interferon α-2a
or
Pegasys®, combined with the antiviral agent ribavirin, was effective in 56% of
patients tested, relative to 45% of subjects taking Schering-Plough’s Rebetol®,
the current industry standard.
In
the
Roche trial, researchers discovered that the most common side effects,
depression and flu-like symptoms, were less frequently exhibited in the Pegasys
and ribavirin group than in the group taking ribavirin alone. Depression
occurred in 21% of those taking the combination therapy, compared with 30%
in
the ribavirin alone group, and 20% in the group taking Pegasys without
ribavirin. (Source: Roche Press Release - May 22,
2001:http://www.natap.org/2002/Nov/111902-4.html.) However, the high cost
(approximately U.S. $31,000 for a year’s supply) and the frequency of side
effects with moderate efficacy make this therapy less than desirable. (Source:
Fields Virology (2000) Volumes I and II (Fourth Edition).
There
are
also a number of drugs under development, such as Vertex’s VM-950 protease
inhibitor and Idenix’s NM283 polymerase inhibitor, that have shown great promise
during Phase II clinical testing. These drugs are being developed rapidly in
collaboration with major pharmaceutical partners. If approved, they may
re-define the standard of care for the treatment of Hepatitis C
infections.
T-ACT™
Platform Technology
Technology
Overview
It
is
well known in the medical community that depriving a tumor of its blood supply
has great potential in the fight against cancer and the treatment of benign
tumors. Many large pharmaceutical companies conducting clinical studies have
clearly established the concept that cutting off the blood supply to tumors
causes them to regress and become dormant. Furthermore, cutting off the blood
supply reduces the ability of cancers to invade tissues and to spread to other
parts of the body.
Our
T-ACT™ platform is a novel and proprietary targeted tumor starvation technology.
The platform consists of two complementary product candidate groups, Occlusin™
and Tactin™, and is based on site-specific platelet-mediated thrombosis of solid
tumor vasculature. The T-ACT™ technology platform has the potential to produce a
wide range of product candidates that interrupt the flow of blood to solid
tumors, both malignant (cancer) and non-malignant (benign). Blockage of tumor
tissue vasculature by targeted thrombosis starves the tumor of oxygen and
essential nutrients, resulting in tumor regression and ultimately in tumor
tissue death.
The
T-ACT™ platform technology harnesses the body’s natural ability to produce a
blood clot in response to immobilized von Willebrand Factor (“VWF”). VWF and
other “platelet capture” agents circulate in the blood stream in an inactive
state. When a blood vessel is damaged VWF becomes immobilized on the vessel
wall, and is thereby able to capture circulating platelets and stop the flow
of
blood from the injured vessel.
The
Occlusin™ technology includes several types of particles coated with VWF or
other platelet binding proteins. These particles, delivered through a catheter,
are tailor-made for the specific indication for which they are being delivered.
Particle size is selected such that upon initiation of platelet reactivity
with
the particles (i.e., platelet binding to the particles) progression of the
particles beyond the capillary bed cannot occur. By varying the particle size,
shape and composition, while maintaining a clot forming component (e.g., VWF),
the Occlusin™ agents will rapidly and efficiently block target blood vessels of
various sizes and locations. Furthermore, Occlusin™ agents can be made of either
materials that are biodegradable or materials that would remain permanently
resident in the body.
We
believe that the Occlusin™ product candidates are ideal for the treatment of
uterine fibroids (a benign tumor) and hepatocellular carcinoma (primary cancer
of the liver).
Occlusin™ Product
Candidates
Product
Candidate Overview
Occlusin™
product candidates are under development for the treatment of uterine fibroids
and hypervascular tumors (e.g., liver cancer). Based on the T-ACT™
platform technology, the product candidates consist of solid biodegradable
particles coated with a platelet-binding agent. These agents are delivered
by
catheter to the main vessels feeding the tumor.
Market
Overview
The
Occlusin TM
product
candidate indications constitute a global market.
Uterine
Fibroid Market Size
|
Globally
|
|
U.S.
|
Prevalence
|
2020
- 40% of women 30>35 yrs of age
|
|
>
225 million
|
Target
Market of the 200,000 hysterectomies performed annually to relieve
debilitating symptoms of uterine fibroids
|
20%
experience debilitating symptoms
|
|
>
55 million
|
Source:
National Institutes of Health (NIH); Central Intelligence Agency Population
Statistics; Society of Interventional Radiology.
Uterine
fibroids, also called leiomyomas, are benign tumors that can grow on the inside
or outside of the uterus, or within the uterine wall. Their size can vary from
that of a pea to the size of a full-term pregnancy. While most women with
fibroids are symptom-free, approximately 25% to 30% experience prolonged
bleeding, which can lead to anemia and/or pain in the pelvis, abdomen, back
or
during sexual intercourse. Fibroids can also prevent a woman from conceiving,
or
can induce a miscarriage or premature labor. As fibroids grow and expand, they
exert pressure upon the bladder and lower intestine and can cause difficult
or
increased urination, constipation, and a feeling of fullness.
The
Society of Interventional Radiology estimates the incidence of uterine fibroids
of significant size at 20% to 40% of women 35 years of age and older and 20%
(two million women) experience severe debilitating effects. Corresponding
numbers of women in the rest of the world are similarly afflicted. ViRexx will
determine the target market for its Occlusion™ product candidates by continued
market analysis and through the clinical trial process.
Hysterectomy
(complete removal of the uterus) or myomectomy (partial removal of the uterine
wall) has been the treatment of choice for women suffering from severe side
effects of uterine fibroids. These invasive surgical procedures require long
hospital stays and recovery time, post surgery. In contrast, uterine fibroid
embolization (“UFE”) is a minimally invasive technique delivered as an
outpatient procedure with minimal recovery time.
UFE
involves delivering tiny embolic microspheres to the blood vessels feeding
the
fibroid. The microspheres are delivered by catheter and function to block the
vasculature associated with this benign tumor. Once the blood supply is cut
off,
the fibroids shrink resulting in symptom relief.
A
recent
publication in the New England Journal of Medicine (January 25, 2007) comparing
treatments for uterine fibroids underlined the benefits of UFE over surgery
(hysterectomy or myomectomy). The UFE group had a shorter median stay in
hospital (1 versus 5 days; p<.001) and a shorter recovery time before
returning to work (20 days versus 61 days; p<0.001) in comparison to the
surgery group. There was no difference in major adverse events between the
two groups.
Liver
Cancer Market Size (primary + secondary to colorectal
cancer)
|
Globally
|
|
U.S.
|
Prevalence
|
385,985
|
|
13,363
|
New
Cases per year
|
626,162
|
|
14,991
|
Source:
GLOBOCAN 2002
While
primary liver cancer is not as prevalent in North America, in the less developed
parts of the world such as Africa, Southeast Asia, and China, it is responsible
for 50% of all cancer cases. This dramatic difference is believed to be due
to
the much higher prevalence of hepatitis B virus carriers in those regions,
which
predisposes to the development of hepatocellular carcinoma (“HCC”).
According
to GLOBOCAN 2002, the worldwide incidence of primary liver cancer was estimated
to be 626,162 cases and, of these, over 411,000 were located in China, 18,000
in
North America and 38,000 in Europe. The number of patients who died worldwide
from primary liver cancer in 2002 was estimated to be 600,000. ViRexx will
determine the target market for its Occlusion™ 5050 Injection product
candidate(s) by continued market analysis and through the clinical trial
process.
In
the
U.S., the five-year survival rate for patients with all stages of liver cancer
is 10.5%. The five year survival rate of American patients diagnosed with
localized liver cancer is 21.9% and a mere 3.3% for patients with distant
disease. There has been little improvement in the five-year survival rate for
U.S. liver cancer patients since the mid 1970s when the overall survival rate
was 4%. (Source: American Cancer Society, 2007 Statistics.)
Competition
Embolotherapy,
the blocking of blood vessels feeding a target tissue, has been practiced for
more than 30 years. Several companies, in recent years, have focused on
producing specific embolic agents for the treatment of various forms of solid
tumors.
Biosphere
Medical Inc.:
Biosphere
Medical Inc.’s Embosphere™ microsphere technology is the perceived market leader
in the area of embolotherapy. This company has developed several forms of its
acrylic-based microspheres to treat both liver cancer and uterine fibroids.
Embosphere™ Microspheres was recently approved by the FDA for the treatment of
uterine fibroids.
Cook
Incorporated:
Cook
Incorporated markets polyvinyl alcohol (“PVA”) foam particles. This company
markets several different sizes of the particles to block various sizes of
blood
vessels. Cook Incorporated also markets materials such as catheters required
in
UFE procedures.
PVA
particles are inert and serve only to physically interfere with the blood flow
to the target tissue. In addition, the irregular shape of the PVA particles
can
result in clogging of the catheter through which the particles are
delivered.
Boston
Scientific Corporation:
Boston
Scientific markets Contour SE™ Microspheres for the treatment of hypervascular
tumors and uterine fibroids. The microspheres consist of polyvinyl alcohol
and
are available in various size ranges. PVA particles are inert and serve only
to
physically interfere with the flow of blood to the target tissue.
Occlusin™
particles, in contrast to conventional particles bind to the vessel wall by
way
of the clot as well as being a physical blockage. We believe that this advantage
will reduce the need for multiple interventions.
Tactin
Technology
Technology
Overview
Tactin
agents are systemically delivered (injected intravenously) and include a series
of cancer targeting components against markers such as TAAs found on the surface
of a number of cancers including cancers of the liver, breast, lung, prostate
and head and neck. The Tactin agents are capable of localizing platelets at
a
predetermined site by (a) binding to tumor cells that display unique TAAs and
(b) by subsequently capturing a separately administered thrombus formation
component (“TFC”). We believe that our TFC is an exceptional platelet binding
and activating protein, that when fixed to the tumor by the cancer-targeting
component induces a thrombus only within the confines of the tumor vasculature.
Thus, the Tactin product candidates utilize a tumor-localized platelet
collection and activation process through binding of a targeting agent to a
tumor associated antigen, which subsequently leads to thrombus formation and
limits the blood supply to the target area, and does this without inducing
a
generalized or systemic pro-thrombotic state.
Tactin
agents affect the vascular system supplying tumors. The tumor targets are
directly accessible to arterially or intravenously administered agents
permitting rapid localization of a large percentage of the injected dose. We
expect this to result in rapid occlusion of the tumor vasculature. Each
capillary in a tumor provides oxygen and nutrients to thousands of tumor cells,
so that even limited damage to the tumor vasculature has the potential to
produce extensive tumor cell death.
Various
targeting agents can be used in combination with the common TFC to achieve
an
effective response in a broad range of tumor and hyperplastic tissue
pathologies. As an example, a targeting agent that binds to alpha-fetoprotein
(“AFP”) can be coupled to the same thrombus-inducing agent. This same
thrombus-inducing agent can also be linked, in vivo, to other targeting agents
that bind to other specific antigens (e.g., TAG-72, associated with colorectal
cancer).
Market
Overview
Please
refer to the “Market Overview” section of the Occlusin™ Injection technology in
this Annual Report for an in-depth discussion of the existing
market.
Intangible
Properties
We
are a
party to collaborative agreements with third parties relating to OvaRex® MAb and
four other product candidates from the AIT™ platform. The Corporation is
dependent on the success of its strategic relationships with United Therapeutics
and other third parties” for further details.
Proprietary
Protection
We
rely
upon patent protection and trademarks to preserve its proprietary technology
and
its right to capitalize on the results of its research and development
activities and, to the extent it may be necessary or advisable, to exclude
others from appropriating its proprietary technology.
Confidentiality
Since
some of our technology is not patented or licensed but protected by the law
of
trade secrets, our ability to maintain the confidentiality of our technology
is
crucial to our ultimate possible commercial success. In order to protect our
confidential information, we have adopted the following procedures:
|
· |
all of our employees must sign and are bound by
confidentiality agreements; |
|
·
|
no
sensitive or confidential information is disclosed to any party unless
appropriate confidential disclosure agreements are first signed;
and
|
|
·
|
all
confidential material that is provided to a party is marked as
confidential and is requested to be returned when the user no longer
has a
need to have the material, or when the term of any applicable confidential
disclosure agreement governing the use of the material expires.
|
We
are
unaware of any violations of our confidentiality procedures, and to date we
have
never experienced a violation of our confidentiality procedures that has caused
our company material harm. Nevertheless, we cannot assure you that our
procedures to protect confidentiality are effective, that third parties will
not
gain access to our trade secrets or disclose our technology, or that we can
meaningfully protect our rights to our trade secrets. We cannot prevent a person
from violating the terms of any confidential disclosure agreement. Furthermore,
by seeking patent protection in various countries, it is inevitable that
important technical information will become available to our competitors,
through publication of such patent applications. If we are unable to maintain
the confidentiality of our technology in appropriate circumstances, this could
have a material adverse impact on our business, financial condition, and results
of operations.
Our
Patents
Our
success depends in part on our ability to obtain patents, operate without having
third parties circumvent our rights, operate without infringing the proprietary
rights of third parties, and maintain trade secret protection. As of the date
of
this Annual Report, we had 72 issued patents and 141 pending patent applications
relating to our various technologies in the United States, Canada, the European
Union, and other countries, of which we have been granted eight patents in
the
United States. The expiry dates for these eight patents are between 2016 and
2021. The dates reflecting the expiration date of the longest-lived patent
rights listed herein do not take into consideration the possibility that a
failure to maintain these patents, a terminal disclaimer or other future actions
may affect the actual expiration date of the patents. Pending applications
may
never mature into patents, which could affect the lifespan of certain licenses.
Finally, future applications could result in the extension of the license term
beyond the dates listed above.
The
patent position of pharmaceutical and biotechnology companies is uncertain
and
involves complex legal and financial questions for which, in some cases,
important legal principles are largely unresolved. Patent offices vary in their
policies regarding the breadth of biopharmaceutical patent claims that they
allow. In addition, the coverage claimed in a patent application can be
significantly reduced during prosecution before a patent is issued. We may
not
be granted patents of meaningful scope based on the applications we have filed
and those we intend to file. We cannot assure you that our pending patent
applications will result in patents being granted, that we will develop
additional proprietary product candidates that are patentable, that patents
that
have already been granted to us will provide us with any competitive advantage
or will not be challenged or invalidated by any third parties, or that patents
of others will not have an adverse effect on our ability to do business. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of Canada or the United
States. We cannot assure you that others will not independently develop similar
products or processes, duplicate any of our potential products or processes,
or
design around the potential products or processes we may patent.
Our
Patent Policy
We
pursue
a policy of obtaining patent protection both in the U.S. and in selected foreign
countries for subject matter considered patentable and important to our
business. Our patent portfolio currently includes patents with respect to our
unique approaches to immunotherapy, compositions of matter, their immunological
utilities, broad claims to therapeutic methods, specific claims for use of
these
compositions to treat various disease states, and the pharmaceutical formulation
of these compositions. We have also sought patent protection with respect to
embolotherapy, related compounds, methods and strategies for therapy, routes
of
administration and pharmaceutical formulations. In addition, a portion of our
proprietary position is based upon the use of technology and potential products
we have licensed from others, including the master cell bank licensed from
Biomira Inc. for OvaRex® MAb. The license agreement generally requires ViRexx to
pay royalties upon commercialization of potential products covered by the
licensed technology. We also currently have exclusive licenses from the
University of Alberta to two patent applications.
Third-Party
Patents
Our
commercial success also depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. From
time
to time, companies may possess rights to technologies in the same areas of
research and development as ours, may have patents similar to ours, and may
notify us that we may require licenses from them in order to avoid infringing
their rights in that technology or in order to enable us to commercialize our
own technology. Patent applications are, in many cases, maintained in secrecy
until patents are issued. Our competitors or potential competitors may have
filed applications for, or may have received patents and may obtain additional
and proprietary rights to compounds or processes used by us or are competitive
with ours. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying
discoveries were made and patent applications are filed. In the event of
infringement or violation of another party’s patent, we may be prevented from
pursuing potential product development or commercialization. In addition, we
may
be required to obtain licenses under patents or other proprietary rights of
third parties. We cannot assure you that any licenses required under such
patents or proprietary rights will be available on terms acceptable to us.
If we
do not obtain such licenses, we could encounter delays in introducing one or
more of our product candidates to the market, without infringing third-party
patents, or we could find that the development, manufacturing or sale of
potential products requiring these licenses could be foreclosed.
Patent
Litigation
Patent
litigation is becoming widespread in the biopharmaceutical industry and we
cannot predict how this will affect our efforts to form strategic alliances,
conduct clinical testing, or manufacture and market any of our product
candidates that we may successfully develop. We are unaware of any potential
issues related to our possible infringement or violation of another party’s
patent. If challenged, however, our patents may not be held to be valid. We
could also become involved in interference or impeachment proceedings in
connection with one or more of our patents or patent applications to determine
priority of invention. If we become involved in any litigation, interference,
impeachment, or other administrative proceedings, we will likely incur
substantial expenses and the efforts of our technical and management personnel
will be significantly diverted. We have the obligation to protect and bear
the
cost of defending the patent rights of the patents we own. With respect to
our
licensed patents we have the right but not the obligation to bear the cost
of
defending patent rights from third parties. A decision to pursue a patent
infringement action may be prohibitively expensive.
More
specifically, we cannot assure you that we will have the financial or other
resources necessary to enforce or defend a patent infringement or proprietary
rights violation action. Moreover, if our potential products infringe the
patents, trademarks, or proprietary rights of others, we could, in certain
circumstances, become liable for substantial damages, which also could have
a
material adverse effect on our business, financial condition, and results of
operations. Where there is any sharing of patent rights, either through
co-ownership or different licensed "fields of use", one owner’s actions could
lead to the invalidity of the entire patent.
In
relation to the License Agreement established between us and Biomira Inc. dated
November 24, 1995, we are responsible for the maintenance of existing patents
and the prosecution of all patent applications related to the licensed
technology. In addition, we are responsible for the payment of all fees and
costs incurred related to the filing, prosecution and maintenance of the patent
applications and patents included in the licensed technology.
In
relation to the License Agreement established between us and the Governors
of
the University of Alberta (“U of A”) for the rights to use Methods of Eliciting
a Th1-specific Immune Response, the U of A is responsible for the maintenance
of
existing and prosecution of all patent applications related to the licensed
technology. As of the effective date of the agreement, May 1, 2002, we are
responsible for the payment of all fees and costs incurred by the U of A related
to the filing, prosecution and maintenance of the patent applications and
patents included in the licensed technology. These obligations are not
considered material.
Economic
Dependence and Foreign Operations
We
are
dependent upon foreign operations of United Therapeutics, Defiante, Tecnogen
and
other third parties. We, through our license agreement with United Therapeutics,
via our license and supply agreement with Defiante, a subsidiary of Sigma Tau
Farmaceutici, and a manufacturing and supply agreement with Tecnogen, another
subsidiary of Sigma Tau Farmaceutici, are reliant on strategic relationships
with third parties for the OvaRex® MAb, and in United Therapeutics’ case, other
product candidates. For further details, please refer to the following “Risk
Factors”: “WE
RELY ON OUR STRATEGIC RELATIONSHIP WITH UNITED THERAPEUTICS” AND “WE ARE IN THE
EARLY STAGES OF PRODUCT CANDIDATE DEVELOPMENT. OUR PRODUCT CANDIDATES MAY NOT
BE
EFFECTIVE AT A LEVEL SUFFICIENT TO SUPPORT A PROFITABLE BUSINESS VENTURE. IF
THEY ARE NOT, WE WILL BE UNABLE TO CREATE MARKETABLE PRODUCT CANDIDATES AND
WE
WILL HAVE TO CEASE OPERATIONS.”
Government
Regulation and Product Approval
Regulation
by governmental authorities in the United States and other countries is a
significant factor in the development, manufacture and marketing of
pharmaceuticals. All of our products will require regulatory approval by
governmental agencies prior to commercialization. In particular, pharmaceutical
drugs are subject to rigorous preclinical testing and clinical trials and other
premarketing approval requirements by the FDA and regulatory authorities in
other countries. In the United States, various federal, and in some cases state
statutes and regulations, also govern or impact upon the manufacturing, safety,
labeling, and storage, recordkeeping and marketing of pharmaceutical products.
The lengthy process of seeking required approvals and the continuing need for
compliance with applicable statutes and regulations require the expenditure
of
substantial resources. Regulatory approval, when and if obtained for any of
our
product candidates, may be limited in scope which may significantly limit the
indicated uses for which our product candidates may be marketed. Further,
approved drugs and manufacturers are subject to ongoing review and discovery
of
previously unknown problems that may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market.
Preclinical
Studies
Before
testing any compounds with potential therapeutic value in human subjects in
the
United States, stringent government requirements for preclinical data must
be
satisfied. Preclinical testing includes both in
vitro
and
in
vivo
laboratory evaluation and characterization of the safety and efficacy of a
drug
and its formulation. Preclinical testing results obtained from studies in
several animal species, as well as from in
vitro
studies,
are submitted to the FDA as part of an Investigational New Drug Application,
or
IND, and are reviewed by the FDA prior to the commencement of human clinical
trials. These preclinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initial trials in human
volunteers.
Clinical
Trials
If
a
company wants to test a new drug in humans in the United States, an IND must
be
prepared and filed with the FDA. The IND becomes effective if not rejected
or
put on clinical hold by the FDA within 30 days. In addition, an Institutional
Review Board comprised in part of physicians at the hospital or clinic where
the
proposed trials will be conducted must review and approve the trial protocol
and
monitor the trial on an ongoing basis. The FDA may, at any time during the
30-day period or at any time thereafter, impose a clinical hold on proposed
or
ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials
cannot commence or recommence without FDA authorization and then only under
terms authorized by the FDA. In some instances, the IND application process
can
result in substantial delay and expense.
Clinical
Trial Phases
Clinical
trials typically are conducted in three sequential phases, phases I, II and
III,
with phase IV trials potentially conducted after marketing approval. These
phases may be compressed, may overlap or may be omitted in some
circumstances.
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•
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|
Phase
I clinical trials.
These trials evaluate a drug’s safety profile, and the range of safe
dosages that can be administered to healthy volunteers and/or patients,
including the maximum tolerated dose that can be given to a trial
subject
with the target disease or condition. Phase I trials also determine
how a
drug is absorbed, distributed, metabolized and excreted by the body,
and
duration of its action.
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|
•
|
|
Phase
II clinical trials.
Phase II clinical trials typically are designed to evaluate the potential
effectiveness of the drug in patients and to further ascertain the
safety
of the drug at the dosage given in a larger patient
population.
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|
•
|
|
Phase
III clinical trials.
In
phase III clinical trials, the drug is usually tested in a controlled,
randomized trial comparing the investigational new drug to an approved
form of therapy in an expanded and well-defined patient population
and at
multiple clinical sites. The goal of these trials is to obtain definitive
statistical evidence of safety and effectiveness of the investigational
new drug regime as compared to an approved standard therapy in defined
patient populations with a given disease and stage of
illness.
|
All
clinical trials for our product candidates have been conducted in accordance
with Health Canada and the ICH (International Conference on Harmonization)
guidelines.
New
Drug Application
After
completion of clinical trials, if there is substantial evidence that the drug
is
safe and effective, a New Drug Application, or NDA, is prepared and submitted
for the FDA to review. The NDA must contain all of the essential information
on
the drug gathered to that date, including data from preclinical and clinical
trials, and the content and format of an NDA must conform to all FDA guidelines.
Accordingly, the preparation and submission of an NDA is a major undertaking
for
a company.
The
FDA
reviews all NDAs submitted before it accepts them for filing and may request
additional information from the sponsor rather than accepting an NDA for filing.
In such an event, the NDA must be submitted with the additional information
and,
again, is subject to review before filing. Once the submission is accepted
for
filing, the FDA begins an in-depth review of the NDA. Typically, the FDA takes
ten months to review and respond to the NDA. The FDA may refer the application
to an appropriate advisory committee, typically a panel of clinicians, for
review, evaluation and a recommendation as to whether the application should
be
approved. The FDA is not bound by the recommendation, but gives great weight
to
it. If the FDA evaluations of both the NDA and the manufacturing facilities
are
favorable, the FDA may issue either an approval letter or a non-approval letter,
which usually contains a number of conditions that must be satisfied in order
to
secure final approval. If the FDA’s evaluation of the NDA submission or
manufacturing facility is not favorable, the FDA may refuse to approve the
NDA
or issue a non-approvable letter.
Other
Regulatory Requirements
Any
products we manufacture or distribute under FDA approvals are subject to
pervasive and continuing regulation by the FDA, including recordkeeping
requirements and reporting of adverse experiences with the products. Drug
manufacturers and their subcontractors are required to register with the FDA
and, where appropriate, state agencies, and are subject to periodic unannounced
inspections by the FDA and state agencies for compliance with current GMP
regulations, which impose procedural and documentation requirements upon us
and
any third party manufacturers we utilize.
The
FDA
closely regulates the marketing and promotion of drugs. A company can make
only
those claims relating to safety and efficacy that are approved by the FDA.
Failure to comply with these requirements can result in adverse publicity,
warning letters, corrective advertising and potential civil and criminal
penalties. Physicians may prescribe legally available drugs for uses that are
not described in the product’s labeling and that differ from those tested by us
and approved by the FDA. Such off-label uses are common across medical
specialties. Physicians may believe that such off-label uses are the best
treatment for many patients in varied circumstances. The FDA does not regulate
the behavior of physicians in their choice of treatments. The FDA does, however,
restrict manufacturer’s communications on the subject of off-label
use.
The
FDA’s
policies may change and additional government regulations may be enacted which
could prevent or delay regulatory approval of our product candidates or approval
of new indications for our existing products. We cannot predict the likelihood,
nature or extent of adverse governmental regulations that might arise from
future legislative or administrative action, either in the United States or
abroad.
We
received an orphan drug designation for OvaRex® MAb from the FDA in November,
1996 for its use in the treatment of ovarian cancer. Under the Orphan Drug
Act,
the FDA may grant orphan drug designation to drugs intended to treat a rare
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 the orphan drug designation, the identity of the applicant and the
orphan-designated therapeutic agent are disclosed publicly by the FDA. The
European Medicines Agency in July, 2002 also granted an orphan drug designation
for OvaRex® MAb for its use in the treatment of ovarian cancer in Europe.
Orphan
drug designation does not convey any advantage in or shorten the duration of
the
regulatory review and approval process. If a product that has orphan drug
designation is the first such product to receive FDA approval for the disease
for which it has such designation, the product is entitled to orphan product
exclusivity, which means that the FDA may not approve any other applications
to
market the same drug for the same disease, except in limited circumstances,
for
seven years in the U.S. and 10 years in the European Union. The FDA may permit
additional companies to market a drug for the designated condition if such
companies can demonstrate clinical superiority. More than one product may also
be approved by the FDA for the same orphan indication or disease as long as
the
products are different drugs. As a result, the FDA can still approve other
drugs
for use in treating the same indication or disease covered by OvaRex® MAb, which
could create a more competitive market for us. Moreover, if a competitor obtains
approval of the same drug for the same indication or disease before us, we
would
be blocked from obtaining approval for our product for seven years, unless
our
product can be shown to be clinically superior.
Foreign
Regulation
In
addition to regulations in the United States, we will be subject to a variety
of
foreign regulations governing clinical trials and commercial sales and
distribution of our products. Whether or not we obtain FDA approval for a
product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that required
for
FDA approval. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from country to
country.
Under
European Union regulatory systems, marketing authorizations may be submitted
either under a centralized procedure, a mutual recognition procedure or a
decentralized procedure. The centralized procedure provides for the grant of
a
single marketing authorization that is valid for all European Union member
states. The decentralized procedure provides for a joint assessment of safety
and efficacy by a number of EU member states. The mutual recognition procedure
provides for mutual recognition of national approval decisions. Under this
procedure, the member state approving the first marketing authorization within
the EU submits an application for recognition to other EU member states. Within
90 days of receipt of the application and the first member state’s report of the
assessment of the drug, the other member states are supposed to recognize the
marketing authorization of the first member state or refer the application
to
the Committee for Human Medicinal Products, or CHMP, for arbitration, if one
or
more member states believe there is a potential serious risk to public health,
and the member states cannot reach agreement on the approval of the product.
The
CHMP is a scientific expert committee of the European Medicines Agency, or
EMEA.
The EMEA is responsible for the protection of public health in the EU through
the coordination and evaluation and supervision of medicinal products, including
administering the centralized procedure and performing a more limited role
in
the mutual recognition procedures. After member states agree to mutual
recognition of the first marketing authorization, national marketing
authorizations must still be issued in each member state which recognized it,
including approval of translations, labeling and the like. All marketing
authorization applications for drugs that have received the orphan drug
designation must be submitted under the centralized procedure.
Legal
Proceedings
We
are
not involved in any legal, arbitration or governmental proceedings which may
have, or have had in the recent past, significant effects on our financial
position or profitability. We are also not aware of any pending legal,
arbitration or governmental proceedings against us which may have significant
effects on our financial position.
C.
Organizational structure
Control
of ViRexx
We
have
two wholly owned subsidiaries named AltaRex Medical Corp. and ViRexx
International Corp. Limited, and one wholly owned inactive subsidiary named
AltaRex U.S. Corp. AltaRex (ViRexx International) was incorporated under the
laws of the Province of Alberta, Canada, ViRexx International was incorporated
under the laws of Ireland, and AltaRex U.S. Corp. is a Delaware
corporation.
We
carry
on our OvaRex® MAb dealings directly through AltaRex.
D.
Property
and equipment
Our
corporate headquarters are located at 8223 Roper Road, Edmonton, Alberta
T6E 6S4. Our registered office is located at Suite 1500, Manulife
Place, 10180-101 Street, Edmonton, Alberta T5J 4K1. We lease our head
office space in Edmonton, Alberta. The terms of the premises leased are as
follows:
|
$ 113,126
|
Annual base rent: |
May 31, 2011 |
Term
expires: |
13,244
|
Square footage: |
|
We
do not
deem our lease to be material. We believe that the physical facilities we lease
are adequate to conduct our business during the next 12 months.
We
have
headquarters and laboratory space in Edmonton, Alberta. Our facilities include
a
three year-old office and laboratory space, which we consider to be world class
and to represent a significant value to us. The facility includes offices,
wet
laboratories, and associated equipment. We also have access to the University
of
Alberta virus containment laboratory and animal research facility. Preferential
privileges are accorded to us such as access to facilities and contact with
key
individuals, as a result of the present and past association of the senior
corporate officers with the University of Alberta and the present contractual
arrangements of technology transfer between the University of Alberta and us.
Property
and equipment are described at cost less accumulated amortization in the
financial statements. Amortization is provided for by using the declining
balance method at the following annual rates:
Laboratory
equipment
|
20%
|
Office,
furniture and equipment
|
20%
|
Computer
equipment
|
30%
|
Computer
software
|
100%
|
Leasehold
improvements are amortized over the term of the lease.
4A.
|
Unresolved
Staff Comments
|
None
Item
5. Operating and Financial Review and
Prospects
FORWARD-LOOKING
STATEMENTS
Except
for historical information, this “Management’s Discussion and Analysis of
Financial Condition and Operations” contains forward-looking statements which
may not be based on historical fact. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results, events or developments to be materially different from any future
results, events or developments expressed or implied by such forward-looking
statements. Such factors include, among others, risks associated with the
completion of clinical trials and obtaining regulatory approvals, the ability
to
protect the Company’s intellectual property, dependence on its collaborative
partner, additional long-term capital requirements and ViRexx’s stage of
development. These factors should be considered carefully and readers are
cautioned not to place undue reliance on such forward-looking
statements.
The
following discussion and analysis of results of operations and liquidity and
capital resources should be read in conjunction with the financial data and
the
financial statements and the related notes thereto included elsewhere herein.
This Management Discussion and Analysis of Financial Condition and Results
of
Operations as of March 19, 2007 provides information on the activities of ViRexx
Medical Corp. (“ViRexx” or the “Company”) on a consolidated basis. All amounts
are expressed in Canadian dollars unless otherwise noted.
The
Consolidated Financial Statements have been prepared in accordance with Canadian
generally accepted accounting principles (“GAAP”). Canadian GAAP differs in
certain material respects from United States generally accepted accounting
principles (“U.S. GAAP”). For a discussion of the principal differences between
Canadian GAAP and U.S. GAAP as they pertain to ViRexx Medical Corp. see Note
18
to the audited Consolidated Financial Statements. Note 18 to the Consolidated
Financial Statements also provides a reconciliation of the Company’s
Consolidated Financial Statements to U.S. GAAP.
OVERVIEW
ViRexx
is
a Canadian, development-stage biotech-based company focused on developing
innovative targeted therapeutic products that offer quality of life and a
renewed hope for living. ViRexx’s most advanced programs include product
candidates for the treatment of late-stage ovarian cancer, selected solid tumors
and chronic hepatitis B and C infections.
ViRexx
currently has three platform technologies: AIT™ (antibody-based immunotherapy),
T-ACT™ (targeted-autothrombogenic cancer therapy) and Chimigen™ Vaccines, all of
which are based on the principle of harnessing the body’s power to fight
disease.
AIT’
Platform Technology
The
lead
product candidate from the AIT™ platform is OvaRex®
MAb, a
therapy for treatment of late-stage ovarian cancer. OvaRex®
MAb is
currently the subject of two pivotal Phase III clinical trials (IMPACT I and
IMPACT II) being conducted at more than 60 sites in the United States. ViRexx
has licensed exclusive rights of OvaRex®
MAb to
Unither Pharmaceuticals, Inc. (“Unither”), a subsidiary of United Therapeutics
Corporation, in its territories.
In
the
fourth quarter of 2006, ViRexx’s licensee, Unither continued to monitor progress
from IMPACT I and IMPACT II for OvaRex®
MAb. The
database lock for analysis from these two pivotal trials is estimated to occur
in the second half of 2007.
The
technology transfer from ViRexx to Tecnogen S.C.p.A (“Tecnogen”), a subsidiary
of Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”) was initiated in the fourth
quarter of 2006. Tecnogen will manufacture and supply ViRexx’s European
licensing partners.
All
relevant documentation for manufacture of the drug substance has been completed;
the transfer of relevant documentation for manufacture of the drug product
is
anticipated to be completed in early 2007.
