REG - PureTech Health PLC - Half Yearly Report <Origin Href="QuoteRef">ANTO.L</Origin> <Origin Href="QuoteRef">PRTC.L</Origin> - Part 2
25/08/2015 07:00
- Part 2: For the preceding part double click ID:nRSY9495Wa
2,362 - 86,755 169 3,139 (70,421) 22,004 (45,317) (23,313)
Net loss - - - - - - (9,327) (9,327) (7,907) (17,234)
Foreign currency exchange - - - - (268) - - (268) - (268)
Total comprehensive loss for the period - - - - (268) - (9,327) (9,595) (7,907) (17,502)
Issuance of shares 24,006,500 480 - 51,751 - - - 52,231 - 52,231
Issuance of IPO Shares (net of issuance costs of $11.8M) 67,599,621 1,352 157,918 - - - - 159,270 - 159,270
New funds into non-controlling interests - - - - - - - - 8,661 8,661
Loss arising from change in NCI - - - - - - (889) (889) 889 -
Issuance of shares as equity incentives 1,248,017 25 (25) - - - - - - -
Conversion of convertible notes - - - - - - 88 88 - 88
Dividends - - - - - - (42) (42) - (42)
Equity-settled share-based payments - - - - - 4,336 - 4,336 - 4,336
Balance at 30 June 2015 210,953,105 4,219 157,893 138,506 (99) 7,475 (80,591) 227,403 (43,674) 183,729
-
(42)
(42)
-
(42)
Equity-settled share-based payments
-
-
-
-
-
4,336
-
4,336
-
4,336
Balance at 30 June 2015
210,953,105
4,219
157,893
138,506
(99)
7,475
(80,591)
227,403
(43,674)
183,729
See accompanying notes to the condensed consolidated interim financial
statements.
Condensed Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net operating loss (17,234) (32,837)
Adjustments to reconcile net operating loss to net cash used in operating activities:
Non-cash items:
Depreciation and amortisation 283 222
Equity-settled share-based payment expense 4 4,336 315
(Gain)/loss on foreign currency transactions (291) 15
Finance costs 5 3,869 27,919
Changes in operating assets and liabilities:
Accounts receivable, net 570 792
Other financial assets (9) (4)
Prepaid expenses and other current assets (155) (232)
Deferred revenues (639) 283
Other long-term liabilities 464 1
Accounts payable and accrued expenses 6,752 201
Net cash used in operating activities (2,054) (3,325)
Cash flows from investing activities:
Purchase of property and equipment (2,247) (67)
Purchases of intangible assets 7 (1,155) -
Proceeds from sale of available-for-sale investments - 185
Purchase of short-term investments (100,895) (1,768)
Proceeds from maturity of short-term investments 31,253 1,700
Net cash provided (used in)/by investing activities (73,044) 50
Cash flows from financing activities:
Proceeds from issuance of subsidiary convertible notes 200 5,994
Repayments of long-term debt (307) (10)
Proceeds from the issuance of shares, net of issuance costs 9 211,501 -
Proceeds from issuance of share capital and warrants in subsidiaries 12,11 24,271 338
Subsidiary deferred initial public offering costs (1,236) -
Dividends paid (42) (96)
Net cash provided by financing activities 234,387 6,226
Effect of exchange rates on cash and cash equivalents 54 (8)
Net increase in cash and cash equivalents 159,343 2,943
Cash and cash equivalents at beginning of period 61,960 7,171
Cash and cash equivalents at end of period 221,303 10,114
61,960
7,171
Cash and cash equivalents at end of period
221,303
10,114
See accompanying notes to the condensed consolidated interim financial
statements.
Notes to the Condensed Consolidated Interim Financial Statements
1. General information
a.) Reporting entity
PureTech is comprised of PureTech Health plc and its subsidiaries (together,
"the Group" or the "Company"). The Company is publicly listed on the Main
Market of the London Stock Exchange. PureTech Health plc is a scientifically
driven research and development company that conceptualises, sources,
validates and commercialises unexpected and potentially disruptive approaches
to advance the needs of human health. The Company has a theme-driven approach
to creating and developing its initiatives, proposing innovative solutions
rooted in academic research and developing them together with a creative group
of cross disciplinary experts. The Company structures its themed initiatives
as independent operating companies, to enable those initiatives to reach their
full potential and attract and incentivise skilled personnel, investors and
partners. The Group provides a combination of experienced management and
administrative support to its operating companies in which it typically holds
a significant ownership interest. Cash contributed by PureTech Health plc to
its subsidiaries is used to fund research and to create a management structure
and operations.
The Group seeks third party validation of its operating companies and
concept-phase initiatives through strategic collaboration, industry
partnerships and grants. Use of partnerships, grants and external debt and
equity investments in its operating companies enables the Group to distribute
development and financial risk, while preserving its significant equity
ownership and control of operating companies.
The Company was formed on 8 May 2015. On 18 June 2015, PureTech Health plc
completed a reorganisation of the corporate structure of the group of
companies controlled by its predecessor PureTech Health, LLC ("PureTech LLC")
pursuant to which PureTech Health plc became the holding company of the Group.
