REG - PureTech Health PLC - Final Results
25/04/2024 07:15
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RNS Number : 9592L PureTech Health PLC 25 April 2024
25 April 2024
PureTech Health plc
PureTech Announces Annual Results for Year Ended December 31, 2023
Significant operational and clinical progress in 2023 and early 2024 with
maturation of Internal Programs,(1) launch of two new Founded Entities,(2)
including a $100 million Series A financing for Seaport, and the $14 billion
acquisition of Karuna by Bristol Myers Squibb
Robust balance sheet with PureTech level cash, cash equivalents and short-term
investments of $326.0 million(3) and consolidated cash, cash equivalents and
short-term Investments of $327.1 million(4) as of December 31, 2023
As of March 31, 2024, PureTech level cash, cash equivalents and short-term
investments were $573.3 million,(5) enabling the support of Internal Programs
and Founded Entities, future innovations, shareholder returns and operational
runway into at least 2027
Company to host a webcast and conference call today at 9:00am EDT / 2:00pm BST
PureTech Health plc (Nasdaq: PRTC, LSE: PRTC) ("PureTech" or the "Company")
today announces its results for the year ended December 31, 2023, as well as
its cash balance as of the first quarter ended March 31, 2024. The following
information represents select highlights from the full UK Annual Report and
Accounts, except as noted herein, a portion of which will be filed as an
exhibit to PureTech's Annual Report on Form 20-F for the fiscal year ended
December 31, 2023, to be filed with the United States Securities and Exchange
Commission (the "SEC") and will also available later today at
https://investors.puretechhealth.com/financials-filings/reports
(https://investors.puretechhealth.com/financials-filings/reports) .
Webcast and conference call details
Members of the PureTech management team will host a conference call at 9:00am
EDT / 2:00pm BST today, April 25, 2024, to discuss these results. A live
webcast and presentation slides will be available on the investors section of
PureTech's website under the Events and Presentations tab. To join by phone,
please dial:
United Kingdom (Local): 020 3936 2999
United States (Local): 1 646 787 9445
All other locations
(https://www.netroadshow.com/events/global-numbers?confId=53073)
Access Code: 561143
For those unable to listen to the call live, a replay will be available on the
PureTech website.
Commenting on the annual results, Bharatt Chowrira, Ph.D., J.D., Chief
Executive Officer of PureTech, said:
"2023 was a landmark year for PureTech, in which we made strong strategic and
clinical progress. We've carried this momentum into 2024, with our
hub-and-spoke R&D model continuing to deliver value for both patients and
shareholders. Through this model we are able to ambitiously pursue our mission
of giving life to science by developing therapies that make a meaningful
difference to patients with devastating diseases.
"PureTech pioneered the hub-and-spoke model, and we believe this novel
approach has never been more important than in recent years. The capital
markets have been challenging, yet PureTech has not needed to raise money from
them in over six years, while still identifying and developing cutting-edge
technologies at pace. This is because we have been able to bring in
non-dilutive capital from our Founded Entities to fuel the development of the
next generation of promising therapeutic candidates. It's a self-sustaining
R&D model that is not only proven but scalable and repeatable.
"We take great pride in our track record of clinical success, which is six
times the industry average.(6) Our R&D engine has generated 29 new
therapeutics and therapeutic candidates to date, with two taken from inception
at PureTech to both U.S. FDA clearance and European marketing authorization
and a third currently undergoing review with the FDA - Karuna's KarXT. The
success of Karuna is a prime example of our approach. Invented and initially
advanced by PureTech, with $18.5 million of funding, KarXT is poised to
significantly improve the way schizophrenia is managed after a dearth of
innovation for 50 years. At the same time, PureTech has been able to generate
over $1 billion in cash from Karuna's progression as a Founded Entity, which
culminated in its sale to Bristol Myers Squibb for $14 billion just last
month. We are pleased to return certain portions of proceeds from successes
like this to our shareholders, including through our proposed capital return
of $100 million by way of a Tender Offer(7) and our recently completed $50
million share buyback program, and to reinvest a portion back into our R&D
engine.
"We also continue to progress candidates internally, including LYT-100
(deupirfenidone), which could transform the treatment landscape for idiopathic
pulmonary fibrosis (IPF). LYT-100 is currently being evaluated in a fully
enrolled Phase 2b trial, which we expect to read out in the fourth quarter of
2024. LYT-100 is a great example of our internal R&D focus on therapeutic
candidates with established biology that we believe we can unlock their full
potential with our innovation.
"Once internally-developed candidates reach a critical juncture, we have a
range of options to advance them in a capital-efficient manner, including
progressing them in Founded Entities or through partnerships, that allows us
to focus on new opportunities, be more capital efficient and reduce the risks
that are inherent in biotech for our shareholders. We recently announced the
formation of two new Founded Entities, Seaport Therapeutics and Gallop
Oncology. Having successfully completed an oversubscribed Series A financing
of $100 million, and with Ms. Daphne Zohar at the helm, Seaport is looking to
advance first and best-in-class medicines for the treatment of
neuropsychiatric disorders using the Glyph(TM) platform. Additionally, Gallop
will be advancing the LYT-200 program for hematological malignancies and
metastatic solid tumors.
"The work that we do at PureTech is transformational and full of purpose, and
I'd like to thank all colleagues past and present who have built this
remarkable business into what is it today. PureTech has a very bright future
thanks to the passion of its people and the strength of its science, and I'm
proud and humbled to be leading the company into an exciting new phase of
growth, with multiple catalysts that can deliver significant value."
2023 and Early 2024 Operational Highlights
Generated significant value with momentum across Internal Programs and Founded
Entities, validating hub-and-spoke model. Key highlights include the
following:
· LYT-100 (deupirfenidone) is currently being developed internally by
PureTech for the treatment of IPF, which is a rare, progressive, and fatal
disease.
o PureTech presented expanded data at the CHEST Annual Meeting from a
completed trial of LYT-100 in healthy older adults, which informed the two
doses selected for the ongoing Phase 2b trial (ELEVATE IPF).
o In the 2024 post-period, PureTech completed enrollment in ELEVATE IPF.
Topline results are expected in Q4 2024.
· Seaport Therapeutics (Seaport):
o PureTech launched Seaport Therapeutics with a $100 million oversubscribed
Series A financing in the 2024 post-period to progress the development of
neuropsychiatric therapeutic candidates enabled by its Glyph platform. Seaport
will be led by PureTech founding CEO and co-founder Daphne Zohar with Steven
M. Paul, former CEO and Chair of Karuna, leading the Board of Directors as
Chair.
· Gallop Oncology (Gallop):
o Puretech launched Gallop Oncology to advance LYT-200 (anti-galectin-9 mAb)
for the treatment of hematological malignancies, such as acute myeloid
leukemia (AML) and high-risk myelodysplastic syndromes, and metastatic/locally
advanced solid tumors, including head and neck cancers.
o LYT-200 has demonstrated a favorable safety and tolerability profile in
two ongoing Phase 1b clinical trials - one in AML and another in combination
with BeiGene's tislelizumab in head and neck cancers.
o In the 2024 post-period, the FDA granted LYT-200 Orphan Drug designation
for the treatment of AML as well as Fast Track designation for the treatment
of head and neck cancers.
· Karuna Therapeutics (Karuna):(8)
o Karuna announced positive topline results from its second Phase 3 trial of
its lead investigational therapy, KarXT (xanomeline-trospium) in adults with
schizophrenia.
o The U.S. Food and Drug Administration accepted its New Drug Application
for KarXT and a decision is expected by September 26, 2024. If approved, KarXT
will be the first new mechanism in over 50 years for patients with
schizophrenia.
o Bristol Myers Squibb (NYSE: BMY) acquired Karuna for $330.00 per share in
cash, for a total equity value of $14.0 billion in the 2024 post-period.
PureTech received approximately $293 million gross proceeds from its equity
position in Karuna and is eligible to receive further milestones and royalty
payments based on KarXT regulatory and commercial successes.
o PureTech entered into a royalty agreement with Royalty Pharma for KarXT
royalties worth up to $500 million with $100 million up front in cash and a
further $400 million in milestone payments.
· Vedanta Biosciences (Vedanta):
o Vedanta raised $106.5 million to support pivotal-stage development of its
lead candidate, VE303, for the prevention of recurrent Clostridioides
difficile infection, and a Phase 2 study of VE202 for ulcerative colitis,
among other development activities. The syndicate was co-led by new investors
AXA IM and The AMR Action Fund along with existing investors including The
Bill & Melinda Gates Foundation and PureTech.
o Vedanta announced the publication of Phase 2 study results from its lead
program, VE303, in the Journal of the American Medical Association (JAMA).