T-ACT’
Platform Technology
The
T-ACT™ platform is designed to cut off the blood supply to hypervascular tumors,
leading to tumor tissue starvation and death. The lead product candidate of
the
T-ACT™ platform is Occlusin™ 50 Injection, a treatment for primary cancer of the
liver. The Phase I study of Occlusin™ 50 Injection was conducted at the Toronto
General Hospital and at the Foothills Hospital in Calgary. The trial is designed
to examine the safety of Occlusin™ 50 Injection when used as an embolizing agent
as part of transcatheter arterial chemoembolization (“TACE”) procedures for the
palliative treatment of cancer of the liver. Patient enrollment and treatment
for this study ended December 31, 2006 with Phase I study results expected
to be
reported in the second quarter of 2007. Partnering discussions with several
companies interested in Occlusin™ 50 Injection have been initiated.
The
T-ACT™ platform has expanded to include the development of the Occlusin™ 500
Artificial Embolization Device (“Occlusin™ 500 Device”), an embolotherapeutic
device, to treat hypervascular tumors and uterine fibroids. Preclinical proof
of
concept testing has been completed for Occlusin™ 500 Device. The path to
regulatory approval of a medical device is approximately 50% shorter than that
of a drug or biologic.
Chimigen™
Platform Technology
The
lead
product candidate from the Chimigen™ platform is HepaVaxx B Vaccine, an
immunotherapeutic agent for the treatment of patients chronically infected
with
hepatitis B virus. ViRexx completed a Phase I study of HepaVaxx B Vaccine in
normal, healthy volunteers. There were no significant adverse events reported
with the treatment. The trial was conducted at McGill University Health Centre’s
Vaccine Study Centre in Montreal, Canada. The evaluation of the volunteers’
immune responses to treatment with HepaVaxx B Vaccine is currently ongoing.
A
collaborative development agreement with Protein Sciences Corporation has been
extended to April 20, 2009 ensuring that ViRexx can manufacture clinical grade
material in conformance with Good Manufacturing Practices (“GMP”) for Phase II
trials.
ViRexx
announced a research collaboration with the Department of Defence Research
and
Development Center at Suffield (“DRDC-Suffield”) to develop Chimigen™ Vaccines
for use in the biodefense area. These vaccine candidates are being tested for
efficacy in experimental models at DRDC-Suffield. The Company is also continuing
the preclinical studies in animals using Chimigen™ Vaccine candidates to
evaluate their immune responses.
HIGHLIGHTS
|
|
For
year ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Research
and Development Costs
|
|
$
|
5,937,122
|
|
$
|
4,750,190
|
|
$
|
1,796,680
|
|
Net
Loss
|
|
|
(17,493,375
|
)
|
|
(7,459,714
|
|
|
(3,657,760
|
)
|
Basic
and diluted loss per share
|
|
|
(0.25
|
)
|
|
(0.13
|
)
|
|
(0.14
|
)
|
Ending
Cash & Short Term Investments
|
|
$
|
10,742,191
|
|
$
|
5,571,850
|
|
$
|
9,462,988
|
|
ViRexx
had a very exciting year in 2006, accomplishing all of its planned research
and
development milestones which are highlighted below:
First
Half of 2006
· First
volunteers dosed for HepaVaxx B Vaccine Phase I clinical study.
· Unither
completed enrollment of OvaRex®
MAb
Phase III Impact II.
Second
Half of 2006
·Two
potential partners were identified for HepaVaxx B Vaccine licensing and
co-development.
·The
Phase
I clinical study of Occlusin™ 50 Injection was completed.
·Unither
enrollment and dosing for OvaRex®
MAb
Phase II trial in combination with frontline chemotherapy was
completed.
·The
licensing, marketing and manufacturing agreements for OvaRex®
MAb in
Europe were completed.
·The
technology transfer of the drug substance for OvaRex®
MAb from
ViRexx to European manufacturing facility was completed.
·The
Phase
I clinical study of HepaVaxx B Vaccine, the first-in-man trial for the Chimigen™
technology was completed.
·Two
potential candidates for further development of HepaVaxx C Vaccine were
identified.
In
addition to accomplishing all 2006 planned major research and development
milestones, ViRexx achieved the following important goals that strengthened
the
Company’s balance sheet:
|
·
|
On
February 16, 2006, the Company completed a private placement of 10,909,090
units for gross proceeds of $12,000,000. On April 7, 2006, the Company
completed a private placement of 800,000 units for gross proceeds
of
$1,000,000. On December 6, 2006, ViRexx received an equity investment
of
$2,000,000 from Defiante Farmacêutica Lda (“Defiante”), a subsidiary of
Sigma-Tau for 1,818,182 units of ViRexx at a price of $1.10. For
further
information see Note 13 of the audited December 31, 2006 Consolidated
Financial Statements.
|
|
·
|
On
November 28, 2006, ViRexx announced it had prioritized its research
activities to focus on the completion of existing pipeline products
providing near term potential revenue streams, specifically
OvaRex®
MAb and Occlusin™ 500 Device. This plan included a reduction in internal
research expenditures in excess of 65%, resulting in a 2007/08 projected
average monthly expenditure rate of under $900,000. ViRexx will also
accelerate business development efforts by identifying a development
partner for its lead Chimigen™ Vaccine, HepaVaxx B
Vaccine.
|
On
November 6, 2006, ViRexx International Corp. entered into a Licensing and Supply
Agreement and a Securities Purchase Agreement with Defiante. A Manufacturing
and
Supply Agreement with Tecnogen was also reached. Both companies are subsidiaries
of Sigma-Tau of Rome, Italy. The territories covered by these agreements
represent approximately 23% of the targeted ovarian cancer markets in North
America and the European Union. Management believes Sigma-Tau’s experience and
network in Europe is a significant asset to ViRexx and views the comprehensive
agreements as an important step in the path toward the European
commercialization of OvaRex®
MAb. In
addition, to accessing a strong commercialization partner in Sigma-Tau,
Tecnogen’s manufacturing capabilities eliminate the need for ViRexx to make a
significant capital expenditure in a stand alone manufacturing facility.
For
the
year ended December 31, 2006, the Company recorded a net loss of $17,493,375
or
($0.25) per share, as compared to $7,459,714 or ($0.13) per share for the
corresponding year ended December 31, 2005. Approximately 75% of the change
in
the Company’s net loss for the year ended December 31, 2006 is due to a non-cash
change in the net future tax expense associated with the transfer of
intellectual property to ViRexx International Corp. The remaining 25% change
is
attributed to the following operational activities:
|
·
|
Business
development activities initiated to pursue licensing agreements for
OvaRex®
MAb in Europe and for T-ACT™ and Chimigen™ product
candidates.
|
|
·
|
The
formation of a dedicated commercialization team for OvaRex®
MAb. The team expanded efforts to ensure worldwide protection of
the
intellectual property within the AIT™ platform, as well as increased
activities on establishing partnerships for ViRexx’s European
territories.
|
|
·
|
Process
development costs related to manufacturing Occlusin™ 500 Device research
for the treatment of uterine hypervascular tumors and
fibroids.
|
During
the year ended December 31, 2006, research and development costs for the
Chimigen™ platform were offset by a $222,140 financial contribution from the
National Research Council of Canada Industrial Research Assistance Program
(NRC-IRAP).
The
Company recorded a net loss for the year ended December 31, 2005 of $7,459,714
or ($0.13) per share, as compared with a net loss of $3,657,760 or ($0.14)
per
share for the corresponding period December 31, 2004. The expenditure increase
is primarily attributable to an increase in preclinical, potential product
development and clinical trial activity.
RESULTS
OF OPERATIONS
For
the
year ended December 31, 2006, the Company recorded a net loss of $17,493,375
or
($0.25) per share, as compared to $7,459,714 or ($0.13) per share for the
corresponding period ended December 31, 2005. The changes in the Company’s net
loss for the year ended December 31, 2006, compared to the prior year are due
primarily to the following:
Research
and Development
|
|
For
year ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Contract
research costs
|
|
$
|
628,240
|
|
$
|
410,052
|
|
$
|
180
|
|
Clinical
trial costs
|
|
|
477,364
|
|
|
104,692
|
|
|
442,880
|
|
Clinical
material manufacturing costs
|
|
|
386,216
|
|
|
861,064
|
|
|
129,421
|
|
Employee
related costs
|
|
|
2,403,330
|
|
|
2,010,589
|
|
|
844,039
|
|
Stock
based compensation
|
|
|
150,959
|
|
|
57,879
|
|
|
70,129
|
|
Other
R&D costs (Legal, Lab Supplies, etc.)
|
|
|
1,891,013
|
|
|
1,305,914
|
|
|
310,031
|
|
|
|
$
|
5,937,122
|
|
$
|
4,750,190
|
|
$
|
1,796,680
|
|
Research
and development expenses for the year ended December 31, 2006, were $5,937,122
compared to $4,750,190 for the year ended 2005, an increase of $1,186,932 or
25%. This increase is due primarily to additional toxicology testing for
HepaVaxx B Vaccine clinical studies and development of Occlusin™ 500 Device.
Additional costs were also incurred for the following areas:
|
·
|
Continued
development of Occlusin™ 50
Injection.
|
|
·
|
Preclinical
studies for a Chimigen™ Vaccine candidate for Hepatitis
C.
|
|
·
|
Development
costs for Chimigen™ Vaccines for biodefense
applications.
|
|
·
|
Initiating
manufacturing activities in Europe for OvaRex®
MAb.
|
Research
and development expenses for the year ended December 31, 2005 totaled
$4,750,190, an increase of $2,953,510 from $1,796,680 for the corresponding
period ended December 31, 2004. This difference was mainly due to manufacturing
of clinical material for the HepaVaxx B Vaccine clinical program. Also, in
order
to support the progression of each of the Company’s product candidates,
additional research and development staff were hired during 2005. Additional
intellectual property expenses were also incurred in 2005 further strengthening
protection of the Company’s products subsequent to
commercialization.
Government
Assistance
|
|
For
year ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
IRAP
and AHFMR
|
|
$
|
222,140
|
|
$
|
45,000
|
|
$
|
864,430
|
|
Government
assistance awarded for the year ended December 31, 2006, was $222,140 an
increase of $177,140 compared to $45,000 received in 2005. The Company, in
collaboration with DRDC-Suffield, is actively pursuing development grants from
both the U.S. and Canadian governments.
Government
assistance awarded for the year ended December 31, 2005, was $45,000, a decrease
of $819,430 compared to $864,430 received in 2004. Government assistance relates
to Industrial Research Assistance Program (“IRAP”) grants from the National
Research Council of Canada (“NRC”). In addition to the IRAP grants, ViRexx
received a technology commercialization award from Alberta Heritage Foundation
for Medical Research (“AHFMR”) in 2004.
Corporate
Administration
|
|
For
year ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Business
development costs
|
|
$
|
527,487
|
|
$
|
-
|
|
$
|
-
|
|
Employee
related costs
|
|
|
1,212,808
|
|
|
1,456,086
|
|
|
451,889
|
|
Stock
based compensation
|
|
|
454,081
|
|
|
399,470
|
|
|
310,448
|
|
Other
administration costs
|
|
|
2,782,461
|
|
|
1,794,726
|
|
|
1,125,374
|
|
|
|
$
|
4,976,837
|
|
$
|
3,650,282
|
|
$
|
1,887,711
|
|
Corporate
administration expenses for the year ended December 31, 2006, totaled
$4,976,837, an increase of 36% from $3,650,282 for the year ended December
31,
2005. The $1,326,555 increase is primarily attributable to the following
areas:
|
·
|
Initiated
business development activities relating to negotiations with potential
manufacturers and distributors of OvaRex®
MAb for European territories, and licensing rights discussions held
with
companies regarding HepaVaxx B Vaccine, Occlusin™ 50 Injection and
Occlusin™ 500 Device.
|
|
·
|
Increased
TSX and American Stock Exchange (“AMEX”) fees as a result of the Company
issuing 13.5 million newly issued common shares for the $15 million
that
was raised in three separate private
placements.
|
|
·
|
Incurred
consulting and other related fees associated with the Canadian
Multilateral Instrument 52-109 and US Sarbanes Oxley Act of 2002
compliance requirements.
|
|
·
|
Increased
investor relations costs in support of creating more awareness of
ViRexx
in both the U.S. and Canada.
|
|
|
Incurred
restructuring costs associated with the Company’s announcement on November
26, 2006, to prioritize its research activities to focus on the completion
of its existing pipeline products.
|
|
·
|
Increase
legal and other related service fees for U.S. regulatory filing
requirements including preparation of Annual 20-F and electronic
filings
on EDGAR.
|
Corporate
administration expenses for the year ended December 31, 2005 totaled $3,650,282,
an increase of $1,762,571 from $1,887,711 in general and administration expenses
recorded for the corresponding period ended December 31, 2004. The difference
is
attributable to stock-based compensation recorded for options granted and
consulting costs associated with investor relations and corporate communication
activities. Additional costs were also incurred due to an increase in the number
of administrative staff required and costs related to the acquisition of AltaRex
Medical Corp.
Future
Income Taxes
Future
income tax expense for the year ended December 31, 2006, was $4,178,613 compared
to a recovery of $3,358,426 for the year ended December 31, 2005, and a future
income tax provision of $nil for the year ended December 31, 2004.
The
Company uses the liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of the assets and
liabilities. These differences are measured using the substantively enacted
tax
rates and laws that will be in effect when the differences are expected to
reverse.
On
the
acquisition of AltaRex in 2004, the premium paid by ViRexx over the carrying
value of the net assets of AltaRex was allocated to the intellectual property
owned by AltaRex. This resulted in a significant future tax liability based
on
the difference between the tax cost base of the intellectual property and its
net book value for accounting purposes.
ViRexx,
as the parent company, has incurred significant tax losses and has other tax
assets that can be used to reduce future taxable income. Management’s assessment
of the value of tax operating losses is based on its best estimate of the
ability of the Company to utilize these assets to offset future tax losses.
Judgments as to the timing and potential use of such assets are made on the
best
information available and are reassessed periodically.
In
2005,
management’s assessment was that the Company had the ability and intent to
employ a prudent and feasible tax planning strategy whereby losses accumulated
in the parent ViRexx would be utilized to offset the future tax liability in
AltaRex related to the intellectual property owned by AltaRex. The result of
this assessment was that the benefit of the ViRexx losses was used to offset
the
AltaRex liability which resulted in a recovery of future income taxes for the
year ended December 31, 2005.
In
the
fourth quarter of 2006, the Company completed an internal reorganization and
an
inter-company transfer of certain assets. Because of these changes, reliance
on
a feasible tax planning strategy to realize the benefit of the future tax assets
in the ViRexx legal entity was not viable. As a result, a valuation allowance
was recorded in the fourth quarter of 2006 which resulted in a future tax
expense and an increase in the corresponding liability on the balance sheet.
This liability is decreasing over time as the carrying value of the asset is
amortized. At the point where the carrying value equals the tax cost base,
there
will be no future tax liability.
SUBSEQUENT
EVENT
On
January 29, 2007, ViRexx announced that it had filed a preliminary short-form
prospectus with Canadian securities regulators in connection with an offering
with minimum gross proceeds of $10,000,000 to a maximum of $15,000,000. The
Company’s designated agents were to act as agents in connection with the
offering. The Company granted the agents an over-allotment option, exercisable
for a period of 60 days following the closing of the offering, to purchase
an
additional 15% of the aggregate common shares offered pursuant to the offerings.
As part of the transaction the Agents were to be granted agents’ warrants
exercisable for the purchase of that number of common shares equal to 7% of
the
number of units sold as part of the transaction.
On
February 14, 2007, and amended on February 21, 2007, a Schedule 13D was filed
with the United States Securities and Exchange Commission by a Bahamian company,
Smetek, Van Horn & Cormack, Inc. (the “Smetek Group”). The Schedule 13D
states that the holders of 27,744,105 common shares (19,155,595 on February
14,
2007, and amended for an incremental 8,588,510 on February 21, 2007) of ViRexx,
purportedly representing approximately 40% of the issued and outstanding shares
of ViRexx, held a telephone conference and agreed to take action to recommend
a
change in the majority of the Board of Directors of ViRexx. This action has
resulted in one of the agents, Rodman & Renshaw to not proceed toward the
closing of the financing transaction. While ViRexx is currently discussing
with
its advisors its possible courses of action in light of the filing of the
Schedule 13D, ViRexx intends to continue to focus its resources on its operating
and business development activities.
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
For
year ended December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
405,354
|
|
$
|
237,462
|
|
$
|
645,012
|
|
Short-term
investments
|
|
|
10,336,837
|
|
|
5,334,388
|
|
|
8,817,976
|
|
|
|
$
|
10,742,191
|
|
$
|
5,571,850
|
|
$
|
9,462,988
|
|
The
Company has no contributing cash flows from operations. As a result, the Company
relies on external sources of financing such as the issue of equity or debt
securities, the exercise of options or warrants and investment income to finance
operations. Revenues from operations are not expected until certain milestones
and royalty payments from license and collaboration agreements have been earned,
or commercialization of a product candidate has occurred.
As
at
December 31, 2006, the Company’s cash totaled $405,354, as compared with
$237,462 at December 31, 2005. The Company’s net cash used in operating
activities amounted to $9,027,103 for the year ended December 31, 2006,
reflecting the Company’s use of cash to fund operating
activities. As at December 31, 2006, the Company’s short-term investments
totaled $10,336,837 compared with $5,334,388 at December 31,
2005.
On
February 16, 2006, the Company completed a private placement of 10,909,090
units
for gross proceeds of $12,000,000. Each unit consists of one common share and
one common share purchase warrant. Each common share warrant entitles the holder
to purchase one common share of the Company at a price of $1.50 for a period
of
two years. As a commission, the brokers for the private placement received
compensation of 7% of the gross proceeds and 1,090,909 broker warrants valued
at
$539,962. Each broker warrant entitles the brokers to acquire one common share
of the Company for $1.50 per share until February 15, 2008. Additional cash
costs of $64,603 were also incurred.
On
April
7, 2006, the Company completed a private placement of 800,000 units for gross
proceeds of $1,000,000. Each unit consists of one common share and one common
share purchase warrant. Each common share warrant entitles the holder to
purchase one common share of the Company at a price of $1.75 for a period of
two
years. The broker for the private placement received $40,000 cash as a
commission.
On
December 6, 2006, as a condition to completing licensing, marketing and
manufacturing agreements for OvaRex®
MAb in
Europe with Sigma-Tau, ViRexx received an equity investment of $2,000,000 from
Defiante for 1,818,182 units of ViRexx at a price of $1.10 per unit. Each unit
consists of one common share and one common share purchase warrant. Each common
share warrant entitles the holder to purchase one common share of the Company
at
a price of $1.25 for a period of two years.
At
December 31, 2005, the Company’s cash totaled $237,462 as compared with $645,012
at December 31, 2004. The Company’s net cash used in operating activities
amounted to $7,551,102 for the year ended December 31, 2005, and reflects the
Company’s use of cash to fund its net operating losses and the net changes in
non-cash working capital balances. During 2005, the Company completed a private
placement of 4,035,665 units for gross proceeds of $4,035,665. The broker for
the private placement received cash of 7% of the gross proceeds and 403,567
warrants as a commission. An additional $1,259,738 was received from the
exercise of warrants and stock options. Also during 2005, the Company incurred
$2,255,776 of share repurchase costs pursuant to a Normal Course Issuer
Bid.
The
Company believes that its cash, cash equivalents and short-term investments
will
be sufficient to satisfy the Company’s anticipated capital requirements until
late 2007. Management is considering all financing alternatives and is seeking
to raise additional funds for operations from all potential sources. This
disclosure is not an offer to sell, nor a solicitation of an offer to buy
securities of the Company. While the Company is striving to achieve the above
plans, there is no assurance that such funding will be available or obtained
on
favorable terms. At December 31, 2006, there was substantial doubt that the
Company would be able to continue as a going concern. The financial statements
do not reflect adjustments in the carrying values of the assets and liabilities,
the reported revenues and expenses, and the balance sheet classification used,
that would be necessary if the going concern were not appropriate and these
adjustments could be material.
Projections
of further capital requirements are subject to substantial uncertainty. Working
capital requirements may fluctuate in future periods depending upon numerous
factors, including: results of research and development activities; progress
or
lack of progress in preclinical studies or clinical trials; drug substance
requirements to support clinical programs; the ability to achieve milestone
payments under current licensing partner collaborations or any other
collaborations the Company establishes that provide
funding;
changes in the focus, direction, or costs of research and development programs;
the costs involved in preparing, filing, prosecuting, maintaining, defending
and
enforcing patent claims; competitive and technological advances; the potential
need to develop, acquire or license new technologies and products; establishment
of marketing and sales capabilities; business development activities; new
regulatory requirements implemented by regulatory authorities; and the timing
and outcome of any regulatory review process or commercialization activities,
if
any.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
In
continuing operations, the Company has periodically entered into long-term
contractual arrangements for office and laboratory facilities and product
candidate manufacturing for clinical trials. The following table presents
commitments arising from these arrangements currently in force over the next
five years:
|
|
Total
|
|
<
1 year
|
|
1
- 3 years
|
|
>
3 years
|
|
Operating
lease obligations 1,2
|
|
$
|
509,066
|
|
$
|
113,126
|
|
$
|
231,770
|
|
$
|
164,170
|
|
Product
candidates manufacturing obligations
|
|
|
49,932
|
|
|
31,932
|
|
|
18,000
|
|
|
-
|
|
Capital
lease obligation
|
|
|
11,845
|
|
|
7,107
|
|
|
4,738
|
|
|
-
|
|
Total
contractual obligations
|
|
$
|
570,843
|
|
$
|
152,165
|
|
$
|
254,508
|
|
$
|
164,170
|
|
Notes:
1)
Lease on laboratory and offices of $109,263 per annum until May 31,
2007
2)
Lease on laboratory and offices of $115,885 per annum from June 1, 2007 to
May
31, 2011
OFF-BALANCE
SHEET ARRANGEMENTS
As
at
December 31, 2006, the Company did not have any material off-balance sheet
arrangements other than those listed under the Contractual Obligations and
Commitments described above and those disclosed in Note 10 to the audited
financial statements for the year ended December 31, 2006.
RISKS
AND UNCERTAINTIES
The
Company operates in a highly competitive environment that involves significant
risks and uncertainties, some of which are outside of the Company’s control. The
Company is subject to risks inherent in the biotechnology industry,
including:
Risks
Related to the Company’s Financial Condition
|
|
The
need to raise money from investors to continue planned operations.
If the
Company is unable to fund operations, the Company may cease doing
business.
|
|
·
|
With
the exception of milestone payments from potential product out-licensing,
the Company has not derived any revenue to date from the commercial
sale
of product candidates, nor had any revenues from other commercial
sales
that have relied on equity and debt financings to support
operations.
|
|
·
|
The
history of operating losses is expected to continue. If the Company
is
unable to achieve significant revenues in the future, the Company
may
cease doing business.
|
|
· |
The Company expects to continue to incur significant
expenses. |
|
·
|
The
Company will continue to need significant amounts of additional capital
that may not be available to the Company on favorable terms, and
may be
dilutive.
|
|
·
|
The
Company may fail to obtain additional financing and be unable to
fund
operations and commercialize its product
candidates.
|
Risks
Related To Our Business and Operations
|
·
|
The
Company is in various stages of development of product candidates
and
unless it is able to generate sufficient product revenue from these
candidates, the Company will continue to incur losses from operations
and
may not achieve or maintain profitability and may have to cease
operations.
|
|
·
|
The
Company relies on, and intends in the future to continue to rely
on;
revenue from technology licenses with or issued to third parties.
Any
breach or termination of these license arrangements could have a
material
adverse effect on the business, financial condition and results of
operations.
|
|
·
|
Failure
to protect intellectual property, or infringement on the property
rights
of others, may impede the Company’s ability to operate
freely.
|
|
·
|
The
Company’s business is subject to significant government regulation and
failure to achieve regulatory approval of drug candidates would severely
harm its business.
|
|
· |
The Company is dependent on the successful outcome
of
preclinical testing and clinical trials. |
|
·
|
Delays
in clinical trials will cause the Company to incur additional costs
which
could jeopardize the trials and adversely affect the Company’s liquidity
and financial results.
|
|
·
|
The
Company relies on clinical investigators and contract research
organizations to conduct its clinical
trials.
|
|
· |
There are risks inherent in relying on a sole source
supplier for some of the Company’s
materials. |
|
· |
The Company is dependent on strategic partners,
such as
Unither and the Sigma-Tau group of companies, as part of its product
candidate development strategy, and it would be negatively affected
if it
is not able to initiate or maintain these
relationships. |
|
·
|
The
Company relies on collaborative arrangements for manufacturing its
trial
material and product candidates.
|
|
·
|
The
Company is required to comply with regulations that are administered
by
regulatory authorities in the United States, Europe and
Canada.
|
|
·
|
Even
if product candidates receive all of the required regulatory approvals,
there is no guarantee of market acceptance or commercialization of
the
resulting product candidates, which will be determined by the Company’s
sales, marketing and distribution capabilities and the positioning
and
competitiveness of its product candidates compared with any
alternatives.
|
|
·
|
Reimbursement
procedures and future healthcare reform measures are uncertain and
may
adversely affect the Company’s ability to successfully sell or license any
pharmaceutical product candidate.
|
|
·
|
Competitive
products and technologies may reduce demand for the Company’s product
candidates and technologies.
|
|
·
|
The
Company’s industry is characterized by rapid change and a failure by the
Company to react to these changes could have a material adverse effect
on
its business.
|
|
·
|
If
the Company fails to hire or retain needed personnel, the implementation
of its business plan could slow and future growth could
suffer.
|
|
·
|
The
loss of the services of the Company’s Chief Executive Officer and Chief
Scientific Officer could have a material adverse effect on its
business.
|
|
· |
The Company is reliant on key
employees. |
|
·
|
The
Company conducts certain elements of its business internationally,
and the
decisions of sovereign governments could have a material adverse
effect on
its financial condition.
|
|
·
|
The
Company’s operating results may be subject to currency fluctuations as
some of its expenses are in U.S. dollars or other foreign
currencies.
|
|
·
|
The
Company’s insurance may not be sufficient, exposing the Company to
lawsuits. Claims related to product candidates in clinical studies
and
product liability could also increase its expenses, harm its reputation
and keep it from growing its
business.
|
|
|
Hazardous
materials that are highly regulated may expose the Company to potential
liability in the event of an accident; therefore, compliance with
environmental regulations could be costly in the
future.
|
|
·
|
It
is possible that the AIT™, Chimigen™ and T-ACT™ technologies have adverse
side effects or cause undesirable reactions, of which the Company
is not
aware of any at present.
|
|
·
|
If
there are fewer individuals in the Company’s target markets than the
Company estimates, then it may not generate sufficient revenues to
continue development of its product candidates or continue
operations.
|
|
·
|
The
Company will need to significantly increase the size of its organization,
and it may experience difficulties in managing
growth.
|
Risks
Relating To a Potential Change in the Majority of Our Board of
Directors
The
Company was made aware that a Schedule 13D was filed with the United States
Securities and Exchange Commission on February 14, 2007, and amended February
21, 2007, by the Smetek Group. The Schedule 13D states that the holders of
27,744,105 common shares of ViRexx, purportedly representing approximately
40%
of the Company’s issued and outstanding shares held a telephone conference and
have agreed to vote in favor of a change in the majority of the Board of
Directors of the Company.
Pursuant
to the Company’s By-laws, at each annual meeting of shareholders at which an
election of directors is required or at a special meeting of shareholders called
for that purpose, the shareholders, by ordinary resolution, must elect directors
to hold office for a term expiring not later than
the
close of the next annual meeting of the shareholders. At every shareholder
meeting of the Company, all questions proposed for the consideration of
shareholders must be decided by the majority of votes, unless otherwise required
by the Act or the Articles. Should the Smetek Group elect to vote as a group
for
the purpose of effecting a change in the majority of the Board of Directors,
and
such change is actually effected via attainment of a sufficient number of votes,
the constitution of the Board of Directors may change, and as a result, the
corporate and operations focus might also change.
The
Company is currently discussing with external advisors all possible actions
relating to the filing of the aforementioned Schedule 13D, and intends to
continue to focus its resources on planned operations.
Risks
Relating to the Company’s Common Shares
|
·
|
The
Company has not paid, and does not intend to pay any cash dividends
on its
common shares and therefore its shareholders may not be able to receive
a
return on their shares unless they sell
them.
|
|
· |
The market price and trading volume of the Company’s
common shares may be volatile. |
|
·
|
The
significant costs that the Company will incur as a result of being
a
public company in the United States and Canada could adversely affect
its
business.
|
The
Company operates in a highly competitive environment that involves significant
risks and uncertainties, some of which are outside of the Company’s control. The
Company is also subject to risks inherent in the biotechnology industry. The
Company’s financial results will fluctuate from period to period and therefore
are not necessarily meaningful and should not be relied upon as an indication
of
future financial performance. Such fluctuations in quarterly results or other
factors beyond the Company’s control could affect the market price of its common
stock. These factors include changes in earnings estimates by analysts, market
conditions in our industry, announcements by competitors, changes in
pharmaceutical and biotechnology industries, and general economic conditions.
Any effect on its common stock could be unrelated to longer-term operating
performance. A more detailed discussion of the risks and uncertainties affecting
the Company can be found in the Company’s Form 20-F under the caption “Risk
Factors” for the fiscal year ended December 31, 2006. Additional information
relating to the Company, including the Company’s Form 20-F, is available on
SEDAR at www.sedar.com, EDGAR www.sec.gov/edgar.shtml or at the Company’s
website at www.virexx.com.
OUTLOOK
The
Company is a research and development company, with a primary focus on the
development and commercialization of its product candidates. The Company will
continue to invest in operations until revenues are realized from the
commercialization of products. Research and development costs are expected
to
continue to increase as the Company advances the development of its product
candidates.
As
of
December 31, 2006, the Company had $10,742,191 in cash and short-term
investments and believes it has adequate financial resources to fund planned
operations through the fourth quarter of 2007.
Over
the
longer term, the Company expects that it will require additional financing
and
as such, plans to raise funds through capital markets or strategic partnering
initiatives. Funding requirements may vary depending on a number of factors,
including the progress and results of the preclinical studies and human clinical
trials, regulatory approvals, and competing technological and market
developments. Depending on the results of the research and development programs
and the availability of financial resources, the Company may accelerate,
terminate, or curb certain areas of research and development, or commence new
areas within this department.
DISCLOSURE
CONTROLS AND PROCEDURES
The
Chief
Executive Officer and Chief Financial Officer are responsible for establishing
and maintaining the Company’s disclosure controls and procedures. They are
required to be fully apprised of any material information affecting the Company
so that they may evaluate and discuss this information and determine the
appropriateness and timing of public releases.
The
Chief
Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure controls and procedures as at December
31, 2006, have concluded that the Company’s disclosure controls and procedures
are adequate and effective to ensure that the Company is disclosing all annual
and interim filing and other filing reporting requirements in an accurate and
timely manner.
INTERNAL
CONTROLS OVER FINANCIAL REPORTING
The
SOX/52-109 Steering Committee oversees risk assessment and review of the
Company’s internal controls over financial reporting to meet the requirements
under US Sarbanes Oxley Act of 2002 and Canadian Multilateral Instrument 52-109.
The Committee provides regular updates to the Audit Committee and Board. At
December 31, 2006, the design and documentation of internal controls over
financial reporting including entity level controls was completed and no
material weaknesses were identified. Remediation of any identified internal
control gaps is currently being undertaken. The Company will continue to assess
the design of its controls to provide reasonable assurance of the reliability
of
the Company’s financial reporting and the preparation of financial statements
for external purposes.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as at the date
of the financial statements and the reported amounts of revenue and expense
during the reporting period. These estimates are based on assumptions and
judgments that may be affected by commercial, economic and other factors. Actual
results could differ from those estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates reasonably could
have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the financial statements.
The assumptions, judgments and estimates involved in the accounting for acquired
intellectual property rights could potentially have a material impact on the
Company’s consolidated financial statements. The above description of critical
accounting policies, judgments and estimates should be read in conjunction
with
the December 31, 2006 consolidated financial statements.
Acquired
Intellectual Property
At
December 31, 2006, the acquired intellectual property rights had a net carrying
value of $27.4 million related to the intellectual property acquired in the
acquisition of AltaRex in December 2004. The intellectual property consists
of
an Exclusive Agreement with Unither for the development of certain monoclonal
antibodies, including OvaRex®
MAb,
ViRexx’s lead product candidate in late-stage development for the treatment of
ovarian cancer.
The
intellectual property was recorded as an asset as required under Canadian GAAP,
and is being amortized on a straight-line basis over the patent’s estimated
useful life of thirteen years. The Company has adopted the provisions of CICA
3063 “Impairment of Long-Lived Assets” which tests the recoverability of
long-lived assets whenever events or changes in circumstances indicate that
the
carrying amount may not be recoverable. An impairment loss is recorded in the
period when it is determined that the carrying amount of the assets may not
be
recoverable. Changes in any of these management assumptions could have a
material impact on the impairment of the assets.
Income
Tax Provision
The
Company uses the liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of the assets and
liabilities. These differences are measured using the substantively enacted
tax
rates and laws that will be in effect when the differences are expected to
reverse.
Through
its acquisition of intellectual property in 2004, ViRexx obtained a significant
future tax liability based on the difference between the tax cost base of the
intellectual property and its net book value for accounting purposes. In
addition, ViRexx has incurred significant tax losses and has other tax assets
that can be used to reduce taxable income. Management’s assessment of the value
of tax operating losses is based on its best estimate of the ability of the
Company to utilize these assets to offset future tax losses. Judgments in the
timing and potential use of such assets are made on the best information
available and are reassessed periodically.
Based
on
a change in circumstances, the Company recorded a significant valuation
allowance against its future tax assets in the fourth quarter of
2006.
CURRENT
ACCOUNTING PRONOUNCEMENTS
Recent
Canadian accounting pronouncements issued and not yet
applied:
Financial
instruments, recognition and measurement
In
January 2005, The Canadian Institute of Chartered Accountants (“CICA”) released
new Handbook Section 3855, Financial Instruments, Recognition and Measurement,
effective for annual and interim periods beginning on or after October 1, 2006.
This new section establishes standards for the recognition and measurement
of
all financial instruments, provides a characteristics-based definition of a
derivative financial instrument,
and provides criteria to be used to determine when a financial instrument should
be recognized and when a financial instrument is to be derecognized. The Company
does not expect the adoption of this new standard to have a material impact
on
its consolidated financial position and results of
operations.
Comprehensive
income and equity
In
January 2005, the CICA released new Handbook Section 1530, Comprehensive Income,
and Section 3251, Equity, effective for annual and interim periods beginning
on
or after October 1, 2006. Section 1530 establishes standards for reporting
comprehensive income. The section does not address issues of recognition or
measurement for comprehensive income and its components. Section 3251
establishes standards for the presentation of equity and changes in equity
during the reporting period. The requirements in Section 3251 are in addition
to
Section 1530. The Company does not expect the adoption of this standard to
have
a material impact on its consolidated financial position and results of
operations.