Preceding this reorganisation, on 18 June 2015 each outstanding PureTech LLC
preferred share was converted into one Series 1 Common Share of PureTech LLC.
Thereafter, pursuant to an agreement entered into between the Company,
PureTech LLC and each of the members of PureTech LLC who had signed a joint
signature page, issued and outstanding PureTech LLC Common Shares were
exchanged as follows: (i) each Series 1 Common Share was exchanged for ten
Ordinary Shares; (ii) each Series 2 Common Share was exchanged for Ordinary
Shares in the Company on the basis of an exchange ratio calculated by
reference to ten Ordinary Shares for each Series 2 Common Share, adjusted for
the currency exchange rate of £1:$1.5648 and to take account of the Series 2
Common Share floor price of $4.31 per share associated with each Series 2
Common Share so exchanged, with each such number of Ordinary Shares to be
issued by the Company being rounded down to the nearest whole number; and
(iii) each Series 3 Common Share was exchanged for Ordinary Shares in the
Company on the basis of an exchange ratio calculated by reference to ten
Ordinary Shares for each Series 3 Common Share, adjusted for the currency
exchange rate of £1:$1.5648 and to take account of the Series 3 Common Share
floor price of $11.45 per share associated with each Series 3 Common Share so
exchanged, with each such number of Ordinary Shares to be issued by the
Company being rounded down to the nearest whole number.
On 24 June 2015 the Company's entire issued ordinary share capital of
227,248,008 ordinary shares of one pence each was admitted to the premium
listing segment of the Official List of the UK Listing Authority and to
trading on the Main Market of the London Stock Exchange for listed
securities.
b.) Basis of preparation
These interim financial statements have been prepared in accordance with
International Accounting Standard ("IAS") 34 Interim Financial Reporting. They
do not include all the information required for a complete set of IFRS
financial statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an understanding of
the changes in the Group's financial position and performance since the last
annual consolidated financial information included in the Prospectus as at and
for the year ended 31 December 2014.
The merger of PureTech Health plc and PureTech LLC was performed so that
existing shareholders of PureTech LLC obtained ownership in PureTech Health
plc in order to facilitate listing on the premium listing segment of the
Official List of the UK Listing Authority and admission to the main market of
the London Stock Exchange. Ownership before and after the merger remained the
same. As a result, this has been accounted for under the principles of reverse
acquisition accounting. Share capital movements are shown as occurred prior to
the merger but in denominations consistent with post-merger share capital. In
addition the merger reserve records amounts previously recorded as share
premium net of differences arising between share capital on the restructured
basis and the former basis.
Subsidiaries are fully consolidated from the date of acquisition, being the
date on which the Group obtains control and continue to be consolidated until
the date when such control ceases. The financial information of the
subsidiaries is prepared for the same reporting period as the parent Company,
using consistent accounting policies. All intra-group balances, transactions,
unrealised gains and losses resulting from intra-group transactions and
dividends are eliminated in full.
Non-controlling interests (''NCI'') are measured at their proportionate share
of the acquiree's identifiable net assets at the acquisition date. If there is
an obligation to deliver cash or other assets, the investment is classified as
subsidiary preferred stock. Changes in the Group's interest in a subsidiary
that do not result in a loss of control are accounted for as equity
transactions.
This financial information presented in these half-yearly results has been
prepared under the historical cost convention. The reporting currency adopted
by the Company is U.S. dollar ('$') as this is the functional currency of the
majority of the entities in the group. In preparing these interim financial
statements, management has made judgements, estimates and assumptions that
affect the application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may differ from
these estimates.
The Company has prepared trading and cash flow forecasts for the Group
covering the period to 31 December 2016. After making enquiries and
considering the impact of risks and opportunities on expected cash flows, the
Directors have a reasonable expectation that the Group has adequate cash to
continue in operational existence for the foreseeable future. For this
reason, they have adopted the going concern basis in preparing the half-yearly
results.
The financial information contained in this half-yearly report does not
constitute full statutory accounts as defined in section 434 of the Companies
Act 2006. The condensed consolidated financial statements are not audited and
the results for the six months ended 30 June 2015 are not necessarily
indicative of results for future operating periods.
Although PureTech Health plc has not yet had to prepare statutory accounts
(its first accounting reference date will be 31 December 2015), it has
prepared consolidated financial information for the year ended 31 December
2014 for the purposes of preparing its Prospectus. This information has been
extracted and included for comparative purposes in this Half-Yearly report.
These interim financial statements are unaudited and were approved by the
Board of Directors and authorised for issue on 21 August 2015.
c.) Use of judgments and estimates
In preparing this consolidated financial information, management has made
judgments, estimates and assumptions that affect the application of the
Group's accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to estimates are recognised prospectively.
Significant estimates are made by the Group when determining the appropriate
methodology for valuing the subsidiary businesses for disclosure purposes and
then in deriving the estimated fair value including making certain estimates
of the future earnings potential of the businesses and determining the
appropriate discount rate. Significant judgment is applied in determining the
valuation of share-based payments, derivative instruments and warrants and in
determining the value and point of capitalisation of intangible assets.