· Akili (Nasdaq: AKLI):
o Akili announced positive data from a pivotal trial of EndeavorRx®(9) in
adolescents aged 13-17 with attention-deficit/hyperactivity disorder (ADHD)
and subsequently received authorization from the U.S. Food and Drug
Administration (FDA) to expand the label for EndeavorRx® to include this age
group. This increased age range is expected to more than double the number of
pediatric patients with ADHD who are now eligible for EndeavorRx.
o Akili released EndeavorOTC®(10) and submitted a 510(k) application to the
FDA for EndeavorOTC as an over-the-counter treatment for adults with ADHD.
o Akili announced plans to pursue regulatory approval for over-the-counter
labeling of its treatment products and expects that both EndeavorOTC and
EndeavorRx will remain on the market as the company pursues these plans.
o Vor (Nasdaq: VOR)
o Presented updated clinical data from patients treated in VBP101, its Phase
1/2a multicenter, open-label, first-in-human study of trem-cel (VOR33) in
patients with AML at the ASTCT/EBMT 6th International Conference on Relapse
After Transplant and Cellular Therapy (HSCT²). The additional data
demonstrated successful engraftment of trem-cel in all seven patients treated
to date with trem-cel. All three patients treated with Mylotarg experienced
hematologic protection and CD33-negative donor cell enrichment with multiple
cycles.
Strengthened senior team with post-period personnel appointments(11)
· Bharatt Chowrira, Ph.D., J.D., a core member of the Senior Leadership
Team, current Executive Director and PureTech President since 2017 was
appointed Chief Executive Officer (CEO).
· Eric Elenko, Ph.D., Co-founder and formerly Chief Innovation Officer
at PureTech, was appointed President.
· Charles Sherwood, J.D., was promoted to General Counsel at PureTech.
Prior to joining PureTech in August 2021, Charles was Vice President,
Corporate Legal Counsel at Anika Therapeutics.
· Sven Dethlefs, Ph.D., a global pharmaceutical executive with over 25
years of experience, joins PureTech from Teva Pharmaceuticals, where he held
numerous leadership roles, as an entrepreneur-in-residence. He will work with
the PureTech leadership team on the development of LYT-100 and PureTech's
corporate strategy.
Financial Highlights
· PureTech level cash, cash equivalents and short-term investments were
$326.0 million(3) as of December 31, 2023.( )
· Consolidated cash, cash equivalents and short-term investments were
$327.1 million(4) as of December 31, 2023.
· PureTech's Founded Entities raised $578.4 million in 2023,(12) almost
entirely from third parties.
· PureTech level cash, cash equivalents and short-term investments were
$573.3 million,(5) based on consolidated cash, cash equivalents and
short-term investments of $574.4 million, as of March 31, 2024. These figures
do not account for PureTech's $32 million contribution to the Seaport Series A
financing, its proposed $100 million Tender Offer(7) or any taxes that may be
due on the BMS-Karuna acquisition proceeds received by PureTech.
· PureTech continued to execute a $50 million share buyback program
during the period, which was completed in the February 2024 post-period.
· PureTech proposed a capital return of $100 million by way of a Tender
Offer at 250 pence per ordinary share in the March 2024 post-period. The
Company expects to launch the Tender Offer in early May, subject to market
conditions and shareholder approval.
· PureTech has operational runway into at least 2027.
PureTech Health will release its Annual Report for the year ended December 31,
2023, on April 25, 2024, later today. In compliance with the Financial Conduct
Authority's Listing Rule 9.6.3, the following documents will be submitted to
the National Storage Mechanism today and be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
· Annual Report and Accounts for the year ended December 31, 2023; and
· Notice of 2024 Annual General Meeting.
Printed copies of these documents together with the Form of Proxy will be
posted to shareholders in accordance with applicable UK rules. The Company
will provide a hard copy of the Annual Report containing its audited financial
statements, free of charge, to its shareholders upon request in accordance
with Nasdaq requirements. Requests should be directed in writing by email to
ir@puretechhealth.com (mailto:ir@puretechhealth.com) . Copies will also be
available electronically on the Investor Relations section of the Company's
website at https://investors.puretechhealth.com/financials-filings/reports
(https://investors.puretechhealth.com/financials-filings/reports) .
PureTech's 2024 AGM will be held on June 13, 2024, at 4:00pm BST /11:00am EDT
at the offices of FTI Consulting at 200 Aldersgate, 200 Aldersgate Street,
London EC1A 4HD, United Kingdom.
Shareholders are strongly encouraged to submit a proxy vote in advance of the
meeting and to appoint the Chair of the meeting to act as their proxy. If a
shareholder wishes to attend the meeting in person, we ask that the
shareholder notify the Company by email to ir@puretechhealth.com
(mailto:ir@puretechhealth.com) to assist us in planning and implementing
arrangements for this year's AGM.
Any specific questions on the business of the AGM and resolutions can be
submitted ahead of the meeting by e-mail to ir@puretechhealth.com
(mailto:ir@puretechhealth.com) (marked for the attention of Mr. Charles
Sherwood).
Shareholders are encouraged to complete and return their votes by proxy, and
to do so no later than 4:00 pm (BST) on June 11, 2024. This will appoint the
chair of the meeting as proxy and will ensure that votes will be counted even
though attendance at the meeting is restricted and you are unable to attend in
person. Details of how to appoint a proxy are set out in the notice of AGM.
PureTech will keep shareholders updated of any changes it may decide to make
to the current plans for the AGM. Please visit the Company's website at
www.puretechhealth.com for the most up to date information.
About PureTech Health
PureTech is a clinical-stage biotherapeutics company dedicated to giving life
to new classes of medicine to change the lives of patients with devastating
diseases. The Company has created a broad and deep pipeline through its
experienced research and development team and its extensive network of
scientists, clinicians and industry leaders that is being advanced both
internally and through its Founded Entities. PureTech's R&D engine has
resulted in the development of 29 therapeutics and therapeutic candidates,
including two that have received both U.S. FDA clearance and European
marketing authorization and a third (KarXT) that has been filed for FDA
approval. A number of these programs are being advanced by PureTech or its
Founded Entities in various indications and stages of clinical development,
including registration enabling studies. All of the underlying programs and
platforms that resulted in this pipeline of therapeutic candidates were
initially identified or discovered and then advanced by the PureTech team
through key validation points.
For more information, visit www.puretechhealth.com
(http://www.puretechhealth.com/) or connect with us on X (formerly Twitter)
@puretechh.
Cautionary Note Regarding Forward-Looking Statements
This press release contains statements that are or may be forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements contained in this press release that do not relate to
matters of historical fact should be considered forward-looking statements,
including without limitation those statements that relate to expectations
regarding PureTech's and its Founded Entities' future prospects, development
plans and strategies, including the success and scalability of the Company's
R&D model, the progress and timing of clinical trials and data readouts,
the timing of potential regulatory submissions, and the sufficiency of
available resources and expected operational runway. The forward-looking
statements are based on current expectations and are subject to known and
unknown risks, uncertainties and other important factors that could cause
actual results, performance and achievements to differ materially from current
expectations, including, but not limited to, the following: our history of
incurring significant operating losses since our inception; our ability to
realize value from our Founded Entities; our need for additional funding to
achieve our business goals, which may not be available and which may force us
to delay, limit or terminate certain of our therapeutic development efforts;
our limited information about and limited control or influence over our
Non-Controlled Founded Entities; the lengthy and expensive process of
preclinical and clinical drug development, which has an uncertain outcome and
potential for substantial delays; potential difficulties with enrolling
patients in clinical trials, which could delay our clinical development
activities; side effects, adverse events or other safety risks which could be
associated with our therapeutic candidates and delay or halt their clinical
development; our ability to obtain regulatory approval for and commercialize
our therapeutic candidates; our ability to compete with companies currently
marketing or engaged in the development of treatments for indications within
our programs are designed to target; our ability to realize the benefits of
our collaborations, licenses and other arrangements; the impact of government
laws and regulations; our ability to maintain and protect our intellectual
property rights; our reliance on third parties, including clinical research
organizations, clinical investigators and manufacturers; our vulnerability to
natural disasters, global economic factors, geo-political actions and
unexpected events; and those additional important factors described under the
caption "Risk Factors" in our Annual Report on Form 20-F for the year ended
December 31, 2023, to be filed with the SEC and in our other regulatory
filings. These forward-looking statements are based on assumptions regarding
the present and future business strategies of the Company and the environment
in which it will operate in the future. Each forward-looking statement speaks
only as at the date of this press release. Except as required by law and
regulatory requirements, we disclaim any obligation to update or revise these
forward-looking statements, whether as a result of new information, future
events or otherwise.