Hedges
In
January 2005, the CICA released new Handbook Section 3865, Hedges, effective
for
annual and interim periods beginning on or after October 1, 2006. This new
section establishes standards for when and how hedge accounting may be applied.
Hedge accounting is optional. The Company does not expect the adoption of this
standard to have a material impact on its consolidated financial position and
results of operations.
Accounting
changes
In
July
2006, the Accounting Standards Board (“AcSB”) issued a replacement of Handbook
Section 1506, Accounting Changes. The new standard allows for voluntary changes
in accounting policy only when they result in the financial statements providing
reliable and more relevant information, requires changes in accounting policy
to
be applied retrospectively unless doing so is impracticable, requires prior
period errors to be corrected retrospectively and calls for enhanced disclosures
about the effects of changes in accounting policies, estimates and errors on
the
financial statements. The standard is effective for fiscal years beginning
on or
after January 1, 2007, with earlier adoption encouraged.
Recent
United States accounting pronouncements issued and
adopted:
Considering
the effects of prior year misstatements when quantifying misstatements in
current year financial statements.
Issued
in
September 2006, Staff Accounting Bulletin 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (“SAB 108”), addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current
year financial statements. SAB 108 requires companies to quantify misstatements
using both the balance sheet (“iron curtain”) and income statement (“rollover”)
approaches and to evaluate whether either approach results in an error that
is
material in light of relevant quantitative and qualitative factors.
The
guidance is effective for the Company for the year ended December 31, 2006.
A
material error identified upon application of this guidance may be corrected
through a one-time cumulative-effect adjustment to beginning of year retained
earnings, provided that the misstatement was determined to be immaterial in
the
past based on the application of the Company’s previous method for quantifying
misstatements. The adoption of this standard did not have an impact on the
Company’s financial statements and results of operations.
Accounting
changes and error corrections
In
May
2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(“SFAS No. 154”), which replaces Accounting Principles Board Opinion No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS No. 154 provides guidance on the accounting for,
and
reporting of, changes in accounting principles and error corrections. SFAS
No.
154 requires retrospective application to prior period’s financial statements of
voluntary changes in accounting principles and changes required by new
accounting standards when the standard does not include specific transition
provisions, unless it is impracticable to do so. Certain disclosures are also
required for restatements due to correction of an error. SFAS No. 154 is
effective for accounting changes and a correction of errors made in fiscal
years
beginning after December 15, 2005, and was adopted by the Company on January
1,
2006, for the year ending December 31, 2006. The adoption of this standard
did
not have an impact on the Company’s financial statements and results of
operations.
Recent
United States accounting pronouncements issued and not yet
adopted:
Fair
value measurements
In
September 2006, the FASB approved SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in GAAP
and
enhances disclosures about fair value measurements. This statement applies
when
other accounting pronouncements require fair value measurements. It does not
require new fair value measurements. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007 for the
Company. The Company is evaluating the impact of this standard on its
consolidated financial position and results of operations.
Accounting
for uncertainty in income taxes
In
June
2006, the FASB approved FASB Interpretation No.48, Accounting for Uncertainty
in
Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the criteria for recognizing tax benefits under FASB Statement No.
109, Accounting for Income Taxes. It also requires additional financial
statement disclosures about uncertain tax positions. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Company is evaluating the
impact of this standard on its consolidated financial position and results
of
operations.
SUPPLEMENTAL
INFORMATION
Summary
of Quarterly Results
The
following unaudited quarterly information is presented in thousands of dollars
except for loss per share amounts:
|
|
|
2006
|
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
ANNUAL
|
|
Research
and development costs
|
|
|
1,544
|
|
|
1,476
|
|
|
1,506
|
|
|
1,411
|
|
|
5,937
|
|
Net
Loss
|
|
|
2,309
|
|
|
3,326
|
|
|
3,365
|
|
|
8,493
|
|
|
17,493
|
|
Basic
and Diluted Loss per share
|
|
|
0.04
|
|
|
0.05
|
|
|
0.05
|
|
|
0.11
|
|
|
0.25
|
|
Weighted
average number of common shares outstanding
|
|
|
63,842
|
|
|
70,281
|
|
|
70,343
|
|
|
68,921
|
|
|
68,921
|
|
|
|
2005
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
ANNUAL
|
|
Research
and development costs
|
|
|
913
|
|
|
1,075
|
|
|
1,291
|
|
|
1,471
|
|
|
4,750
|
|
Net
Loss
|
|
|
(1,703
|
)
|
|
(2,009
|
)
|
|
(2,005
|
)
|
|
(1,743
|
)
|
|
(7,460
|
)
|
Basic
and Diluted Loss per share
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.02
|
)
|
|
(0.13
|
)
|
Weighted
average number of common shares outstanding
|
|
|
53,745
|
|
|
55,052
|
|
|
55,557
|
|
|
55,827
|
|
|
55,827
|
|
|
|
|
2004
|
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
ANNUAL
|
|
Research
and development costs
|
|
|
406
|
|
|
534
|
|
|
409
|
|
|
448
|
|
|
1,797
|
|
Net
Loss
|
|
|
489
|
|
|
854
|
|
|
963
|
|
|
1,352
|
|
|
3,658
|
|
Basic
and Diluted Loss per share
|
|
|
0.03
|
|
|
0.03
|
|
|
0.04
|
|
|
0.04
|
|
|
0.14
|
|
Weighted
average number of common shares outstanding
|
|
|
15,600
|
|
|
27,006
|
|
|
27,006
|
|
|
25,268
|
|
|
25,268
|
|
The
quarterly results have varied primarily as a result of availability of resources
to fund operations and the timing of significant expenses incurred in the
development of the Company’s product candidates (manufacturing, clinical
trials).
Outstanding
Share Data
|
|
Dec.31,
2006
|
|
Dec.
31, 2005
|
|
Dec.
31, 2004
|
|
Common
shares issued and
outstanding |
|
|
72,760,717 |
|
|
58,443,445 |
|
|
53,276,477 |
|
Stock
options outstanding |
|
|
6,396,241 |
|
|
6,970,200 |
|
|
6,369,168 |
|
Warrants
outstanding |
|
|
17,077,471 |
|
|
2,819,299 |
|
|
12,543,095 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options and warrants exercised are converted into an equal number of common
shares. If fully exercised the stock options and warrants would generate
proceeds of $29,931,775.
|
Directors,
Senior Management and
Employees
|
A.
|
Directors
and senior management
|
Each
director is generally elected by a vote at the annual meeting of shareholders
to
serve for a term of one year. Each executive officer will serve until his/her
successor is elected or appointed by the Board of Directors or his/her earlier
removal or resignation from office. There are no family relationships between
any of our executive officers and any of our directors. The following table
lists our directors and senior management together with their respective
positions as of December 31, 2006:
Name
|
|
Age
|
Position
and Offices and Starting Date
|
Dr.
D. Lorne Tyrrell
|
|
64
|
Chief
Executive Officer since November 1, 2005 and Chief Scientific Officer
and a Director since December 22, 2003
|
Scott
Langille
|
|
50
|
Chief
Financial Officer since April 24, 2006
|
Jacques
R. LaPointe
|
|
60
|
Director
since December 9, 2004
|
Bruce
D. Brydon
|
|
60
|
Director
since December 9, 2004
|
Thomas
E. Brown
|
|
47
|
Director
since December 22, 2003
|
Dr.
Jean Claude Gonneau
|
|
57
|
Director
since April 14, 2004
|
Douglas
Gilpin, CA
|
|
68
|
Director
since April 14, 2004; Chairman of the Board since October 24,
2005
|
Macaraig
(Marc) Canton
|
|
49
|
President
and Chief Operating Officer since February 1, 2005
|
Michael
W. Stewart
|
|
50
|
Senior
Vice-President, Operations, since December 22, 2003
|
Dr.
Rajan George
|
|
56
|
Vice-President,
Research & Development, Infectious Diseases since December 22,
2003
|
Dr.
Andrew Stevens
|
|
63
|
Vice-President,
Clinical and Regulatory Affairs since December 22, 2003
|
Dr.
Irwin Griffith
|
|
55
|
Vice-President,
Drug Development, Infectious Disease since April 5,
2004
|
Bruce
Hirsche
|
|
59
|
Corporate
Secretary since December 5, 2005
|
Michael
P. Marcus (1)
|
|
|
|
(1)
Mr.
Marcus resigned as a member of the Board of Directors of the Company effective
as of February 15, 2007.
|
|
Dr.
Tyrrell, a virologist of international repute, the former Dean of
the
Faculty of Medicine and Dentistry at the University of Alberta and
the
Director of the Glaxo Heritage Research Institute. His exceptional
contributions to medical research have been recognized by his peers
through awards such as the ASTech Award for Innovation and Science
in
Alberta, the Rutherford Award as “Outstanding Teacher for Undergraduate
Students”, the Kaplin Award for Excellence in Research, and the Prix
Galien Canada Medal for Research for his groundbreaking work on antiviral
drugs for hepatitis B. In 2000, Dr. Tyrrell was awarded the gold
medal by
the Canadian Liver Foundation and the Canadian Association for the
Study
of Liver and the Alberta Order of Excellence from the Province of
Alberta.
In September 2001, Dr. Tyrrell co-founded ViRexx Research Inc. along
with
Dr. Noujaim. In 2002, he was appointed an officer of the Order of
Canada
by the Government of Canada. In 2005, Dr. Tyrrell was awarded the
principal award of the Manning Foundation for Inventors. In addition
to
authoring over 200 publications, he played a pivotal role in the
development of the antiviral agent Lamivudine presently marketed
by Glaxo
as Epivir® for the treatment of Hepatitis B Virus, Dr. Tyrrell became
Chief Executive Officer of ViRexx on November 1, 2005.
|
|
|
|
Scott
Langille, CMA, MBA
|
|
Mr.
Langille has over 20 years experience in corporate and operational
financial management in Canada and the United States in various industries
including over 15 years in the pharmaceutical and life sciences sectors.
Prior to becoming Chief Financial Officer at ViRexx Medical Corp.,
Mr.
Langille served in a financial capacity of increasing responsibility
for
companies including: Biovail Corporation (Vice-President, Biovail
Pharmaceuticals, Inc. Raleigh North Carolina, Director Finance, Biovail
Pharmaceuticals, Canada, Director Corporate Finance, Biovail Corporation),
Chief Financial Officer, Verum Pharmaceuticals Inc., Director Finance,
Zimmer of Canada Ltd., Director Finance, AltiMed Pharmaceutical Company.
Mr. Langille is a Certified Management Accountant and holds a Masters
of
Business Administration from the University of Toronto.
|
|
|
|
Jacques
R. LaPointe
|
|
Mr.
LaPointe has been a Director of ViRexx since December 9, 2004. He
is
Chairman of the Board of ConjuChem Inc. and was recently President
and
Chief Operating Officer of BioChem Pharma, Inc. (Montreal, Quebec).
Mr.
LaPointe has more than 30 years of leadership and operational experience
with global biotechnology and pharmaceutical organizations. Prior
to
BioChem Pharma, Mr. LaPointe was with Glaxo Wellcome plc for 12 years
and
held the positions of President and CEO of Glaxo Canada as well as
Glaxo
Wellcome U.K. His earlier experience included operations, marketing
and
sales, in positions at Johnson & Johnson Canada. Mr. LaPointe is a
former Chairman of the Pharmaceutical Manufacturers Association of
Canada
(PMCA), now known as Canada’s Research-based Pharmaceutical Companies
(Rx&D). In 2003, Mr. LaPointe became President and CEO of ConjuChem
Inc.
|
|
|
|
Bruce
D. Brydon
|
|
Mr.
Brydon has been a Director of ViRexx since December 9, 2004. Mr.
Brydon is
the former President and Chief Executive Officer of Biovail Corporation.
He has more than 27 years of pertinent operational experience in
biotechnology and pharmaceuticals, particularly in key industry areas
such
as registration and approval processes in the U.S., Canada and Europe,
product licensing, and capital raising in the U.S. and Canadian
debt/equity markets. Prior to Biovail, Mr. Brydon served as President
and
Chairman of Boerhinger Mannheim’s Canadian operations and as President of
Beirsdorf AG’s Canadian healthcare and industrial business
entities.
|
Thomas
E. Brown
|
|
Mr.
Brown has been a director of ViRexx since December 22, 2004. Mr.
Brown is
the Founder, Director and former President of Somagen Diagnostics
Inc.,
(“Somagen”) an Edmonton-based, privately held sales and marketing company
in the clinical laboratory diagnostic testing industry. Somagen’s clinical
diagnostic product lines are provided by some of the world’s leading
manufacturers in the areas of general chemistry, special chemistry,
point
of care, immunology, microbiology and cellular pathology. Somagen
is
currently the largest private clinical diagnostics company in Canada
with
sales, service and technical support in all regions of the
country.
|
|
|
|
Dr.
Jean Claude Gonneau
|
|
Dr.
Gonneau has been a director of ViRexx since April 14, 2004. Dr. Gonneau
is
currently the General Manager of SG Cowen, Europe SAS, an investment
banking institution. He has more than 25 years experience working
in the
financial markets in Europe and North America and maintains responsibility
for the European operations of SG Cowen. Prior to his appointment
as
General Manager, he was Managing Director of SG Cowen. Dr. Gonneau
is a
director of numerous publicly traded companies and lives in London,
England.
|
|
|
|
Douglas
Gilpin, CA
|
|
Mr.
Douglas Gilpin has been a director of ViRexx since April 14, 2004.
Mr.
Gilpin is a Chartered Accountant with more than 30 years of business
advisory and consultancy experience. He was a partner with KPMG LLP
from
1981 until his retirement from the firm in 1999. His practice focused
on
business advisory and assurance and involved work with numerous companies
in the biotechnology field. Since October 24, 2005, Mr. Gilpin has
been
Chairman of ViRexx.
|
|
|
|
Macaraig
(Marc) Canton, B.Sc., MBA
|
|
Mr.
Canton has over 23 years of pharmaceutical and research experience.
He
joined ViRexx from Biovail Corporation where for nine years he held
key
positions in multiple areas of the business in Canada and the United
States, including marketing and sales, contract research, and business
development where he was responsible for all deal-related activities,
including in-licensing and out-
licensing
products and technologies, partnering, and securing clinical trial
contracts.
|
Michael
W. Stewart, M.Sc.
|
|
Mr.
Stewart has a 25-year history in the area of platelet biology and
hematology. Mr. Stewart obtained his Master of Science degree in
Experimental Medicine from the University of Alberta in 1982. In
his
capacity as Laboratory Scientist for the Department of Laboratory
Medicine
at Edmonton’s Capital Health Authority (1982 to 1997), Mr. Stewart
authored more than 35 publications in peer reviewed medical journals.
In
addition, Mr. Stewart is named as inventor of 15 issued patents and
22
patents pending. Prior to joining ViRexx, Mr. Stewart served as
Vice-President Research and Development for Novolytic Inc. from 1999
to
2002 and prior to that as Director of Research and Development for
Thrombotics, Inc., a biotechnology company (1997 to
1999).
|
|
|
|
Rajan
George, Ph.D.
|
|
Dr.
George has 30 years of research experience within a broad spectrum
of the
biomedical sciences including biochemistry, molecular biology, virology
and immunology. Prior to joining ViRexx, Dr. George was a research
scientist at the Glaxo Heritage Research Institute, University of
Alberta
carrying out research on various biochemical aspects of replication
of
hepatitis B viruses. This involved the cloning and expression of
the viral
proteins as well as the generation of synthetic peptides for use
as
antigens to generate antibodies for therapeutic vaccine development.
Dr.
George has more than 35 publications in peer reviewed medical journals
to
his credit.
|
|
|
|
Andrew
Stevens, Ph.D.
|
|
Prior
to joining ViRexx, Dr. Stevens was the Vice-President of Product
Development at Cytovax Biotechnology Inc., a biotechnology company.
Dr.
Stevens’s extensive experience includes responsibilities as Director of
Clinical Research and Director of Clinical and Professional Affairs
at
Biomira Inc., a biotechnology company. Dr. Stevens has over 30 years
of
clinical research, regulatory affairs, and product development experience
gathered in the commercial development of various pharmaceuticals
and
radiopharmaceuticals in Canada and the U.S. He holds a Bachelor of
Science
degree in Pharmacy and a Ph.D. in Bionucleonics.
|
|
|
|
Irwin
Griffith, Ph.D.
|
|
Dr.
Irwin Griffith has more than 15 years of expertise in the development
and
commercialization of immunotherapies for cancer, inflammatory and
autoimmune diseases. He previously served as Senior Director for
Business
Development with Biomira Inc. prior to founding Rational BioDevelopment
Inc. in 2003.
|
|
|
|
Bruce
D. Hirsche, Q.C., LL.M
|
|
Bruce
D. Hirsche is a partner of the law firm Parlee McLaws LLP and leader
of
their Intellectual Property and Innovation Group (TechCounsel). He
has
been admitted to the bar in Alberta since 1975. His clients include
numerous technology based companies with activities at all stages
of
research, commercialization and sales. He has extensive background
in the
areas of securities law, intellectual property protection, transfer,
strategic alliances, mergers and acquisitions and in corporate governance
and financing of knowledge-based companies. He is a member of the
International Licensing Executive Society, the Canadian Bar Association
Intellectual Property and Securities Sub-Sections and was a long-serving
director and secretary of the Edmonton Council for Advanced Technology.
He
currently serves on the Board of Directors of a number of knowledge-based
companies and has served on several legal continuing education panels
dealing with intellectual property and securities law. He is also
currently serving as a member of the Board of Management of the Alberta
Science and Research Authority, Secretary and Board Member of Alberta
Cord
Blood Bank and Canadian Cord Blood Registry and as a Director of
the
Northern Alberta Brain Injury
Society.
|
Employment
Agreements
Each
of
the employees of ViRexx has employment agreements. Below is a summary of the
employment agreements for the top main employees of ViRexx:
1. Dr.
Lorne Tyrrell (Effective November 1, 2005)
Position:
Chief
Executive Officer (CEO) and Chief Scientific Officer
Duties:
In
collaboration with the Board of Directors, responsible for the overall
supervision, management and operations of ViRexx.
Time
Devotion:
Dr.
Tyrrell is to devote full business time, attention and ability to ViRexx’s
affairs. He is also serving on several Boards of Directors and in various
capacities at the University of Alberta including as the leader of the
University of Alberta Centre of Excellence for Viral Hepatitis and supervisor
of
graduate students and will continue to serve in these various capacities and
Dr.
Tyrrell will use his reasonable efforts to manage his time
appropriately.
Compensation:
Commencing November 1, 2005, and throughout the term of this Agreement, a “Base
Salary” of no less than $225,000.00 per annum exclusive of benefits and other
compensation.
Bonus:
For
each year of the term of the Employment Agreement and any extension or renewal
thereof, Dr. Tyrrell is eligible to be considered for a bonus of up to 30%
of
Base Salary to be decided by the Board of Directors based on performance
criteria pre-agreed with Dr. Tyrrell at the beginning of each year of the term
of the Agreement.
Stock
Options:
Option
effective on the Effective Date to purchase 500,000 common shares at a price
per
share and on the conditions stipulated in the Stock Option Plan; PROVIDED
HOWEVER, the options will vest fully over three (3) years if Dr. Tyrrell
continues
to
be
employed as CEO. In addition, during the fiscal year ended December 31, 2006,
Dr. Tyrrell was granted an option underlying 25,413 of the Company’s common
shares exercisable at $1.30 per share, which expires on March 28, 2016. Said
options shall vest in three equal installments over a three-year period,
beginning on the date 12 months after the date of the grant.
Term:
Agreement commences November 1, 2005 and continues until the Agreement is
terminated by either Dr. Tyrrell or ViRexx in accordance with the
Agreement.
Termination
by Dr. Tyrrell and ViRexx without Cause or Change of Control of the
Employees:
Agreement may be terminated without cause:
(a)
by
Dr. Tyrrell on giving 60 days notice. ViRexx may waive the notice;
(b)
immediately by ViRexx, at ViRexx’s discretion and provided that Dr. Tyrrell has
served for at least one (1) full year, ViRexx shall pay Dr. Tyrrell, in lieu
of
notice, one (1) year’s Base Salary, excluding bonus, and value of benefits
otherwise received over same period and any accrued vacation pay as a full
and
final settlement; or
(c)
if
Dr. Tyrrell has been employed for less than 1 year, the amount of Base Salary
paid in lieu of notice shall be proportionate to the number of months during
which Dr. Tyrrell is employed.
In
the
event that a change of control of ViRexx occurs and Dr. Tyrrell is terminated
within a year of the change of control the above a, b and c apply.
Termination
of Dr. Tyrrell for Disability:
If Dr.
Tyrrell suffers from any disability resulting in Dr. Tyrrell being unable to
perform duties; ViRexx may terminate this Agreement upon giving 60 days notice
and 1 year’s salary, the value of benefits otherwise received over the same
period and accrued vacation pay.
If
Dr.
Tyrrell is terminated as a result of a Change of Control or resigns for Good
Reason at any time up to twelve (12) months following a Change of Control,
ViRexx shall pay to Dr. Tyrrell the following:
(a)
an
amount equal to the Base Salary plus Bonus for 24 months;
(b)
the
value of the benefits to be provided during the 24 months following the date
of
his termination;
(c)
immediate vesting of all stock options granted to Dr. Tyrrell; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from three (3) months to
twelve (12) months.
2. Scott
Langille (effective April 15, 2006)
Position:
Chief
Financial Officer
Duties:
The
Chief Financial Officer (CFO) is responsible for the supervision, preparation
and management of ViRexx’s financial reporting, internal financial reporting and
general matters related to ViRexx’s financial status.
Term:
Mr.
Langille’s Agreement was effective as and from April 15, 2006 and continues
until the Agreement is terminated by either Mr. Langille or ViRexx in accordance
with the terms of the Agreement.
Exclusive
Service:
During
the term of this employment, Mr. Langille shall devote the whole of his time
and
attention during business hours to the business of ViRexx.
Compensation:
The
Base Salary of $180,000.00 per annum, exclusive of benefits and other
compensation (the “Base Compensation”) reviewable annually.
Bonus:
Effective January 1, 2007, Mr. Langille may be entitled to discretionary or
variable compensation of up to 25% of Annual Salary, subject to the achievement
of personal and corporate goals.
Stock
Option:
On
December 14, 2006, Mr. Langille was granted an option underlying 150,000 of
the
Company’s common shares exercisable at $0.72 per share, which expires on
December 15, 2016. Said options shall vest in three equal installments over
a
two year period, beginning on the date of the grant.
Termination:
Employment shall terminate upon the earlier of his death or termination as
set
forth further below.
Disability:
In the
event Mr. Langille is unable to fulfill his regular duties and responsibilities
as CFO for an aggregate of one hundred and eighty (180) days during any twelve
(12) month period, ViRexx shall have the right to terminate his Agreement upon
providing Mr. Langille with sixty (60) days notice in writing and the payment
of
six (6) months salary, the value of benefits that would otherwise be received
during the same period and any accrued vacation pay as full and final settlement
of ViRexx’s obligations to Mr. Langille pursuant to his Agreement.
Termination
by Mr. Langille and ViRexx without Cause or Change of Control of the
Employees:
(a)
ViRexx may terminate employment without cause upon:
(i)
providing Mr. Langille with 12 months payment of Mr. Langille’s salary then in
effect, such that all benefits and allowances cease as of the Termination Date
with the exception of medical benefits continuing for 90 days after termination,
subject to any conversion rights under ViRexx’s group benefit plan;
(ii)
there being immediate vesting of all stock options granted to Mr. Langille;
and
(iii)
agreeing to reimburse Mr. Langille for all relocation expenses back to
Ontario.
(b)
Mr. Langille may resign from his employment on the following
terms:
(i)
Mr.
Langille shall provide to ViRexx one (1) month notice “Working Notice
Resignation Period”, or such shorter period as the parties may mutually agree.
ViRexx may waive the notice in full or in part;
(ii)
during the Working Notice Resignation Period, Mr. Langille shall continue to
use
his best efforts to discharge his duties and responsibilities as
CFO;
(iii)
Mr.
Langille’s employment shall terminate on the last day of the Working Notice
Resignation Period unless terminated early by ViRexx; and
(iv)
all
benefits and allowances shall cease as of the last day of the Working Notice
Resignation Period, subject to any conversion rights.
If
Mr.
Langille is terminated his employment as a result of a Change of Control or
resigns for Good Reason at any time up to twelve (12) months following a Change
of Control, ViRexx shall pay to Mr. Langille the following:
(a)
an
amount equal to the Base Salary plus Bonus for 18 months;
(b)
the
value of the benefits to be provided during the 18 months following the date
of
his termination;
(c)
immediate vesting of all stock options granted to Mr. Langille; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from three (3) months to
twelve (12) months.
Other:
ViRexx has agreed to permit Mr. Langille to work out of his home office two
of
every four weeks per month.
ViRexx
further agreed to pay for Mr. Langille’s return flights to Toronto two times per
month. Furthermore, ViRexx agreed to reimburse all costs associated with
maintaining Mr. Langille’s residence in Edmonton in lieu of reimbursement of
miscellaneous travel transportation costs, as well as the costs of setting
up
and maintaining a home office in the city where Mr. Langille resides, and to
reimburse Mr. Langille for various other transportation costs.
3.
Macaraig (Marc) Canton (effective February 1, 2005)
Position:
President and Chief Operating Officer
Duties:
As a
member of the Executive Team, the Chief Operating Officer is responsible for
providing innovative leadership and direction to the senior management team
while working with the Chief Executive Officer to promote the goals and values
of ViRexx and ensuring the company’s daily operations are handled in a
productive, cooperative way with contemporary management.
Term:
Mr.
Canton’s Agreement was effective as and from February 1, 2005 and continues
until January 31, 2008, unless terminated. The Agreement shall
automatically continue in full force and effect for successive renewal periods
of one year after January 31, 2008 unless terminated by either party by
giving notice to the other at least 180 days prior to January 31, 2008 or the
next succeeding automatic renewal date of the Agreement. If notice is given,
the
Agreement shall terminate on the day immediately after such automatic renewal
date.
Exclusive
Service:
During
the term of this employment, Mr. Canton shall devote the whole of his time
and
attention during business hours to the business of ViRexx.
Compensation:
The
Base Salary of $200,000.00 per annum, exclusive of benefits and other
compensation (the “Base Compensation”) reviewable annually.
Bonus:
Mr.
Canton may be entitled to discretionary or variable compensation of up to 30%
of
Annual Salary, subject to the achievement of personal and corporate
goals.
Stock
Option:
Option
to purchase 300,000 common shares of ViRexx at an option exercise price per
share equal to the closing price of ViRexx’s common shares on the Toronto Stock
Exchange on January 31, 2005 (the “Stock Option”), subject to the provisions of
ViRexx’s stock option agreement and all applicable regulations and laws. The
three-hundred thousand (300,000) Options shall vest over two years. In addition,
during the fiscal year ended December 31, 2006, Mr. Canton was granted an option
underlying 40,425 of the Company’s common shares exercisable at $1.30 per share,
which expires on March 28, 2016. Said options shall vest in three equal
installments over a three-year period, beginning on the date 12 months after
the
date of the grant.
Termination:
Employment shall terminate upon the earlier of: his death; or his attaining
the
age of sixty-five (65) years.
Disability:
If Mr.
Canton is unable to fulfill his duties and responsibilities as COO due to
Disability, ViRexx shall have the right to terminate this Agreement upon
providing 60 days notice in writing and the payment of 6 months salary, the
value of benefits that would otherwise be received during the same period and
any accrued vacation pay.
Termination
by Mr. Canton and ViRexx without Cause or Change of Control of the
Employees:
(a)
ViRexx may terminate employment without cause upon:
(i)
providing Mr. Canton with notification of termination, specifying the final
date
of his employment;
(ii)
providing Mr. Canton with 6 months severance remuneration during the first
full
year of Mr. Canton’s employment and 12 months severance remuneration thereafter;
and
(iii)
all
benefits and allowances cease as of the Termination Date, subject to any
conversion rights under ViRexx’s group benefit plan; and
(b)
Mr. Canton may resign from his employment on the following
terms:
(i)
Mr.
Canton shall provide to ViRexx 3 months notice “Working Notice Resignation
Period”, or such shorter period as the parties may mutually agree. ViRexx may
waive the notice in full or in part;
(ii)
during the Working Notice Resignation Period, Mr. Canton shall continue to
use
his best efforts to discharge his duties and responsibilities as
COO;
(iii)
Mr.
Canton’s employment shall terminate on the last day of the Working Notice
Resignation Period unless terminated early by ViRexx; and
(iv)
all
benefits and allowances shall cease as of the last day of the Working Notice
Resignation Period, subject to any conversion rights.
If
Mr.
Canton is terminated his employment as a result of a Change of Control or
resigns for Good Reason at any time up to twelve (12) months following a Change
of Control, ViRexx shall pay to Mr. Canton the following:
(a)
an
amount equal to the Base Salary plus Bonus for 18 months;
(b)
the
value of the benefits to be provided during the 18 months following the date
of
his termination;
(c)
immediate vesting of all stock options granted to Mr. Langille and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from three (3) months to
twelve (12) months.
4.
Michael
Stewart (effective January 1, 2007)
Position:
Senior
Vice-President of Operations
Duties:
Responsible for duties associated with office of Senior Vice-President of
Operations and any other duties as the President and/or the Board of Directors
of ViRexx may determine.
Time
Devotion:
Mr.
Stewart is supposed to devote full business time, attention and ability to
ViRexx’s affairs.
Compensation:
Commencing January 1, 2007, a salary, for each year of the Term, of no less
than
$160,000.00 per annum, reviewable annually.
Bonus:
Mr.
Stewart is eligible to be considered for an annual bonus based on a percentage
of salary. The
current Compensation Plan calls for a bonus of 20% for this level of employment;
however, the Company’s management has reserved the right whether or not to pay
this bonus subject to the availability of cash.
Stock
Options:
Option
to purchase 100,000 common shares at a price of $0.80 per share vested upon
commencement of the term. In addition, during the fiscal year ended December
31,
2006, Mr. Stewart was granted an option underlying 30,312 of the Company’s
common shares exercisable at $1.30 per share, which expires on March 28, 2016.
Said options shall vest in three equal installments over a three-year period,
beginning on the date 12 months after the date of the grant. Mr.
Steward is eligible to participate in ViRexx’s Stock Option Plan as may be
determined and/or amended from time to time in the sole discretion of ViRexx
and
as approved by its board of directors.
Term:
Effective as of January 1, 2007, the Company renewed Mr.
Stewart’s employment which shall continue until the Agreement is terminated by
either Mr. Stewart or ViRexx in accordance with the terms summarized herein
and
the terms of the agreement.
Termination
by Mr. Stewart and ViRexx Without Cause or Change of Control of the
Employees:
The
Agreement may be terminated by ViRexx or Mr. Stewart without cause:
(a)
by
Mr. Stewart without cause on giving 90 days notice. ViRexx may waive the
notice;
(b)
by
ViRexx on giving 1 years’ notice or payment in lieu of notice of
1
year’s salary inclusive
of all benefits;
If
a
change of control of ViRexx occurs and Mr. Stewart is terminated within a year
of the change of control the above provisions apply; or
(c)
within twelve (12) months following a Change of Control (as defined in the
agreement):
(i)
by
Mr. Stewart for Good Reason (as defined in the employment agreement) on giving
60 days notice. ViRexx may waive notice.
(ii)
by
Mr. Stewart without cause and without notice.
If
Mr.
Stewart elects to terminate his employment as a result of a Change of Control
or
resigns for Good Reason at any time up to twelve (12) months following a Change
of Control, ViRexx shall pay to Mr. Stewart the following:
(a)
an
amount equal to twelve (12) months of salary plus Bonus for payable for the
said
twelve (12) months;
(b)
continuation of the benefits during the 12 months following the date of his
termination;
(c)
immediate vesting of all stock options granted to Mr. Stewart; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to
twelve (12) months.
Termination
of Mr. Stewart for Disability:
If Mr.
Stewart suffers from any disability resulting in Mr. Stewart being unable to
perform duties, ViRexx may terminate this Agreement upon giving 60 days notice,
6 months’ salary, the value of benefits otherwise received over the same period
and accrued vacation pay.
Other:
Mr.
Stewart shall be paid a car mileage allowance and his reasonable business
expenses, including business-related mobile phone charges, shall be reimbursed
by ViRexx as further provided in the agreement. ViRexx shall pay all
professional association and development fees and all course costs which are
incurred from time to time by Mr. Stewart in maintaining his professional
designations and upgrading and/or continuing his education and development
to
improve the performance of his duties.
5.
Dr. Irwin Griffith (Effective January 1, 2007)
Position:
Vice-President, Drug Development, Infectious Disease
Duties:
Responsible for duties associated with office of Vice-President and any other
duties as the President and/or the Board of Directors of ViRexx may
determine.
Time
Devotion:
Dr.
Griffith shall devote his full business time, attention and ability to ViRexx’s
affairs.
Compensation:
Commencing January 1, 2007, a salary, for each year of the Term, of no less
than
$140,000.00 per annum, reviewable annually.
Bonus:
Dr.
Griffith is eligible to be considered for an annual bonus based on a percentage
of salary. The current Compensation Plan calls for a bonus of 20% for this
level
of employment; however, the Company’s management has reserved the right whether
or not to pay this bonus subject to the availability of cash.
Stock
Options:
Option
to purchase 100,000 common shares at a price of $0.80 per share. The option
shall vest in equal 1/3 amounts over a three (3) year period. In addition,
during the fiscal year ended December 31, 2006, Mr. Griffith was granted an
option underlying 36,000 of the Company’s common shares exercisable at $1.30 per
share, which expires on March 28, 2016. Said options shall vest in three equal
installments over a three-year period, beginning on the date 12 months after
the
date of the grant. Mr. Stewart is also eligible to participate in ViRexx’s Stock
Option Plan as may be determined and/or amended from time to time in the sole
discretion of ViRexx and as approved by its board of directors.
Term:
Effective as of January 1, 2007, the Company renewed Mr.
Griffith’s employment which shall continue until the agreement is terminated by
either Mr. Griffith or
ViRexx
in accordance with the terms summarized herein and the terms of the
agreement.
Termination
by Dr. Griffith and ViRexx Without Cause or Change of Control of the
Employees:
The
Agreement may be terminated by ViRexx or Dr. Griffith without
cause:
(a)
by
Dr. Griffith without cause on giving 90 days notice. ViRexx may waive the
notice.