Significant judgment is also applied in determining where control over
subsidiaries exists. Information about these critical judgments and estimates
is included in the following notes.
d.) Accounting policies
The accounting policies applied by the Group in these half-yearly results are
the same as those applied by the Group in its consolidated financial
information for the year ended 31 December 2014 included in the Prospectus and
which will form the basis of the 2015 Annual Report and Accounts. No new
standards that have become effective in the period have had a material effect
on the Group's financial statements.
2. Segment information
2.1 Basis for segmentation
The Directors are the Group's strategic decision-makers. The Group's
operating segments are reported based on the financial information provided to
the Directors at least quarterly for the purposes of allocating resources and
assessing performance. The Directors monitor the results of two operating
segments. Each operating segment is considered a distinct unit by the
Directors. The Group's operating segments, which are also reportable
segments, are outlined below. Substantially all of the revenue and profit
generating activities of the Group are generated within the U.S. and
accordingly, no geographical disclosures are provided.
2.1.1 Growth stage operating companies - subsidiaries in this segment are
those whose activities focus on actively developing products to solve major
healthcare problems in varied markets.
2.1.2 Project phase and sourcing companies - subsidiaries in this segment
are those whose activities are focused on financing, sourcing and creating new
operating companies and newly created operating companies whose technologies
are in the process of validation.
2.2 Information about reportable segments
Consolidated Statement of Loss and Other Comprehensive LossRevenue 10,082 907 - 10,989
Loss from continuing operations, before taxes (6,605) (218) (8,652) (15,475)
Consolidated Statement of Financial Position
Total assets 47,936 5,546 250,010 303,492
Total liabilities (118,088) (6,448) 4,773 (119,763)
Net (liabilities)/assets (70,152) (902) 254,783 183,729
303,492
Total liabilities
(118,088)
(6,448)
4,773
(119,763)
Net (liabilities)/assets
(70,152)
(902)
254,783
183,729
Consolidated Statement of Financial Position
Total assets 15,710 1,421 53,897 71,028
Total liabilities (95,749) (2,067) 3,475 (94,341)
Net (liabilities)/assets (80,039) (646) 57,372 (23,313)
71,028
Total liabilities
(95,749)
(2,067)
3,475
(94,341)
Net (liabilities)/assets
(80,039)
(646)
57,372
(23,313)
Consolidated Statement of Loss and Other Comprehensive Loss
Revenue 120 1,020 - 1,140
Loss from continuing operations, before taxes (32,138) (223) (476) (32,837)
Revenue
120
1,020
-
1,140
Loss from continuing operations, before taxes
(32,138)
(223)
(476)
(32,837)
The activity between the parent company and the reporting segments has been
eliminated in consolidation. These elimination amounts are included in the
parent company and other amounts shown above.
2.3 Growth stage operating company valuation
At the close of each annual financial period, the Directors estimate, and
formally approve, the value of all growth stage operating companies in the
Group, which is used to derive the Aggregate Value of Growth Stage Operating
Company Holdings ("Aggregate Holdings"). The Aggregate Holdings is a
sum-of-the-parts valuation of all the growth stage companies in the Group.
The Aggregate Holdings was $222.4 million as at 31 December 2014 and takes
into account the value implied by the following: (i) the closing by Vedanta
Biosciences of a licensing agreement with Janssen Biotech for a non-refundable
upfront payment and milestone payments of up to $339 million plus tiered
royalties to develop and commercialise its microbiome product candidate VE202
in early January 2015, (ii) the closing of a $14.5 million financing of which
PureTech invested $5 million, by Tal Medical in March 2015 and (iii) the
closing of a $22.3 million financing, of which PureTech invested $3 million,
by Gelesis in March 2015. The Directors believe there has been no significant
change in the Aggregate Holdings value since 31 December 2014 through 30 June
2015 outside of those items described in the immediately preceding sentence.
Further details about the Aggregate Holdings and the Group valuation
methodology are disclosed in the consolidated financial information included
in the Prospectus.
Notwithstanding the fact that the valuation methodologies applied are based on
the AICPA Guidelines and while the Board considers the methodologies and
assumptions adopted in each valuation are supportable, reasonable and robust,
because of the inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had a ready
market for the investment existed and the differences could be significant.
The AICPA Guidelines do not represent, but are consistent with, valuation
principles adopted under, IFRS. The operating company valuations are not
presented as alternative measures to, and should be read in conjunction with,
the Group's consolidated financial information.
In addition to the Aggregate Holdings Value, the Directors believe that
PureTech's established partner network and significant pipeline of future
opportunities to form and develop new subsidiary companies will enable it to
create and realise further value for shareholders. The Directors believe that
PureTech has created significant brand value and name recognition providing
access to new deal opportunities and potential partners for its subsidiaries,
together with a suite of operational standards, processes and know how that
enable the Group to apply its business model and create shareholder value in a
capital efficient manner.