Contact:
PureTech EU/UK media U.S. media
Public Relations Ben Atwell, Rob Winder Nichole Bobbyn
publicrelations@puretechhealth.com (mailto:publicrelations@puretechhealth.com) +44 (0) 20 3727 1000 +1 774 278 8273
Investor Relations puretech@fticonsulting.com nichole@tenbridgecommunications.com
IR@puretechhealth.com
1 Internal Programs represent the Company's current and future
therapeutic candidates and technologies that are wholly owned and have not
been announced as a Founded Entity.
2 As of the date of this release, Founded Entities represent companies
founded by PureTech in which PureTech maintains ownership of an equity
interest and, in certain cases, is eligible to receive sublicense income and
royalties on product sales. References to Founded Entities include PureTech's
Seaport Therapeutics, Inc., Gallop Oncology, Inc., Entrega, Inc., Akili
Interactive Labs, Inc., Vor Bio, Inc., Sonde Health, Inc., Vedanta
Biosciences, Inc., for all dates prior to March 18, 2024, Karuna Therapeutics,
Inc., for all dates prior to October 30, 2023, Gelesis, Inc., for all dates
prior to December 21, 2023, Follica, Incorporated, and for all dates prior to
December 18, 2019, resTORbio. For references and definitions related to
PureTech's Viability Statement, Financial Review, and Financial Statements and
related footnotes, please see Footnote 4 to the Consolidated Financial
Statements.
3 PureTech level cash, cash equivalents and short-term investments is a
non-IFRS measure. For more information in relation to the PureTech level cash,
cash equivalents and short-term investments measure, please see below under
the heading "Financial Review."
4 For more information in relation to the Consolidated cash, cash
equivalents and short-term investments measure, please see below under the
heading "Financial Review."
5 This figure does not account for PureTech's $32 million contribution
to the Seaport Series A financing on April 8, 2024, the proposed $100 million
Tender Offer, which is expected to be launched in early May, subject to market
conditions and shareholder approval, or any taxes that may be due on the
BMS-Karuna acquisition proceeds received by PureTech.
6 Calculated based on the aggregate PureTech data including all
therapeutic candidates advanced through at least Phase 1 by PureTech or its
Founded Entities from 2009 onward and the industry average data. Industry
average data measures the probability of clinical trial success of
therapeutics by calculating the number of programs progressing to the next
phase vs. the number progressing and suspended (Phase 1=52%, Phase 2=29%,
Phase 3=52%). BIO, PharmaIntelligence, QLS (2021) Clinical Development Success
Rates 2011-2020. This study did not include therapeutics regulated as devices.
7 The Tender Offer is expected to be launched in early May, subject to
market conditions and shareholder approval.
8 As of March 18, 2024, Karuna Therapeutics is a wholly owned subsidiary
of Bristol Myers Squibb
9 EndeavorRx is a digital therapeutic indicated to improve attention
function as measured by computer-based testing in children ages 8-17 years old
with primarily inattentive or combined-type ADHD, who have a demonstrated
attention issue. Patients who engage with EndeavorRx demonstrate improvements
in a digitally assessed measure Test of Variables of Attention (TOVA®) of
sustained and selective attention and may not display benefits in typical
behavioral symptoms, such as hyperactivity. EndeavorRx should be considered
for use as part of a therapeutic program that may include clinician-directed
therapy, medication, and/or educational programs, which further address
symptoms of the disorder. EndeavorRx is available by prescription only. It is
not intended to be used as a stand-alone therapeutic and is not a substitution
for a child's medication. The most common side effect observed in children in
EndeavorRx's clinical trials was a feeling of frustration, as the game can be
quite challenging at times. No serious adverse events were associated with its
use. EndeavorRx is recommended to be used for approximately 25 minutes a day,
5 days a week, over initially at least 4 consecutive weeks, or as recommended
by your child's health care provider. To learn more about EndeavorRx, please
visit EndeavorRx.com.
10 EndeavorOTC is a digital therapeutic indicated to improve attention
function, ADHD symptoms and quality of life in adults 18 years of age and
older with primarily inattentive or combined-type ADHD. EndeavorOTC utilizes
the same proprietary technology underlying EndeavorRx, a prescription digital
therapeutic indicated to improve attention function in children ages 8 - 17.
EndeavorOTC is available under the U.S. Food and Drug Administration's current
Enforcement Policy for Digital Health Devices for Treating Psychiatric
Disorders During the Coronavirus Disease 2019 (COVID-19) Public Health
Emergency. EndeavorOTC has not been cleared or authorized by the U.S. Food and
Drug Administration for its indications. It is recommended that patients speak
to their health care provider before starting EndeavorOTC treatment. No
serious adverse events have been reported in any of our clinical studies. To
learn more, visit EndeavorOTC.com.
11 Julie Krop, M.D., left her role as Chief Medical Officer, effective March
31, 2024.
12 Funding figure includes private convertible notes and public offerings.
Funding figure excludes future milestone considerations received in
conjunction with partnerships and collaborations. Funding figure does not
include gross proceeds due to PureTech following the 2024 post-period
acquisition of Karuna by BMS.
Letter from the Chair
Since I joined the PureTech Board of Directors, I have witnessed the Company
mature its hub-and-spoke business model with a commitment to deliver value to
patients and shareholders.
Consistent with our founding strategy, the Company has progressed promising
programs in various therapeutic areas to inflection points and advanced them
either internally or via Founded Entities. This uniquely efficient approach to
R&D has enabled the development of a robust pipeline of new medicines,
including two that have received FDA clearance and a third that has been
filed for FDA approval, all without raising money from the capital markets in
six years. This is a true testament to our model.
PureTech's exceptional productivity and capital discipline was exemplified in
2023. The Company embarked on a new phase of clinical expansion by creating
two new Founded Entities from its internal work. The launches of Seaport
Therapeutics and Gallop Oncology mark an exciting next chapter for PureTech,
adding new de-risked specialist opportunities or "spokes" to the PureTech
hub-and-spoke model. PureTech's self-sustaining engine has enabled this
continued operational progress despite adverse macroeconomic factors for the
industry whilst also providing capital for the Company to return $50 million
to shareholders via a share buyback program in addition to the recently
proposed $100 million tender offer.
I would like to personally thank all of our shareholders for supporting us as
we seek to improve patients' lives. Every decision we make is anchored in our
mission to advance treatments for patients that simultaneously create
shareholder value, and I'm confident we will see continued success in both
areas.
On behalf of the Board, I would like to thank Daphne Zohar for her vision,
leadership and dedication in founding and building PureTech. Daphne pioneered
the hub-and-spoke model to create cutting-edge medicines, assembled a leading
team and positioned PureTech for an exciting future and continued growth, and
I am confident that our Founded Entity, Seaport Therapeutics, will thrive with
her at the helm as Chief Executive Officer. I would also like to welcome
Bharatt Chowrira, Ph.D. J.D., into the Chief Executive Officer role at
PureTech. A 30-year veteran of the biotech industry, Bharatt has held
leadership roles including Chief Executive Officer, Chief Operating Officer
and General Counsel in multiple biotech companies, including Auspex
Pharmaceuticals Inc., which was acquired by Teva Pharmaceuticals for $3.5
billion, and Sirna Therapeutics, which was acquired by Merck & Co. for
$1.1 billion. Bharatt has been a driving force behind PureTech's achievements
since 2017, serving as the Company's President and Chief Business, Finance and
Operating Officer and as a member of the board of directors, and I know our
organization will continue to deliver value to patients and shareholders alike
under his seasoned leadership.
Sincerely,
Raju Kucherlapati, Ph.D.
Interim Chair of the Board of Directors
April 25, 2024
Letter from the Chief Executive Officer
PureTech made remarkable progress in 2023 as we continued to deliver on our
mission to give life to new classes of medicine that have the potential to
change the lives of patients with devastating diseases. In 2023, we
made significant strategic and clinical advancements across our hub-and-spoke
R&D model, setting up the Company for growth in 2024 and beyond.
Our strategy: A hub-and-spoke model that manages risk in advancing novel
medicines for patients and generates value for shareholders
At PureTech we pioneered the hub-and-spoke model in biotech. Our "hub" is
our core group of people, our proven, innovative R&D engine, and our
capabilities at PureTech that are at the center of everything we do. It
enables us to identify promising technologies and therapeutic opportunities;
unlock their value through innovation; progress them through key de-risking
milestones; and then develop them further - either internally or through the
creation of a Founded Entity. The Founded Entities are our "spokes," and
they allow us to continue advancing candidates via a focused vehicle while
sharing development costs with outside partners. These sector specialists not
only enable cost efficiencies by investing capital in the Founded Entities,
but also serve as external validation for the programs that we have until then
developed in-house. This model ensures that promising new medicines are
progressed to patients efficiently while we continue to generate and develop
the next wave of novel candidates. It also yields a diversified portfolio,
enabling us to have multiple shots on goal for creating shareholder value. Our
distinctive approach is powered by three guiding principles: validated
efficacy, clear patient benefit and an efficient de-risked path.