(b)
by
ViRexx on giving 1 years’ notice or payment in lieu of notice of
1
year’s salary inclusive
of all benefits; or
(c)
within twelve (12) months following a Change of Control (as defined in the
agreement):
(i)
by
Mr. Griffith for Good Reason (as defined in the employment agreement) on giving
60 days notice. ViRexx may waive notice;
(ii)
by
Mr. Griffith without cause and without notice.
If
Mr.
Griffith elects to terminate his employment as a result of a Change of Control
or resigns for Good Reason at any time up to twelve (12) months following a
Change of Control, ViRexx shall pay to Mr. Griffith the following:
(a)
an
amount equal to twelve (12) months of salary plus Bonus for payable for the
said
twelve (12) months;
(b)
continuation of the benefits during the 12 months following the date of his
termination;
(c)
immediate vesting of all stock options granted to Mr. Griffith; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to
twelve (12) months.
Termination
of Dr. Griffith for Disability:
If Dr.
Griffith suffers from any disability resulting in Dr. Griffith being unable
to
perform duties; ViRexx may terminate this Agreement upon giving 60 days notice,
6 months’ salary, the value of benefits otherwise received over the same period
and accrued vacation pay.
Other: Mr.
Griffith shall be paid a car mileage allowance and his reasonable business
expenses, including business-related mobile phone charges, shall be reimbursed
by ViRexx as further provided in the agreement. ViRexx shall pay all
professional association and development fees and all course costs which are
incurred from time to time by Mr. Griffith in maintaining his professional
designations and upgrading and/or continuing his education and development
to
improve the performance of his duties.
6.
Dr. Rajan George (Effective January 1,
2007)
Duties:
Responsible for overall supervision and management of Research and Development
and further responsible for duties associated with office of Vice-President
and
any other duties as the President and/or the Board of Directors of ViRexx may
determine.
Time
Devotion:
Dr.
George shall devote his full business time, attention and ability to ViRexx’s
affairs.
Compensation:
Commencing January 1, 2007, a salary, for each year of the Term, of no less
than
$155,000.00 per annum, reviewable annually.
Bonus:
Dr.
George is eligible to be considered for an annual bonus based on a percentage
of
salary. The current Compensation Plan calls for a bonus of 20% for this level
of
employment; however, the Company’s management has reserved the right whether or
not to pay this bonus subject to the availability of cash.
Stock
Options:
Option
to purchase 150,000 common shares at a price of $0.80 per share vesting on
commencement of the term. In addition, during the fiscal year ended December
31,
2006, Dr. George was granted an option underlying 25,200 of the Company’s common
shares exercisable at $1.30 per share, which expires on March 28, 2016. Said
options shall vest in three equal installments over a three-year period,
beginning on the date 12 months after the date of the grant. Dr. George is
also
eligible to participate in ViRexx’s Stock Option Plan as may be determined
and/or amended from time to time in the sole discretion of ViRexx and as
approved by its board of directors.
Term:
Effective as of January 1, 2007, the Company renewed Dr.
George’s employment which shall continue until the agreement is terminated by
either Dr. George or ViRexx in accordance with the terms summarized herein
and
the terms of the agreement.
Termination
by Dr. George and ViRexx Without Cause or Change of Control of the
Employees:
The
Agreement may be terminated by ViRexx or Dr. George without cause:
(a)
by
Dr. George without cause on giving 90 days notice. ViRexx may waive the
notice;
(b)
by
ViRexx on giving 1 years’ notice or payment in lieu of notice of
1
year’s salary inclusive
of all benefits; or
(c)
within twelve (12) months following a Change of Control (as defined in the
agreement):
(i)
by
Dr. George for Good Reason (as defined in the employment agreement) on giving
60
days notice. ViRexx may waive notice.
(ii)
by
Dr. George without cause and without notice.
If
Dr.
George elects to terminate his employment as a result of a Change of Control
or
resigns for Good Reason at any time up to twelve (12) months following a Change
of Control, ViRexx shall pay to Dr. George the following:
(a)
an
amount equal to twelve (12) months of salary plus Bonus for payable for the
said
twelve (12) months;
(b)
continuation of the benefits during the 12 months following the date of his
termination;
(c)
immediate vesting of all stock options granted to Dr. George; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to
twelve (12) months.
Termination
of Dr. George for Disability:
If Dr.
George suffers from any disability resulting in Dr. George being unable to
perform duties; ViRexx may terminate this Agreement upon giving 60 days notice,
6 months’ salary, the value of benefits otherwise received over the same period
and accrued vacation pay.
Other:
Dr.
George shall be paid a car mileage allowance and his reasonable business
expenses, including business-related mobile phone charges, shall be reimbursed
by ViRexx as further provided in the agreement. ViRexx shall pay all
professional association and development fees and all course costs which are
incurred from time to time by Dr. George in maintaining his professional
designations and upgrading and/or continuing his education and development
to
improve the performance of his duties.
7. Dr.
Andrew Stevens (effective January 1, 2007)
Position:
Vice-President Clinical and Regulatory Affairs
Duties:
Responsible for the overall supervision and management of Clinical and
Regulatory Affairs and further responsible for duties associated with office
of
Vice-President and any other duties as the President and/or the Board of
Directors of ViRexx may determine.
Time
Devotion:
Dr.
Stevens shall devote his full business time, attention and ability to ViRexx’s
affairs.
Compensation:
Commencing January 1, 2007, a salary, for each year of the Term, of no less
than
$135,000.00 per annum, reviewable annually.
Bonuses:
Dr.
Stevens is eligible to be considered for an annual bonus based on a percentage
of salary. The current Compensation Plan calls for a bonus of 20% for this
level
of employment; however, the Company’s management has reserved the right whether
or not to pay this bonus subject to the availability of cash.
Stock
Options:
Option
to purchase 100,000 common shares at a price of $0.80 per share vesting upon
commencement of the term. In addition, during the fiscal year ended December
31,
2006, Dr. Stevens was granted an option underlying 25,000 of the Company’s
common shares exercisable at CDN$1.30 per share, which expire on March 28,
2016.
Said options shall vest in three equal installments over a three-year period,
beginning on the date 12 months after the date of the grant. Dr. Stevens is
also
eligible to participate in ViRexx’s Stock Option Plan as may be determined
and/or amended from time to time in the sole discretion of ViRexx and as
approved by its board of directors.
Term:
Effective as of January 1, 2007, the Company renewed Dr.
Stevens’s employment which shall continue until the agreement is terminated by
either Dr. Stevens or ViRexx in accordance with the terms summarized herein
and
the terms of the agreement.
Termination
by Dr. Stevens and ViRexx Without Cause or Change of Control of the
Employees:
The
Agreement may be terminated by ViRexx or Dr. Stevens without cause:
(a)
by
Dr. Stevens without cause on giving 90 days notice. ViRexx may waive the
notice;
(b)
by
ViRexx on giving 1 years’ notice or payment in lieu of notice of
1
year’s salary inclusive
of all benefits; or
(c)
within twelve (12) months following a Change of Control (as defined in the
agreement):
(i)
by
Dr. Stevens for Good Reason (as defined in the employment agreement) on giving
60 days notice. ViRexx may waive notice.
(ii)
by
Dr. Stevens without cause and without notice.
If
Dr.
Stevens elects to terminate his employment as a result of a Change of Control
or
resigns for Good Reason at any time up to twelve (12) months following a Change
of Control, ViRexx shall pay to Dr. Stevens the following:
(a)
an
amount equal to twelve (12) months of salary plus Bonus for payable for the
said
twelve (12) months;
(b)
continuation of the benefits during the 12 months following the date of his
termination;
(c)
immediate vesting of all stock options granted to Dr. Stevens; and
(d)
an
extension of ViRexx’s Stock Option Plan exercise period from ninety (90) days to
twelve (12) months.
Termination
of the Employee for Disability:
If Dr.
Stevens suffers from any disability resulting in Dr. Stevens being unable to
perform duties, ViRexx may terminate this Agreement upon giving 60 days notice,
6 months’ salary, the value of benefits otherwise received over the same period
and accrued vacation pay.
Other:
Dr.
Stevens shall be paid a car mileage allowance and his reasonable business
expenses, including business-related mobile phone charges, shall be reimbursed
by ViRexx as further provided in the agreement. ViRexx shall pay all
professional association and development fees and all course costs which are
incurred from time to time by Dr. Stevens in maintaining his professional
designations and upgrading and/or continuing his education and development
to
improve the performance of his duties.
B.
Compensation
As
at
December 31, 2006, we had seven executive officers. The aggregate cash
compensation (including salaries, fees (including Director’s fees), commissions,
bonuses to be paid for services rendered, bonuses paid for services rendered
in
a previous year, and any compensation other than bonuses earned, the payment
of
which is deferred), paid to and/or accrued in favor of such executive officer
and corporations controlled by them by us for services rendered during the
fiscal year ended December 31, 2006 was $243,750 to Dr. Tyrrell, $144,000 to
Mr.
Langille, $247,248 to Mr. Canton, $176,968 to Mr. Stewart, $169,014 to Dr.
George, $147,275 to Dr. Stevens and $170,204 to Dr. Griffith. We incurred
$167,376 in additional direct non-cash compensation in the form of expenses
associated with issuance of stock options to our executive officers during
the
fiscal year ended December 31, 2006. As
at
December 31, 2006, no amounts have been accrued or set aside for pension,
retirement or other benefits for the executive officers and directors.
Summary
Compensation Table
The
following table sets forth the compensation paid by us for the fiscal year
ended
December 31, 2006 in respect of the directors and members of our administrative,
supervisory or management bodies:
Name & Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards ($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings ($)
|
|
All
Other
Compensation
($) (1)
|
|
Total ($)
|
|
Dr.
D. Lorne Tyrrell,
Chief Executive Officer, Chief Scientific Officer and
Director
|
|
|
2006
|
|
$
|
225,000
|
|
$
|
18,750
|
|
|
|
|
$
|
88,319
|
|
|
|
|
|
|
|
|
|
|
$
|
332,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Langille,
CFO
|
|
|
2006
|
|
$
|
119,000
|
|
$
|
25,000
|
|
|
|
|
$
|
23,387
|
|
|
|
|
|
|
|
|
|
|
$
|
167,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacques
R. LaPointe,
Director
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,500
|
|
$
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
D. Brydon,
Director
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,750
|
|
$
|
22,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
E. Brown,
Director
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,250
|
|
$
|
21,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Jean Claude Gonneau,
Director
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,000
|
|
$
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Gilpin,
CA, Director
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,250
|
|
$
|
34,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macaraig
(Marc) Canton,
President and COO
|
|
|
2006
|
|
$
|
208,750
|
|
$
|
38,500
|
|
|
|
|
$
|
6,251
|
|
|
|
|
|
|
|
|
|
|
$
|
253,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
W. Stewart,
Vice-President of Operations, Oncology
|
|
|
2006
|
|
$
|
160,000
|
|
$
|
21,218
|
|
|
|
|
$
|
7,060
|
|
|
|
|
|
|
|
|
|
|
$
|
188,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Rajan George,
Vice-President, Research and Development, Infectious
Diseases
|
|
|
2006
|
|
$
|
155,000
|
|
$
|
17,640
|
|
|
|
|
$
|
6,261
|
|
|
|
|
|
|
|
|
|
|
$
|
178,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Andrew Stevens,
Vice-President, Clinical & Regulatory Affairs
|
|
|
2006
|
|
$
|
135,000
|
|
$
|
15,400
|
|
|
|
|
$
|
6,449
|
|
|
|
|
|
|
|
|
|
|
$
|
156,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Irwin Griffith,
Vice-President, Drug Development Infectious Diseases
|
|
|
2006
|
|
$
|
140,000
|
|
$
|
26,250
|
|
|
|
|
$
|
29,660
|
|
|
|
|
|
|
|
|
|
|
$
|
195,910
|
|
Notes:
(1)
With
the exception of reimbursement of expenses incurred by our named executive
officers during the scope of their employment and stated stock award amounts,
none of the named executive received any other compensation, perquisites, and
personal benefits in excess of $10,000.
(2)
Compensation of Directors
Dr.
Tyrrell, Chief Executive Officer and Chief Scientific Officer of the Company,
does not receive any additional compensation for being a member of the Board
of
Directors for the Company. Furthermore, employees of the Company receive no
additional compensation for acting as directors of the Corporation.
During
the fiscal year ended December 31, 2006, directors were compensated based on
a
retainer of $10,000 each plus $5,000 for Board of Director’s Chair and $ 5,000
for Audit Committee Chair. Meeting fees for which they were in attendance
of $1,500 per meeting for board meetings and $750 per meeting for committee
meetings for the year ended January to December 2006.
Mr.
LaPointe was paid $17,500, Mr. Brydon was paid $47,750, Mr. Brown was paid
$21,250, Mr. Gonneau was paid $19,000, Mr. Marcus was paid $13,462 and Mr.
Gilpin was paid $34,250 during the fiscal year ended December 31, 2006.
Directors are also reimbursed for their expenses incurred in respect of
each meeting of the directors or special service.
(3)
Mr.
Marcus resigned as a member of the Board of Directors of the Company effective
as of February 15, 2007.
The
directors listed above were reelected to serve as directors at the annual
meeting of the shareholders held on May 25, 2006 for the ensuing year until
the
next annual meeting of the shareholders.
Douglas
Gilpin, Thomas Brown and Bruce Brydon constitute the Audit Committee.
Jacques
LaPointe, Thomas Brown and Jean Claude Gonneau constitute the Compensation
Committee.
Douglas
Gilpin, Bruce Brydon and Jean Claude Gonneau constitute the Nominating and
Corporate Governance Committee.
Our
entire Board of Directors comprises the Environmental Committee.
Our
by-laws provide that from time to time the directors may fix the quorum for
meetings of directors and for meetings of committees of directors but unless
so
fixed, a majority of the directors present at a meeting of directors or a
majority of members of a committee of directors at a meeting of that committee
of directors constitutes a quorum and to the extent required by the ABCA no
business may be transacted unless one-half of the directors present are resident
Canadians. Meetings of the Board or committees of the Board may be held any
place the Board determines or by telephone.
Board
of Directors
The
Board
currently consists of seven members. Each director elected will hold office
until the next annual meeting of shareholders or until his/her successor is
duly
elected, unless his/her office is earlier vacated in accordance with our
by-laws.
Board
Committees
The
Board
of Directors has four standing committees: an Audit Committee, a Compensation
Committee, a Nominating and Corporate Governance Committee and an Environmental
Committee.
Audit
Committee
The
members of the Audit Committee are all outside and unrelated directors and
are
independent from any interest in us. The Chairman of the Audit Committee is
Douglas Gilpin. He was specifically recruited for his accounting and financial
skills. All members of the Audit Committee are considered financially literate.
The Audit Committee met formally four times in 2006 and several times by
telephone and a quorum was present at each meeting. We formally adopted the
Audit Committee Charter on April 11, 2005. The stated purpose of the Audit
Committee is to serve as an independent and objective party to monitor the
integrity of our financial reporting process and system of internal controls,
to
review, appraise and monitor the independence and performance of our independent
auditors and to provide an avenue for open communication among the independent
auditors, management and the Board of Directors. All members of the Audit
Committee must have a basic understanding of finance and accounting and must
be
able to read and understand fundamental financial statements. In addition,
the
Audit Committee reviews the independence and performance of its auditors and
approves the fees and other significant compensation to be paid to the
independent auditors. The Audit Committee has direct access to the independent
auditors at all times and has the ability to retain, at our expense, special
legal, accounting or other consultants or experts it deems necessary in the
performance of its duties.
Compensation
Committee
The
members of the Compensation Committee are all outside and unrelated directors
and are all independent from any interest in us. The Compensation Committee
also
adopted a charter on April 11, 2005. Under its charter, the Compensation
Committee is responsible for reviewing management prepared policies and
recommending to the Board of Directors on compensation policies and guidelines
for senior officers and management personnel, corporate benefits, incentive
plans, evaluation of the performance and compensation of the Chief Executive
Officer and other senior management, compensation level for members of the
Board
of Directors and committee members, a succession plan for the Chief Executive
Officer and key employees of us and any material changes in human resources
policy, procedure, remuneration and benefits.
The
Compensation Committee advises the Board on the administration of our Stock
Option Plan, and reviews and approves the recommendations of senior management
relating to the annual salaries, bonuses and stock option grants of our
executive officers. The Compensation Committee reports to the Board, which
in
turn gives final approval to compensation matters.
Under
the
direction of the Compensation Committee, we are committed to the fundamental
principles of pay for performance, improved shareholder returns and external
competitiveness in the design, development and administration of its
compensation programs. The Compensation Committee recognizes the need to attract
and retain a stable and focused leadership with the capability to manage our
operations, finances and assets. As appropriate, the Compensation Committee
recognizes and rewards exceptional individual contributions with highly
competitive compensation. The major elements of our executive compensation
program are salary, annual cash incentives and long-term incentives, through
the
granting of stock options.
In
connection with determining base salaries, we maintain an administrative
framework of job levels into which positions are assigned based on internal
comparability and external market data. Because of our lean organizational
structure and potential growth in the international arena, the Compensation
Committee’s goal is to provide base salaries for our top-performing employees,
that are competitive with our peers and which also recognize the differentials
from such peers.
The
Board
believes that employees should have a stake in our future and that their
interest should be aligned with the interest of our shareholders. To this end,
the Committee selects those executives and key employees whose decisions and
actions can most directly impact business results to participate in the Stock
Option Plan. Under the Stock Option Plan, officers, consultants, and key
employees who are selected to participate are eligible to receive stock options
that are granted subject to a vesting period determined by us and approved
by
the Board to create a long-term incentive to increase shareholder value. Awards
of stock options are supplementary to the cash incentive plan and are intended
to increase the pay-at-risk component for officers and key
employees.
We
have
employment agreements or remuneration arrangements with all of our executive
officers. Each agreement or arrangement provides for salary, benefits, bonuses
and incentive stock option grants for the executive officer and for compensation
if his or her employment is terminated. Commencing January 1, 2006, directors
are paid $1,500 per board meeting and $750 per committee meeting, except as
described herein, there are no other agreements or other remuneration
arrangements with any of its directors. The Compensation Committee met twice
formally during 2006 but communicated informally from time to
time.
Nominating
and Corporate Governance Committee
The
members of this Committee are all outside and unrelated directors and are
independent from any interest in us. The Nominating and Corporate Governance
Committee also adopted a charter on April 11, 2005.
Pursuant
to its charter, the Nominating and Corporate Governance Committee takes
responsibility for preparing the disclosure in the Management Information
Circular concerning corporate governance, and for developing and monitoring
our
general approach to corporate governance issues as they arise. It also assumes
responsibility for assessing current members and nominating new members to
the
Board of Directors and ensuring that all Board members are informed of and
are
aware of their duties and responsibilities as a director of the Corporation.
The
Nominating and Corporate Governance Committee takes responsibility for the
adoption of adequate policies and procedures to allow us to meet our continuous
disclosure requirements, manage our principal risks, review the strategic plan
on a timely basis, develop and monitor corporate policies relating to trading
in
securities, ensuring the Board annually reviews organizational structure and
succession planning, reviews areas of potential personal liability of directors
and ensures reasonable protective measures are in place and causes the Board
to
annually review its definition of an unrelated director. The Committee met
formally twice in 2006 and communicated informally from time to time.
Our
approach to corporate governance with reference to the TSX Guidelines is set
out
in our Management Information Circular.
Environmental
Committee
The
Environmental Committee is comprised of our entire Board of Directors. The
Environmental Committee adopted a charter on April 11, 2005. Under its charter
the Environmental Committee will review, provide oversight of and monitor our
environmental, health and safety policies, practices and actions; review,
provide oversight of and monitor the social, political, and environmental
trends, issues and concerns at the legislative, regulatory and judicial levels
as they affect us and the industry, along with our positions and responses
with
respect thereto. It will also receive reports on the nature and extent of
compliance or any non-compliance with relevant policies, standards and
applicable legislation and will develop plans to correct deficiencies, if any.
It reports to the Board on the status of such matters and reviews such other
environmental matters as the Committee may consider suitable or the Board may
specifically direct.
The
Environmental Committee meets each time we have a board meeting because it
is a
committee of the whole board.
As
at
December 31, 2006, we have twenty five full-time employees and one part-time
employee of whom 13 hold a Ph.D. There are currently 17 employees in research
and development, and nine employees in administration, corporate affairs and
business development. All employees execute confidentiality and non-competition
agreements and assignments of intellectual property rights to us.
We
are
not party to any collective bargaining agreements, have never experienced any
material labor disruption and are unaware of any current efforts or plans to
organize employees. We consider our relationship with our employees
good.
The
following table sets out the names and titles of our executive officers and
directors and their respective common share ownership in us as at December
31,
2006:
Name
|
|
Title/Office
|
|
Share
Ownership directly or indirectly and as a % of Outstanding
Shares*
|
Dr.
D. Lorne Tyrrell
|
|
Chief
Executive Officer, Chief Scientific Officer and Director
|
|
1,656,792
|
|
|
|
|
2.28%
|
Scott
Langille
|
|
Chief
Financial Officer
|
|
Nil
|
|
|
|
|
|
Jacques
R. LaPointe
|
|
Director
|
|
175,000
|
|
|
|
|
0.24%
|
Bruce
D. Brydon
|
|
Director
|
|
Nil
|
Thomas
E. Brown
|
|
Director
|
|
911,589
|
|
|
|
|
1.25%
|
Dr.
Jean Claude Gonneau
|
|
Director
|
|
20,000
|
|
|
|
|
0.03%
|
Douglas
Gilpin, CA
|
|
Chairman
and Director
|
|
Nil
|
|
|
|
|
|
Macaraig
(Marc) Canton
|
|
President
and Chief Operating Officer
|
|
100,000
|
|
|
|
|
0.014%
|
Michael
W. Stewart
|
|
Senior
Vice-President of Operations
|
|
266,039
|
|
|
|
|
0.038%
|
Dr.
Rajan George
|
|
Vice-President,
Research & Development, Infectious Diseases
|
|
65,325
0.09%
|
Dr.
Andrew Stevens
|
|
Vice-President
Clinical and Regulatory Affairs
|
|
Nil
|
Dr.
Irwin Griffith
|
|
Vice-President,
Drug Development, Infectious Disease
|
|
Nil
|
|
|
|
|
|
(1)
Effective February 15, 2007, Michael Marcus resigned as a member of the
Company’s Board of Directors.
*Listed
beneficial ownership is based on 72,760,617 Common Shares issued and outstanding
as of December 31, 2006.
The
names
and titles of our executive officers and directors to whom options have been
granted by us which are outstanding as of December 31, 2006 and the number
of
Common Shares subject to such options are set forth in the following
table:
Name
|
|
Title/Office
|
|
Number
of
Shares
|
|
Exercise
Price
|
|
Expiry
Date
|
Dr.
D. Lorne Tyrrell
|
|
Chief
Executive Officer,
Chief
Scientific Officer & Director
|
|
300,000
20,000
500,000
25,413
|
|
$0.80
$0.90
$0.99
$1.30
|
|
December
23, 2008
December
16, 2014
November
1, 2015
March
28, 2016
|
Scott
Langille
|
|
Chief
Financial Officer
|
|
150,000
|
|
$0.72
|
|
December
15, 2016
|
Dr.
Jean Claude Gonneau
|
|
Director
|
|
125,000
20,000
21,000
|
|
$0.80
$0.90
$1.30
|
|
April
14, 2009
December
16, 2014
March
28, 2016
|
Douglas
Gilpin
|
|
Director
|
|
125,000
20,000
27,000
|
|
$0.80
$0.90
$1.30
|
|
April
14, 2009
December
16, 2014
March
28, 2016
|
|
|
Director
|
|
10,000
20,000
50,000
200,000
125,000
21,000
|
|
$6.26
$0.94
$0.76
$0.86
$0.90
$1.30
|
|
May
24, 2011
June
19, 2012
July
18, 2012
June
9, 2013
December
16, 2014
March
28, 2016
|
Bruce
D. Brydon
|
|
Director
|
|
10,000
20,000
75,000
125,000
21,000
|
|
$3.90
$0.94
$0.86
$0.90
$1.30
|
|
April
10, 2011
June
19, 2012
June
9, 2013
December
16, 2014
March
28, 2016
|
Thomas
E. Brown
|
|
Director
|
|
150,000
20,000
21,000
|
|
$0.80
$0.90
$1.30
|
|
December
23, 2008
December
16, 2014
March
28, 2016
|
Macaraig
(Marc) Canton
|
|
President
and Chief Operating Officer
|
|
300,000
40,425
|
|
$1.17
$1.30
|
|
February
1, 2015
March
28, 2016
|
Michael
W. Stewart
|
|
Vice-President
Operations, Oncology
|
|
100,000
50,000
15,000
30,312
|
|
$0.80
$0.86
$0.90
$1.30
|
|
December
23, 2008
January
9, 2013
December
16, 2014
March
28, 2016
|
Dr.
Rajan George
|
|
Vice-President,
Research and Development
|
|
150,000
15,000
25,200
|
|
$0.80
$0.90
$1.30
|
|
December
23, 2008
December
16, 2014
March
28, 2016
|
Dr.
Andrew Stevens
|
|
Vice-President,
Clinical and Regulatory Affairs
|
|
100,000
15,000
25,200
|
|
$0.80
$0.90
$1.30
|
|
December
23, 2008
December
16, 2014
March
28, 2016
|
Dr.
Irwin Griffith
|
|
Vice-President,
Drug Development
|
|
100,000
15,000
36,000
|
|
$0.80
$0.90
$1.30
|
|
April
14, 2009
December
16, 2014
March
28, 2016
|
Option
Plan
We
have
in place a Stock Option Plan dated June 16, 2005 (the “Plan”) pursuant to which
the Board of Directors of ViRexx may grant stock options (“Options”) up to a
maximum of 8,256,000 Shares of ViRexx. The Plan provides that the terms of
the
Options and the Option price shall be fixed by the Directors subject to the
price restrictions and other requirements imposed by the TSX. The Plan also
provides that no
Option
shall be granted to any person except upon recommendation of the Directors
of
ViRexx, and only Directors, officers, employees, consultants and other persons
who provide ongoing services of us or our subsidiaries may receive Options.
Options granted under the Plan may not be for a period longer than ten (10)
years and the exercise price must be paid in full upon exercise of the
option.
During
the financial year ended December 31, 2006, there were 762,363 options granted
to the Directors, employees or executives of the Corporation pursuant to the
option plan or otherwise. As at December 31, 2006, 6,096,241 out of the
authorized 8,256,000 options have been granted leaving 2,159,759 available
for
future grants. Under the terms of the Plan, any options which are exercised
replenish the option pool shall again be made available to be granted pursuant
to the provisions of the Plan herein.
The
purpose of the Plan is to assist Directors, officers, employees, consultants
and
other persons who provide ongoing services of ViRexx and any of its subsidiaries
to participate in the growth and development of ViRexx. The total number of
Shares, which may be granted to any optionee, shall not exceed 5% of the
outstanding Shares. The granting of Options is administered by the ViRexx Board,
subject to the policies of the TSX.
During
the financial year ended December 31, 2004, there were 4,564,168 Options which
were either granted or converted from AltaRex options pursuant to the
Arrangement. Subsequent to the financial year ended December 31, 2004, we
granted an additional 300,000 Options at an exercise price of $1.17, exercisable
until February 1, 2015, to Marc Canton as an inducement to his terms of
employment as President and Chief Operating Officer of ViRexx. These Options
were not granted pursuant to the Plan.
No
optionee has any rights as a shareholder with respect to any shares subject
to
an option prior to the date of the issuance of a certificate or certificates
for
such shares.
The
following table sets forth information in respect of compensation plans under
which equity securities of the Corporation are authorized for issuance, as
at
the Corporation’s financial year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Plan
Category
|
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
|
|
Equity
compensation plans approved by security holders
|
|
|
6,396,241(1)(2)
|
)
|
$
|
0.83
|
|
|
396,251(1
|
)
|
Equity
compensation plans not approved by security holders
|
|
|
17,077,471(3)(4)(5
|
)
|
$
|
1.44
|
|
|
Nil
|
|
Total:
|
|
|
23,442,753
|
|
|
|
|
|
396,251
|
|
Notes:
(1)
|
Includes
6,096,241 Shares issuable upon exercise of outstanding Options during
the
Corporation’s financial year ended December 31, 2006. The Corporation can
grant no more than 8,256,000
Options under the Option Plan. See “Stock Options”.
|
(2)
|
Includes
50,000 and 85,000 Options granted to the University of Alberta on
December
23, 2003 and April 14, 2004 respectively, pursuant to a license agreement
dated December 13, 2001.
|
(3)
|
Includes
an Option granted to Mr. Canton on February 1, 2005 to purchase
300,000 Shares of the Corporation at a purchase price of $1.17 per
Share.
|
(4)
|
Includes
warrants granted to certain investors on April 7, 2006 to purchase
up to
800,000 Shares at a price of $1.75 per Share until April 7, 2008.
These
warrants were granted in consideration of services rendered in connection
with a public offering of
the Corporation in April of 2006.
|
(5)
|
Includes
warrants granted to certain investors on February 15, 2006 to purchase
up
to 11,999,990 Shares at a price of $1.50 per Share until February
15,
2008. These warrants were granted in consideration of services rendered
in
connection with a public offering of
the Corporation in January and February of 2006.
|
(6)
|
Includes
warrants granted to certain investors on September 1 and 9, 2005
to
purchase up to 2,459,299 Shares at a price of $1.20 per Share until
September 9, 2007. These warrants were granted in consideration of
services rendered in connection with a public offering of
the Corporation in September of 2005.
|
F.
|
Pension
and Retirement Plans and Payments made upon Termination of
Employment
|
We
do not
have any pension or retirement plan which is applicable to the Named Executive
Officers other than as described below. We have not provided compensation,
monetary or otherwise, during the preceding fiscal year, to any person who
now
acts or has previously acted as a Named Executive Officer of ViRexx, in
connection with or related to the retirement, termination or resignation of
such
person other than as described in the succeeding paragraph and we have provided
no compensation to such persons as a result of a change of control of us, our
subsidiaries
or affiliates. We are not party to any compensation plan or arrangement with
any
person who now acts as a Named Executive Officer resulting from the resignation,
retirement or the termination of employment for cause of such
person.
Item 7.
|
Major
Shareholders and Related Party Transactions
|
The
following table sets forth, as of the most practicable date, certain information
regarding each person who is known to us as an owner of more than 5% of the
outstanding Common Shares of us.
Name
|
|
Class
|
|
Amount
Owned (1)
|
|
%
of Class
|
|
The
Estate of Dr. Antoine A. Noujaim
|
|
Common
|
|
7,446,449
|
|
10.23%
|
|
Canmarc
Trading Co. (2)
|
|
Common
|
|
7,018,510
|
|
9.65%
|
|
|
(1)
|
Includes
the Common Shares directly controlled by The Estate of Dr.
Noujaim.
|
|
(2)
|
Michael
Marcus of Houston, Texas, holds 100% voting and dispositive power
over
Canmarc Trading Co.
|
None
of
our major shareholders have different voting rights.
Based
on
a report by Computershare, as at December 31, 2006, there were 43 registered
Shareholders in the United States that held common shares totaling 11,533,327
or
15.83% percent of the common shares outstanding.
To
the
extent known to us, we are not directly or indirectly owned or controlled by
any
Foreign Government, or by any other natural or legal persons, severally or
jointly.
B.
Related-
party transactions (1)
During
the fiscal year ended December 31, 2006, the Company incurred amounts totalling
approximately $301,870 (2005 - $373,010) for legal services rendered by a firm
in which Bruce Hirsche, the company’s Secretary, is a partner. The Company also
paid $138,750 (2005 - $41,670) for consulting services rendered by a director
of
the company.
To
the
best of the knowledge of our management, other than information already
disclosed above and elsewhere in this Annual Report and except for employment
agreements with Executive Officers and stock option agreements, no person who
has been an insider of us for the most recently completed fiscal year ended
December 31, 2006 or subsequent period to the date of this Annual Report or
any
associate or affiliate of such insider has had any material direct or indirect
interest in any material transaction with us since January 1, 2006 or in any
proposed transaction which has materially affected or would materially affect
us
or our subsidiaries.
(1)
|
“Related
Party” means, in relation to a corporation, a promoter, officer, Director,
other insider or Control Person of that corporation (including an
issuer)
and any associates and affiliates of any of such persons. In relation
to
an individual, related party means any associates of the individual
or any
corporation of which the individual is a promoter, officer, Director
or
Control Person.
|
C.
|
Interests
of experts and
counsel
|
Item
8.
|
Financial
Information
|
A.
|
Consolidated
Statements and Other Financial
Information
|
Our
consolidated financial statements are included herein under Item
17.
Legal
Proceedings
There
is
no material legal proceedings which have been commenced against us or, to the
knowledge of management of ViRexx are contemplated.
Dividend
Policy
To
date,
we have not paid any dividends on its Common Shares. The payment of dividends
in
the future, if any, is within the discretion of the Board of Directors of ViRexx
and will depend upon our earnings, our capital requirements and financial
condition and other relevant factors. We do not anticipate declaring or paying
any dividends in the foreseeable future.
Not
applicable.