3. Earnings per share
The calculation of basic and diluted earnings per share has been calculated by
dividing the loss for the period attributable to ordinary shareholders of $9.3
million (HY14: $16.4m), by the weighted average number of ordinary shares
outstanding of 146,105,740 (HY14: 63,658,930) during the six-month period
ended 30 June 2015:
Loss attributable to ordinary shareholders:
For the six months ended: 30 June 2015(unaudited) 30 June 2014(unaudited)
Basic $'000 Diluted$'000 Basic $'000 Diluted$'000
Loss for the period, attributable to the owners of the Company (9,327) (9,327) (16,398) (16,398)
Loss attributable to ordinary shareholders (9,327) (9,327) (16,398) (16,398)
Weighted average number of ordinary shares:
For the six months ended: 30 June 2015(unaudited) 30 June 2014(unaudited)
Basic $'000 Diluted$'000 Basic $'000 Diluted$'000
Issued ordinary shares on 1 January 118,098,967 118,098,967 63,658,930 63,658,930
Effect of shares issued 28,006,773 28,006,773 - -
Weighted average ordinary shares 146,105,740 146,105,740 63,658,930 63,658,930
The following potentially dilutive securities (which are ordinary shares
issued pursuant to the PureTech LLC Incentive Compensation arrangements
detailed in note 4) have been excluded (on a weighted average basis for the
period) from the computation of diluted weighted-average shares outstanding as
they are subject to vesting conditions:
30 June 2015 30 June 2014
Weighted average unvested equity incentive shares 13,316,511 -
Loss per share:
For the six months ended: 30 June 2015(unaudited) 30 June 2014(unaudited)
Basic $'000 Diluted$'000 Basic $'000 Diluted$'000
Loss per share (0.06) (0.06) (0.26) (0.26)
4. Share-based payments
The share-based payments expense for the period was $4.3 million (HY14:
$315,000) comprising charges related to the PureTech Health plc incentive
stock issuances and subsidiary plans, as disclosed in the Prospectus.
The Performance Share Plan ("PSP")
In June 2015, the Company adopted the PSP. Under the PSP, awards over Ordinary
Shares may be made to the Directors, senior managers and employees of, and
other individuals providing services to the Company and its operating
companies up to a maximum authorised amount of 22,724,800 ordinary shares. As
of the six months ended 30 June 2015, no awards have been granted under this
plan. Refer to complete details of the plan within the Prospectus.
PureTech LLC Incentive Compensation
In May 2015 and August 2014, PureTech LLC's Directors approved the issuance of
shares to management, the directors and advisors of PureTech LLC, subject to
vesting restrictions. For the six months ended 30 June 2015 and 30 June 2014,
there were 18,007,537 shares and nil shares granted respectively, of which
16,294,863 shares remain unvested as at 30 June 2015. The fair value of the
shares awarded was estimated as of the date of grant. The Company recorded an
expense of $2.7 million and nil for the six months ended 30 June 2015 and 30
June 2014.
Subsidiaries plans
Certain subsidiaries of the Group have adopted stock option plans. A summary
of unaudited stock option activity in these subsidiaries for the six months
ended 30 June 2015 and 2014, respectively, is presented in the following
table:
Outstanding as of 1 January 2014 1,114,049 643,000 541,927 290,000 - - 687,500 3,276,476
Granted during the year 489,131 - - 1,203,397 550,000 194,063 - 2,436,591
Exercised during the year - (5,000) - - - - - (5,000)
Forfeited during the year - - - (263,597) - - (25,000) (288,597)
Outstanding as of 31 December 2014 1,603,180 638,000 541,927 1,229,800 550,000 194,063 662,500 5,419,470
Granted during the period 97,700 - - 232,500 - - - 330,200
Exercised during the year - - - - - - - -
Forfeited during the year - - (45,000) - - - - (45,000)
Outstanding as of 30 June 2015 1,700,880 638,000 496,927 1,462,300 550,000 194,063 662,500 5,704,670
Outstanding as of 30 June 2015
1,700,880
638,000
496,927
1,462,300
550,000
194,063
662,500
5,704,670
Outstanding as of 1 January 2014 1,114,049 643,000 541,927 290,000 - - 687,500 3,276,476
Granted during the year - - - - 550,000 194,063 - 744,063
Exercised during the year - - - - - - - -
Forfeited during the year - - - - - - - -
Outstanding as of 30 June 2014 1,114,049 643,000 541,927 290,000 550,000 194,063 687,500 4,020,539
Outstanding as of 30 June 2014
1,114,049
643,000
541,927
290,000
550,000
194,063
687,500
4,020,539
Gelesis fair value measurements
The fair value of the stock options awarded under the Gelesis 2006 Stock
Incentive Plan (the "Gelesis Plan") was estimated at the grant date using the
Black-Scholes option valuation model, taking into account the terms and
conditions upon which options are granted, with the following weighted-average
assumptions:
Expected volatility 72.4% n/a
Expected term (in years) 8.3 n/a
Risk-free interest rate 2.2% n/a
Expected dividend yield 0% n/a
Weighted average share price at grant date $9.76 n/a
Weighted average exercise price $7.13 n/a
Weighted average exercise price
$7.13
n/a
No stock options were granted during the six months ended 30 June 2014.