This R&D model allows us to be more capital efficient, ensures that our
interests are aligned with our shareholders and incentivizes us to move our
resources to the programs with the greatest probability of success. It also
brings in non-dilutive capital, which has resulted in PureTech not needing to
raise money from the capital markets in over six years. In fact, nearly $3.8
billion has been raised by our Founded Entities since July 2018, of which 96
percent was from third parties.(1) In that time, we have generated tremendous
value, including through the monetization of our stakes in Founded Entities,
and have reinvested proceeds in further growing PureTech's hub-and-spoke
business. We have also returned $50 million to shareholders through our share
buyback program and recently proposed an additional $100 million return to
shareholders via a Tender Offer.(2) The Board is committed to evaluating our
capital allocation regularly (see page 8 for further details), including
assessing opportunities for capital returns to shareholders, subject to future
monetization events and the Company's operational needs.
We consistently maintain one of the most impressive track records in the
biopharma industry, with a probability of clinical success that is six times
higher than the industry average(3). More than 80 percent(4) of our clinical
trials have demonstrated success, and we take great pride in this track
record. Across our programs, this has delivered a robust pipeline of new
medicines that are poised for growth. This includes 29 new therapeutics and
therapeutic candidates generated to date, with two taken from inception at
PureTech to U.S. Food and Drug Administration (FDA) and EU regulatory
clearances and one - Karuna's KarXT (xanomeline-trospium) - that has been
filed for FDA approval.
Our model makes biopharma accessible both to generalist investors compelled by
the meaningfulness of medical innovation and upside of cutting-edge R&D as
well as to specialists comfortable with evaluating therapeutic opportunities.
The former sees aligned incentives within PureTech's internal activity and
broader equity portfolio, through which they are shielded from the volatility
of single asset binary outcomes so common in our industry.
We have followed our model to success as our programs have matured and our
internal capabilities have grown. Importantly, our R&D strategy is not
only proven, but it is also scalable and repeatable. Consistent with our
founding strategy, we have progressed several programs to inflection points,
having sufficiently de-risked their core assets, and at the end of 2023, we
added two new Founded Entity "spokes" to the PureTech "hub." Our newly
launched Seaport Therapeutics builds on the success of our Glyph platform and
related therapeutic candidates to accelerate the development of new
neuropsychiatric medicines in areas of high unmet need. I am also delighted
that PureTech has indicated the launch Gallop Oncology™, which builds on
the promising clinical and preclinical data generated from our LYT-200 program
in hematological malignancies and solid tumors. In creating these focused
entities, we continue to deliver on our fundamental goal: advance novel
therapeutic solutions to patients battling serious, devastating conditions.
Case study
The KarXT journey at PureTech
Karuna's KarXT, invented and advanced by PureTech, is a hallmark for how we
create value. Patients living with schizophrenia need new treatment options as
current standard-of-care antipsychotics have significant side effects and poor
adherence rates. Xanomeline, originally discovered by Eli Lilly, demonstrated
clinical efficacy but was shelved due to its side effect profile. PureTech's
team invented and filed patents for a synergistic agonist and antagonist
concept (e.g., xanomeline + trospium chloride) that would unlock the efficacy
of xanomeline and allow for improved tolerability. Following an exceptionally
successful clinical journey, FDA approval for KarXT is anticipated in 2024. If
approved, KarXT will deliver the first new mechanism for treating
schizophrenia in over 50 years, and - as a result of KarXT's remarkable
innovation story - Bristol Myers Squibb (BMS) acquired Karuna for $14 billion
in the March 2024 post-period.
In addition to transforming the treatment landscape for patients with
schizophrenia, Karuna's success has allowed us to generate approximately $1.1
billion in cash to date(5) to fund our operations and fuel our next wave of
innovation. This has been realized through the monetization of a portion of
our holdings in Karuna, gross proceeds from BMS' acquisition valued at $293
million as well as a strategic royalty agreement for KarXT with Royalty
Pharma. The $500 million transaction with Royalty Pharma, which was announced
in March 2023, included $100 million in cash received up front in 2023 and up
to $400 million in additional payments contingent on the achievement of
certain regulatory and commercial milestones. As part of this transaction, we
sold PureTech's rights to receive a 3 percent royalty from Karuna to Royalty
Pharma on sales up to $2 billion annually, after which Royalty will receive 33
percent and PureTech will retain 67 percent of the royalty payments.(6)
This agreement supplied us with non-dilutive capital in the short-term and has
great potential for long-term earnings based on KarXT's future regulatory and
commercial milestones, as well as product sales.
We believe KarXT's journey to regulators benefited from our creation of Karuna
as a Founded Entity focused on a specialized asset. Initially, KarXT was
part of a diversified portfolio undergoing de-risking within PureTech.
Eventually its potential and the forecasted demands of its later-stage
clinical journey informed our decision to house Karuna as a stand-alone
Founded Entity that could draw the right mix of investors, including
specialists, and dedicated personnel and expertise to effectively and
efficiently drive its progress. The KarXT story therefore showcases both sides
of our value proposition: de-risked portfolio development in-house and
specialized asset advancement via Founded Entities.
Internal Programs: Effective identification and de-risking of the most
promising technologies
Most of the candidates that we advance internally are centered around
a strategy that focuses on established biological principles to promptly
progress therapeutics with validated efficacy and clinical signals.
This strategy is exemplified through our lead Internal Program, LYT-100,
a deuterated form of pirfenidone. Pirfenidone (Esbriet(®)) is approved for
the treatment of idiopathic pulmonary fibrosis (IPF) in the US and other
countries, having been shown to slow the decline of lung function and extend
life by an average of 2.5 years.(7) It is one of two standard of care
treatments for IPF, with nintedanib (OFEV(®)) being the other, yet - despite
the proven efficacy - only about 25 percent of IPF patients with this rare,
progressive and fatal disease are currently being treated with either standard
of care drug, largely due to tolerability issues.
LYT-100 is designed to retain the beneficial pharmacology and
clinically-validated efficacy of pirfenidone with a highly differentiated
pharmacokinetic profile that has translated into favorable tolerability in
multiple clinical studies. In fact, we have demonstrated an approximately 50
percent reduction in participants experiencing gastro-intestinal (GI) and
central nervous system (CNS)-related adverse events (AEs) in a crossover
study of LYT-100 vs. pirfenidone. We believe this profile has the potential to
keep patients on treatment longer, enabling more optimal disease management
and patient outcomes.
Beyond this promising profile, we have also shown that LYT-100 is
well-tolerated at exposure levels higher than the FDA-approved dose of
pirfenidone, which may enable enhanced efficacy given Phase 3 data with
pirfenidone that showed a dose-response effect on forced vital capacity and
survival in people with IPF.(8)
Our goal with the ongoing Phase 2b ELEVATE IPF trial is to validate the
ability of LYT-100 to deliver a more tolerable treatment with comparable
efficacy to pirfenidone at one dose while also exploring the potential for
enhanced efficacy at a higher dose. The trial is fully enrolled, and we look
forward to sharing topline results in the fourth quarter of 2024.
Founded Entities: Launch of two new Founded Entities; KarXT seeking FDA
approval; clinical and commercial progress across the Group
We are constantly evaluating our Internal Programs for candidates that can
follow the KarXT "playbook", and in 2023 we made the decision to advance
several into new Founded Entities.
Seaport Therapeutics was born from our Glyph technology platform, which has
demonstrated clinical proof-of-concept and has been prolific in producing new
therapeutic candidates. The proprietary Glyph platform is designed to enable
and enhance oral bioavailability, bypass first-pass metabolism and reduce
hepatotoxicity and other side effects to advance active drugs that were
previously held back by those limitations. With this technology and candidate
portfolio, including SPT-300 (Glyph allopregnanolone; formerly LYT-300),
SPT-320 (Glyph agomelatine; formerly LYT-320), and SPT 348 (a prodrug of
a non-hallucinogenic neuroplastogen) Seaport's mission, similar to Karuna's,
is to advance first-and-best-in class therapeutics for patients with anxiety,
depression and other neuropsychiatric disorders. The Seaport programs made
important advancements at PureTech in 2023, with topline Phase 2a data
announced from a proof-of-concept study of SPT-300, a grant received from
the U.S. Department of Defense of up to $11.4 million to advance SPT-300 in
Fragile X-associated Ataxia Syndrome, and the nomination of SPT-320. In the
2024 post-period, we announced the launch of Seaport with a $100 million(9)
oversubscribed Series A financing with participation from top tier biotech
investors ARCH Venture Partners, Sofinnova Investments and Third Rock
Ventures. Seaport will be led by PureTech Founding CEO Daphne Zohar. Following
the Series A financing, PureTech holds equity ownership in Seaport of 61.5
percent.