Item
9.
|
The
Offer and Listing
|
A.
|
Offer
and listing details
|
Our
Common Shares are traded on the Toronto Stock Exchange (“TSX”) under the symbol
“VIR” and on the American Stock Exchange (“AMEX”) under the symbol “REX”. The
following tables set forth, the annual high and low market prices for the five
most recent full financial years as reported on the Toronto Stock Exchange
and
for the period indicated on AMEX:
TSX
(in CDN$):
|
|
High
|
|
Low
|
|
December
31, 2006
|
|
|
1.62
|
|
|
0.66
|
|
December
31, 2005
|
|
|
2.13
|
|
|
0.89
|
|
December
16, 2004 - December 31, 2004 (1)
|
|
|
1.22
|
|
|
0.85
|
|
TSX
Venture Exchange
|
|
|
|
|
|
|
|
December
15, 2004 (1)
|
|
|
1.60
|
|
|
0.90
|
|
December
31, 2003 (2)
|
|
|
0.14
|
|
|
0.10
|
|
December
31, 2002 (3)
|
|
|
0.23
|
|
|
0.15
|
|
December
31, 2001 (3)
|
|
|
0.55
|
|
|
0.30
|
|
Notes:
(1)
|
ViRexx’s
Shares were delisted from the TSXV on December 15, 2004 and commenced
trading on the TSX on December 16, 2004 as a result of the AltaRex
Arrangement effective December 10, 2004.
|
(2)
|
Prior
to the ViRexx Amalgamation, Norac, one of the predecessors to ViRexx,
was
a publicly listed company on the TSXV. On June 23, 2003, trading
of
Norac’s common shares was halted upon the announcement of the ViRexx
Amalgamation. On August 18, 2003, Norac’s listing was moved to the NEX
board of the TSXV as a result of its inactive status. Pursuant to
the
ViRexx Amalgamation, the common shares of Norac were delisted from
the
TSXV on January 2, 2004 and ViRexx’s Shares were listed on the TSXV that
same date but remained halted. ViRexx’s Shares resumed trading on the TSXV
on April 16, 2004.
|
(3)
|
The
trading price of common shares of
Norac.
|
AMEX
(in US$):
|
|
High
|
|
Low
|
|
December
31, 2006
|
|
|
1.43
|
|
|
0.59
|
|
December
23, 2005 - December 31, 2005 (1)
|
|
|
1.46
|
|
|
1.08
|
|
Notes:
(1)
|
ViRexx’s
Shares commenced trading on AMEX on December 23,
2005.
|
The
high
and low market prices for each full financial quarter over the two most recent
full financial years and the subsequent period are as set forth
below:
TSX
(in CDN$):
|
|
High
|
|
Low
|
|
February
28, 2007 (1)
|
|
|
0.74
|
|
|
0.58
|
|
December
31, 2006
|
|
|
0.90
|
|
|
0.68
|
|
September
30, 2006
|
|
|
1.00
|
|
|
0.66
|
|
June
30, 2006
|
|
|
1.38
|
|
|
0.98
|
|
March
31, 2006
|
|
|
1.62
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
December
15, 2005
|
|
|
1.61
|
|
|
0.89
|
|
September
30, 2005
|
|
|
1.15
|
|
|
0.94
|
|
June
30, 2005
|
|
|
1.59
|
|
|
0.96
|
|
March
31, 2005
|
|
|
2.13
|
|
|
1.09
|
|
Notes:
(1)
|
From
January 1, 2007 to February 28,
2007.
|
AMEX
(in U.S.$):
|
|
High
|
|
Low
|
|
February
28, 2007
|
|
|
0.64
|
|
|
0.50
|
|
December
31, 2006
|
|
|
0.78
|
|
|
0.59
|
|
September
30, 2006
|
|
|
0.91
|
|
|
0.59
|
|
June
30, 2006
|
|
|
1.18
|
|
|
0.87
|
|
March
31, 2006
|
|
|
1.43
|
|
|
1.09
|
|
December
23, 2005 - December 31, 2005
|
|
|
1.46
|
|
|
1.08
|
|
For
the
most recent six months, the high and low market prices of our Common Shares
are
as set forth below:
TSX
(in CDN$):
|
|
High
|
|
Low
|
|
February
28, 2007
|
|
|
0.74
|
|
|
0.58
|
|
January
31, 2007
|
|
|
0.70
|
|
|
0.60
|
|
December
31, 2006
|
|
|
0.77
|
|
|
0.68
|
|
November
30, 2006
|
|
|
0.77
|
|
|
0.70
|
|
October
31, 2006
|
|
|
0.90
|
|
|
0.68
|
|
September
30, 2006
|
|
|
0.78
|
|
|
0.66
|
|
AMEX
(in U.S.$):
|
|
High
|
|
Low
|
|
February
28, 2007
|
|
|
0.64
|
|
|
0.50
|
|
January
31, 2007
|
|
|
0.62
|
|
|
0.51
|
|
December
31, 2006
|
|
|
0.67
|
|
|
0.59
|
|
November
30, 2006
|
|
|
0.67
|
|
|
0.62
|
|
October
31, 2006
|
|
|
0.78
|
|
|
0.61
|
|
September
30, 2006
|
|
|
0.70
|
|
|
0.59
|
|
Our
Common Shares were delisted from the TSX Venture Exchange on December 15, 2004
and contemporaneously listed on the TSX
Option
Summary
See
Note
13 to Item 18 “Consolidated Financial Statements” for tabular historical option
and warrant information.
Granted
Options pursuant to licensing agreements:
|
|
|
|
|
License
Agreement: Tyrrell Hepatitis monoclonal technology
|
|
|
|
|
Time
of Grant: Concurrent with close of each financing round and/or financing
tranche
|
|
|
|
|
Vesting:
Concurrent with grant of option
|
|
|
|
|
Term:
Five years from grant of option
|
|
|
|
|
Name
|
|
Vesting
Schedule
|
|
Date
of Grant
|
|
Expiry
Date
|
|
Exercise
Price
|
|
Options
Granted
|
|
Outstanding
9/30/2005
|
|
Vested
9/30/2005
|
|
Expiration
Year
|
|
University
of Alberta
|
|
Immediate
|
|
23-Dec-2003
|
|
23-Dec-2008
|
|
$
|
0.80
|
|
|
50,000
|
|
|
50,000
|
|
|
50,000
|
|
|
2008
|
|
University
of Alberta
|
|
Immediate
|
|
14-Apr-2004
|
|
14-Apr-2009
|
|
$
|
0.80
|
|
|
85,000
|
|
|
85,000
|
|
|
85,000
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
|
135,000
|
|
|
135,000
|
|
|
|
|
Not
Applicable.
Our
Common Shares are listed for quotation on the Toronto Stock Exchange under
“VIR”
and “REX” on the American Stock Exchange.
Not
Applicable.
Not
Applicable.
Not
Applicable.
Item
10.
|
Additional Information
|
A.
|
Description
of Share Capital
|
Not
applicable
B.
|
Memorandum
and articles of
association
|
Our
Certificate of Incorporation, together with all amendments, which we refer
to as
our articles of incorporation, is on file with the Alberta Registrar of
Corporations under Alberta Corporate Access Number 2010829345. Our articles
of
incorporation do not include a stated purpose and contain no restrictions on
the
nature of business to be carried on. Under the ABCA, in the absence of any
such
restrictions, a corporation has the capacity, rights, powers and privileges
of a
natural person, and has the capacity to carry on business, conduct its affairs
and exercise its power in any jurisdiction outside Alberta to the extent that
the laws of that jurisdiction permit. For additional information regarding
our
incorporation, see Item
4 - Information on the Corporation - History and Development of the
Corporation.
A
director of ViRexx need not be a shareholder. In accordance with the ABCA,
at
least one quarter of our directors must be residents of Canada. The ABCA
requires that a person must be at least 18 years of age, be of sound mind and
not be bankrupt or a dependent adult or formal patient under the Dependent
Adults Act
or
Mental
Health Act,
or the
subject of an order under The
Mentally Incapacitated Persons Act
in order
to serve as a director. Neither our articles of incorporation or by-laws, nor
the ABCA, impose any mandatory retirement requirements for
directors.
A
majority of the number of directors holding office at the time of the meeting
will constitute a quorum, provided that at least half of the directors present
are resident Canadians. Business cannot be transacted at a directors’ meeting
without quorum.
A
director who is a party to, or who is a director or officer of or has a material
interest in any person who is a party to, a material contract or transaction
or
proposed material contract or transaction with us shall disclose to us the
nature and extent of his interest at the time and in the manner provided by
the
ABCA. The ABCA prohibits such a director from voting on any resolution to
approve the contract or transaction unless the contract or
transaction:
§
|
is
an arrangement by way of security for money lent to or obligations
undertaken by the director for the benefit of ViRexx or an
affiliate;
|
§
|
relates
primarily to his or her remuneration as a director, officer, employee
or
agent of ViRexx or an affiliate;
|
§
|
is
for indemnity or insurance; or
|
ViRexx’s
Board of Directors may, on behalf of ViRexx and without authorization of our
shareholders:
§
|
borrow
money upon the credit of ViRexx;
|
§
|
issue,
reissue, sell or pledge debt obligations of
ViRexx;
|
§
|
subject
to certain disclosure requirements of the ABCA ,
give a guarantee on behalf of ViRexx to secure performance of an
obligation of any person;
|
§
|
mortgage,
hypothecate, pledge or otherwise create a security interest in all
or any
property of ViRexx owned or subsequently acquired to secure any obligation
of the
ViRexx;
and
|
|
|
§
|
the
directors by resolution may delegate to a director, a committee of
directors or an officer any of these
powers.
|
Our
articles of incorporation permit the Board of Directors of ViRexx to appoint
one
or more additional directors of ViRexx to serve until the next annual meeting
of
shareholders, provided that the number of additional directors does not at
any
time, exceed one-third of the number of directors who held office at the
expiration of the last annual meeting of shareholders of ViRexx.
Rights
and preferences of Capital Stock of ViRexx
Not
applicable.
Changing
to the Rights of Shareholders
We
are
required to amend our articles of incorporation to effect any change to the
rights of our shareholders. Such an amendment would require the approval of
holders of two-thirds of the shares cast at a duly called special meeting.
If we
wish to amend the rights of holders of a specific class of shares, such approval
would also be required from the holders of that class. A shareholder is entitled
to dissent in respect of such a resolution and, if the resolution is adopted
and
ViRexx implements such changes, demand payment of the fair value of its
shares.
Meetings
of Shareholders
Our
by-laws state that the annual meeting of shareholders shall be held on such
date
and at such time in each year as the Board, or the chairman of the Board, or
the
president in the absence of the chairman of the Board, may from time to time
determine. In addition, the Board has the authority to call a special meeting
of
shareholders at any time. An annual meeting of shareholders is held each year,
not later than fifteen months after the last preceding annual meeting, for
the
purpose of considering the financial statements and reports, electing directors,
appointing auditors and for the transaction of other business as may be brought
before the meeting. Notice of time and place of each meeting of shareholders
must be given not less than 21 days, nor more than 50 days, before the date
of
each meeting to each director, to the auditor and to each shareholder who at
the
close of the business on the record date for notice is entered in the securities
register as the holder of one or more shares carrying the right to vote at
the
meeting. Notice of meeting of shareholders called for any other purpose other
than consideration of the minutes of an earlier meeting, financial statements
and auditor’s report, election of directors and reappointment of the incumbent
auditor, must state the nature of the business in sufficient detail to permit
the shareholder to form a reasoned judgment and must state the text of any
special resolution to be submitted to the meeting.
The
only
persons entitled to be present at a meeting of shareholders are those entitled
to vote, the directors of ViRexx and the auditor of ViRexx. Any other person
may
be admitted only on the invitation of the chairman of the meeting or with the
consent of the meeting. If a corporation is winding-up, the ABCA permits a
liquidator appointed by the shareholders, during the continuance of a voluntary
winding-up, to call and attend meetings of the shareholders. In circumstances
where court orders a meeting of shareholders, the court may direct how the
meeting may be held, including the parties entitled, or required, to attend
the
meeting.
Our
articles of incorporation states that meetings of our shareholders may be held
in the cities of Vancouver and Victoria, British Columbia, Winnipeg, Manitoba,
Ottawa and Toronto, Ontario, Montreal, Quebec, Halifax, Nova Scotia and anywhere
in the Province of Alberta.
Limitations
on Right to Own Securities
There
is
no limitation imposed by Canadian law or by our articles or other charter
documents on the right of a non-resident to hold or vote common shares or
preference shares with voting rights (the “Voting Shares”), other than as
provided in the Investment
Canada Act
(“ICA”).
The ICA requires a non-Canadian making an investment which would result in
the
acquisition of control of a Canadian business (i.e. the gross value of the
assets of which exceed a certain monetary threshold) to identify, notify or
file
an application for review with the Investment Review Division of Industry Canada
(“IRD”).
The
notification procedure involves a brief statement of information about the
investment on a prescribed form which is required to be filed with the IRD
by
the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada’s cultural heritage
and national identity.
If
an
investment is reviewable under the ICA, an application for review in the form
prescribed is normally required to be filed with the IRD prior to the investment
taking place and the investment may not be implemented until the review has
been
completed and the Minister of Industry (“Minister”) (the Minister responsible
for Investment Canada) is satisfied that the investment is likely to be of
net
benefit to Canada. The Minister has up to 75 days to make this determination.
If
the Minister is not satisfied that the investment is likely to be of net benefit
to Canada, the non-Canadian must not implement, may be required to divest
himself of control of the business that is the subject of the
investment.
In
1999,
some of the powers, duties and functions of the Minister were transferred to
the
Minister of Canadian Heritage under Parts II to VI of the ICA as they relate
to
the prescribed business activities enumerated under paragraph 15(a) of the
ICA,
namely those that relate to Canada’s “cultural heritage or national identity”
(“Cultural Activities”). Cultural Activities include, among other things, the
distribution or sale of books, magazines, film and video recordings and music
recordings. As a result, an application for review must be submitted to the
Cultural Sector Review Division of the Department of Canadian Heritage (“CSRD”)
in respect of the acquisition of control of a Canadian business engaged in
a
Cultural Activity that exceeds the prescribed lower monetary threshold
applicable to the acquisition of such Canadian businesses.
The
Minister of Canadian Heritage’s review, similar to the Minister’s review, is
based on the statutory threshold of net benefit to Canada. CSRD is guided by
certain policy statements regarding investments by non-Canadians in Canadian
businesses engaged in certain Cultural Activities. CSRD’s policy statements
address certain Cultural Activities at the production/publication, distribution
and/or exhibition levels.
The
following investments by non-Canadians are subject to notification under the
ICA:
1.
|
An
investment to establish a new Canadian business;
and
|
2.
|
An
investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
|
The
following investments by a non-Canadian are subject to review under the
ICA:
|
1.
|
An
investment is reviewable if there is an acquisition of a Canadian
business
and the asset value of the Canadian business being acquired equals
or
exceeds the following thresholds:
|
(a)
|
For
non-World Trade Organization (“WTO”) investors, the threshold is $5
million for a direct acquisition and $50 million for an indirect
acquisition; the $5 million threshold will apply however for an indirect
acquisition if the asset value of the Canadian business being acquired
exceeds 50% of the asset value of the global
transaction;
|
|
(b)
|
Except
as specified in paragraph (c) below, a threshold is calculated annually
for reviewable direct acquisitions by or from WTO investors. The
threshold
for 2003 was $223 million. Pursuant to Canada’s international commitments,
indirect acquisitions by or from WTO investors are not
reviewable;
|
|
(c)
|
The
limits set out in paragraph (a) apply to all investors for acquisitions
of
a Canadian business that:
|
(i)
|
engages
in the production of uranium and owns an interest in a producing
uranium
property in Canada;
|
(ii)
|
provides
any financial service;
|
|
(iii)
|
provides
any transportation services; or
|
|
(iv)
|
is
a cultural business.
|
2.
|
Notwithstanding
the above, any investment which is usually only notifiable, including
the
establishment of a new Canadian business, and which falls within
a
specific business activity, including the publication and distribution
of
books, magazines, newspapers, film or video recordings, audio or
video
music recordings, or music in print or machine-readable form may
be
reviewed if an Order-in-Council directing a review is made and a
notice is
sent to the Investor within 21 days following the receipt of a certified
complete notification.
|
Generally
speaking, an acquisition is direct if it involves the acquisition of control
of
the Canadian business or of its direct or indirect Canadian parent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian direct or indirect parent of an entity carrying on the Canadian
business. No change of voting control will be deemed to have occurred if less
than one-third of the voting control of a Canadian corporation is acquired
by an
investor.
A
WTO
investor, as defined in the ICA, includes an individual who is a national of
a
member country of the WTO or who has the right of permanent residence in
relation that WTO member, a government or government agency of a WTO
investor-controlled corporation, a limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the
case
may be, are any combination of Canadians and WTO investors.
The
higher thresholds for WTO investors do not apply if the Canadian business
engages in activities in certain sectors such as uranium, financial services
(except insurance), transportation services or cultural business.
The
ICA
exempts certain transactions from the notification and review provisions of
ICA,
including, among others, (a) an acquisition of Voting Shares if the acquisition
was made in the ordinary course of that persons’ business as a trader or dealer
in securities; (b) an acquisition of control of the company in connection with
the realization of a security interest granted for a loan or other financial
assistance and not for any purpose related to the provisions of the ICA; (c)
the
acquisition of voting interests by any person in the ordinary course of a
business carried on by that person that consists of providing, in Canada,
venture capital on terms and conditions not inconsistent with such terms and
conditions as may be fixed by the Minister; and (d) acquisition of control
of
the company by reason of an amalgamation, merger, consolidation or corporate
reorganization, following which the ultimate direct or indirect control in
fact
of ViRexx, through the ownership of voting interests, remains
unchanged.
Change
of Control
Our
articles of incorporation and by-laws do not contain any specific provision
that
has the effect of delaying, deferring or preventing a change of control of
ViRexx.
Disclosure
of Ownership
Our
by-laws do not contain provisions regarding public disclosure of share
ownership. Applicable Canadian securities legislation requires certain public
disclosure of the shareholdings of those persons who are insiders of ViRexx.
Insiders include directors and senior officers as well as those persons who
own
common shares that exceed 10 percent of our company’s total issued and
outstanding common shares.
With
respect to the foregoing in this Item 10B, the applicable corporate law in
the
United States differs significantly in some respects from that in Canada. For
example, under applicable corporate law in the United States, a company may
not
issue an unlimited number of shares. Additionally, a corporation may not be
formed for certain purposes, such as insurance or commercial banking, unless
certain approvals are received.
Dividends
Subject
to any special rights or restrictions attached to a share, we may pay dividends
on our shares as the directors decide. Dividends may be only paid out of our
profits.
Subject
to any special rights or restrictions attached to a share, the directors may
determine that a dividend will be payable on a share and fix the amount, the
time for payment and the method for payment. Dividends may be paid on shares
of
one class but not another and at different rates for different classes. If
the
board of directors does not exercise their power to issue dividends, the
shareholders in a general meeting may. Under our Constitution, a shareholder
or
shareholders holding the requisite number of shares required to convene a
general meeting would be able to convene a meeting or require the directors
to
convene a meeting to consider whether we should pay a dividend. The proposed
resolution to pay the dividend would need to be included in the notice of
meeting and would be voted on by shareholders as an ordinary resolution. Any
dividend payable would only be payable out of our profits.
Liquidation
Rights
Subject
to any special rights or restrictions attached to shares, on a winding up,
all
available assets must be repaid to the shareholders and any surplus must be
distributed among the shareholders in proportion to the number of fully paid
shares held by them. For this purpose a partly paid share is treated as a
fraction of a share equal to the proportion which the amount paid bears to
the
total issue price of the share before the winding up began.
If
we
experience financial problems, the directors may appoint an administrator to
take over our operations to see if we can come to an arrangement with our
creditors. If we cannot agree with our creditors, ViRexx may be wound up. A
receiver, or receiver and manager, may be appointed by order of a court or
under
an agreement with a secured creditor to take over some or all of the assets
of a
company. A receiver may be appointed, for example, because an amount owed to
a
secured creditor is overdue.
We
may be
wound up by order of a court, or voluntarily if our shareholders pass a special
resolution to do so. A liquidator is appointed when a court orders a company
to
be wound up or the shareholders of a company pass a resolution to wind up the
company. A liquidator is appointed to administer the winding up of a
company.
C.
Material contracts
All
Agreements described below relating to the Plan of Arrangement between Nova
Bancorp and AltaRex and the Plan of Arrangement between ViRexx and AltaRex
have
been carried out and the purpose of these agreements achieved. All of the United
Therapeutics agreements including the debenture (item 3) and Security Agreement
(item 4) and the Convertible Note (item 8) have been discharged through
repayment and/or conversion of the debt secured thereunder to common shares
of
ViRexx. See page 11.
1.
Exclusive License Agreement Between Unither Pharmaceuticals, Inc. and AltaRex
Corp. (“AltaRex”) dated April 17, 2002.
On
April
17, 2002, AltaRex Corp. entered into an Exclusive License Agreement with Unither
Pharmaceuticals, Inc (“UP”), a subsidiary of United Therapeutics, for the
development of five monoclonal antibodies (OvaRex, BrevaRex, ProstaRex, AR54,
and GivaRex) that activate the immune system to treat cancer. Under the terms
of
the Exclusive License Agreement, AltaRex granted to United, through UP, an
exclusive, non-transferable (except in limited circumstances) royalty bearing
license throughout the world, including Germany, (but excluding the other member
nations of the European Union as of April 17, 2002 and other specified
jurisdictions). The license granted UP the right to use AltaRex's intellectual
property with respect to the five antibodies (the “Licensed
Technology”).
United
has agreed to use commercially reasonable efforts to develop, market and
commercialize such products in the licensed territory utilizing the Licensed
Technology as United determines are commercially feasible, including the conduct
of related research, development and pre-clinical and clinical trials and
obtaining all necessary regulatory approvals. United is solely responsible
for
the development of the Licensed Technology, including the commercialization
of
the five antibodies in the licensed territory. In particular, United has agreed
to pay AltaRex certain amounts based upon the achievement of specified
milestones together with royalties based upon sales of products utilizing or
incorporating the Licensed Technology sold in the licensed territory. AltaRex
granted United a right of first refusal to any other technology developed by
AltaRex Corp. for application in the field of cancer.
2. First
Amendment to the License Agreement between Unither Pharmaceuticals, Inc. and
AltaRex Corp. dated August 6, 2003.
This
Agreement amended the Exclusive License Agreement.
This
Agreement provided for a payment to AltaRex in the amount of U.S. $250,000
and
clarified the territory of the license granted under the Exclusive License
Agreement. It also amended the development milestone provisions which resulted
in a postponement of a milestone payment to AltaRex of U.S. $600,000 from the
date of commencement of the first pivotal Phase III patient enrollment for
OvaRex® to the completion of the BLA filing in the U.S.A.
3. Subscription
and Debenture Purchase Agreement between United Therapeutics Corporation and
AltaRex Corp. dated April 17, 2002 (“United Subscription
Agreement”).
In
connection with the Exclusive License Agreement, AltaRex and United entered
into
the above noted United Subscription Agreement whereby United purchased a unit
consisting of 4.9 million common shares of AltaRex at a price of U.S. $0.50
per
share and a warrant, to purchase an additional 3.25 million common shares of
AltaRex at a price of U.S. $0.50 per share for a total purchase price of US
$2.45 million. The warrant was subsequently exercised by United for a purchase
price of U.S. $1.625 million. In addition, pursuant to the United Subscription
Agreement, United purchased a convertible debenture from AltaRex for
approximately U.S. $50,000 that was automatically converted by United into
100,000 common shares of AltaRex on August 21, 2002 in accordance with the
terms
of this agreement. The United Subscription Agreement also provided United with
a
right to purchase a second convertible debenture from AltaRex in the principal
amount of U.S. $875,000, which would provide for a right to convert such
debenture in exchange for 883,380 AltaRex common shares issued at a price of
U.S. $0.50 per share, which rights were subsequently exercised by
United.
4.
Registration Rights Agreement Between United Therapeutics Corporation and
AltaRex Corp., April 17, 2002 (“United Registration Rights
Agreement”).
In
connection with and collateral to the United Subscription Agreement, AltaRex
and
United entered into the above United Registration Rights Agreement which
provided United with rights, under certain circumstances, to require AltaRex
to
qualify AltaRex common shares acquired by United pursuant to the United
Subscription Agreement, for distribution according to Canadian securities
laws.
5.
Security Agreement between United Therapeutics Corporation and AltaRex Corp.
dated April 17, 2002 (“United Security Agreement”).
In
connection with and collateral to the United Subscription Agreement, AltaRex
and
United entered into the above United Security Agreement which provided United
with a security interest in all of AltaRex’s present and after acquired
intellectual property as security for due payment by AltaRex and the performance
of AltaRex’s obligations under the convertible debentures granted or to be
granted pursuant to the United Subscription Agreement.
6.
Arrangement Agreement Among Nova Bancorp Investments Ltd. (“Nova Bancorp”) and
AltaRex Corp. (“AltaRex”) and Altarex Medical Corp. (“Medical”) dated December
23, 2003 (“Nova Bancorp Arrangement Agreement”).
On
December 23, 2003 AltaRex, Medical and Nova Bancorp entered into the above
noted
Nova Bancorp Arrangement Agreement, which was intended to carry out a
recapitalization of AltaRex and a reorganization of the assets and business
of
AltaRex. The Nova Bancorp Arrangement Agreement was made in contemplation of
completing a statutory plan of arrangement (the “Nova Bancorp Arrangement”)
involving AltaRex, Medical, and Nova Bancorp. Pursuant to the arrangement,
AltaRex was transformed into an oil and gas exploration, development and
marketing company named Twin Butte Energy Ltd. (“Twin Butte”) with the
occurrence, among other things, of the following:
§ the
transfer of AltaRex’s biotechnology assets, together with all associated
contractual obligations and liabilities, to Medical, with Medical
continuing to pursue the same commercialization strategy that AltaRex
previously had for OvaRex® and all other products currently in
development;
|
§ Nova
Bancorp subscribed for CDN $4,770,985 principal amount of 10% convertible
demand notes of Twin Butte (formerly AltaRex), convertible into non-voting
shares of Twin Butte at a ratio of 2,583 non-voting shares per CDN
$1,000
of principal;
|
§ Twin
Butte (formerly AltaRex) subscribed for 12,746,935 common shares
in
Medical for CDN $5.045 million in cash less a holdback of CDN
$50,000;
|
§ the
outstanding stock options and warrants of Twin Butte (formerly AltaRex)
were cancelled and terminated and cease to represent any right or
claim
whatsoever, and new Medical options and warrants were issued in their
place on identical terms;
|
§ immediately
following the completion of the Nova Bancorp Arrangement, a private
placement by Nova Bancorp of CDN $1,379,015 in consideration for
3,500,000
Twin Butte new common shares was completed representing 40% of the
voting
shares of Twin Butte; and
|
§
each
10 common shares of Twin Butte (formerly AltaRex ) outstanding at
the
close of business on February 2, 2004 were deemed to be exchanged
for one
“new” voting common share of Twin Butte and 10 voting common shares of
Medical with the following two
exceptions:
|
|
1.
|
AltaRex
shareholders who held 151 to 1,000 common shares received an aggregate
payment equal to CDN $0.05 per common share held and also received
one
Medical share for each common share held;
and
|
|
2.
|
AltaRex
shareholders, who held 150 common shares or less, received an aggregate
cash payment equal to CDN $0.55 per
share.
|
The
transactions contemplated by the Nova Bancorp Arrangement Agreement were
completed on February 3, 2004.
7.
Summary of Asset Purchase Agreement Between AltaRex Corp. (“AltaRex”) and
AltaRex Medical Corp. (“Medical”) Dated December 31, 2003
In
connection with and as collateral to the Nova Bancorp Arrangement, AltaRex
(now
Twin Butte Energy Ltd. (“Twin Butte”) and Medical entered into an asset purchase
agreement dated as of December 31, 2003 (the “Asset Purchase Agreement”). The
Asset Purchase Agreement provides for the transfer from AltaRex to Medical
of
AltaRex’s biotechnology assets, together with all associated contractual
obligations and liabilities.
8.
Indemnification Agreement Between AltaRex Corp. (“AltaRex”) and AltaRex Medical
Corp. (“Medical”) dated February 3, 2004 (“Indemnification
Agreement”)
In
connection with and as collateral to the Nova Bancorp Arrangement, AltaRex
(now
Twin Butte Energy Ltd. (“Twin Butte”) and Medical entered into the
Indemnification Agreement and an asset purchase agreement dated as of December
31, 2003 (the “Asset Purchase Agreement”). The Indemnification Agreement
provides that the assets acquired by Medical pursuant to the Asset Purchase
Agreement where acquired on an “as is where is” basis and subject to any and all
encumbrances, commitments and liabilities pertaining thereto howsoever and
whensoever arising.
The
Indemnification Agreement provides that Medical will assume all liability for
and indemnify, defend and save harmless Twin Butte arising out of any matter
or
thing relating to the assets previously owned by Twin Butte and transferred
to
Medical save and except losses related to certain income tax liabilities.
Further, pursuant to the Indemnification Agreement Medical is appointed by
Twin
Butte as Twin Butte’s sole and exclusive attorney and agent, for any and all
purposes associated with any actions, causes of action, suits, debts, dues,
sums
of money, liabilities, general damages, special damages, costs, claims,
proceedings and demands of every nature and kind to which Twin Butte may be
entitled to be indemnified under the terms of the Indemnification
Agreement.
9.
Convertible Note Payable with a prescribed interest rates of 6% granted in
favor
of United Therapeutics Corporation (“United”) by AltaRex Medical Corp.
(“Medical”) dated February 3, 2004.
In
connection with and as collateral to the Nova Bancorp Arrangement, Medical
issued the above noted United Convertible Note being a convertible note payable
to United being a 6% convertible fixed term note in the principal amount of
U.S.
$433,310 convertible into common shares of Medical at a price of U.S. $0.50
per
share. The United Convertible Note was issued by Medical upon the closing of
the
above noted Nova Bancorp Arrangement to replace the second convertible debenture
from AltaRex in the principal amount of U.S. $875,000 issued pursuant United
Subscription Agreement, which debenture was cancelled by a court order dated
February 3, 2004 made in connection with the Nova Bancorp Arrangement. The
conversion privileges of the United Convertible Note were modified by a court
order dated December 9, 2004 made in connection with the AltaRex Arrangement
described below such that the note would be convertible into common shares
of
ViRexx at a price of U.S. $1.00 per share. United subsequently converted the
full outstanding amount under the United Convertible Note into common shares
of
ViRexx.
All
obligations of Medical under this note have been met.
10.
Summary Arrangement Agreement Between ViRexx Medical Corp. (“ViRexx”) And
AltaRex Medical Corp. (“AltaRex”) dated October 15, 2004 (“AltaRex Arrangement
Agreement”)
On
October 15, 2004 ViRexx and AltaRex entered into the above noted AltaRex
Arrangement Agreement, which was intended to effect a consolidation of ViRexx
and AltaRex. The AltaRex Arrangement Agreement was made in contemplation of
completing a statutory plan of arrangement (the “AltaRex Arrangement”) involving
AltaRex and ViRexx. Pursuant to the arrangement, AltaRex became a wholly owned
subsidiary of ViRexx with the occurrence, among other things, of the
following:
§
|
each
of the issued and outstanding common shares of AltaRex were deemed
to be,
transferred to ViRexx (free of any claims) and the holder of AltaRex
common shares received from ViRexx in exchange for each AltaRex common
share one-half of one ViRexx common
share;
|
§
|
40%
of the ViRexx common shares received by each former holder of AltaRex
common shares issued pursuant to the AltaRex Arrangement were
non-transferable and subject to a hold period for a period of six
months
following the effective date of the AltaRex Arrangement;
and
|
§
|
the
outstanding stock options and warrants of AltaRex were deemed to
be
transferred to ViRexx (free of any claims) and in consideration for
such
transfer, the holder of such AltaRex stock options and warrants received
an stock options and warrants to purchase the number of ViRexx common
shares determined by multiplying the number of AltaRex common shares
subject to the particular AltaRex stock options and warrants by one-half,
at an exercise price per ViRexx common share equal to the exercise
price
per share of the particular AltaRex stock option or warrant multiplied
by
two. The other terms of all stock options and warrants issued by
ViRexx in
exchange for AltaRex stock options and warrants were identical in
all
material respects to the terms of the AltaRex stock options and warrants
in respect of which they were
issued.
|
The
transactions contemplated by the AltaRex Arrangement Agreement were completed
on
December 10, 2004.
11.
Collaborative Development Agreement between Protein Sciences Corporation (“PSC”)
and ViRexx Medical Corp. (“ViRexx”) dated effective April 20,
2005.
Effective
April 20, 2005, PSC and ViRexx entered into the above noted agreement to
commence work aimed at developing a scalable purification and manufacturing
process and pilot production of recombinant fusion proteins comprised of certain
surface antigens from the hepatitis B virus developed by ViRexx (“CS12”). ViRexx
intends to use the CS12 in the course of a Phase I clinical trial of its
hepatitis B Chimigen™ technology program. Generally, ViRexx shall make payments
to PSC upon completion of specific milestones or phases described in the
agreement with the cost of phase 1 (Process Development) being U.S. $200,000
which included an up-front payment of U.S. $65,000 is to be paid upon signing
the agreement and the cost of phase 2 (Production) being U.S.
$110,000.
At
the
conclusion of the project provided for under the agreement, ViRexx may elect
to
proceed with manufacturing the product developed pursuant to the agreement
(the
“Product”) with PSC custom manufacturing such Product or with a third-party
manufacturer.
If
ViRexx
elects to use a third party manufacturer in relation to producing the Product,
ViRexx will have an obligation to pay a completion fee of U.S. $75,000 in
relation to PCS training the third party in relation to the production of the
Product as well as annual maintenance fees of between U.S. $50,000 and U.S.
$75,000 in the event the third party manufacturer needs to employ certain
patented processes of PCS in producing the Product. Further, ViRexx will have
an
obligation to pay an annual royalty of 1% of net sales revenue realized in
commercializing the Product to the extent PCS technology is used in
commercializing the Product.
12.
License
Agreement dated December 13, 2001 between The Governors of the University of
Alberta and ViRexx Medical Corp.
On
December 13, 2001, ViRexx entered into an agreement with The Governors of the
University of Alberta, under which ViRexx acquired worldwide rights to certain
cloned and purified antigens, certain antibody clones, and the duck animal
model
for hepatitis B infection. A milestone payment is payable in the amount of
$250,000 to the University of Alberta for each product resulting from the use
of
or incorporating the technology. The University of Alberta will receive a 1%
royalty on worldwide net sales from products derived from these antigens or
antibodies. Under this agreement, the University of Alberta is entitled to
certain stock options. The University of Alberta was granted an option to
acquire equity in the capital of ViRexx equal to 5% of “available options”,
which is defined to mean 10% of the issued share capital of ViRexx immediately
following the first round of financing plus 10% of the additional share capital
of ViRexx issued through subsequent financings during a period ending on the
third anniversary of the license agreement. The terms of the options will be
five years and the exercise price will be the strike price per share of each
round of financing.
13. University
of Alberta Agreement entered into on November 15, 1998 among the University
of
Alberta, Noustar Technologies Inc. and Somagen Diagnostics
Inc.
Pursuant
to a contract research agreement entered into on November 15, 1998 among the
University of Alberta, Noustar Technologies Inc. and Somagen Diagnostics Inc.
to
conduct the original proof of principle studies on the T-ACT™ technology, and in
consideration of favorable costing of future studies and other valuable
consideration, the University of Alberta will receive a 1% royalty on any net
sales realized from products derived from the technology developed or proved
under the agreement. This contract research agreement was assigned to Novolytic
Inc., a predecessor of ViRexx, on September 10, 1999.