Gelesis used an average historical share price volatility based on an analysis
of reported data for a peer group of comparable companies which were selected
based upon industry similarities. As there is not sufficient historical share
exercise data to calculate the expected term of the options, Gelesis elected
to use the "simplified" method for all options granted at the money-to-value
share option grants. Under this approach, the weighted average expected life
is presumed to be the average of the vesting term and the contractual term of
the option.
The Company recorded stock compensation expense related to the Gelesis Plan of
$1.6 million and $0.3 million for the six months ended 30 June 2015 and 30
June 2014.
Share-based payment expense
The following table provides the classification of the Group's consolidated
share-based payment expense as reflected in the condensed consolidated
statement of loss and other comprehensive loss (in thousands):
General and administrative 4,044 15
Research and development 292 300
Total 4,336 315
Total
4,336
315
There was no income tax benefit recognised for share-based payment
arrangements during the periods present due to operating losses.
5. Financial costs
The following table shows the breakdown of finance income and costs:
For the six months ended: 30 June 2015 (unaudited) 30 June 2014 (unaudited)
$'000 $'000
Finance income
Realised gain on available for sale investments…………………….… - 8
Interest income on bank deposits……………………………………... 609 17
Total finance income……………………………………………….... 609 25
Finance costs………………………………………………………….
Interest expense on other borrowings…………………………………. 392 212
Other expenses and fees……………………………………………….. 250 -
Non-cash interest expense on convertible notes………………………. 361 160
Loss on extinguishment of subsidiary notes payable…………….……. 1,799 -
Total finance costs contractual………………………………………… 2,802 372
Loss from change in fair value of warrant liability……………………. 413 7,018
Loss on fair value measurement of derivative liability………………... 1,263 20,554
Total finance costs………………………………………………….… 4,478 27,944
Finance costs, net………………………………………………….….. 3,869 27,919
27,944
Finance costs, net………………………………………………….…..
3,869
27,919
During the six months ended 30 June 2015, Gelesis recognised a loss on
extinguishment of $1.8 million upon the conversion of outstanding convertible
notes into preferred shares in conjunction with its March 2015 private
financing, as further described in note 11. Refer to note 13 for further
details of warrant and derivative mark to market charge.
6. Tax expense
Tax expense is recognised based on management's best estimate of the
weighted-average annual income tax rate expected for the full financial year
multiplied by the pre-tax income of the interim reporting period.
The Group's consolidated effective tax rate in respect of continuing
operations for the six months ended 30 June 2015 was 10% (six months ended 30
June 2014: 1%). The change in effective tax rate was caused mainly by the
following factors:
· Vedanta Biosciences generated taxable income for the six months ended
30 June 2015 resulting in a year to date current tax expense of $1.7 million.
7. Intangible assets
Academica Life Sciences
In February 2015, Gelesis S.r.l, a wholly-owned subsidiary of Gelesis,
completed the acquisition of Academica Life Sciences S.r.l (Academica) for
$1.1 million. Gelesis concluded that the purchase of Academica represents the
purchase of intellectual property which meets the definition of an intangible
asset. Gelesis has recorded the initial cost of the acquisition of $1.1
million as an intangible asset which will be amortised over the remaining
useful life of the intellectual property on a straight line basis.
8. Property and equipment
During the six months ended 30 June 2015, the Company entered into an office
lease agreement for office space in Boston, Massachusetts. The Company
capitalised leasehold improvements in the amount of $1.1 million associated
with the build out of the office space which represents the majority of the
$1.9 million increase in property and equipment from 30 June 2014 to 30 June
2015.
9. Equity
In January 2015, the Company completed a private financing round with Invesco
Asset Management Limited as the lead investor and issued 24,006,500 ordinary
shares resulting in cash proceeds of $52.2 million.
On 24 June 2015 the Company's entire issued ordinary share capital of
227,248,008 ordinary shares of one pence each were admitted to the premium
listing segment of the Official List of the UK Listing Authority and to
trading on the Main Market of the London Stock Exchange for listed securities.
The IPO was for 67,599,621 new ordinary shares issued by the Company at 160
pence per ordinary share. This resulted in approximately $159 million of net
proceeds from the IPO (net of issue cost of approximately $11.8 million)
reflected in the share premium balance as of 30 June 2015.
The Group may, at its absolute discretion, pay an incentive fee to the IPO
underwriter equal to 1.25% of the IPO proceeds, £1,554,791 ($2,444,925), 90
days after admission to the London Stock Exchange. The Group has not yet made
a determination on the payment of this incentive fee.
The IPO also included an over-allotment option equivalent to 15% of the total
number of new ordinary shares, or 10,139,943. The stabilisation manager gave
notice to exercise in full its over-allotment option after the reporting
period on 2 July 2015. As a result, the Company issued 10,139,943 Shares at
the offer price of 160 pence per share achieving further net proceeds for the
Company of £15.7 million, or approximately USD $24.1 million. The total number
of issued ordinary shares and voting rights in the Company after issuing the
over-allotment shares is 237,387,951.
Movements below explain the movements in share capital taking into account the
reorganisation. Each movement in share capital reflects the number of shares
and nominal value of the shares as if the reorganisation had been in place at
that date and the shares were those of PureTech Health plc.