We also indicated the intent to launch Gallop Oncology from our LYT-200
(anti-galectin-9) program. We are advancing a differentiated approach to
cancer treatment by targeting the pro-tumor mechanisms of galectin-9 for the
treatment of hematological malignancies and solid tumors. A large body of
preclinical and human data underscores the importance of galectin-9 as
a potent oncogenic driver in leukemia cells and an immunosuppressive
protein, and LYT-200 has demonstrated direct cytotoxic, anti-leukemic effects
through multiple mechanisms as well as anti-tumor efficacy. We're excited by
the data generated to date in acute myeloid leukemia (AML) and high-risk
myelodysplastic syndrome (MDS), as well as head and neck cancers. We expect
additional data from the ongoing Phase 1b clinical trial for the potential
treatment of AML and MDS to be presented in a scientific forum in 2024, as
well as additional data from the Phase 1b trial in combination with
tislelizumab for the potential treatment of advanced solid tumors.
Several of our other Founded Entities have made key progress in 2023 as well.
As noted, Karuna submitted a New Drug Application to the FDA for KarXT for
the treatment of schizophrenia in adult patients, which was accepted and
granted a Prescription Drug User Fee Act (PDUFA) date of September 26, 2024.
The company was subsequently acquired by BMS for $14 billion. The clinical
program expanding the evidence base for KarXT continued with additional
positive data reported and two Phase 3 trial initiations in Alzheimer's
disease.
At Vedanta, the team administered the initial dose to the first patient for
the company's Phase 2 COLLECTiVE202 clinical trial of VE202 for the management
of ulcerative colitis and the program was granted Fast Track designation by
the FDA. Vedanta also plans to initiate a Phase 3 clinical trial of VE303 in
patients at high risk for recurrent Clostridioides difficile infection in the
second quarter of 2024. Vor also made progress in the clinic and announced new
clinical data from its Phase 1/2a first-in-human study of trem-cel (VOR33) in
patients with AML, titled VBP101.
Notably, Akili received U.S. FDA authorization to broaden the label for
EndeavorRx(®).(10) This expansion now includes children aged 13 to 17 years
old with attention-deficit/hyperactivity disorder (ADHD), which will increase
the eligibility for this treatment and thus double the number of pediatric
patients with ADHD who can benefit. Akili also announced plans to transition
from a prescription to a non-prescription business model to further increase
access. Further to this strategic plan, Akili launched EndeavorOTC(®11) for
adults with ADHD, following positive results from a clinical trial
evaluating EndeavorRx in this population.
Finally, Sonde Health increased its sales and growth through establishing
partnerships with a variety of providers, health companies, pharmaceutical
entities and manufacturers. Entrega also continued its R&D work to advance
its core platform for the oral administration of biologics, vaccines and other
drugs that are usually not effectively absorbed when administered orally.
Our future: Crystalizing value
We have successfully grown a pipeline of therapeutics and candidates,
carefully allocated our resources and diligently executed on our mission. We
retain substantial holdings in both our public and private Founded Entities;
are due certain royalties and milestone payments as some of these programs
advance; maintain a strong balance sheet to support our existing programs,
and Founded Entities, and fuel our future innovation; and we will have
returned $150 million to shareholders through our recently completed share
buyback program and proposed Tender Offer. These achievements underscore the
significant value we have created that has not been fully recognized by the
market. I am committed to evaluating ways to unlock and crystalize that value
for shareholders and look forward to sharing my vision for the Company's
future growth in the coming months.
Thanks to our network of supporters for giving life to science
After an extremely productive year, I would like to extend my thanks and
appreciation to our dedicated teams - both at PureTech and across our Founded
Entities - who play an essential role in driving highly innovative and
impactful R&D forward. Your commitment to our cause is inspiring, and I
am so grateful to work alongside you in the name of serving patients and our
shareholders.
I would also like to thank our talented board for their guidance, in addition
to our wide network of shareholders, collaborators, and advisors for their
continued support of our vision.
I also want to express my sincere gratitude to Daphne Zohar for her remarkable
leadership since the inception of PureTech and for guiding the Company into
this exciting new phase. I am pleased that we will continue to benefit from
her entrepreneurial spirit as she drives further value for PureTech in her new
role as CEO of Seaport.
2023 was a banner year for PureTech, and we are already charting an exciting
path forward in 2024. I am proud and very humbled to assume the role of CEO at
such a remarkable organization, and I look forward to continuing our
transformational work for patients and shareholders.
Bharatt Chowrira, Ph.D., J.D.
Chief Executive Officer and Director
April 25, 2024
1 Funding figure includes private equity financings, loans and promissory
notes, public offerings or grant awards. Funding figure excludes future
milestone considerations received in conjunction with partnerships and
collaborations.
2 The Tender Offer is expected to be launched in early May, subject to
market conditions and shareholder approval.
3 Calculated based on the aggregate PureTech data including all
therapeutic candidates advanced through at least Phase 1 by PureTech or its
Founded Entities from 2009 onward and the industry average data. Industry
average data measures the probability of clinical trial success of
therapeutics by calculating the number of programs progressing to the next
phase vs. the number progressing and suspended (Phase 1=52%, Phase 2=29%,
Phase 3=52%). BIO, PharmaIntelligence, QLS (2021) Clinical Development
Success Rates 2011-2020. This study did not include therapeutics
regulated as devices.
4 The percentage includes number of successful trials out of all trials
run for all therapeutic candidates advanced through at least Phase 1 by
PureTech or its Founded Entities from 2009 onward.
5 Represents cash generated to date through sales of KRTX common stock
including gross proceeds due to PureTech following Bristol Myers Squibb's
acquisition of Karuna as well as the $100 million in upfront consideration
from PureTech's transaction with Royalty Pharma.
6 PureTech's agreement with Royalty Pharma is not impacted by the BMS
acquisition of Karuna.
7 Fisher, M., Nathan, S. D., Hill, C., Marshall, J., Dejonckheere, F.,
Thuresson, P., & Maher, T. M. (2017). Predicting Life Expectancy for
Pirfenidone in Idiopathic Pulmonary Fibrosis. Journal of Managed Care &
Specialty Pharmacy, 23(3-b Suppl), S17 -S24.
https://doi.org/10.18553/jmcp.2017.23.3-b.s17.
8 King, T. E., Bradford, W. Z., Castro-Bernardini, S., Fagan, E. A.,
Glaspole, I., Glassberg, M. K., Gorina, E., Hopkins, P., Kardatzke, D.,
Lancaster, L., Lederer, D. J., Nathan, S. D., De Castro Pereira, C. A., Sahn,
S. A., Sussman, R., Swigris, J. J., & Noble, P. W. (2014). A Phase 3 Trial
of Pirfenidone in Patients with Idiopathic Pulmonary Fibrosis. The New England
Journal of Medicine, 370(22), 2083-2092. https://doi.org/10.1056/nejmoa1402582
9 Includes participation by top tier biotech investors ARCH Venture
Partners, Sofinnova Investments and Third Rock Ventures alongside PureTech's
$32 million cash contribution. Following the Series A financing, PureTech
holds equity ownership in Seaport of 61.5 percent on a diluted basis.
Additionally, as the founder of Seaport, PureTech also has a right to royalty
payments on a percentage of net sales of any commercialized product as well
as the right under the terms of the license agreement with Seaport to receive
milestone payments upon the achievement of certain regulatory approvals and
a percentage of sublicense income.
Risk management
The execution of the Group's strategy is subject to a range of risks and
uncertainties. As a clinical-stage biotherapeutics company, the Group operates
in an inherently high-risk environment. The Group's strategic approach seeks
to aid the Group's risk management efforts to achieve an effective balancing
of risk and reward. Risk assessment, evaluation and mitigation are integral
parts of the Group's management process. The Group, however, also recognizes
that ultimately no strategy provides an assurance against loss, as we saw in
the current year with Gelesis, which ceased operations and filed a voluntary
petition for Chapter 7 bankruptcy liquidation in October 2023.
Risks are formally identified by the Board and appropriate internal controls
are put in place and tailored to the specific risks to monitor and mitigate
them on an ongoing basis. If multiple or an emerging risk event occurs, it is
possible that the overall effect of such events would compound the overall
effect on the Group. The principal risks that the Board has identified as the
key business risks facing the Group are set out in the table below along with
the impact and mitigation management plan with respect to each risk. These
risks are only a high-level summary of the principal risks affecting our
business; any number of these or other risks could have a material adverse
effect on the Group or its financial condition, development, results of
operations, subsidiary companies and/or future prospects. Further information
on the risks facing the Group can be found on pages 186 to 223 which also
includes a description of circumstances under which principal and other risks
and uncertainties might arise in the course of our business and their
potential impact.