14. Thrombotics
Exclusion Agreement entered into on November 1, 1999 between ViRexx and
Thrombotics Inc.
On
November 1, 1999, ViRexx entered into an agreement with Thrombotics Inc., a
company controlled by shareholders and/or directors of ViRexx Medical Corp.,
under which ViRexx acquired rights to technologies encompassed by patent
applications filed November 12, 1998, related to “Compositions and Methods for
Inducing Vascular Occlusion”. In so doing, for the consideration of $1, ViRexx
became bound by agreements assigning a 1% royalty payable to the University
of
Alberta.
15.Technology
Commercialization Agreement made as of the January 11, 2004 between Alberta
Heritage Foundation of Medical Research and ViRexx Medical
Corp.
On
January 1, 2004, ViRexx entered into an agreement with the Alberta Heritage
Foundation for Medical Research (“AHFMR”), a corporation established pursuant to
the Alberta Heritage Foundation for Medical Research Act, R.S.A. 2000, Chapter
A-21, wherein ViRexx received $500,000 to support clinical development of
ViRexx’s Occlusin™ 50 Injection product candidate. Under this agreement AHFMR is
entitled 5% of gross sales (to an annual maximum of $100,000). The royalties
paid by ViRexx to AHFMR shall not exceed two times the amount of funding
actually advanced by AHFMR.
16. Licensing
and Supply Agreement and a Securities Purchase Agreement between ViRexx
International Corp. and Defiante Farmaceutica, Lda., and a Manufacturing and
Supply Agreement between ViRexx International Corp. and Tecnogen
S.C.p.A and a Securities Purchase Agreement between ViRexx Medical Corp. and
Defiante Farmaceutica Lda., Subsidiaries of Sigma Tau of Rome,
Italy.
On
November 3, 2006, ViRexx through its wholly owned Irish subsidiary, ViRexx
International Corp., entered into a Licensing and Supply Agreement and a
Securities Purchase Agreement with Defiante Farmaceutica, Lda., as well as
a
Manufacturing and Supply Agreement with Tecnogen S.C.p.A subsidiaries of Sigma
Tau of Rome, Italy, for the manufacturing, licensing and distribution of
OvaRex®
MAb to
the Company’s remaining unlicensed European territories, which include the U.K.,
Ireland, France, Sweden, Finland and other countries. Pursuant to the
agreements, Defiante’s and ViRexx’s existing European licensing partners will
market and distribute the product throughout most of Europe and the Middle
East.
The Manufacturing and Supply Agreement was ratified by Tecnogen’s Board of
Directors when they met in January 2007. Tecnogen will manufacture and supply
OvaRex®
MAb for
all of ViRexx’s European licensing partners.
The
agreement results in a net effective royalty of approximately 25% to ViRexx
Ireland on net sales of OvaRex®
MAb in
the European and Middle Eastern countries. Under the terms of the agreements,
Defiante will purchase up to approximately CDN$6.5 million in newly issued
shares of ViRexx. As the initial milestone Defiante purchased 1,818,182 units
of
ViRexx at a price of CDN$1.10 per unit, for proceeds of CDN$2.0 million. Each
unit consists of one common share and one non-transferable common share purchase
warrant. Each warrant entitles Defiante to purchase one common share of ViRexx
at a price of CDN$1.25 for a period of 24 months. Other milestones include
share
purchases (at an average trading price of shares on the American Stock Exchange
over the previous 15 trading days prior to the date of milestone
achievement):
§ In
aggregate of U.S. $750,000 upon filing of an application for regulatory
approval of OvaRex®
MAb with the European Medicines
Agency.
|
§ In
aggregate of U.S. $750,000 upon 60 days following granting of regulatory
approval of OvaRex®
MAb in France and the UK.
|
§ In
aggregate of U.S. $2,500,000 upon first commercial sale of
OvaRex®
MAb in France or the U.K., whichever is
earlier.
|
17.
Memorandum of Understanding dated October 16, 2006 entered into by and between
ViRexx Medical Corp and Genesis Pharma S.A., a company incorporated under the
laws of the Hellenic Republic.
On
October 16, 2006, ViRexx through its wholly owned Irish subsidiary, ViRexx
International Corp., entered into a Memorandum of Understanding (the “MOU”) with
Genesis Pharma S.A., a company incorporated under the laws of the Hellenic
Republic (“Genesis”). The MOU set forth the intention of the parties to
negotiate and entered into a License and Development Agreement based on the
terms and the conditions of the MOU and subject to negotiation of the terms
of
the agreement that will be satisfactory to both parties. In particular, subject
to negotiation of the terms, and satisfaction of the conditions, of the
agreement, ViRexx intends to grant to Genesis an exclusive license to market,
sell and distribute OvaRex®
(oregovomab), Brevarex®
(AR20.5), ProstaRex®
(AR47.47), and GivaRex®
(AR44.3)
monoclonal antibodies (MAbs) (collectively the “Product”) in the following
European territories: Greece, the Democracy of Cyprus, Bulgaria, Romania,
Slovenia, Croatia, Albania, Bosnia-Herzegovina, Serbia, Former Yugoslavian
Republic of Macedonia and Turkey.
The
term
of the agreement shall be either the life of any valid claims of the patent
rights in Europe or 10 years from the date of the first commercial sale of
the
Product in each country specified above, whichever is longer.
The
definitive License and Development Agreement will be subject to closing
conditions including but not limited to (i) negotiation and agreement of final
terms of this definitive agreement satisfactory to both parties and their
respective advisors, and (ii) approval by the board of directors of each party.
If a definitive License and Development Agreement is not entered into between
the parties within six months from the date of the MOU, the MOU shall be
considered as null and void.
18.
Distribution Agreement dated June 8, 2004 entered into by and between AltaRex
Medical Corp and Dompe International S.A., a company incorporated under the
laws
of Switzerland.
On
June
8, 2004, ViRexx through its wholly owned subsidiary, AltaRex Medical Corp.,
entered into a Distribution Agreement with Dompe International S.A.(“Dompe”), to
appoint Dompe as ViRexx’s exclusive distributor during the Term (as defined
below) of this agreement for the purpose of selling and distributing
OvaRex®
MAb in
the following European territories: Ukraine, Belarus, Hungary, Poland, Czech
Republic, Italy, Republic of San Marino and Vatican City, Yugoslavia, Lithuania,
Estonia and Latvia.
Under
the
terms of the agreements, Dompe agreed to purchase certain specified minimum
quantities of OvaRex®
MAb
subject to AltaRex filing its market Authorization Application with the European
Agency for the Evaluation of Medicinal Products or upon AltaRex obtaining
approval of such application, whichever occurs first; Dompe further agreed
to
purchase during the intervals covered by the agreement certain quantities of
OvaRex®
MAb
depending on the country of distribution. The agreement shall be effective
from
the date of the agreement and thereafter the agreement shall remain in effect
for periods commencing from the beginning of the first Marketing Year for each
country and ending on the 11th
anniversary form the beginning of the first Marketing Year (as defined in the
Agreement) for each country, unless terminated under the terms of the agreement
(the “Term”).
D. Exchange
controls
We
are
aware of no governmental laws, decrees or regulations, including foreign
exchange controls, in Canada which restrict the export or import of capital
or
that affect the remittance of dividends, interest or other payments to
non-resident holders of our securities. Any such remittances to United States
residents, however, are subject to a withholding tax. Withholding tax is paid
pursuant to the Income
Tax Act of Canada
but the
rate is resolved pursuant to The
Canada - U.S. Income Tax Convention
(1980),
as amended.
We
know
of no limitations under the laws of Canada, the Province of Alberta, or in
the
charter or any other constituent documents of ViRexx imposed on the right of
foreigners to hold or vote the shares of ViRexx.
Except
as
provided in the ICA, we know of no limitations under the laws of Canada, the
Province of Alberta, or in the charter or any other constituent documents of
ViRexx imposed on the right of foreigners to hold or vote the shares of ViRexx.
See Item 10 -
Additional Information - Limitations on Rights to Own
Securities.
E.
Taxation
Canadian
Tax Considerations
The
following is a general summary of the principal Canadian federal income tax
considerations generally applicable to an investor who acquires Common Shares
and who, for the purposes of the Income
Tax Act
(Canada), as amended (the “Tax Act”) and any applicable income tax treaty or
convention, at all relevant times (i) is not a resident or deemed to be a
resident in Canada; (ii) deals at arm’s length and is not affiliated with
ViRexx; (iii) is not a foreign affiliate of a taxpayer resident in Canada;
(iv) holds Common Shares as capital property; and (v) does not use or
hold and is not deemed to use or hold such Common Shares in the course of
carrying on a business in Canada (such an investor referred to herein as a
“non-Canadian investor”). In general, a non-Canadian investor will be considered
to hold Common Shares as capital property unless the investor is a trader or
dealer in securities or otherwise holds them in the course of carrying on a
business of buying or selling securities or has acquired them in a transaction
considered to be an adventure in the nature of trade. This summary does not
apply to non-Canadian investors (or other investors) who are insurers or who
are
“financial institutions” within the meaning of the “mark-to-market” rules
contained in the Tax Act.
This
summary is based on the current provisions of the Tax Act and the regulations
thereunder (the “Regulations”), all specific proposals to amend the Tax Act and
the Regulations publicly announced by the Minister of Finance (Canada) prior
to
the date hereof and on ViRexx’s understanding of the current published
administrative practices of the Canada Revenue Agency (the “CRA”). This summary
does not take into account or anticipate any change in law, whether by
legislative, governmental or judicial action or changes in the administrative
practices or assessing policies of the CRA.
This
summary is of a general nature only and is not intended to be, and should not
be
construed to be, legal or tax advice to any investor and no representation
with
respect to the tax consequences to any particular investor is made. This summary
does not address any aspect of any provincial, state or local tax laws or the
laws of any jurisdiction other than Canada. Accordingly, investors should
consult with their own tax advisors for advice with respect to the income tax
consequences to them having regard to their own particular
circumstances.
A
non-Canadian investor will be subject to a 25% withholding tax under the Tax
Act
on the gross amount paid or credited or deemed to be paid or credited as, on
account or in lieu of payment of, or in satisfaction of dividends to him on
a
Common Share. The rate of withholding tax may be reduced under the provisions
of
a relevant international tax treaty to which Canada is a party. For example,
pursuant to the Canada-United
States Income Tax Convention
(1980),
as amended (the “Treaty”), the rate of withholding tax on dividends paid or
credited or deemed to be paid or credited on a Common Share beneficially owned
by a resident of the United States for the purposes of the Treaty will generally
be reduced to 15%. However, where such beneficial owner is a company resident
in
the United States which owns at least 10% of the voting stock of ViRexx, the
rate of such withholding is reduced to 5%.
The
Common Shares constitute “taxable Canadian property” under the Tax Act. A
disposition or deemed disposition of a Common Share by a non-Canadian investor
will give rise to a capital gain (or capital loss). Any capital gain realized
as
a result of such disposition or deemed disposition will be subject to Canadian
tax. However, under the Treaty, such gains will generally be exempt from
Canadian tax where the non-Canadian investor disposing of such Common Shares
is
a resident of the United States for the purposes of the Treaty.
U.S.
Tax Considerations
Material
United States Federal Income Tax Consequences
The
following is a general discussion of material United States federal income
tax
consequences, under current law, generally applicable to a U.S. Holder (as
defined below) of our common shares. This discussion does not address all
potentially relevant federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as those described below as excluded from the definition of a
U.S.
Holder. In addition, this discussion does not cover any state, local or foreign
tax consequences. See “Certain
Canadian Tax Considerations”
above.
The
following discussion is based upon the Internal
Revenue Code of 1986,
as
amended to the date hereof (the “Code”), existing and proposed Treasury
Regulations, published Internal Revenue Service (“IRS”) rulings, published
administrative positions of the IRS and court decisions that are currently
applicable, any or all of which could be materially and adversely changed,
possibly on a retroactive basis, at any time. This discussion does not consider
the potential effects, both adverse and beneficial, of any recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.
This
discussion is of a general nature only and is not exhaustive of all US federal
income tax implications, and it is not intended to be, nor should it be
construed to be, legal or tax advice to any particular holder or prospective
holder of ViRexx’s common shares and no opinion or representation with respect
to the United States federal income tax consequences to any such holder or
prospective holders is made. Accordingly, holders and prospective holders of
ViRexx’s common shares should consult their own tax advisors about the federal,
state, local, and foreign tax consequences of purchasing, owning and disposing
of ViRexx’s common shares.
U.S.
Holders
As
used
herein, a “U.S. Holder” means a holder of ViRexx’s common shares who is a U.S.
citizen or individual income tax resident of the United States under U.S.
domestic law and the Convention, a corporation created or organized in or under
the laws of the United States or of any political subdivision thereof, an estate
the income of which is includable in gross income for U.S. federal income tax
purposes regardless of its source or a trust if a U.S. court is able to exercise
primary supervision over the trust’s administration and one or more U.S. persons
have authority to control all substantial decisions of such trust. This summary
does not address the tax consequences to, and a U.S. Holder does not include,
persons subject to special provisions of federal income tax law, including
but
not limited to tax-exempt organizations, qualified retirement plans, individual
retirement accounts and other tax-deferred accounts, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals, persons or entities
that have a “functional currency” other than the U.S. dollar, shareholders who
hold common stock as part of a “straddle”, hedging or a conversion transaction
and shareholders who acquired their stock through the exercise of employee
stock
options or otherwise as compensation for service. This discussion is limited
to
U.S. Holders who hold the common shares as capital assets and who hold the
common shares directly (e.g., not through an intermediate entity such as a
corporation, partnership, LLC or trust). This discussion does not address the
consequences to a person or entity holding an interest in a U.S. Holder or
the
consequence to a person of the ownership, exercise or disposition of any
warrants, options or other rights to acquire common shares.
Distributions
on Common Shares
U.S.
Holders receiving dividend distributions with respect to ViRexx’s common shares
are required to include in gross income for United States federal income tax
purposes the gross amount of such distributions (including any Canadian tax
withheld) equal to the U.S. dollar value of each dividend on the date of
receipt (based on the exchange rate on such date) to the extent that ViRexx
has
current or accumulated earnings and profits, without reduction for any Canadian
income tax withheld from such distributions. It should be noted that as used
in
this discussion of U.S. Federal Income Tax Consequences, the term “earnings and
profits” refers to ViRexx’s earnings and profits as determined under the Code
and the term “dividend” refers to corporate distributions taxable as dividends
for U.S. federal income tax purposes. Such Canadian tax withheld may be
credited, subject to certain limitations, against the U.S. Holder’s United
States federal income tax liability or, alternatively, may be deducted in
computing the U.S. Holder’s United States federal taxable income by those who
itemize deductions. (See more detailed discussion at “Foreign
Tax
Credit”
below.)
To the extent that distributions exceed current or accumulated earnings and
profits of ViRexx, they will be treated first as a return of capital up to
the
U.S. Holder’s adjusted basis in the common shares and thereafter as gain from
the sale or exchange of the common shares. Preferential tax rates for long-term
capital gains are applicable to a U.S. Holder which is an individual, estate
or
trust. There are currently no preferential tax rates for long-term capital
gains
for a U.S. Holder which is a corporation. Dividends paid on our common shares
generally will not be eligible for the dividends received deduction provided
to
corporations receiving dividends from certain United States
corporations.
In
the
case of foreign currency received as a dividend that is not converted by the
recipient into U.S. dollars on the date of the receipt, a U.S. Holder will
have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally, any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including an exchange for U.S.
dollars, will be ordinary income or loss. Under Treasury Regulations, dividends
paid on our common shares, if any, generally will not be subject to backup
withholding tax (at a 28% rate) if the paying agent is furnished with a duly
completed and signed Form W-9 or certain other circumstances apply. Any
amounts withheld under the U.S. backup withholding tax rules will be allowed
as
a refund or a credit against the U.S. Holder’s US federal income tax liability,
provided the required information is furnished to the IRS.
Foreign
Tax Credit
A
U.S.
Holder who pays (or has withheld from distributions) Canadian income tax with
respect to the ownership of our common shares may be entitled, at the option
of
the U.S. Holder, to either a deduction or a tax credit for such foreign tax
paid
or withheld. Generally, it will be more advantageous to claim a credit because
a
credit reduces United States federal income taxes on a dollar-for-dollar basis,
while a deduction merely reduces the taxpayer’s income subject to tax. This
election is made on a year-by-year basis and generally applies to all foreign
taxes paid by (or withheld from) the U.S. Holder during that year.
The
operation of the foreign tax credit for any particular U.S. Holder will be
dependent on his or its particular situation. There are significant and complex
limitations which apply to the credit, among which is the general limitation
that the credit cannot exceed the proportionate share of the U.S. Holder’s
United States income tax liability that the U.S. Holder’s foreign source income
bears to his, her or its worldwide taxable income. In the determination of
the
application of this limitation, the various items of income and deduction must
be classified into foreign and domestic sources. Complex rules govern this
classification process. In addition, this limitation is calculated separately
with respect to specific classes of income such as “passive income,” “high
withholding tax interest,” “financial services income,” “shipping income,” and
certain other classifications of income. Dividends distributed by us will
generally constitute “passive income” or, in the case of certain U.S. Holders,
“financial services income” for these purposes.
Disposition
of Common Shares
A
U.S.
Holder will recognize gain or loss upon the sale or other disposition of common
shares equal to the difference, if any, between (i) the amount of cash and
the fair market value of any property received, and (ii) the shareholder’s
tax basis in our common shares. Preferential tax rates apply to long-term
capital gains of U.S. Holders who are individuals, estates or trusts. At
present, there are no preferential tax rates applicable to U.S. Holders which
are corporations. This gain or loss generally will be capital gain or loss
if
the common shares are a capital asset in the hands of the U.S. Holder, which
will be a long-term capital gain or loss if the common shares of ViRexx are
held
for more than one year. Deductions for net capital losses may be carried over
to
be used in later tax years until such net capital loss is thereby exhausted.
For
U.S. Holders which are corporations (other than corporations subject to
Subchapter S of the Code), an unused net capital loss may be carried back three
years from the loss year and carried forward five years from the loss year
to be
offset against capital gains until such net capital loss is thereby
exhausted.
Other
Considerations
In
the
following circumstances, the above sections of this discussion may not describe
the United States federal income tax consequences resulting from the holding
and
disposition of common shares.
As
used
herein “U.S. Person” means a citizen or income tax resident of the United States
as determined under U.S. domestic law.
Foreign
Personal Holding Company
If
at any
time during a taxable year more than 50 percent of the total combined
voting power or the total value of ViRexx’s outstanding shares is owned,
directly or indirectly (including through attribution), by five or fewer U.S.
Persons who are individuals and 60 percent or more of ViRexx’s gross income
for such year was derived from certain passive sources (e.g., dividends,
interest, rents, royalties, etc.), ViRexx is a “foreign personal holding
company” (“FPHC”). (The 60 percent test is reduced to 50 percent after
the first tax year that the entity is a FPHC.) In that event, US Holders would
be required to include in gross income for such year their allocable portions
of
ViRexx’s undistributed income.
Foreign
Investment Corporation
If
50 percent or more of the combined voting power or total value of all
classes of the Corporation’s stock is held, directly or indirectly (including
through attribution), by U.S. Persons, the Corporation is found to be engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities, or any interest therein, and certain other conditions are met,
it
is possible that the Corporation may be treated as a “foreign investment
company” as defined in Section 1246 of the Code. This characterization
causes all or part of any gain realized by a US Holder selling or exchanging
common shares to be treated as ordinary income rather than capital
gain.
Passive
Foreign Investment Company
As
a
foreign corporation with U.S. Holders, ViRexx could potentially be treated
as a
passive foreign investment company (“PFIC”), as defined in Section 1297 of
the Code, depending upon the percentage of ViRexx’s income which is passive, or
the percentage of ViRexx’s assets which are producing passive income. Generally,
U.S. Holders of PFICs are taxed upon receipt of “excess distributions” which
include (i) gains recognized on the sale or deemed disposition of PFIC
stock, and (ii) distributions made by the PFIC to the extent that the total
distributions received for the tax year exceeds 125% of the average actual
distributions received in the preceding three years. An excess distribution
is
allocated ratably to each day in the shareholder’s holding period for the stock.
Amounts allocated to the current year and the pre-PFIC holding period (if any)
is included in gross income as ordinary income. Amounts allocated to the PFIC
period (other than the current year) are subject to tax at the highest U.S.
income tax rate plus an interest charge to reflect the benefit of tax
deferral.
However,
if the U.S. Holder makes a timely election to treat a PFIC as a qualified
electing fund (“QEF”) with respect to such shareholder’s interest therein, the
above-described rules generally would not apply. Instead, the electing U.S.
Holder would include annually in gross income his, her or its pro rata share
of
the PFIC’s ordinary earnings and net capital gain, regardless of whether such
income or gain was actually distributed. A U.S. Holder making a QEF election
can, however, under certain circumstances elect to defer the payment of United
States federal income tax on such income inclusions subject to an interest
charge on the amount of deferred taxes. In addition, subject to certain
limitations, U.S. Holders owning (actually or constructively) marketable stock
in a PFIC will be permitted to elect to mark that stock to market annually,
rather than be subject to the excess distribution regime described above.
Amounts included in or deducted from income under this alternative (and actual
gains and losses realized upon disposition, subject to certain limitations)
will
be treated as ordinary gains or losses.
Controlled
Foreign Corporation
If
more
than 50 percent of the voting power of all classes of stock or the total
value of the stock of the Corporation is owned, directly or indirectly
(including through attribution), by U.S. Persons, each of whom own
10 percent or more of the total combined voting power of all classes of
stock of the Corporation (“United States Shareholder”), the Corporation is a
“controlled foreign corporation” under the Code. This classification has many
complex consequences, one of which is the inclusion of certain income of a
CFC
in the U.S. Shareholders’ income on a current basis, regardless of
distributions. Such U.S. Shareholders are generally treated as having received
a
current distribution out of the CFC’s Subpart F income (generally, passive
income and certain income generated by transactions between related parties)
and
are also subject to current U.S. tax on their pro rata shares of the CFC’s
earnings invested in U.S. property. In certain circumstances, a foreign tax
credit may apply to reduce the U.S. tax on these amounts. In addition, under
Section 1248 of the Code, gain from the sale or exchange of stock by a
holder of common shares who is or was a United States Shareholder at any time
during the five year period ending with the sale or exchange may be treated
as
ordinary dividend income to the extent of earnings and profits of the
Corporation attributable to the stock sold or exchanged. If a foreign
corporation is both a PFIC and a CFC, the foreign corporation generally will
not
be treated as a PFIC with respect to United States shareholders of the
CFC.
F.
Dividends and paying agents
Not
applicable.
G.
Statement by experts
Not
applicable.
H.
Documents on display
Documents
concerning us that are referred to in this document may be inspected at the
office of our solicitors at 1500 Manulife Place, 10180 - 101 Street, Edmonton,
Alberta, Canada, T5J 4K1.
In
addition, we will file annual reports and other information with the Securities
and Exchange Commission. We will file annual reports on Form 20-F and
submit other information under cover of Form 6-K. As a foreign private
issuer, we are exempt from the proxy requirements of Section 14 of the
Exchange Act and our officers, directors and principal shareholders will be
exempt from the insider short-swing disclosure and profit recovery rules of
Section 16 of the Exchange Act. Annual reports and other information
we file with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington,
D.C. 20549, and at its regional offices located at 233 Broadway, New York,
New
York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of all or any part thereof may be obtained from such offices
upon payment of the prescribed fees. You may call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms and you can request copies of the documents upon payment of a duplicating
fee, by writing to the Commission. In addition, the Commission maintains a
web site that contains reports and other information regarding registrants
(including us) that file electronically with the Commission which can be
assessed at http://www.sec.gov.
I.
Subsidiary Information
Not
applicable.
ENFORCEABILITY
OF CIVIL LIABILITIES
We
are a
public company incorporated under the laws of the Province of Alberta,
Canada. A majority of our directors and executive officers are residents of
countries other than the United States. Furthermore, all or a substantial
portion of their assets and our assets are located outside the United
States. As a result, it may not be possible for you to:
|
•
|
|
effect
service of process within the United States upon any of our directors
and
executive officers or on us; or
|
|
•
|
|
enforce
in U.S. courts judgments obtained against any of our directors and
executive officers or us in the U.S. courts in any action, including
actions under the civil liability provisions of U.S. securities
laws;
|
|
•
|
|
enforce
in U.S. courts judgments obtained against any of our directors and
senior
management or us in courts of jurisdictions outside the United States
in
any action, including actions under the civil liability provisions
of U.S.
securities laws; or
|
|
•
|
|
to
bring an original action in a Canadian court to enforce liabilities
against any of our directors and executive officers or us based upon
U.S.
securities laws.
|
You
may
also have difficulties enforcing in courts outside the United States judgments
obtained in the U.S. courts against any of our directors and executive officers
or us, including actions under the civil liability provisions of the US
securities laws.
We
are
exposed to risk of foreign currency exchange rate fluctuation. We have never
tried to hedge our exchange rate risks, do not plan to do so, and may not be
successful should we attempt to do so in the future.
We
are
also exposed to interest rate fluctuation risks, which we do not systematically
manage. We have never tried to hedge our interest rate fluctuation risks, do
not
plan to do so and may not be successful should we attempt to do so in
future.
Also,
see
“Item 3D -Risk Factors.” and “Item 5 - Operating and Financial Review and
Prospects”
Item
12. Description of Securities Other than Equity Securities
Item
13. Defaults, Dividend Arrearages and Delinquencies
Not
applicable.
Item
14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
(a)
Evaluation of Disclosure Controls and Procedures
An
evaluation was performed under the supervision and with the participation of
our
management, including our Chief Executive Officer and Chief Financial Officer,
regarding the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the December 31, 2006. Based on
that evaluation, our management, including our Chief Executive Officer and
Chief
Financial Officer, have concluded that our disclosure controls and procedures
as
of December 31, 2006 were effective and that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
(b)
Management’s annual report on internal control over financial
reporting
As
required by section 404 of the Sarbanes-Oxley Act of 2002, our management is
responsible for establishing and maintaining adequate “internal control over
financial reporting” (as defined in Rule 13(a)-15(f) under the Securities
Exchange Act of 1934, as amended). Our system of internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in conformity with generally accepted accounting principles in Canada
(“Canadian Standards”), as well as a reconciliation of our operating losses and
shareholders’ equity as reported in the consolidated financial statements under
Canadian Standards to operating losses and shareholders’ equity in accordance
with generally accepted accounting principles in the United States.
Any
internal control system, no matter how well designed, has inherent limitations,
including the possibility of human error and the circumvention or overriding
of
the controls and procedures, which may not prevent or detect misstatements.
Also, changes in conditions and business practices in subsequent periods may
subject our determination of effectiveness to the risk that certain controls
may
become inadequate.
(c)
Attestation report of the register public accounting firms
Not
applicable.
(d)
Changes in Internal Controls over Financial Reporting
There
were no changes in our internal control over financial reporting (as defined
in
Rule 13a-15(f) of the Exchange Act) that occurred during the year ended
December 31, 2006 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting. It should
be noted that while our management believes that our disclosure controls and
procedures provide a reasonable level of assurance; our management does not
expect that our disclosure controls and procedures or internal financial
controls will prevent all errors or 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.
Item
16. [Reserved]
Item
16A. Audit Committee Financial Expert
As
an
Alberta corporation with operations principally outside of the United States,
ViRexx is considered a “foreign private issuer” for the purposes of filings with
the Securities and Exchange Commission (“SEC”) and with any stock exchange in
the United States. Under applicable SEC regulations, an issuer must disclose
if
it has an “audit committee financial expert” on its audit committee if it is
required to have such an expert by the listing rules applicable to it. ViRexx
is
presently listed and accordingly, ViRexx is presently subject to the audit
committee financial expert requirement.
The
Board
of Directors has determined that ViRexx has at least one audit committee
financial expert serving on its audit committee. The audit committee financial
expert serving on ViRexx’s audit committee is Mr. Douglas Gilpin. Mr. Gilpin is
a chartered accountant and was an audit partner with KPMG LLP, Chartered
Accountants, from 1981 to 1999. ViRexx believes that Mr. Gilpin is “independent”
as that term is defined in the listing standards applicable to it as a listed
American Stock Exchange issuer.
Item
16B. Code of Ethics
ViRexx
has adopted a Code of Conduct that applies to its Chief Executive Officer
and
all of its directors, officers and employees, or persons performing similar
functions. A copy of ViRexx’s Code of Conduct is posted on the Company’s website
at www.virexx.com.
Any
future changes to the Code of Conduct will be posted on the ViRexx’s website
within five business days of the change being effective.
Item
16C. Principal Accountant Fees and Services
The
following table represents aggregate fees billed to the Company for fiscal
years
ended December 31, 2006 and December 31, 2005 by PricewaterhouseCoopers, the
Company’s principal accounting firm.
Accountant
Fees and Services
|
|
2006
|
|
2005
|
|
Audit
Fees
|
|
$
|
142,481
|
|
$
|
123,601
|
|
Audit
Related Fees
|
|
$
|
Nil
|
|
$
|
Nil
|
|
Tax
Fees
|
|
$
|
44,575
|
|
$
|
4,500
|
|
All
Other Fees
|
|
$
|
17,954
|
|
|
Nil
|
|
|
|
$
|
205,010
|
|
$
|
128,101
|
|
Audit
Fees.
The
audit fees for the years ended December 31, 2006 and 2005, respectively,
were paid for professional services rendered for the audits of our consolidated
financial statements, quarterly reviews, consents, and assistance with review
of
documents filed with the SEC.
Tax
Fees.
Tax fees
for the years ended December 31, 2006 and 2005, respectively, were paid for
services related to tax compliance, including the preparation of tax returns
and
tax planning and tax advice.
Other
Fees.
For the
year ended December 31, 2006, other fees represent allowable services
performed by the external auditor relating to the scoping of Canadian Securities
Administrators National Instrument 52-109. The Company did not incur any other
fees for the year ended December 31, 2005.
The
Audit
Committee of our Board of Directors chooses and engages our independent auditors
to audit our financial statements. In 2006, our Board of Directors also adopted
a policy requiring management to obtain the audit committee’s approval before
engaging our independent auditors to provide any other audit or permitted
non-audit services to us. This policy, which is designed to assure that such
engagements do not impair the independence of our auditors, requires the audit
committee to pre-approve audit and non-audit services that may be performed
by
our auditors.
Item
16D. Exemption from the Listing Standards for Audit
Committees
Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
For
the
fiscal year ended December 31, 2006.
None.
ISSUER
PURCHASES OF EQUITY SECURITIES THROUGH NORMAL COURSE ISSUER BID (1)
For
the
fiscal year ended December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
December
23, 2004
to
December 31,
2005
|
|
|
(a)
Total Number of
Shares
(or Units)
Purchased
|
|
|
(b)
Average Price
Paid
per Share
(or
Units)
|
|
|
(c)
Total Number of
Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans
or Programs
|
|
|
(d)
Maximum
Number
(or
Approximate
Dollar
Value)
of Shares (or
Units)
that May Yet
Be
Purchased Under
the
Plans or
Programs
|
|
Month
#1
December
23, 2004 to December 22, 2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,663,823
|
|
Month
#2
January
1, 2005 to January 31, 2005
|
|
|
40,800
|
|
$
|
1.10
|
|
|
—
|
|
|
2,623,023
|
|
Month
#3
February
1, 2005 to February 28, 2005
|
|
|
200
|
|
$
|
1.10
|
|
|
—
|
|
|
2,622,823
|
|
Month
#4
March
1, 2005 to March 31, 2005
|
|
|
90,000
|
|
$
|
1.48
|
|
|
—
|
|
|
2,532,823
|
|
Month
#5
April
1, 2005 to April 30, 2005
|
|
|
6,000
|
|
$
|
1.44
|
|
|
—
|
|
|
2,526,823
|
|
Month
#6
May
1, 2005 to May 31, 2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,526,823
|
|
Month
#7
June
1, 2005 to June 30, 2005
|
|
|
108,800
|
|
$
|
1.01
|
|
|
—
|
|
|
2,418,023
|
|
Month
#8
July
1, 2005 to July 31, 2005
|
|
|
331,200
|
|
$
|
1.00
|
|
|
—
|
|
|
2,086,823
|
|
Month
#9
August
1, 2005 to August 31, 2005
|
|
|
1,003,800
|
|
$
|
1.04
|
|
|
—
|
|
|
1,083,023
|
|
Month
#10
September
1, 2005 to September 30, 2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,083,023
|
|
Month
#11
October
1, 2005 to October 31, 2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,083,023
|
|
Month
#12
November
1, 2005 to November 30, 2005
|
|
|
350,000
|
|
$
|
1.10
|
|
|
—
|
|
|
733,023
|
|
Month
#13
December
1, 2005 to December 31, 2005
|
|
|
126,100
|
|
$
|
1.16
|
|
|
—
|
|
|
606,923
|
|
Notes:
(1)
A Normal Course Issuer Bid was approved by the TSX on December 21, 2004
and the intention of ViRexx to engage in this program was announced on December
22, 2004 and terminated on December 23, 2005. Trading under the program
commenced on December 22, 2004 and will terminate on December 22, 2005 at the
close of trading. The trading will take place through the TSX and there is
no
restriction on the price paid per share. This Normal Course Issuer Bid is the
first program of this nature ever implemented by ViRexx.
PART
III
Item
17. Financial Statements
Our
audit
Financial Statements are included as the “F” pages attached to this
report.
ViRexx
Medical Corp.
Consolidated
Financial Statements
December
31, 2006 and 2005
(expressed
in Canadian dollars)
Auditors’
Report
|
PricewaterhouseCoopers
LLP
Chartered
Accountants
suite
1501, TD Tower
10088-102
Avenue NW
Edmonton,
Alberta
Canada
T5J 3N5
Telephone +1 (780) 441 6700
Facsimile: +1 (780) 441
6776
|
To
the Shareholders
of
ViRexx
Medical Corp.
We
have
audited the consolidated
balance
sheets of ViRexx
Medical Corp.
as at
December
31, 2006 and 2005
and the
consolidated
statements
of loss, shareholders' equity and cash flows for each of the years
in the
three-year period ended December 31, 2006. These consolidated
financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with generally accepted auditing standards
in
Canada and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit
to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In
our
opinion, these consolidated
financial
statements present fairly, in all material respects, the financial position
of
the Company as at December
31, 2006 and 2005
and the
results of its operations and its cash flows for each of the years
in the
three-year period ended December 31, 2006 in accordance with generally accepted
accounting principles in Canada.