Share capital, £0.01par value, issued and fully paid 227,248,008 and 118,098,967 as of 30 June 2015, and 31 December 2014 respectively
4,219 2,362
Share premium 157,893 -
Merger reserve 138,506 86,755
Translation reserve (99) 169
Other reserves 7,475 3,139
Accumulated deficit (80,591) (70,421)
Equity attributable to owners of the Group 227,403 22,004
Non-controlling interests 12 (43,674) (45,317)
Total equity 183,729 (23,313)
Non-controlling interests
12
(43,674)
(45,317)
Total equity
183,729
(23,313)
At 30 June 2015 outstanding ordinary shares were 210,953,105 and exclude
16,294,863 unvested ordinary shares issued pursuant to PureTech LLC Incentive
Compensation arrangements detailed in note 4.
10. Notes payable
In conjunction with its March 2015 private financing, Gelesis converted $3.9
million of convertible notes plus accrued interest into preferred shares.
During the same month, Tal, also in conjunction with its private financing,
converted $0.5 million of convertible notes plus accrued interest into
preferred shares. These conversions resulted in the recognition of $0.9
million of related derivatives. Vedanta Biosciences repaid $0.3 million of
convertible notes payable 31 May 2015. The decrease in the notes payable
balance from 31 December 2014 to 30 June 2015 is primarily driven by these
transactions.
11. Subsidiary preferred shares
Certain of the Group's subsidiaries have outstanding preferred shares which
have been classified as a liability as the subsidiaries have a contractual
obligation to deliver cash or other assets to the holders under certain future
events. The preferred shares do not contain mandatory dividend rights and are
not mandatorily redeemable. The preferred shares are convertible into common
stock of the subsidiary at the option of the holder and mandatorily
convertible into common stock of the subsidiary upon a subsidiary qualified
financing or upon the vote of the holders of a majority of the subsidiary
preferred shares. The conversion feature has been accounted for as a
derivative liability at fair value with the residual proceeds allocated to the
subsidiary preferred share at issuance. The preferred shares are entitled to
a vote with holders of common stock on an as-converted basis. The holders of
the preferred shares are entitled to a liquidation preference amount in the
event of a liquidation or a deemed liquidation event of the respective
subsidiary.
The following summarises the subsidiary preferred share balance:
30 June 2015 31 December 2014
$'000 $'000
Subsidiary preferred shares 33,063 11,494
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of a subsidiary, the holders of subsidiary preferred shares then
outstanding shall be entitled to be paid out of the assets of the subsidiary
available for distribution to stockholders and before any payment shall be
made to holders of common stock. A merger, acquisition, sale of voting
control or other transaction of a subsidiary in which the shareholders of the
subsidiary do not own a majority of the outstanding shares of the surviving
company shall be deemed to be a liquidation event. Additionally, a sale,
lease, transfer or other disposition of all or substantially all of the assets
of the subsidiary shall also be deemed a liquidation event.
The minimum liquidation preference that would be payable to the subsidiary
preferred holders upon a liquidation event of the subsidiaries, is as
follows:
30 June 2015 31 December 2014
$'000 $'000
Akili 4,613 4,613
Follica 2,020 2,020
Gelesis 35,569 14,451
Total 42,202 21,084
For the six months ended 30 June 2015, the Group recognised the following
changes in subsidiary preferred shares:
In March 2015, Gelesis closed an $18.0 million private equity financing with
Invesco Asset Management Limited as the lead investor. PureTech invested $3.0
million in the financing. Also, in conjunction with this transaction,
preferred shares were issued upon conversion of $4.3 million of outstanding
convertible notes.
12. Non-controlling interest
The following summarises the changes in the equity classified non-controlling
ownership interest in subsidiaries by reportable segment:
Non-controlling interest as of 31 December 2014 (45,322) 5 - (45,317)
New funds into non-controlling interest 8,661 - - 8,661
Share of comprehensive loss (7,908) 1 - (7,907)
Effect of change in Group's ownership interest 889 - - 889
Non-controlling interest as of 30 June 2015 (43,680) 6 - (43,674)
Effect of change in Group's ownership interest
889
-
-
889
Non-controlling interest as of 30 June 2015
(43,680)
6
-
(43,674)
A portion of the non-controlling ownership interests in Tal and Karuna are
held in preferred shares which entitles the holders to a liquidation
preference amount in the event of a liquidation or a deemed liquidation event
of the respective subsidiary. The minimum liquidation preference that would
be payable to the non-controlling interest holders upon a liquidation event of
the subsidiaries is as follows:
30 June 2015 31 December 2014
$'000 $'000
Karuna 313 313
Tal 11,430 1,160
Total 11,743 1,473
For the six months ended 30 June 2015, the Group recognised the following
changes in ownership in subsidiaries:
In March 2015, Tal closed a $14.5 million private equity financing with
Invesco Asset Management Limited as the lead investor. PureTech invested $5.0
million in the financing. Also, in conjunction with this transaction,
preferred shares were issued upon conversion of outstanding convertible
notes.