Risk Impact* Management Plans/Actions
1
Risks related to science and technology failure The failure of any of our businesses could decrease our value. A failure of Prior to additional steps in the development of any technology, extensive due
one of the major businesses could also impact the reputation of PureTech as a diligence is carried out that covers all the major business risks, including
The science and technology being developed or commercialized by some of our developer of high value technologies and possibly make additional fundraising technological feasibility, competition and technology advances, market size,
businesses may fail and/or our businesses may not be able to develop their by PureTech or any Founded Entity more difficult or unavailable on acceptable strategy, adoption and intellectual property protection.
intellectual property into commercially viable therapeutics or technologies. terms at all.
A capital efficient approach is employed, which requires the achievement of a
There is also a risk that certain of the businesses may fail or not succeed as level of proof of concept prior to the commitment of substantial capital is
anticipated, resulting in significant decline of our value. committed. Capital deployment is generally tranched to ensure the funding of
programs only to their next value milestone. Members of our Board or our
management team serve on the board of directors of several of the businesses
so as to continue to guide each business's strategy and to oversee proper
execution thereof. We use our extensive network of advisors to ensure that
each business has appropriate domain expertise as it develops and executes on
its strategy and the R&D Committee of our Board reviews each program at
each stage of development and advises our Board on further actions.
Additionally, we have a diversified model with numerous assets such that the
failure of any one of our businesses or therapeutic candidates would not
result in a failure of all of our businesses.
2 Risks related to clinical trial failure
Clinical trials and other tests to assess the commercial viability of a A critical failure of a clinical trial may result in termination of the We have a diversified model to limit the impact of clinical trial outcomes on
therapeutic candidate are typically expensive, complex and time-consuming, and program and a significant decrease in our value. Significant delays in a our ability to operate as a going concern. We have dedicated internal
have uncertain outcomes. clinical trial to support the appropriate regulatory approvals could impact resources to establish and monitor each of the clinical programs for the
the amount of capital required for the business to become fully sustainable on purpose of maximising successful outcomes. We also engage outside experts to
Conditions in which clinical trials are conducted differ, and results achieved a cash flow basis. help create well-designed clinical programs that provide valuable information
in one set of conditions could be different from the results achieved in and mitigate the risk of failure. Significant scientific due diligence and
different conditions or with different subject populations. If our therapeutic preclinical experiments are conducted prior to a clinical trial to evaluate
candidates fail to achieve successful outcomes in their respective clinical the odds of the success of the trial. In the event of the outsourcing of these
trials, the therapeutics will not receive regulatory approval and in such trials, care and attention are given to assure the quality of the vendors used
event cannot be commercialized. In addition, if we fail to complete or to perform the work.
experience delays in completing clinical tests for any of our therapeutic
candidates, we may not be able to obtain regulatory approval or commercialize
our therapeutic candidates on a timely basis, or at all.
3 Risks related to regulatory approval
The pharmaceutical industry is highly regulated. Regulatory authorities across The failure of one of our therapeutics to obtain any required regulatory We manage our regulatory risk by employing highly experienced clinical
the world enforce a range of laws and regulations governing the testing, approval, or conditions imposed in connection with any such approval, may managers and regulatory affairs professionals who, where appropriate, will
approval, manufacturing, labelling and marketing of pharmaceutical result in a significant decrease in our value. commission advice from external advisors and consult with the regulatory
therapeutics. Stringent standards are imposed which relate to the quality, authorities on the design of our preclinical and clinical programs. These
safety and efficacy of these therapeutics. These requirements are a major experts ensure that high-quality protocols and other documentation are
determinant of the commercial viability of developing a drug substance or submitted during the regulatory process, and that well-reputed contract
medical device given the time, expertise and expense which must be invested. research organizations with global capabilities are retained to manage the
trials. We also engage with experts, including on our R&D Committee, to
We may not obtain regulatory approval for our therapeutic candidates. help design clinical trials to help provide valuable information and maximize
Moreover, approval in one territory offers no guarantee that regulatory the likelihood of regulatory approval. Additionally, we have a diversified
approval will be obtained in any other territory. Even if therapeutics are model with numerous assets such that the failure to receive regulatory
approved, subsequent regulatory difficulties may arise, or the conditions approval or subsequent regulatory difficulties with respect to any one
relating to the approval may be more onerous or restrictive than we therapeutic would not adversely impact all of our therapeutics
anticipate. and businesses.
4 Risks related to therapeutic safety
There is a risk of adverse reactions with all drugs and medical devices. If Adverse reactions or unacceptable side effects may result in a smaller market Safety is our top priority in the design of our therapeutics. We conduct
any of our therapeutics are found to cause adverse reactions or unacceptable for our therapeutics, or even cause the therapeutics to fail to meet extensive preclinical and clinical trials which test for and identify any
side effects, then therapeutic development may be delayed, additional expenses regulatory requirements necessary for sale of the therapeutic. This, as well adverse side effects. Despite these steps and precautions, we cannot fully
may be incurred if further studies are required, and, in extreme as any claims for injury or harm resulting from our therapeutics, may result avoid the possibility of unforeseen side effects. To mitigate the risk further
circumstances, it may prove necessary to suspend or terminate development. in a significant decrease in our value. we have insurance in place to cover product liability claims which may arise
This may occur even after regulatory approval has been obtained, in which case during the conduct of clinical trials.
additional trials may be required, the approval may be suspended or withdrawn
or require product labels to include additional safety warnings. Adverse
events or unforeseen side effects may also potentially lead to product
liability claims against us as the developer of the therapeutics and sponsor
of the relevant clinical trials. These risks are also applicable to our
Founded Entities and any trials they conduct or therapeutic candidates they
develop.
5
Risks related to therapeutic profitability and competition
The failure to obtain reimbursement from third party payers, and competition We engage reimbursement experts to conduct pricing and reimbursement studies
We may be unable to sell our therapeutics profitably if reimbursement from from other therapeutics, could significantly decrease the amount of revenue we for our therapeutics to ensure that a viable path to reimbursement, or direct
third-party payers - such as private health insurers and government health may receive from therapeutic sales for certain therapeutics. This may result user payment, is available. We also closely monitor the competitive landscape
authorities - is restricted or not available. If, for example, it proves in a significant decrease in our value. for our therapeutics and therapeutic candidates and adapt our business plans
difficult to build a sufficiently strong economic case based on the burden of accordingly. Not all therapeutics that we are developing will rely on
illness and population impact. reimbursement. Also, while we cannot control outcomes, we seek to design
studies to generate data that will help support potential reimbursement.
Third-party payers are increasingly attempting to curtail healthcare costs by
challenging the prices that are charged for pharmaceutical therapeutics and
denying or limiting coverage and the level of reimbursement. Moreover, even if
the therapeutics can be sold profitably, they may not be adopted by patients
and the medical community.
Alternatively, our competitors - many of whom have considerably greater
financial and human resources - may develop safer or more effective
therapeutics or be able to compete more effectively in the markets targeted by
us. New companies may enter these markets and novel therapeutics and
technologies may become available which are more commercially successful than
those being developed by us. These risks are also applicable to our Founded
Entities and could result in a decrease in their value.
6
Risks related to intellectual property protection
The failure to obtain patent protection and maintain the secrecy of key We spend significant resources in the prosecution of our patent applications
We may not be able to obtain patent protection for some of our therapeutics or information may significantly decrease the amount of revenue we may receive and maintenance of our patents, and we have in-house patent counsel and patent
maintain the secrecy of their trade secrets and know-how. If we are from therapeutic sales. Any infringement litigation against us may result in group to help with these activities. We also work with experienced external
unsuccessful in doing so, others may market competitive therapeutics at the payment of substantial damages by us and result in a significant decrease attorneys and law firms to help with the protection, maintenance and
significantly lower prices. Alternatively, we may be sued for infringement of in our value. enforcement of our patents. Third party patent filings are monitored to ensure
third-party patent rights. If these actions are successful, then we would have the Group continues to have freedom to operate. Confidential information (both
to pay substantial damages and potentially remove our therapeutics from the our own and information belonging to third parties) is protected through use
market. We license certain intellectual property rights from third parties. If of confidential disclosure agreements with third parties, and suitable
we fail to comply with our obligations under these agreements, it may enable provisions relating to confidentiality and intellectual property exist in our
the other party to terminate the agreement. This could impair our freedom to employment and advisory contracts. Licenses are monitored for compliance with
operate and potentially lead to third parties preventing us from selling their terms.
certain of our therapeutics.
7 Risks related to enterprise profitability
We expect to continue to incur substantial expenditure in further research and The strategic aim of the business is to generate profits for our shareholders We retain significant cash in order to support funding of our Founded Entities
development activities. There is no guarantee that we will become through the commercialization of technologies through therapeutic sales, and our Internal Programs. We have close relationships with a wide group of
operationally profitable, and, even if we do so, we may be unable to sustain strategic partnerships and sales of businesses or parts thereof. The timing investors and strategic partners to ensure we can continue to access the
operational profitability. and size of these potential inflows are uncertain. Should revenues from our capital markets and additional monetization and funding for our businesses.
activities not be achieved, or in the event that they are achieved but at Additionally, our Founded Entities are able to raise money directly from third
values significantly less than the amount of capital invested, then it would party investors and strategic partners.
be difficult to sustain our business.