/s/
Pricewaterhousecoopers LLP
Chartered
Accountants
Edmonton,
Alberta
March
9,
2007
Comments
by Auditors for U.S. Readers on Canada - U.S. Reporting
difference
In
the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when there is
substantial doubt about the Company’s ability to continue as a going concern as
described in Note 1 to the financial statements. Our report to the shareholders
dated March
9,
2007
is
expressed in accordance with Canadian reporting standards, which do not require
a reference to such going concern uncertainty in the auditor’s report when the
uncertainty is properly accounted for and adequately described in the financial
statements.
/s/
Pricewaterhousecoopers LLP
Chartered
Accountants
Edmonton,
Alberta
March
9,
2007
PricewaterhouseCoopers
refers to the Canadian firm of
PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal
entity.
ViRexx
Medical Corp.
(a
development stage company)
Consolidated
Balance Sheets
(expressed in Canadian dollars)
|
|
December
31,
2006
$
|
|
December
31,
2005
$
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
|
405,354
|
|
|
237,462
|
|
Short-term
investments
|
|
|
10,336,837
|
|
|
5,334,388
|
|
Prepaid
expenses and deposits
|
|
|
168,502
|
|
|
166,658
|
|
Other
current assets
|
|
|
194,476
|
|
|
39,606
|
|
|
|
|
|
|
|
|
|
|
|
|
11,105,169
|
|
|
5,778,114
|
|
Property
and equipment
(note 5)
|
|
|
475,079
|
|
|
518,134
|
|
Acquired
intellectual property (note
6)
|
|
|
27,369,445
|
|
|
29,990,097
|
|
|
|
|
|
|
|
|
|
|
|
|
38,949,693
|
|
|
36,286,345
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
412,441
|
|
|
227,625
|
|
Accrued
liabilities (note 8)
|
|
|
1,185,762
|
|
|
442,541
|
|
|
|
|
|
|
|
|
|
|
|
|
1,598,203
|
|
|
670,166
|
|
Obligations
under capital lease
|
|
|
5,351
|
|
|
-
|
|
Future
income taxes (note
9)
|
|
|
5,346,990
|
|
|
1,168,377
|
|
|
|
|
|
|
|
|
|
|
|
|
6,950,544
|
|
|
1,838,543
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (note
10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
-
no
par value; unlimited shares authorized; 72,760,717 shares and 58,443,445
shares issued and outstanding, respectively (note 13)
|
|
|
54,064,680
|
|
|
45,989,189
|
|
Contributed
surplus (note
13)
|
|
|
11,748,640
|
|
|
4,779,409
|
|
Deficit
accumulated during development stage
|
|
|
(33,814,171
|
)
|
|
(16,320,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
31,999,149
|
|
|
34,447,802
|
|
|
|
|
|
|
|
|
|
|
|
|
38,949,693
|
|
|
36,286,345
|
|
The
accompanying notes are an integral part of the financial
statements.
Approved
by the Board of Directors
|
|
|
|
/s/ Lorne
Tyrell, Ph.D, M.D |
|
|
/s/ Douglas
Gilpin, CA |
Lorne
Tyrell, Ph.D, M.D
Chief
Executive Office and Director
|
|
|
Douglas Gilpin, CA
Chairman
of the Board
|
|
|
|
|
ViRexx
Medical Corp.
Consolidated
Balance Sheets
As
at
December
31, 2006 and 2005
(expressed
in Canadian dollars)
|
|
Common
shares
|
|
|
|
|
|
|
|
|
|
|
|
Number
#
|
|
Amount
$
|
|
Equity
component
of
debenture
$
|
|
Contributed
surplus
$
|
|
Deficit
accumulated
during
development
stage
$
|
|
Total
shareholders’
equity
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- October 30, 2000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares
issued on incorporation
|
|
|
200
|
|
|
259
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
259
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(177,397
|
)
|
|
(177,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2000
|
|
|
200
|
|
|
259
|
|
|
-
|
|
|
-
|
|
|
(177,397
|
)
|
|
(177,138
|
)
|
Issuance
of common shares
|
|
|
16,617,283
|
|
|
1,153,081
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,153,081
|
|
Exercise
of warrants
|
|
|
260,039
|
|
|
207,094
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
207,094
|
|
Share
issue costs
|
|
|
-
|
|
|
(69,067
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(69,067
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,011,957
|
)
|
|
(1,011,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2001
|
|
|
16,877,522
|
|
|
1,291,367
|
|
|
-
|
|
|
-
|
|
|
(1,189,354
|
)
|
|
102,013
|
|
Shares
issued on settlement of debt
|
|
|
682,686
|
|
|
218,460
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
218,460
|
|
Issuance
of common shares
|
|
|
184,000
|
|
|
800,024
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
800,024
|
|
Exercise
of warrants
|
|
|
1,869
|
|
|
1,428
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,428
|
|
Share
issue costs
|
|
|
-
|
|
|
(7,749
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,749
|
)
|
Issuance
of convertible debenture
|
|
|
-
|
|
|
-
|
|
|
90,000
|
|
|
-
|
|
|
-
|
|
|
90,000
|
|
Amalgamation
|
|
|
(1,000,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,260,472
|
)
|
|
(1,260,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2002
|
|
|
16,746,077
|
|
|
2,303,530
|
|
|
90,000
|
|
|
-
|
|
|
(2,449,826
|
)
|
|
(56,296
|
)
|
Issued
under private placement
|
|
|
48,000
|
|
|
31,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,200
|
|
Exercise
of stock options
|
|
|
300,000
|
|
|
126,600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
126,600
|
|
Conversion
of debentures
|
|
|
684,648
|
|
|
261,277
|
|
|
(30,882
|
)
|
|
-
|
|
|
-
|
|
|
230,395
|
|
Amalgamation
|
|
|
(7,378,725
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(24,498
|
)
|
|
(24,498
|
)
|
Issue
of special warrants
|
|
|
5,200,000
|
|
|
2,881,060
|
|
|
-
|
|
|
205,150
|
|
|
-
|
|
|
3,086,210
|
|
Stock
options issued to non-employees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
85,000
|
|
|
-
|
|
|
85,000
|
|
Net
loss - restated
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,383,562
|
)
|
|
(1,383,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2003
|
|
|
15,600,000
|
|
|
5,603,667
|
|
|
59,118
|
|
|
290,150
|
|
|
(3,857,886
|
)
|
|
2,095,049
|
|
Retroactive
adjustment for stock-based compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
734,773
|
|
|
(734,773
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2003 (restated)
|
|
|
15,600,000
|
|
|
5,603,667
|
|
|
59,118
|
|
|
1,024,923
|
|
|
(4,592,659
|
)
|
|
2,095,049
|
|
Issued
through public offering
|
|
|
11,000,000
|
|
|
8,388,820
|
|
|
-
|
|
|
411,180
|
|
|
-
|
|
|
8,800,000
|
|
Issued
as corporate finance fee
|
|
|
400,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercise
of warrants
|
|
|
5,500
|
|
|
5,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,500
|
|
Acquisition
of AltaRex Medical Corp.
|
|
|
26,257,759
|
|
|
28,620,957
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,620,957
|
|
Exercise
of stock options
|
|
|
13,218
|
|
|
15,727
|
|
|
-
|
|
|
(5,153
|
)
|
|
-
|
|
|
10,574
|
|
Share
issue costs
|
|
|
-
|
|
|
(879,688
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(879,688
|
)
|
Fair
value of stock options issued on the acquisition of
AltaRex
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,815,378
|
|
|
-
|
|
|
1,815,378
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
380,577
|
|
|
-
|
|
|
380,577
|
|
Net
loss (restated - note 4)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,657,760
|
)
|
|
(3,657,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2004 (restated -
note 4)
|
|
|
53,276,477
|
|
|
41,754,983
|
|
|
59,118
|
|
|
3,626,905
|
|
|
(8,250,419
|
)
|
|
37,190,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued
on next page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
|
|
|
ViRexx
Medical Corp.
Consolidated
Balance Sheets …continued
As
at
December
31, 2006 and 2005
(expressed
in Canadian dollars)
|
|
Common
shares
|
|
|
|
|
|
|
|
|
|
|
|
Number
#
|
|
Amount
$
|
|
Equity
component
of
debenture
$
|
|
Contributed
surplus
$
|
|
Deficit
accumulated
during
development
stage
$
|
|
Total
shareholders’
equity
$
|
Balance
- December 31, 2004 (restated
- note 4)
|
|
|
53,276,477
|
|
|
41,754,983
|
|
|
59,118
|
|
|
3,626,905
|
|
|
(8,250,419
|
)
|
|
37,190,587
|
|
Repurchase
of shares
|
|
|
(2,056,900
|
)
|
|
(1,645,113
|
)
|
|
-
|
|
|
-
|
|
|
(610,663
|
)
|
|
(2,255,776
|
)
|
Exercise
of stock options
|
|
|
225,218
|
|
|
267,413
|
|
|
-
|
|
|
(75,699
|
)
|
|
-
|
|
|
191,714
|
|
Private
placement
|
|
|
4,035,665
|
|
|
2,970,316
|
|
|
-
|
|
|
1,065,349
|
|
|
-
|
|
|
4,035,665
|
|
Exercise
of warrants
|
|
|
2,302,875
|
|
|
2,277,370
|
|
|
-
|
|
|
(294,495
|
)
|
|
-
|
|
|
1,982,875
|
|
Conversion
of debentures
|
|
|
561,100
|
|
|
591,281
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
591,281
|
|
Conversion
and redemption of debentures
|
|
|
-
|
|
|
-
|
|
|
(59,118
|
)
|
|
-
|
|
|
-
|
|
|
(59,118
|
)
|
Share
issue costs
|
|
|
99,010
|
|
|
(227,061
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(227,061
|
)
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
457,349
|
|
|
-
|
|
|
457,349
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,459,714
|
)
|
|
(7,459,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2005
|
|
|
58,443,445
|
|
|
45,989,189
|
|
|
-
|
|
|
4,779,409
|
|
|
(16,320,796
|
)
|
|
34,447,802
|
|
Exercise
of stock options
|
|
|
590,000
|
|
|
439,341
|
|
|
-
|
|
|
(143,340
|
)
|
|
-
|
|
|
296,001
|
|
Private
placements
|
|
|
13,527,272
|
|
|
9,032,430
|
|
|
-
|
|
|
5,967,570
|
|
|
-
|
|
|
15,000,000
|
|
Common
shares issued
|
|
|
200,000
|
|
|
148,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
148,000
|
|
Share
issue costs
|
|
|
-
|
|
|
(1,544,280
|
)
|
|
-
|
|
|
539,962
|
|
|
-
|
|
|
(1,004,318
|
)
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
605,039
|
|
|
-
|
|
|
605,039
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,493,375
|
)
|
|
(17,493,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
72,760,717
|
|
|
54,064,680
|
|
|
-
|
|
|
11,748,640
|
|
|
(33,814,171
|
)
|
|
31,999,149
|
|
The
accompanying notes are an integral part of the financial
statements.
ViRexx
Medical Corp.
(a
development stage company)
Consolidated
Statements of Loss
(expressed in Canadian dollars)
|
|
Years
ended December 31,
|
|
Cumulative
from
October
30, 2000
to
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2006
$
|
|
2005
$
|
|
2004
$
(Restated
- Note 4)
|
|
2006
$
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development (note 12)
|
|
|
5,937,122
|
|
|
4,750,190
|
|
|
1,796,680
|
|
|
13,892,054
|
|
Corporate
administration
|
|
|
4,976,837
|
|
|
3,650,282
|
|
|
1,887,711
|
|
|
12,586,301
|
|
Amortization
|
|
|
2,771,283
|
|
|
2,499,174
|
|
|
71,348
|
|
|
5,432,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,685,242
|
|
|
10,899,646
|
|
|
3,755,739
|
|
|
31,910,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(13,685,242
|
)
|
|
(10,899,646
|
)
|
|
(3,755,739
|
)
|
|
(31,910,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
400,201
|
|
|
218,504
|
|
|
127,728
|
|
|
753,930
|
|
Gain
(loss) on disposal of property and equipment
|
|
|
878
|
|
|
-
|
|
|
1,955
|
|
|
(104,842
|
)
|
(Loss)
gain on foreign exchange
|
|
|
(30,599
|
)
|
|
(45,528
|
)
|
|
14,971
|
|
|
(108,252
|
)
|
Debenture
interest
|
|
|
-
|
|
|
(95,201
|
)
|
|
(61,999
|
)
|
|
(272,960
|
)
|
Other
|
|
|
-
|
|
|
3,731
|
|
|
15,324
|
|
|
19,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370,480
|
|
|
81,506
|
|
|
97,979
|
|
|
286,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(13,314,762
|
)
|
|
(10,818,140
|
)
|
|
(3,657,760
|
)
|
|
(31,624,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
income taxes (expense) recovery
|
|
|
(4,178,613
|
)
|
|
3,358,426
|
|
|
-
|
|
|
(820,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(17,493,375
|
)
|
|
(7,459,714
|
)
|
|
(3,657,760
|
)
|
|
(32,444,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
$
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share (note 14)
|
|
|
(0.25
|
)
|
|
(0.13
|
)
|
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
|
|
|
|
#
|
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average number of common
shares
|
|
|
68,921,409
|
|
|
55,827,119
|
|
|
25,268,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
ViRexx
Medical Corp.
(a
development stage company)
Consolidated
Statements
of Cash
Flows
expressed
in Canadian dollars)
|
|
Years
ended December 31,
|
|
Cumulative
from
October
30,
2000
to
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2006
$
|
|
2005
$
|
|
2004
$
(Restated
- Note 4)
|
|
2006
$
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(17,493,375
|
)
|
|
(7,459,714
|
)
|
|
(3,657,760
|
)
|
|
(32,444,237
|
)
|
Items
not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debenture
interest
|
|
|
-
|
|
|
95,201
|
|
|
54,526
|
|
|
265,487
|
|
Amortization
|
|
|
2,771,283
|
|
|
2,499,174
|
|
|
71,348
|
|
|
5,432,626
|
|
Stock-based
compensation
|
|
|
605,039
|
|
|
457,349
|
|
|
380,577
|
|
|
1,654,265
|
|
Investor
relations
|
|
|
148,000
|
|
|
-
|
|
|
-
|
|
|
148,000
|
|
Write
off of patent costs
|
|
|
-
|
|
|
-
|
|
|
242,626
|
|
|
242,626
|
|
(Gain)
loss on disposal of property and equipment
|
|
|
(878
|
)
|
|
-
|
|
|
(1,955
|
)
|
|
104,842
|
|
Unrealized
foreign exchange gain
|
|
|
-
|
|
|
(356
|
)
|
|
(9,471
|
)
|
|
(9,827
|
)
|
Future
income taxes
|
|
|
4,178,613
|
|
|
(3,358,426
|
)
|
|
-
|
|
|
820,187
|
|
Operating
assets and liabilities (note 15)
|
|
|
764,215
|
|
|
215,670
|
|
|
(346,104
|
)
|
|
1,155,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,027,103
|
)
|
|
(7,551,102
|
)
|
|
(3,266,213
|
)
|
|
(22,630,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of capital lease
|
|
|
(1,755
|
)
|
|
-
|
|
|
-
|
|
|
(1,755
|
)
|
Issuance
of share capital - net of share issue costs
|
|
|
14,291,683
|
|
|
5,983,193
|
|
|
7,405,027
|
|
|
33,066,639
|
|
Amounts
due to related parties
|
|
|
-
|
|
|
-
|
|
|
(35,341
|
)
|
|
-
|
|
Advances
from shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
769,900
|
|
Repayment
of advances from shareholder
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(769,900
|
)
|
Convertible
debentures
|
|
|
-
|
|
|
(600,144
|
)
|
|
-
|
|
|
84,856
|
|
Restricted
cash
|
|
|
|
|
|
659,000
|
|
|
(659,000
|
)
|
|
-
|
|
Repurchase
of shares
|
|
|
-
|
|
|
(2,255,776
|
)
|
|
-
|
|
|
(2,255,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,289,928
|
|
|
3,786,273
|
|
|
6,710,686
|
|
|
30,893,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(92,484
|
)
|
|
(131,991
|
)
|
|
(403,364
|
)
|
|
(1,000,906
|
)
|
Cash
acquired on acquisition
|
|
|
-
|
|
|
-
|
|
|
3,710,419
|
|
|
3,729,561
|
|
Proceeds
on sale of property and equipment
|
|
|
-
|
|
|
5,682
|
|
|
2,861
|
|
|
17,753
|
|
Expenditures
on patents and trademarks
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(267,626
|
)
|
(Increase)
decrease in short-term investments
|
|
|
(5,002,449
|
)
|
|
3,483,588
|
|
|
(8,817,976
|
)
|
|
(10,336,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,094,933
|
)
|
|
3,357,279
|
|
|
(5,508,060
|
)
|
|
(7,858,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
167,892
|
|
|
(407,550
|
)
|
|
(2,063,587
|
)
|
|
405,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- Beginning of period
|
|
|
237,462
|
|
|
645,012
|
|
|
2,708,599
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- End of period
|
|
|
405,354
|
|
|
237,462
|
|
|
645,012
|
|
|
405,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
information
(note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
These
consolidated financial statements have been prepared using generally accepted
accounting principles that are applicable to a going concern, which contemplates
that ViRexx Medical
Corp. (the “Company” or “ViRexx”)
will
continue in operation for the foreseeable future and will be able to realize
its
assets and discharge its liabilities in the normal course of business. The
use
of these principles may not be appropriate because at December 31, 2006 there
was substantial doubt that the Company will be able to continue as a going
concern without raising additional financial resources.
The
Company’s management is considering all financing alternatives and is seeking to
raise additional funds for operations from all potential sources. This
disclosure is not an offer to sell, nor a solicitation of an offer to buy the
Company’s securities. While the Company is striving to achieve the above plans,
there is no assurance that such funding will be available or obtained on
favorable terms.
These
financial statements do not reflect adjustments in the carrying values of the
assets and liabilities, expenses, and the balance sheet classification used,
that would be necessary if the going concern assumption were not appropriate.
Such adjustments could be material.
The
Company’s management believes sufficient financial resources exist to fund
operations into late 2007.
ViRexx
Medical Corp., amalgamated under the Business Corporations Act (Alberta), is
a
development-stage biotechnology company focused on the development of novel
therapeutic products for the treatment of certain cancers and specified chronic
viral infections. The Company’s most advanced programs include drug candidates
for the treatment of ovarian cancer, chronic hepatitis B and C and selected
solid tumors.
The
Company began as Novolytic Corp. on October 30, 2000. ViRexx Research Inc.
was
incorporated under the Business Corporations Act (Alberta) on June 6, 2001
and
on August 1, 2002 ViRexx Research Inc. amalgamated with Novolytic Corp. to
continue as ViRexx Research Inc. (“ViRexx Research”). On December 23, 2003,
ViRexx Research was amalgamated with ViRexx Medical Corp. and Norac Industries
Inc. (“Norac”) to form and continue business as ViRexx Medical Corp. Norac was a
public company whose shares were listed on the TSX Venture Exchange. On
completion of the amalgamation with Norac, ViRexx became a listed company.
On
December 10, 2004, pursuant to a plan of arrangement, the Company acquired
all
of the outstanding shares of AltaRex Medical Corp. (“AltaRex”) by issuing
one-half of one common share in exchange for each issued share of AltaRex.
Following the acquisition, the Company became listed on the Toronto Stock
Exchange.
On
December 23, 2005, the Company became listed on the American Stock
Exchange.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
3 |
Summary
of significant accounting
policies
|
These
financial statements have been prepared by management in accordance with
Canadian generally accepted accounting principles which, with respect to the
Company, do not differ materially from those applied in the United States except
as disclosed in note 18. These financial statements have, in management’s
opinion, been properly prepared within reasonable limits of materiality and
within the framework of the accounting policies summarized below.
a) |
Basis
of consolidation
|
These
consolidated financial statements include the accounts of the Company and all
of
its wholly owned subsidiaries. All material inter-company balances and
transactions have been eliminated on consolidation.
Certain
amounts in prior year’s financial statements have been reclassified to conform
to the current year’s presentation.
The
preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that impact the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Significant estimates are used for, but not limited to, provisions
for
the assessment of the recoverability of long-lived assets, accruals for contract
manufacturing and research and development agreements, allocation of overhead
expenses to research and development, stock-based compensation and, provisions
for taxes and contingencies. Actual results could differ from those
estimates.
d) |
Cash
and cash equivalents
|
The
Company considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash or cash equivalents.
e) |
Short-term
investments
|
Short
term investments include securities and term deposits with an original maturity
of greater than three months and less than twelve months. Investments are
carried at book value plus accrued interest.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
f) |
Property
and equipment
|
Property
and equipment are stated at cost. Amortization is provided using the declining
balance method at the following annual rates:
Laboratory
equipment
|
|
20%
|
Office
furniture and equipment
|
|
20%
|
Computer
equipment
|
|
30%
|
Computer
software
|
|
100%
|
Leasehold
improvements are amortized on a straight-line basis over the term of the lease.
Licenses
represents the amount paid for the rights to use certain patents and is recorded
at cost. Amortization is provided for on a straight-line basis over twelve
years, being the lesser of the term of the licensing agreements and the useful
life.
h) |
Unither
development agreement
|
This
agreement is recorded at cost and was acquired on the acquisition of AltaRex
Medical Corp. as described in note 6. The carrying amount does not necessarily
reflect future values and the ultimate amount recoverable will be dependent
upon
the successful development and commercialization of products. This amount is
being amortized on a straight-line basis over the estimated term of the
agreement, which is twelve years.
Revenue
is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed and determinable and collection is reasonably
assured.
j) |
Government
grants and investment tax credits
|
Government
assistance is recognized when the expenditures that qualify for assistance
are
made and the Company has complied with the conditions for the receipt of
government assistance. Government assistance is applied to reduce the carrying
amount of any assets acquired or to reduce eligible expenses incurred. A
liability to repay government assistance, if any, is recorded in the period
when
the conditions arise that causes the assistance to become repayable.
k) |
Research
and development costs
|
Research
costs are expensed in the period incurred. Development costs are expensed in
the
period incurred unless technical and market viability of a development project
have been established. No development costs have been deferred to
date.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
l) |
Foreign
currency translation
|
Translation
of transactions arising in foreign currencies is recorded at approximate rates
of exchange in effect at the dates of the transactions, with resulting monetary
assets and monetary liabilities arising in foreign currencies being translated
at the rates of exchange in effect at the balance sheet date. Gains or losses
on
translation during the period are included in net loss for the year.
The
Company follows the asset and liability method of income tax allocation. Under
this method, future income taxes are recognized for the future income tax
consequences attributable to differences between the carrying values of assets
and liabilities and their respective income tax basis. Future income tax assets
and liabilities are measured using substantively enacted income tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. The effect on future income tax assets
and liabilities of a change in rates is included in earnings in the period
that
includes the date of substantial enactment. Future income tax assets are
recorded in the financial statements if realization is considered more likely
than not.
n) |
Stock-based
compensation
|
The
Company grants stock options to directors, employees and consultants pursuant
to
a stock option plan. Awards of stock options to non-employees are accounted
for
in accordance with the fair value method and result in compensation expense.
Effective January 1, 2004, awards of stock options granted to employees,
officers and directors are accounted for in accordance with the fair value
method and result in compensation expense. The expense is recognized in income
over the shorter of the service period of the employees to whom the option
was
granted or the vesting period of the specific option. The corresponding credit
is recorded as contributed surplus. Any consideration paid on the exercise
of
stock options is credited to share capital. Previously, the Company did not
record any compensation expense upon the issuance of stock options to employees,
officers and directors.
o) |
Impairment
of long-lived assets
|
Property
and equipment and intangible assets with a finite life are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is assessed
by
comparing the carrying amount of the asset with its expected future net
undiscounted cash flows from use together with its residual value. If an asset
is considered to be impaired, the impairment recognized is the amount by which
the carrying amount of the asset exceeds its fair value.
Basic
loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding during the year. The Company uses the
treasury stock method of calculating diluted loss per share. Under the treasury
stock method, the weighted average number of common shares outstanding for
the
calculation of diluted loss per share assumes that the proceeds to be received
on the exercise of dilutive stock options or warrants is applied to repurchase
common shares at the average market price for the year.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Effective
January 1, 2004, the Company wrote off the carrying value of capitalized costs
incurred on patents and trademarks to reflect the uncertainty associated with
any future economic benefit. This was accounted for retroactively and the prior
year’s financial statements were restated. As this did not represent a change in
accounting policy, the total impact of the write down should have been reflected
in the year ended December 31, 2004. The financial statements were restated
in 2005 to reflect this treatment. The impact of this restatement was a $242,626
increase in the net loss previously reported for the year ended December 31,
2004.
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cost
$
|
|
Accumulated
amortization
$
|
|
Net
$
|
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
|
|
489,347
|
|
|
208,344
|
|
|
281,003
|
|
Office
furniture and equipment
|
|
|
116,874
|
|
|
45,356
|
|
|
71,518
|
|
Computer
equipment and software
|
|
|
248,610
|
|
|
150,575
|
|
|
98,035
|
|
Leasehold
improvements
|
|
|
36,469
|
|
|
11,946
|
|
|
24,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891,300
|
|
|
416,221
|
|
|
475,079
|
|
Amortization
expense relating to property and equipment charged to current operations was
$150,631 (2005 - $141,733; 2004 - $69,264)
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Cost
$
|
|
Accumulated
amortization
$
|
|
Net
$
|
|
|
|
|
|
|
|
|
|
Laboratory
equipment
|
|
|
468,834
|
|
|
142,047
|
|
|
326,787
|
|
Office
furniture and equipment
|
|
|
108,434
|
|
|
30,175
|
|
|
78,259
|
|
Computer
equipment and software
|
|
|
175,085
|
|
|
92,073
|
|
|
83,012
|
|
Leasehold
improvements
|
|
|
36,469
|
|
|
6,393
|
|
|
30,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
788,822
|
|
|
270,688
|
|
|
518,134
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
6 |
Acquired
intellectual property
|
|
|
2006
$
|
|
2005
$
|
|
|
|
|
|
|
|
Unither
development agreement - net of accumulated amortization of $4,973,927
(2005 - $2,355,358)
|
|
|
27,356,595
|
|
|
29,975,164
|
|
Other
licenses - net of accumulated amortization of $12,150 (2005 -
$10,067)
|
|
|
12,850
|
|
|
14,933
|
|
|
|
|
27,369,445
|
|
|
29,990,097
|
|
Amortization
expense relating to intellectual property charged to operations was $2,620,652
(2005 - $2,357,441; 2004 - $2,084).
On
December 10, 2004, the Company acquired certain intellectual property and
related agreements. These assets resided in AltaRex, a holding company with
no
active business. The Company completed the acquisition by issuing 26,257,759
common shares in exchange for all of the issued and outstanding shares of
AltaRex. The assets consisted primarily of an Exclusive Agreement with Unither
Pharmaceuticals Inc. (“Unither”), a wholly owned subsidiary of United
Therapeutics Corporation (“United Therapeutics”), for the development of five
monoclonal antibodies, including OvaRex®
MAb, the
Company’s lead product in late stage development for the treatment of ovarian
cancer. Under the terms of the agreement, Unither received exclusive rights
for
development and commercialization of the products worldwide, with the exception
of rights retained by the Company to the majority of the European Union and
certain other countries. Unither is responsible for the costs of clinical
trials, manufacturing and other development expenses for each product and is
required to pay development milestone payments and royalties from product sales
to the Company. Milestone payments include US$1.4 million on the completion
of a
Biologics License Application (“BLA”); and US$3.0 million on the approval of the
BLA by the United States Food and Drug Administration. Neither of these
milestones had been reached by December 31, 2006.
Consideration
for the acquired assets was 26,257,759 ViRexx common shares with a fair value
of
$28,620,957 based on $1.09 per share, which was the market price per share
at
the date of announcement on October 15, 2004. The acquisition cost also includes
$1,815,378 relating to the fair value of ViRexx stock options issued in exchange
for AltaRex stock options and acquisition costs of $568,859.
The
Unither agreement and related intellectual property acquired was valued at
$34,553,666. Other net assets, which consisted of cash, equipment and a
debenture payable, amounted to $3,201,475.
On
November 3, 2006, the Company, through it’s wholly owned Irish subsidiary,
ViRexx International Corp., entered into agreements with an unrelated company
for the manufacture, licensing and distribution of OvaRex®
MAb to
the Company’s remaining unlicensed territories which, included the U.K.,
Ireland, France, Sweden, Finland and certain other European and middle-Eastern
countries. As part of the agreements, the licensee will manufacture and supply
OvaRex®
MAb for
the foregoing territories and ViRexx’s existing European licensing partners.
These agreements result in a net effective royalty of approximately 25% to
ViRexx on net sales of OvaRex®
MAb in
these European and middle-Eastern countries.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Under
the
terms of the agreements, the licensee agreed to purchase approximately CAN$2.0
million in newly issued common shares and an additional US$4.0 million of common
shares based on the achievement of future milestones. As the initial milestone,
the licensee has purchased 1,818,182 units of ViRexx at a price of $1.10 per
unit, for proceeds to ViRexx of $2.0 million as described in note
13.
The
Company is a party to other license and development agreements with various
third parties. In each case, the third party may be entitled to receive any
one
or a combination of milestone payments, royalty payments and stock options
based
on the product development stage or sales revenue from the development of
certain products or technology.
The
Company has not made any payments under these agreements and has no liability
for payments or the issue of shares or options at December 31,
2006.
7 |
Related
party transactions and
balances
|
Related
parties consist of certain directors and shareholders, companies owned or
controlled by certain shareholders and professional firms in which, certain
directors, officers or shareholders have interests. The following transactions
were incurred in the normal course of operations and are measured at the
exchange amount.
During
the year, the Company incurred amounts totalling approximately $301,870 (2005
-
$373,010) for legal services rendered by a firm in which a certain corporate
officer is a partner. The Company also paid $138,750 (2005 - $41,670) for
consulting services rendered by a director of the company.
|
|
2006
$
|
|
2005
$
|
|
|
|
|
|
|
|
Accrued
liabilities comprise
|
|
|
|
|
|
Salaries
|
|
|
690,813
|
|
|
362,737
|
|
Professional
fees
|
|
|
206,987
|
|
|
60,092
|
|
Clinical
trial costs
|
|
|
149,000
|
|
|
-
|
|
Other
|
|
|
138,962
|
|
|
19,712
|
|
|
|
|
|
|
|
|
|
|
|
|
1,185,762
|
|
|
442,541
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
The
reconciliation of income taxes expense (recovery) attributable to operations
using the statutory tax rate is as follows:
|
|
2006
$
|
|
2005
$
|
|
2004
$
(Restated)
|
|
|
|
|
|
|
|
|
|
Canadian
statutory rates
|
|
|
32.49
|
%
|
|
33.62
|
%
|
|
33.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Expected
recovery at the statutory rate
|
|
|
(4,342,861
|
)
|
|
(3,637,058
|
)
|
|
(1,239,000
|
)
|
Unrecognized
deductible temporary differences and tax losses
|
|
|
8,983,035
|
|
|
(129,368
|
)
|
|
1,109,000
|
|
Research
and development investment tax credits
|
|
|
(1,091,142
|
)
|
|
-
|
|
|
-
|
|
Impact
of substantively enacted rates
|
|
|
539,583
|
|
|
-
|
|
|
-
|
|
Stock-based
compensation and other non-deductible expenses
|
|
|
89,998
|
|
|
408,000
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
income taxes expense (recovery)
|
|
|
4,178,613
|
|
|
(3,358,426
|
)
|
|
-
|
|
Significant
components of the Company’s future tax balances are as follows:
|
|
2006
$
|
|
2005
$
|
|
|
|
|
|
|
|
Future
tax assets
|
|
|
|
|
|
Non-capital
loss carry forwards
|
|
|
6,173,303
|
|
|
4,754,155
|
|
Irish
trading losses
|
|
|
90,288
|
|
|
-
|
|
Research
and development deductions and investment tax credits
|
|
|
2,534,944
|
|
|
1,231,946
|
|
Other
assets
|
|
|
595,282
|
|
|
547,566
|
|
|
|
|
|
|
|
|
|
|
|
|
9,393,817
|
|
|
6,533,667
|
|
Future
tax liabilities
|
|
|
|
|
|
|
|
Acquired
intellectual property
|
|
|
(5,757,772
|
)
|
|
(7,702,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
3,636,045
|
|
|
(1,168,377
|
)
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(8,983,035
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
future tax liability
|
|
|
(5,346,990
|
)
|
|
(1,168,377
|
)
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
At
December 31, 2006, the Company had approximately $21,255,000 of Canadian
non-capital loss carry forwards; $722,000 of Irish trading losses; $4,657,000
of
Canadian scientific research and experimental development (“SR&ED”)
expenditures; and, $1,184,000 of Canadian investment tax credits available
to
reduce taxable income in future years. The benefit related to $2,381,000
of the Canadian non-capital losses has been recognized in these financial
statements as a reduction to future income tax liabilities. The realization
of
the remaining Canadian non-capital loss carry forwards, Irish trading losses,
Canadian SR&ED expenditures and Canadian investment tax credits is not
considered more likely than not of being realized through the use of feasible
tax planning strategies. SR&ED expenditures and Irish trading losses
may be carried forward indefinitely. The Canadian loss carry forwards and
investment tax credits expire as follows
|
|
Non-capital
loss
carry
forwards
$
|
|
Investment
tax
credits
$
|
|
|
|
|
|
|
|
2007
|
|
|
208,000
|
|
|
-
|
|
2008
|
|
|
334,000
|
|
|
-
|
|
2009
|
|
|
668,000
|
|
|
10,000
|
|
2010
|
|
|
929,000
|
|
|
1,000
|
|
2012
|
|
|
-
|
|
|
2,000
|
|
2013
|
|
|
1,545,000
|
|
|
19,000
|
|
2014
|
|
|
1,946,000
|
|
|
454,000
|
|
2015
|
|
|
8,348,000
|
|
|
698,000
|
|
2026
|
|
|
7,277,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
21,255,000
|
|
|
1,184,000
|
|
10 |
Commitments
and contingencies
|
At
December 31, 2006, expected minimum lease payments in each of the next five
years and in total, relating to the office and laboratory facility and clinical
research, are as follows:
|
|
$ |
|
|
|
|
|
|
|
2007
|
|
|
152,165
|
|
|
2008
|
|
|
129,623
|
|
|
2009
|
|
|
124,885
|
|
|
2010
|
|
|
115,885
|
|
|
2011
|
|
|
48,285
|
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
570,843
|
|
|
Refer
to
notes 6 and 11 for additional and commitments and contingencies at December
31,
2006.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
11 |
Government
assistance and research and development
projects
|
During
the year ended December 31, 2006, the Company qualified for a non-repayable
grant in the amount of $222,140 (2005 $45,000; 2004 - $364,430) from the
National Research Council of Canada, of which $84,697 remained receivable at
December 31, 2006 (2005 - $nil; December 31, 2004 - $nil).