13. Financial instruments
All of the Group's financial assets and liabilities, with the exception of the
derivative and warrant liabilities, are measured at amortised cost. The
derivative and warrant liabilities are carried at fair value with changes
recognised in through finance costs, net in the consolidated statement of loss
and other comprehensive loss.
A summary of the changes in the Group's embedded derivative liabilities and
warrant liabilities measured at fair value using significant unobservable
inputs (Level 3) as of and for the year ended 31 December 2014 and the six
months ended 30 June 2015 is as follows:
Balance as of 31 December 2013 2,075 504 2,548
Value of derivatives at issuance 4,159 2,675 145
Change in fair value 45,487 (414) 11,432
Settlement of derivatives - (1,692) -
Balance as of 31 December 2014 51,721 1,073 14,125
Value of derivatives at issuance 752 40 -
Change in fair value 1,254 9 413
Settlement of derivatives - (968) -
Balance as of 30 June 2015 53,727 154 14,538
(968)
-
Balance as of 30 June 2015
53,727
154
14,538
The change in the fair value of derivatives and warrants is recorded in
finance costs, net in the consolidated statement of loss and other
comprehensive loss.
At each measurement date, the fair value of the conversion rights embedded in
the preferred shares was determined using with and without framework which
consisted of a three-step process. First, the value of each company within
the Group was determined using a discounted cash flow model, guideline
transaction method, or through a recent arm's length financing round. Second,
the value of the subject preferred shares was determined using either an
option pricing allocation model or a probability weighted expected return
model, where the conversion rights of the preferred shareholders were included
and then excluded. Third, the fair value of conversion rights was calculated
as the difference of value between the concluded values of preferred shares
with and without the conversion rights.
Quantitative information about the significant unobservable inputs used in the
fair value measurement of the Group's embedded derivative liability related to
the subsidiary preferred shares designated as Level 3 as follows:
Option Pricing Model Inputs
Range of Values
Measurement Date Expiration Date Volatility Risk-Free Rate
4/30/2011…………………………………… 1 year 70.0% 0.22%
12/31/2011………………………………….. 1 year 71.0% 0.12%
6/30/2012…………………………………… 1 year 70.0% 0.21%
12/31/2012………………………………….. 0.75 - 5.0 years 0.67% - 0.85% 0.12% - 0.72%
12/31/2013………………………………….. 5 years 75.0% 1.75%
2/28/2014…………………………………… 3.5 years 60.0% 0.94%
3/31/2014…………………………………… 5 years 75.0% 1.73%
12/31/2014………………………………….. 2.0 - 5.0 years 60.0% 0.67% - 1.65%
6/30/2015…………………………………… 1.5 - 4.5 years 35.0% - 65.0% 0.48% - 1.53%
1.5 - 4.5 years
35.0% - 65.0%
0.48% - 1.53%
Probability Weighted Expected Return Method Inputs
Range of Values
Measurement Date Time to Anticipated Exit Event Probability of IPO / M&A / Dissolution Sale
8/1/2013…………………………………… 1.25 - 1.34 years 30.0% / 55.0% / 15.0%
12/31/2013………………………………… 1.25 years 30.0% / 55.0% / 15.0%
3/31/2014………………………………….. 1.0 year 40.0% / 45.0% / 15.0%
12/31/2014………………………………… 0.33 years 70.0% / 25.0% / 5.0%
6/30/2015………………………………….. 0.38 - 0.50 years 70.0% / 30.0% / 0.0%
0.38 - 0.50 years
70.0% / 30.0% / 0.0%
Quantitative information about the significant unobservable inputs used in the
fair value measurement of the Group's embedded derivative liability related to
the convertible notes designated as Level 3 is as follows:
Significant Unobservable Inputs At Issuance 12/31/2012 12/31/2013 12/31/2014 6/30/2015
Time to next qualified equity financing…………..…… 1.00 - 2.03 years 0.50 - 1.02 years 0.25 - 1.01 years 0.16 - 0.25 years 1.00 - 1.50 years
Implied discount rate….…... 11.3% - 2,459.0% 18.3% - 34.8% 12.1% - 34.8% 18.3% - 34.8% 13.3% - 29.8%
Probabilities of a qualified financing………..…….... 50% / 50% - 100% / 0% 50% / 50% - 70% / 30% 50% / 50% - 85% / 15% 50% / 50% - 90% / 10% 50% - 75%
50% / 50% - 85% / 15%
50% / 50% - 90% / 10%
50% - 75%
The following weighted average assumptions were used to determine the fair
value of the warrants at 30 June 2015:
Series A-1 Warrants Series A-3 Warrants Series A-4 (contingent) Warrants
Expected term…………………………………………..…. 5.80 - 8.54 years 7.00 years 8.10 years
Expected volatility………………………………………… 60.1% - 65.0% 73.0% 77.0%
Expected dividend yield…………………………………… - - -
Risk free interest rate……………………………………… 1.9% - 2.2% 2.1% 2.1%
Estimated fair value of the convertible preferred stock…... $1.19 - $12.41 $12.41 $12.41
Exercise price of warrants…………………………………. $0.14 - $4.44 $0.04 $0.04
$12.41
Exercise price of warrants………………………………….