8
Risks related to hiring and retaining qualified employees and key personnel
The failure to attract highly effective personnel or the loss of key personnel The Board regularly seeks external expertise to assess the competitiveness of
We operate in complex and specialized business domains and require highly would have an adverse impact on our ability to continue to grow and may the compensation packages of its senior management. Senior management
qualified and experienced management to implement our strategy successfully. negatively affect our competitive advantage. continually monitors and assesses compensation levels to ensure we remain
We and many of our businesses are located in the United States which is a competitive in the employment market. We maintain an extensive recruiting
highly competitive employment market. network through our Board members, advisors and scientific community
involvement. We also employ an executive as a full-time in-house recruiter and
Moreover, the rapid development which is envisaged by us may place retain outside recruiters when necessary or advisable. Additionally, we are
unsupportable demands on our current managers and employees, particularly if proactive in our retention efforts and include incentive-based compensation in
we cannot attract sufficient new employees. There is also the risk that we may the form of equity awards and annual bonuses, as well as a competitive
lose key personnel. benefits package. We have a number of employee engagement efforts to
strengthen our PureTech community.
9
Risks related to business, economic or public health disruptions
Broad-based business, economic, financial or geopolitical disruptions could We regularly review the business, economic, financial and geopolitical
Business, economic, financial or geopolitical disruptions or global health adversely affect our ongoing or planned research and development activities. environment in which we operate. It is possible that we may see further impact
concerns could seriously harm our development efforts and increase our costs Global health concerns, such as a further pandemic, or geopolitical events, as a result of current geopolitical tensions. We monitor the position of our
and expenses. like the ongoing consequences of the armed conflicts, could also result in suppliers, clinical trial sites, regulators, providers of financial services
social, economic, and labor instability in the countries in which we operate and other third parties with whom we conduct business. We develop and execute
or the third parties with whom we engage. We consider the risk to be contingency plans to address risks where appropriate.
increasing since the prior year and note further risks associated with the
banking system and global financial stability. We cannot presently predict the
scope and severity of any potential business shutdowns or disruptions, but if
we or any of the third parties with whom we engage, including the suppliers,
clinical trial sites, regulators, providers of financial services and other
third parties with whom we conduct business, were to experience shutdowns or
other business disruptions, our ability to conduct our business in the manner
and on the timelines presently planned could be materially and negatively
impacted. It is also possible that global health concerns or geopolitical
events such as these ones could disproportionately impact the hospitals and
clinical sites in which we conduct any of our current and/or future clinical
trials, which could have a material adverse effect on our business and our
results of operation and financial impact.
Financial Review
Reporting Framework
You should read the following discussion and analysis together with our
Consolidated Financial Statements, including the notes thereto, set forth
elsewhere in this report. Some of the information contained in this discussion
and analysis or set forth elsewhere in this report, including information with
respect to our plans and strategy for our business and financing our business,
includes forward-looking statements that involve risks and uncertainties. As a
result of many factors, including the risks set forth on pages 60 to 64 and in
the Additional Information section from pages 186 to 223, our actual results
could differ materially from the results described in or implied by these
forward-looking statements.
Our audited Consolidated Financial Statements as of December 31, 2023 and
2022, and for the years ended December 31, 2023, 2022 and 2021, have been
prepared in accordance with UK-adopted International Financial Reporting
Standards ("IFRSs"). The Consolidated Financial Statements also comply fully
with IFRSs as issued by the International Accounting Standards Board ("IASB").
The following discussion contains references to the Consolidated Financial
Statements of PureTech Health plc (the "Parent") and its consolidated
subsidiaries, together "the Group". These financial statements consolidate
PureTech Health plc's subsidiaries and include the Group's interest in
associates by way of equity method, as well as investments held at fair value.
Subsidiaries are those entities over which the Group maintains control.
Associates are those entities in which the Group does not have control for
financial accounting purposes but maintains significant influence over
financial and operating policies. Where the Group has neither control nor
significant influence for financial accounting purposes, or when the
investment in associates is not in instruments that would be considered equity
for accounting purposes, we recognize our holdings in such entity as an
investment at fair value with changes in fair value being recorded in the
Consolidated Statement of Comprehensive Income/(Loss). For purposes of our
Consolidated Financial Statements, each of our Founded Entities(1) are
considered to be either a "subsidiary", an "associate" or an "investment held
at fair value" depending on whether the Group controls or maintains
significant influence over the financial and operating policies of the
respective entity at the respective period end date, and depending on the form
of the investment. For additional information regarding the accounting
treatment of these entities, see Note 1. Material Accounting Policies to our
Consolidated Financial Statements included in this report. For additional
information regarding our operating structure, see "Basis of Presentation and
Consolidation" below.
Business Background and Results Overview
The business background is discussed above from pages 1 to 21, which describes
the business development of our Wholly-Owned Programs(3) and Founded Entities.
Our ability to generate product revenue sufficient to achieve profitability
will depend on the successful development and eventual commercialization of
one or more therapeutic candidates of our wholly-owned or Controlled Founded
Entities(2), which may or may not occur. Historically, certain of our Founded
Entities' therapeutics received marketing authorization from the FDA, but our
Wholly-Owned Programs have not generated revenue from product sales to date.
Furthermore, our ability to achieve profitability will largely rely on
successfully monetizing our investment in founded entities, including the sale
of rights to royalties, entering into strategic partnerships, and other
related business development activities.
We deconsolidated a number of our Founded Entities, specifically Vedanta
Biosciences, Inc. ("Vedanta") in March 2023, Sonde Health Inc. ("Sonde") in
2022, Karuna Therapeutics, Inc. ("Karuna"), Vor Biopharma Inc. ("Vor") and
Gelesis in 2019, and Akili in 2018.
Any deconsolidation affects our financials in the following manner:
• our ownership interest does not provide us with a controlling
financial interest;
• we no longer control the Founded Entity's assets and liabilities,
and as a result, we derecognize the assets, liabilities and non-controlling
interests related to the Founded Entity from our Consolidated Statement of
Financial Position;
• we record our retained investment in the Founded Entity at fair
value; and
• the resulting amount of any gain or loss is recognized in our
Consolidated Statement of Comprehensive Income/(Loss).
We anticipate our expenses to continue to increase proportionally in
connection with execution of our strategy around creating and supporting
Founded Entities, as well as the ongoing development activities related mostly
to the advancement into late-stage studies of the clinical programs within our
Wholly-Owned Programs. We also expect that our expenses and capital
requirements will increase in the near to mid-term as we:
• continue our research and development efforts;
• seek regulatory approvals for any therapeutic candidates that
successfully complete clinical trials; and
• add clinical, scientific, operational, financial and management
information systems and personnel, including personnel to support our
therapeutic development and potential future commercialization claims.
More specifically, we anticipate that our internal research and development
spend will increase in the foreseeable future as we may initiate additional
clinical studies for our existing therapeutic candidates, evaluate new
therapeutic candidates for investment and further development, progress
additional therapeutic candidates into the clinic, as well as advance our
technology platforms.
1. Founded Entities are comprised of the entities which the Company
incorporated and announced the incorporation as a Founded Entity externally.
It includes certain of the Company's wholly-owned subsidiaries which have been
announced by the Company as Founded Entities, Controlled Founded Entities2 and
deconsolidated Founded Entities. As of December 31, 2023, deconsolidated
Founded Entities included Akili Interactive Labs, Inc., Karuna Therapeutics,
Inc., Vor Bio, Inc., Gelesis, Inc., Sonde Health, Inc., and Vedanta
Biosciences, Inc.
2. Controlled Founded Entities are comprised of the Company's
consolidated operational subsidiaries that currently have already raised
third-party dilutive capital. As of December 31, 2023, Entrega was the only
entity under this definition.
3. Wholly-Owned Programs are comprised of the Company's current and
future therapeutic candidates and technologies that are developed by the
Company's wholly-owned subsidiaries, whether they were announced as a Founded
Entity or not, and will be advanced through with either the Company's funding
or non-dilutive sources of financing. As of December 31, 2023, Wholly-Owned
Programs were developed by the wholly-owned subsidiaries Alivio Therapeutics,
Inc., PureTech LYT, Inc., PureTech LYT 100, Inc. and included primarily the
programs LYT-100, LYT-200, LYT-300, and the Glyph platform.
In addition, with respect to our Founded Entities' programs, we anticipate
that we will continue to fund a small portion of development costs by
strategically participating in such companies' financings when we believe
participation in such financings is in the best interests of our shareholders.