In
2004,
the Company entered into a technology commercialization agreement with the
Alberta Heritage Foundation for Medical Research (“AHFMR”) in support of costs
for the Phase I liver cancer study for the OcclusinTM
Injection product. Funding of $500,000 was received and credited against
research and development expenses in the year ended December 31, 2004. The
Company is required to pay a royalty equivalent to twice the amount of funding
received, from the commercial success of the resulting products and technology,
at a rate of the lesser of 5% of gross sales or $100,000 per annum. The maximum
total payments by the Company under this agreement are $1,000,000 and begin
once
there are commercial sales. To date, there have been no commercial
sales.
In
1997,
AltaRex entered into an agreement with the AHFMR to jointly fund clinical
trials, with AltaRex controlling, through ownership or licensing, certain
technology as described in the agreement. Funding of $500,000 was received
in
1997. The Company is required to pay a royalty equivalent to twice the amount
of
funding received from the commercial success of the resulting products and
technology, at a rate of the lesser of 5% of gross sales or $100,000 per annum.
The maximum total payments by the Company under this agreement are $1,000,000
and begin once there are commercial sales. To date, there have been no
commercial sales.
Amounts
received related to government assistance were recorded as a reduction of
research and development expense.
12 |
Research
and development projects
|
The
Company is in the development stage and conducts research and development in
the
areas of biopharmaceutical products for the treatment of ovarian cancer, chronic
hepatitis B, chronic hepatitis C and selected solid tumors.
· |
OvaRex®
MAb is a murine monoclonal antibody that has a high degree of specificity
to a tumor associated antigen that is over-expressed in the majority
of
late stage ovarian cancer patients. The Company believes that the
product
acts as an immunotherapeutic agent by inducing and/or amplifying
the
patient’s immune response against ovarian cancer. ViRexx continues to have
costs associated with the OvaRex®
MAb
development program. Pursuant to the Defiante Agreement, ViRexx pays
for
all release tests of the drug product, many of which will be out-sourced
to contract research organizations. ViRexx will also continue to
support
Technology Transfer from Unither to Tecnogen and perform all necessary
activities associated with the migration of key resources to Europe.
Broad
worldwide protection of the intellectual property, including trademarks,
for the AIT platform continues to be a priority. Additional resources
will
be allocated to regulatory activities needed for obtaining a Marketing
Authorization in Europe, as well as marketing activities needed to
establish a pricing and reimbursement strategy in
Europe.
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
· |
The
Company’s T-ACT™ technology platform is a novel and proprietary targeted
tumor starvation technology platform which has the potential to be
applied
to develop a wide range of products that stop the flow of blood to
solid
tumours, both malignant (cancer) and non-malignant
(benign).
|
· |
The
Chimigen™ technology platform encompasses a molecular design recognizable
by the body’s immune system to break tolerance by mounting a humoral
(antibody) as well as a highly desirable cellular response to clear
the
virus that is responsible for the chronic
infection.
|
|
|
2006
$
|
|
2005
$
|
|
2004
$
|
|
|
|
|
|
|
|
|
|
T-ACT™
|
|
|
1,609,644
|
|
|
1,236,748
|
|
|
410,018
|
|
Chimigen™
|
|
|
3,651,341
|
|
|
3,162,108
|
|
|
2,251,092
|
|
OvaRex®
MAb
|
|
|
898,277
|
|
|
396,334
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
research and development expenses
|
|
|
6,159,262
|
|
|
4,795,190
|
|
|
2,661,110
|
|
Government
grants
|
|
|
(222,140
|
)
|
|
(45,000
|
)
|
|
(864,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
research and development expenses
|
|
|
5,937,122
|
|
|
4,750,190
|
|
|
1,796,680
|
|
Authorized
share capital
The
Company is authorized to issue an unlimited number of no par value common
shares.
Normal
Course Issuer Bid
On
December 21, 2004, the Company received approval for a Normal Course Issuer
Bid
allowing the Company to repurchase up to 2,663,824 common shares during the
period from December 23, 2004 to December 22, 2005, at the market price at
the
time of purchase. The Company repurchased 2,056,900 common shares at an average
price of $1.10 per share for the period January 1, 2005 to December 22, 2005,
which resulted in a charge of $1,645,113 to share capital and a charge of
$610,663 to the deficit.
2006
Transactions
On
February 16, 2006, the Company completed a private placement of 10,909,090
units
for gross proceeds of $12,000,000. Each unit consists of one common share and
one common share purchase warrant. Each common share warrant entitles the holder
to purchase one common share of the Company at a price of $1.50 for a period
of
two years. Proceeds of the issue were allocated to contributed surplus based
on
the estimated fair value of the warrants on the date granted. The brokers for
the private placement received compensation of 7% of the gross proceeds and
1,090,909 broker warrants valued at $539,962 as a commission. Each broker
warrant entitles the brokers to acquire one common share of the Company for
$1.50 per share until February 15, 2008. Additional cash costs of $64,603
were also incurred.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
On
April
7, 2006, the Company completed a private placement of 800,000 units for gross
proceeds of $1,000,000. Each unit consists of one common share and one common
share purchase warrant. Each common share warrant entitles the holder to
purchase one common share of the Company at a price of $1.75 for a period of
two
years. Proceeds of $276,480 were allocated to contributed surplus based on
the
estimated fair value of the warrants on the date granted. The broker for the
private placement received cash of $40,000 as a commission.
On
November 1, 2006, the Company issued 200,000 common shares at a price of $0.74
to in lieu of cash consideration for investor relations consulting.
On
December 6, 2006, the Company completed a private placement of 1,818,182 units
for gross proceeds of $2,000,000. Each unit consists of one common share and
one
common share purchase warrant. Each common share warrant entitles the holder
to
purchase one common share of the Company at a price of $1.25 for a period of
two
years. Proceeds of $286,727 were allocated to contributed surplus based on
the
estimated fair value of the warrant on the date granted. The brokers for the
private placement received cash of $59,715 as a commission.
2005
Transactions
On
September 9, 2005, the Company completed a brokered private placement of
4,035,665 units for gross proceeds of $4,035,665. Each unit consisted of one
common share and one-half of one share purchase warrant. Each whole share
purchase warrant entitles the holder to purchase one common share of ViRexx
at a
price of $1.20 for a period of two years. Proceeds were allocated $2,970,316
to
share capital and $1,065,349 to contributed surplus based on the estimated
fair
value of the warrants on the date granted. The broker for the private placement
received cash of 7% of the gross proceeds and 403,567 broker warrants as a
commission. Each broker warrant entitles the broker to acquire one common share
of the Company for $1.20 per share until September 9, 2007.
Stock
options
The
Company’s Stock Option Plan provides for the granting of stock options to
directors, officers, employees and consultants. On June 16, 2005, the Company’s
shareholders approved a new plan (the “Plan”). The Plan permits the issuance of
stock options to purchase a maximum of 8,256,000 common shares of the Company.
All options vest within 3 years or less and are exercisable for a period of
ten
years or less from the grant.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
The
following table summarizes information relating to stock options outstanding
and
exercisable under the Plan at December 31, 2006, 2005 and 2004.
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
#
|
|
Weighted
average
Exercise
price
$
|
|
Stock
options
#
|
|
Weighted
average
Exercise
price
$
|
|
Stock
options
#
|
|
Weighted
average
Exercise
price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
- Beginning of period
|
|
|
6,670,200
|
|
|
0.84
|
|
|
6,369,168
|
|
|
0.84
|
|
|
2,103,218
|
|
|
0.80
|
|
Granted
|
|
|
837,363
|
|
|
1.00
|
|
|
640,000
|
|
|
1.04
|
|
|
4,564,168
|
|
|
0.85
|
|
Exercised
|
|
|
(590,000
|
)
|
|
0.50
|
|
|
(225,218
|
)
|
|
0.85
|
|
|
(13,218
|
)
|
|
0.80
|
|
Cancelled
|
|
|
(821,322
|
)
|
|
0.91
|
|
|
(113,750
|
)
|
|
5.64
|
|
|
(285,000
|
)
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
- End of period
|
|
|
6,096,241
|
|
|
0.81
|
|
|
6,670,200
|
|
|
0.84
|
|
|
6,369,168
|
|
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
- End of period
|
|
|
5,282,401
|
|
|
0.78
|
|
|
5,712,066
|
|
|
0.80
|
|
|
5,121,968
|
|
|
0.83
|
|
On
February 1, 2005, the Company granted 300,000 stock options as an inducement
to
an individual to join the Company as an officer. The options are exercisable
at
$1.17 per share and expire on February 1, 2015. These options were not issued
under the Plan. One-third of these options vested immediately and the remaining
options vest over a period of two years. Compensation expense arising from
the
options is recognized over the vesting period.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
The
following table summarizes information relating to currently outstanding and
exercisable options:
2006
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Exercise
price
$
|
|
Number
of
shares
#
|
|
Average
expiration
life
(years)
|
|
Number
of
shares
#
|
|
|
|
|
|
|
|
|
|
0.48
|
|
|
1,125,000
|
|
|
0.92
|
|
|
1,125,000
|
|
0.72
|
|
|
150,000
|
|
|
9.96
|
|
|
50,000
|
|
0.73
|
|
|
265,000
|
|
|
4.45
|
|
|
265,000
|
|
0.76
|
|
|
70,000
|
|
|
7.61
|
|
|
50,000
|
|
0.80
|
|
|
2,506,333
|
|
|
1.78
|
|
|
2,450,000
|
|
0.86
|
|
|
400,000
|
|
|
6.44
|
|
|
400,000
|
|
0.90
|
|
|
582,733
|
|
|
6.05
|
|
|
564,733
|
|
0.94
|
|
|
40,000
|
|
|
5.47
|
|
|
40,000
|
|
0.99
|
|
|
560,000
|
|
|
8.88
|
|
|
186,668
|
|
1.30
|
|
|
347,175
|
|
|
9.25
|
|
|
111,000
|
|
1.46
|
|
|
30,000
|
|
|
8.29
|
|
|
20,000
|
|
3.90
|
|
|
10,000
|
|
|
4.28
|
|
|
10,000
|
|
6.26
|
|
|
10,000
|
|
|
4.40
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,096,241
|
|
|
|
|
|
5,282,401
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Exercise
price
$
|
|
Number
of
shares
#
|
|
Average
expiration
life
(years)
|
|
Number
of
shares
#
|
|
|
|
|
|
|
|
|
|
0.48
|
|
|
1,675,000
|
|
|
7.63
|
|
|
1,675,000
|
|
0.76
|
|
|
50,000
|
|
|
7.75
|
|
|
50,000
|
|
0.80
|
|
|
2,923,000
|
|
|
2.96
|
|
|
2,796,333
|
|
0.86
|
|
|
475,000
|
|
|
5.35
|
|
|
475,000
|
|
0.90
|
|
|
697,200
|
|
|
9.21
|
|
|
445,733
|
|
0.94
|
|
|
190,000
|
|
|
4.47
|
|
|
190,000
|
|
0.99
|
|
|
560,000
|
|
|
9.84
|
|
|
-
|
|
1.39
|
|
|
50,000
|
|
|
1.33
|
|
|
50,000
|
|
1.46
|
|
|
30,000
|
|
|
9.28
|
|
|
10,000
|
|
3.90
|
|
|
10,000
|
|
|
5.53
|
|
|
10,000
|
|
6.26
|
|
|
10,000
|
|
|
5.65
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,670,200
|
|
|
|
|
|
5,712,066
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
At
December 31, 2006, the 6,096,241 options outstanding had a weighted average
remaining term of approximately four years (2005 - five years).
Stock-based
compensation expense
During
the year ended December 31, 2006, the Company recognized $605,039 of
compensation expense and contributed surplus. During the year ended December
31,
2005, the Company recognized $457,349 of compensation expense and contributed
surplus. During the year ended December 31, 2004, the Company recognized
$380,577 of compensation expense and contributed surplus.
The
fair
value of each stock option granted is estimated on the date of grant using
the
Black-Scholes option pricing model based on the following weighted average
assumptions:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Expected
life
|
|
|
7
years
|
|
|
7
years
|
|
|
5
years
|
|
Risk-free
interest rate
|
|
|
4.1
|
%
|
|
4.3
|
%
|
|
4.0
|
%
|
Expected
volatility
|
|
|
58.6
|
%
|
|
87.6
|
%
|
|
77.2
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected
forfeiture rate
|
|
|
25.0
|
%
|
|
25.0
|
%
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted
|
|
|
0.54
|
|
|
0.93
|
|
|
0.54
|
|
Warrants
At
December 31, 2006, there were 17,077,471 (2005 - 2,819,299) warrants outstanding
at a weighted average exercise price of $1.48 (2005 - $1.20). The value
attributed to the warrants is included in contributed surplus.
|
|
|
2006 |
|
Expiry
date |
|
|
Exercise
price
$
|
|
|
Opening
#
|
|
|
Granted
#
|
|
|
Exercised
#
|
|
|
Expired
#
|
|
|
Closing
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
26, 2006
|
|
|
4.00
|
|
|
360,000
|
|
|
-
|
|
|
-
|
|
|
360,000
|
|
|
-
|
|
September
9, 2007
|
|
|
1.20
|
|
|
2,459,299
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,459,299
|
|
February
15, 2008
|
|
|
1.50
|
|
|
-
|
|
|
11,999,990
|
|
|
-
|
|
|
-
|
|
|
11,999,990
|
|
April
7, 2008
|
|
|
1.75
|
|
|
-
|
|
|
800,000
|
|
|
-
|
|
|
-
|
|
|
800,000
|
|
December
6, 2008
|
|
|
1.25
|
|
|
-
|
|
|
1,818,182
|
|
|
-
|
|
|
-
|
|
|
1,818,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,819,299
|
|
|
14,618,172
|
|
|
-
|
|
|
360,000
|
|
|
17,077,471
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
|
|
|
2005
|
|
Expiry
date |
|
|
Exercise
price
$
|
|
|
Opening
#
|
|
|
Granted
#
|
|
|
Exercised
#
|
|
|
Expired
#
|
|
|
Closing
#
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
14, 2005
|
|
|
0.80
|
|
|
1,100,000
|
|
|
-
|
|
|
(1,100,000
|
)
|
|
-
|
|
|
-
|
|
June
23, 2005
|
|
|
0.80
|
|
|
500,000
|
|
|
-
|
|
|
(500,000
|
)
|
|
-
|
|
|
-
|
|
October
14, 2005
|
|
|
1.00
|
|
|
5,086,595
|
|
|
-
|
|
|
(212,500
|
)
|
|
(4,874,095
|
)
|
|
-
|
|
October
14, 2005
|
|
|
1.00
|
|
|
5,496,500
|
|
|
-
|
|
|
(490,375
|
)
|
|
(5,006,125
|
)
|
|
-
|
|
November
26, 2006
|
|
|
4.00
|
|
|
360,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
360,000
|
|
September
9, 2007
|
|
|
1.20
|
|
|
-
|
|
|
2,459,299
|
|
|
-
|
|
|
-
|
|
|
2,459,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,543,095
|
|
|
2,459,299
|
|
|
(2,302,875
|
)
|
|
(9,880,220
|
)
|
|
2,819,299
|
|
The
fair
value of the warrants was calculated using the Black-Scholes option valuation
model and the following weighted average assumptions for the years ended
December 31, 2006, 2005 and 2004.
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Share
price
|
|
$
|
1.34
|
|
$
|
1.05
|
|
$
|
0.42
|
|
Exercise
price
|
|
$
|
1.48
|
|
$
|
1.20
|
|
$
|
1.00
|
|
Contractual
life
|
|
|
2
years
|
|
|
2
years
|
|
|
1.5
years
|
|
Risk-free
interest rate
|
|
|
4.0
|
%
|
|
3.0
|
%
|
|
2.8
|
%
|
Expected
volatility
|
|
|
61.20
|
%
|
|
81.0
|
%
|
|
77.0
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of warrants granted
|
|
|
0.45
|
|
|
0.43
|
|
|
0.62
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Common
shares that could potentially dilute basic loss per share in the future, but
were not included in the computation of diluted loss per share because to do
so
would be anti-dilutive, are as follows:
|
|
2006
#
|
|
2005
#
|
|
2004
#
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
6,396,241
|
|
|
6,970,200
|
|
|
6,369,168
|
|
Warrants
|
|
|
17,077,471
|
|
|
2,819,299
|
|
|
12,543,095
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
anti-dilutive shares
|
|
|
23,473,712
|
|
|
9,789,499
|
|
|
18,912,263
|
|
15 |
Supplementary
cash flow information
|
|
|
2006
$
|
|
2005
$
|
|
2004
$
|
|
Operating
assets and liabilities
|
|
|
|
|
|
|
|
Prepaid
expenses and deposits
|
|
|
(1,844
|
)
|
|
216,485
|
|
|
(337,114
|
)
|
Other
current assets
|
|
|
(154,870
|
)
|
|
73,824
|
|
|
472,062
|
|
Accounts
payable and accrued liabilities
|
|
|
920,929
|
|
|
(74,639
|
)
|
|
(481,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764,215
|
|
|
215,670
|
|
|
(346,104
|
)
|
|
|
2006
$
|
|
2005
$
|
|
2004
$
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
1,458
|
|
|
200,144
|
|
|
3,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
received
|
|
|
400,201
|
|
|
218,504
|
|
|
127,728
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Financial
instruments of the Company consist of cash, short-term investments, other
current assets, accounts payable, accrued liabilities and capital leases. The
fair value of these instruments approximates their carrying amount due to their
immediate or short-term maturity.
Credit
risk
Financial
instruments that potentially expose the Company to significant concentrations
of
credit risk consist principally of cash and short-term investments. The Company
has investment policies to mitigate against the deterioration of principal,
to
enhance the Company’s ability to meet its liquidity needs and to optimize yields
within those parameters. Cash and short-term investments are on deposit with
a
Canadian chartered bank.
Interest
rate risk
The
Company is exposed to interest rate risk arising from fluctuations in interest
rates on its cash and short-term investments. The Company does not use
derivative instruments to reduce its exposure to interest rate
risk.
Currency
risk
The
Company operates primarily within Canada and, therefore, is not exposed to
significant foreign currency risk. The Company has not entered into foreign
exchange derivative contracts.
The
company operates in one business segment which is the development of
pharmaceutical products based on its licensed and proprietary technologies,
with
substantially all of its operations and long lived assets, excluding a portion
of the intangible assets, in Canada.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
18 |
United
States accounting principles
|
The
consolidation financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”). These principles conform in all material respects with those in the
United States (“U.S. GAAP”) except as noted below.
Consolidated
balance sheets - U.S. GAAP
|
|
2006
$
|
|
2005
$
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
11,105,169
|
|
|
5,778,114
|
|
Property
and equipment
|
|
|
475,079
|
|
|
518,134
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
11,580,248
|
|
|
6,296,248
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
412,441
|
|
|
227,625
|
|
Accrued
liabilities
|
|
|
1,185,762
|
|
|
442,541
|
|
Obligations
under capital lease
|
|
|
5,351
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,603,554
|
|
|
670,166
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
Common
stock
|
|
|
54,064,680
|
|
|
45,989,189
|
|
Contributed
surplus
|
|
|
11,748,640
|
|
|
4,779,409
|
|
Deficit
accumulated during development stage
|
|
|
(55,836,626
|
)
|
|
(45,142,516
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
9,976,694
|
|
|
5,626,082
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
|
11,580,248
|
|
|
6,296,248
|
|
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Consolidated
statements of operations - U.S. GAAP
|
|
2006
$
|
|
2005
$
|
|
2004
$
|
|
|
|
|
|
|
|
|
|
Net
loss in accordance with Canadian GAAP
|
|
|
(17,493,375
|
)
|
|
(7,459,714
|
)
|
|
(3,657,760
|
)
|
Adjustments
to reconcile to U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
Acquired
intellectual property rights
|
|
|
-
|
|
|
-
|
|
|
(34,553,666
|
)
|
Acquired
intellectual property rights amortization
|
|
|
2,620,652
|
|
|
2,357,441
|
|
|
2,084
|
|
Future
income taxes
|
|
|
4,178,613
|
|
|
(3,358,426
|
)
|
|
6,749,947
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss and comprehensive loss in accordance with U.S. GAAP
|
|
|
(10,694,110
|
)
|
|
(8,460,699
|
)
|
|
(31,459,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
|
(0.16
|
)
|
|
(0.15
|
)
|
|
(1.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
|
#
|
|
|
#
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding - basic and diluted
|
|
|
68,921,409
|
|
|
55,827,119
|
|
|
25,268,388
|
|
The
significant differences in accounting principles as they pertain to the
accompanying consolidated financial statements are as follows:
Acquired
intellectual property rights
Canadian
GAAP requires the capitalization and amortization of the costs of acquired
technology. Under U.S. GAAP, the cost of acquiring technology is charged to
expense as in-process research and development (“IPRD”) when acquired if the
feasibility of such technology has not been established and no future
alternative use exists. This difference increases the loss from operations
under
U.S. GAAP in the year the IPRD is acquired and reduces the loss under U.S.
GAAP
in subsequent periods because there is no amortization charge.
Under
Canadian GAAP, a future tax liability is also recorded upon acquisition of
the
technology to reflect the tax effect of the difference between the carrying
amount of the technology in the financial statements and the tax basis of these
assets. Under U.S. GAAP, because the technology is expensed immediately as
IPRD,
there is no difference between the tax basis and the financial statement
carrying value of the assets and therefore no future tax liability
exists.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
Stock-based
compensation
Effective
January 1, 2004, the Company adopted the fair value based method of accounting
for employee stock options granted on or after January 1, 2002. The change
in
accounting policy was accounted for retroactively without restatement of prior
periods as allowed under the transitional provisions of CICA Handbook Section
3870. As a result, the opening balances of the deficit and contributed surplus
were increased by $734,773 at January 1, 2004.
For
U.S.
GAAP, the Company applied Statement of Financial Accounting Standards (“FAS”)
No. 123 as of January 1, 2004 using the retroactive restatement transition
provisions of FAS 123, which requires the restatement of all periods presented
for options granted, modified or settled in fiscal years beginning after
December 15, 1994.
Effective
January 1, 2006, the Company adopted FAS 123R (2004), Share Based Payment,
on a
modified prospective basis for US GAAP purposes. Adoption of this standard
did
not result in any accounting adjustments to the financial
statements.
Comprehensive
income
Under
U.S. GAAP, SFAS No. 130 requires that companies report comprehensive income
as a
measure of overall performance. Comprehensive income includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. There is no concept similar to comprehensive income
under current Canadian GAAP.
Current
accounting pronouncements
a) |
Recent
Canadian accounting pronouncements issued and not yet
applied
|
i) |
Financial
instruments, recognition and
measurement
|
In
January 2005, The Canadian Institute of Chartered Accountants (“CICA”) released
new Handbook Section 3855, Financial Instruments, Recognition and Measurement,
effective for annual and interim periods beginning on or after October 1, 2006.
This new section establishes standards for the recognition and measurement
of
all financial instruments, provides a characteristics-based definition of a
derivative financial instrument, and provides criteria to be used to determine
when a financial instrument should be recognized and when a financial instrument
is to be derecognized. The Company does not expect the adoption of this new
standard to have a material impact on its consolidated financial position and
results of operations.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
ii) |
Comprehensive
income and equity
|
In
January 2005, the CICA released new Handbook Section 1530, Comprehensive Income,
and Section 3251, Equity, effective for annual and interim periods beginning
on
or after October 1, 2006. Section 1530 establishes standards for reporting
comprehensive income. The section does not address issues of recognition or
measurement for comprehensive income and its components. Section 3251
establishes standards for the presentation of equity and changes in equity
during the reporting period. The requirements in Section 3251 are in addition
to
Section 1530. The Company does not expect the adoption of this standard to
have
a material impact on its consolidated financial position and results of
operations.
In
January 2005, the CICA released new Handbook Section 3865, Hedges, effective
for
annual and interim periods beginning on or after October 1, 2006. This new
section establishes standards for when and how hedge accounting may be applied.
Hedge accounting is optional. The Company does not expect the adoption of this
standard to have a material impact on its consolidated financial position and
results of operations.
In
July
2006, the Accounting Standards Board (“AcSB”) issued a replacement of Handbook
Section 1506, Accounting Changes. The new standard allows for voluntary changes
in accounting policy only when they result in the financial statements providing
reliable and more relevant information, requires changes in accounting policy
to
be applied retrospectively unless doing so is impracticable, requires prior
period errors to be corrected retrospectively and calls for enhanced disclosures
about the effects of changes in accounting policies, estimates and errors on
the
financial statements. The standard is effective for fiscal years beginning
on or
after January 1, 2007, with earlier adoption encouraged.
b) |
Recent
United States accounting pronouncements issued and
adopted
|
i) |
Considering
the effects of prior year misstatements when quantifying misstatements
in
current year financial statements.
|
Issued
in
September 2006, Staff Accounting Bulletin 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (“SAB 108”), addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current
year financial statements. SAB 108 requires companies to quantify misstatements
using both the balance sheet (“iron curtain”) and income statement (“rollover”)
approaches and to evaluate whether either approach results in an error that
is
material in light of relevant quantitative and qualitative factors.
Notes
to Consolidated Financial Statements
(expressed
in Canadian dollars)
The
guidance is effective for the Company for the year ended December 31, 2006.
A
material error identified upon application of this guidance may be corrected
through a one-time cumulative-effect adjustment to beginning of year retained
earnings, provided that the misstatement was determined to be immaterial in
the
past based on the application of the Company’s previous method for quantifying
misstatements. The adoption of this standard did not have an impact on the
Company’s financial statements and results of operations.
ii) |
Accounting
changes in and error corrections
|
In
May
2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(“SFAS No. 154”), which replaces Accounting Principles Board Opinion No 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS No. 154 provides guidance on the accounting for,
and
reporting of, changes in accounting principles and error corrections. SFAS
No.
154 requires retrospective application to prior period’s financial statements of
voluntary changes in accounting principles and changes required by new
accounting standards when the standard does not include specific transition
provisions, unless it is impracticable to do so. Certain disclosures are also
required for restatements due to correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, and was adopted by the Company on January
1,
2006, for the year ending December 31, 2006. The adoption of this standard
did
not have an impact on the Company’s financial statements and results of
operations.
c) |
Recent
United States accounting pronouncements issued and not yet
adopted
|
i) Fair
value measurements
In
September 2006, the FASB approved SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in GAAP
and
enhances disclosures about fair value measurements. This statement applies
when
other accounting pronouncements require fair value measurements. It does not
require new fair value measurements. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007 for the
Company. The Company is evaluating the impact of this standard on its
consolidated financial position and results of operations.
ii) |
Accounting
for uncertainty in income taxes
|
In
June
2006, the FASB approved FASB Interpretation No 48, Accounting for Uncertainty
in
Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the criteria for recognizing tax benefits under FASB Statement No.
109, Accounting for Income Taxes. It also requires additional financial
statement disclosures about uncertain tax positions. FIN 48 effective for fiscal
years beginning after December 15, 2006. The Company is evaluating the impact
of
this standard on its consolidated financial position and results of
operations.
Item
18. Financial Statements
We
have elected to provide Financial Statements pursuant to Item 17 (see
above).
Item
19. Exhibits
The
list
of exhibits is included following the signature page hereto, beginning on page
F-1.
SIGNATURES
The
Registrant hereby certifies that it meets all of the requirements for filing
on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
|
|
|
|
VIREXX
MEDICAL CORP.
|
|
|
|
|
By:
|
D.
Lorne Tyrrell
Name:
Dr. D. Lorne Tyrrell
Title:
Chief Executive Officer
|
|
|
|
|
|
Date:
March 30, 2007
|
|
|
|
|
By:
|
Scott
Langille
Name:
Scott Langille
Title:
Chief Financial Officer
|
|
|
|
|
|
Date:
March 30, 2007
|
ANNUAL
REPORT ON FORM 20-F
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
of Document
|
1.1
|
|
Articles
of Amalgamation of ViRexx Medical Corp. (1)
|
1.2
|
|
Bylaw
No. 1 of ViRexx Medical Corp. (1)
|
2.1
|
|
Form
of Warrant dated February 15, 2006. *
|
2.2
|
|
Form
of Warrant dated April 7, 2006. *
|
2.3
|
|
Form
of Warrant dated September of 2006. *
|
4.4.1+
|
|
Employment
Agreement dated February 1, 2005 between ViRexx Medical Corp. and
Macaraig
Canton. (1)
|
4.2
|
|
Confidentiality
Agreement dated February 1, 2005 between ViRexx Medical Corp. and
Macaraig
Canton. (1)
|
4.3+
|
|
Employment
Agreement dated November 1, 2005 between ViRexx Medical Corp. and
Dr.
Lorne Tyrrell. (2)
|
4.4
|
|
Confidentiality
Agreement dated November 1, 2005 between ViRexx Medical Corp. and
Dr.
Lorne Tyrrell. (2)
|
4.5+
|
|
Employment
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Michael
W. Stewart. (2)
|
4.6
|
|
Confidentiality
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Michael
W. Stewart. (2)
|
4.7+
|
|
Employment
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Dr.
Andrew Stevens. (2)
|
4.8
|
|
Confidentiality
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Dr.
Andrew Stevens. (2)
|
4.9+
|
|
Employment
Agreement dated April 5, 2004 between ViRexx Medical Corp. and Dr.
Irwin
Griffith. (2)
|
4.10
|
|
Confidentiality
Agreement dated April 6, 2004 between ViRexx Medical Corp. and Dr.
Irwin
Griffith. (2)
|
4.11+
|
|
Employment
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Dr. Rajan
George. (2)
|
4.12
|
|
Confidentiality
Agreement dated January 1, 2004 between ViRexx Medical Corp. and
Dr. Rajan
George. (2)
|
4.13
|
|
Agency
Agreement between ViRexx Medical Corp. and Canaccord Capital Corporation
dated March 26, 2005. (1)
|
4.14
|
|
Exclusive
License Agreement between Unither Pharmaceuticals, Inc. and AltaRex
Corp.
dated April 17, 2002. (1)
|
4.15
|
|
First
Amendment to the License Agreement between Unither Pharmaceuticals,
Inc.
and AltaRex Corp. dated August 6, 2003.
(2)
|
Exhibit
No.
|
|
Description
of Document
|
4.16
|
|
Convertible
Note Payable with a prescribed interest rate of 6% granted in favor
of
United Therapeutics Corporation by AltaRex Medical Corp. dated February
3,
2004.
|
4.17
|
|
Arrangement
Agreement between AltaRex Medical Corp. and ViRexx Medical Corp.
dated
October 15, 2004. (1)
|
4.18
|
|
Collaborative
Development Agreement between Protein Sciences Corporation and ViRexx
Medical Corp. effective April 20, 2005. (2)
|
4.19
|
|
License
Agreement between The Governors of the University of Alberta and
ViRexx
Research Inc. dated the 13th day of December, 2001. (3)
|
4.20
|
|
Contract
Research Agreement between the Board of Governors of the University
of
Alberta on behalf of the Noujaim Institute for Pharmaceutical Oncology
Research, Faculty of Pharmacy and Pharmaceutical Sciences, University
of
Alberta and Noustar Technologies Inc. and Somagen Diagnostics Inc.
effective the 15th
day of November, 1998. (3)
|
4.21
|
|
License
Agreement between The Governors of the University of Alberta and
ViRexx
Research Inc. made the 1st
day of May, 2002. (3)
|
4.22
|
|
Royalty
Assignment Agreement between Thrombotics Inc., Novolytic Inc. an
AltaRex
Corp. dated the 1st
day of November, 1999. *
|
4.23
|
|
Technology
Commercialization Agreement made as of the 1st
day of January, 2004 between Alberta Heritage Foundation of Medical
Research and ViRexx Medical Corp. (3)
|
4.24
|
|
Employment
Agreement dated April of 2006 between ViRexx Medical Corp. and Scott
Langille. *
|
4.25+
|
|
Amendment
dated December 15, 2006, to Employment Agreement between ViRexx Medical
Corp. and Scott Langille. *
|
4.26+
|
|
Amendment
dated December 15, 2006, to Employment Agreement between ViRexx Medical
Corp. and Dr. Lorne Tyrrell. *
|
4.27+
|
|
Amendment
dated December 15, 2006, to Employment Agreement between ViRexx Medical
Corp. and Macaraig Canton. *
|
4.28
|
|
Subscription
Agreement dated April 7, 2006. *
|
4.29
|
|
Subscription
Agreement dated April 18, 2006. *
|
4.30
|
|
Subscription
Agreement dated February 15, 2006. *
|
4.31+
|
|
Amendment
dated December 18, 2006, to Employment Agreement between ViRexx Medical
Corp. and Scott Langille*
|
4.32+
|
|
Form
of an Employment Agreement dated January 1, 2007 entered into by
and
between ViRexx Medical Corp. and each of ViRexx’s Vice-Presidents. *
|
8.1
|
|
List
of Subsidiaries of ViRexx Medical Corp.*
|
12.1
|
|
Certification
by Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of
the Exchange Act. *
|
12.2
|
|
Certification
by Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
of
the Exchange Act. *
|
13.1
|
|
Certification
by Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b)
of
the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United
States Code. *
|
13.2
|
|
Certification
by Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b)
of
the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United
States Code. *
|
|
|
|
*
|
Filed
herewith.
|
+
|
Compensatory
plan or arrangement.
|
(1)
|
Incorporated
by reference to ViRexx Medical Corp.’s Registration Statement filed with
the SEC on Form 20-F on August 12, 2005. (File No.
000-32608)
|
(2)
|
Incorporated
by reference to ViRexx Medical Corp.’s amended Registration Statement
filed with the SEC on Form 20-F/A on November 28, 2005. (File No.
000-32608)
|
(2)
|
Incorporated
by reference to ViRexx Medical Corp.’s amended Registration Statement
filed with the SEC on Form 20-F/A on December 16, 2005. (File No.
000-32608)
|
(3)
|
Incorporated
by reference to ViRexx Medical Corp.’s Annual Report filed with the SEC on
Form 20-F on May 19, 2006 (File No.
000-32608)
|