$0.14 - $4.44
$0.04
$0.04
The fair value of these embedded derivative liabilities may differ
significantly in the future from the carrying value as of 30 June 2015, and,
accordingly, adjustments may be recorded in the consolidated statement of loss
and other comprehensive loss at that time.
14. Related party transactions
14.1 Transactions with key management personnel
14.1.1 Key management personnel compensation
Key management includes directors and members of the executive management team
of the Group. The compensation of key management personnel of the Group was
as follows:
For the six months ended: 30 June 2015$ 000 30 June 2014$ 000
Short-term employee benefits 1,342 715
Share-based payments 666 -
Total 2,008 715
Wages and employee benefits include salaries, health care and other non-cash
benefits. Share-based payments are subject to vesting terms over future
periods.
14.1.2 Convertible debt issued to key management personnel
Certain members of the Group have issued convertible notes to employees, key
management personnel and directors. Issuances to related parties by
subsidiary are presented below.
Vedanta Biosciences
Bennett Shapiro Director 10% - 50 50
Akili
Bennett Shapiro Director 10% - 50 50
Total - 100 100
Director
10%
-
50
50
Total
-
100
100
14.1.3 Directors' and Senior Managers' shareholdings and share incentive
awards
The Directors and senior managers hold beneficial interests in shares in the
following operating companies and sourcing companies as at 30 June 2015:
Company name (share class) Number of shares held as at 30 June 2015 Number of options held as at 30 June 2015 Ownership interest(1)
Directors
Mr. Joichi Ito…………. Akili (Series A-2 preferred) 26,627 - 0.3%
Ms. Daphne Zohar(2)…. Gelesis (common) 18,944 634,234 5.2%
Dame Marjorie Scardino……………… - - - -
Dr. Bennett Shapiro(4)... Akili (Series A-2 preferred)(3) 33,088 - 0.3%
Gelesis (common) 24,010 10,841 0.5%
Gelesis (Series A-1 preferred)(5) 82,574 - 0.5%
Tal (Series A-2 preferred)(3) 14,451 - 0.1%
Vedanta Biosciences (common) - 25,000 0.5%
Dr. Robert Langer…….. Entrega (common) - 250,000 5.0%
Dr. Raju Kucherlapati... Enlight (Class B common) 30,000 - 3.0%
Dr. John LaMattina(4)…. Akili (Series A-2 preferred) 37,372 - 0.4%
Gelesis (common)(4) 54,120 63,052 1.3%
Gelesis (Series A-1 preferred)(4)(5) 174,621 - 1.3%
Tal (Series A-2 preferred) 114,411 - 1.2%
Vedanta Biosciences (common) 25,000 - 0.5%
Mr. Christopher Viehbacher…………… - - - -
Mr. Stephen Muniz…... - - - -
Senior Managers
Dr. Eric Elenko………. - - - -
Mr. David Steinberg…. - - - -
-
-
Notes:
(1) Ownership interests are as at 30 June 2015 calculated on a
diluted basis, including issued and outstanding shares, warrants and options
(and written commitments to issue options) to purchase shares, but excluding
unallocated shares authorised to be issued pursuant to equity incentive plans,
and any shares of common stock issuable upon conversion of outstanding
convertible promissory notes. Unallocated shares authorised to be issued
pursuant to equity incentive plans are further discussed in the Group's
Prospectus.
(2) Common stock and options held by Yishai Zohar, the husband of
Ms. Zohar. Ms. Zohar does not have any direct interest in the share capital of
Gelesis. Ms. Zohar recuses herself from any and all material decisions with
regard to Gelesis.
(3) Shares held though Dr. Bennett M. Shapiro and Ms. Fredericka F.
Shapiro, JTWROS. 174,621 shares of common stock and 174,621 shares of Series
A-1 preferred stock in Gelesis held by Dr. John and Ms. Mary LaMattina. 12,642
shares in Gelesis held individually by Dr. LaMattina.
(4) In addition, the following Directors hold convertible notes
issued by operating companies: (i) Dr. Bennett Shapiro holds convertible notes
issued by Vedanta Biosciences in the aggregate principal amount of $50,000 and
(ii) Dr. John LaMattina holds convertible notes issued by Appeering in the
aggregate principal amount of $50,000, for further details refer to the
Group's Prospectus.
(5) The Gelesis Series A-1 preferred stock coverts to common stock at
a ratio of 3.526 shares of Series A-1 preferred stock to one share of common
stock.
Directors and senior managers hold 32,866,216 shares and 14% voting rights of
the Company as of 30 June 2015.
15. Subsequent events
As discussed above in note 9, as a result of the exercise of the stabilisation
manager's over-allotment option, the Company issued 10,139,943 Shares at the
offer price of 160 pence per share achieving further net proceeds for the
Company £15.7 million, or approximately USD $24.1 million.
In August 2015, Karuna, a PureTech operating company developing a novel,
clinical stage treatment for schizophrenia, received a Translation Fund Award
from the Wellcome Trust comprising an unsecured convertible loan to Karuna of
up to
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