The form of any such participation may include investment in public or private
financings, collaboration, partnership arrangements, and/or licensing
arrangements, among others. Our management and strategic decision makers
consider the future funding needs of our Founded Entities and evaluate the
needs and opportunities for returns with respect to each of these Founded
Entities routinely and on a case-by-case basis.
As a result, we need substantial additional funding in the future, following
the period described below in the Funding Requirement section, to support our
continuing operations and pursue our growth strategy until such time as we can
generate sufficient revenue from product sales to support our operations, if
ever. Until such time, we expect to finance our operations through a
combination of monetization of our interests in our Founded Entities,
collaborations with third parties, or other sources. We may be unable to raise
additional funds or enter into such other agreements or arrangements when
needed on favorable terms, or at all. If we are unable to raise capital or
enter into such agreements, as and when needed, we may have to delay, scale
back or discontinue the development and commercialization of one or more of
our wholly-owned therapeutic candidates.
Measuring Performance
The Financial Review discusses our operating and financial performance, our
cash flows and liquidity as well as our financial position and our resources.
The results for each period are compared primarily with the results of the
comparative period in the prior year.
Reported Performance
Reported performance considers all factors that have affected the results of
our business, as reflected in our Consolidated Financial Statements.
Core Performance
Core performance measures are alternative performance measures which are
adjusted and non-IFRS measures. These measures cannot be derived directly from
our Consolidated Financial Statements. We believe that these non-IFRS
performance measures, when provided in combination with reported performance,
will provide investors, analysts and other stakeholders with helpful
complementary information to better understand our financial performance and
our financial position from period to period. The measures are also used by
management for planning and reporting purposes. The measures are not
substitutable for IFRS financial information and should not be considered
superior to financial information presented in accordance with IFRS.
Cash flow and liquidity
PureTech Level cash, cash equivalents and short-term investments Measure type: Core performance
Definition: Cash and cash equivalents and short-term investments held at
PureTech Health plc and our wholly-owned subsidiaries.
Why we use it: PureTech Level cash, cash equivalents and short-term
investments is a measure that provides valuable additional information with
respect to cash, cash equivalents and short-term investments available to fund
the Wholly-Owned Programs and make certain investments in Founded Entities.
Recent Developments (subsequent to December 31, 2023
The Group has evaluated subsequent events after December 31, 2023 up to the
date of issuance, April 25, 2024, of the Consolidated Financial Statements,
and has not identified any recordable or disclosable events not otherwise
reported in these Consolidated Financial Statements or notes thereto, except
for the following:
In January 2024, the Group established two new clinical-stage entities:
Seaport Therapeutics ("Seaport") and Gallop Oncology ("Gallop"). Seaport will
advance certain central nervous system programs and relevant Glyph
intellectual property. Gallop will advance LYT-200 and other galectin-9
intellectual property. As of December 31, 2023, the financial results of these
programs were included in the Wholly-Owned Programs segment in the footnotes
to the Consolidated Financial Statements. Upon raising dilutive third-party
financing, the financial results of these two entities will be included in the
Controlled Founded Entities segment to the extent that the Group maintains
control over these entities.
On May 9, 2022, the Group announced the commencement of a $50.0 million share
repurchase program the ("Program") of its ordinary shares of one pence each.
In February 2024, the Group completed the Program and has repurchased an
aggregate of 20,182,863 ordinary shares under the Program. These shares have
been held as treasury shares and are being used to settle the vesting of
restricted stock units or exercise of options.
In March 2024, Karuna was acquired by Bristol Myers Squibb ("BMS") in
accordance with a definitive merger agreement signed in December 2023. The
Group received total proceeds of $292.7 million before income tax in exchange
for its holding of 886,885 shares of Karuna common stock.
In March 2024, the Group announced a proposed capital return of
$100.0 million to its shareholders by way of a tender offer (the "Tender
Offer"). The Tender Offer is expected to be launched in early May, subject to
market conditions and shareholder approval. If the full $100.0 million is not
returned, then the Group intends to return any remainder following the
completion of the Tender Offer, by way of a special dividend.
In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised
$100 million in a Series A financing, out of which $32 million was invested
by the Group. Following the Series A financing, the Group holds equity
ownership in Seaport of 61.5 percent on a diluted basis.
In April 2024, the Gelesis' Chapter 7 Trustee provided notice that a third
party bid to purchase the assets subject to the bankruptcy had been accepted
as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of
the assets is ultimately approved by the Bankruptcy Court and consummated, it
is expected that PureTech could recover a portion of its investment in Gelesis
senior secured convertible promissory notes. The ultimate resolution of this
matter, any potential recovery, and the associated timing remain uncertain.
The Group has not recorded any amount in its Consolidated Financial Statements
related to amounts that may be received as a result of the bankruptcy process.
Financial Highlights
The following is the reconciliation of the amounts appearing in our
Consolidated Statement of Financial Position to the Alternative Performance
Measure described above:
(in thousands) December 31 2023 December 31 2022
Cash and cash equivalents 191,081 149,866
Short-term investments 136,062 200,229
Consolidated cash, cash equivalents and short-term investments 327,143 350,095
Less: cash and cash equivalents held at non-wholly owned subsidiaries (1,097) (10,622)
PureTech Level cash, cash equivalents and short-term investments $326,046 $339,473
Basis of Presentation and Consolidation
Our Consolidated Financial Information consolidates the financial information
of PureTech Health plc, as well as its subsidiaries, and includes our interest
in associates and investments held at fair value.
Basis for Segmentation
Our Directors are our strategic decision-makers. Our operating segments are
determined based on the financial information provided to our Directors
periodically for the purposes of allocating resources and assessing
performance. During the second half of 2023, we changed the financial
information that was regularly reviewed by the Directors to allocate resources
and assess performance. We have determined each of our Wholly-Owned Programs
represents an operating segment, and we have aggregated each of these
operating segments into one reportable segment, the Wholly-Owned Programs
segment, given the high level of operational and financial similarities across
our Wholly-Owned Programs. Each of our Controlled Founded Entities represents
an operating segment. We aggregate each Controlled Founded Entity operating
segment into one reportable segment, the Controlled Founded Entities segment.
For our entities that do not meet the definition of an operating segment, we
present this information in the Parent Company & Other column in our
segment footnote to reconcile the information in this footnote to our
Consolidated Financial Statements. Substantially all of our revenue and profit
generating activities are generated within the United States and, accordingly,
no geographical disclosures are provided.
Following is the description of our reportable segments:
Wholly-Owned Programs
The Wholly-Owned Programs segment is advancing Wholly-Owned Programs which are
focused on treatments for patients with devastating diseases. The Wholly-Owned
Programs segment is comprised of the technologies that are wholly-owned and
will be advanced through with either the Group's funding or non-dilutive
sources of financing. The operational management of the Wholly-Owned Programs
segment is conducted by the PureTech Health team, which is responsible for the
strategy, business development, and research and development.
Controlled Founded Entities
The Controlled Founded Entities segment is comprised of the Group's
consolidated operational subsidiaries as of December 31, 2023 that either
have, or have plans to hire, independent management teams and currently have
already raised third-party dilutive capital. These subsidiaries have active
research and development programs and either have entered into or plan to seek
an equity or debt investment partner, who will provide additional industry
knowledge and access to networks, as well as additional funding to continue
the pursued growth of the company.
The Group's entities that were determined not to meet the definition of an
operating segment are included in the Parent Company and Other column to
reconcile the segment information to the financial statements. This column
captures activities not directly attributable to the Group's operating segment
and includes the activities of the Parent, corporate support functions and
certain research and development support functions that are not directly
attributable to a strategic business segment as well as the elimination of
intercompany transactions. This column also captures the operating results for
our deconsolidated entities through the date of deconsolidation (e.g. Vedanta
in 2023 and Sonde in 2022), and accounting for our holdings in Founded
Entities for which control has been lost, which primarily represents: the
activity associated with deconsolidating an entity when we no longer control
the entity (e.g. Vedanta in 2023 and Sonde in 2022), the gain or loss on our
investments accounted for at fair value (e.g. our ownership stakes in Karuna,
Vor and Akili) and our net income or loss of associates accounted for using
the equity method.
In January 2024, the Group launched two new Founded Entities (Seaport
Therapeutics and Gallop Oncology) to advance certain programs from the
Wholly-Owned Programs. Seaport Therapeutics will advance certain central
nervous system programs and relevant Glyph intellectual property. Gallop
Oncology will advance LYT-200 and other galectin-9 intellectual property. The
financial results of these programs were included in the Wholly-Owned Programs
segment in the footnotes to the Consolidated Financial Statements as of
December 31, 2023 and 2022, and for the three years ended December 31, 2023,
2022 and 2021, respectively. Upon raising dilutive third-party financing, the
financial results of these two entities will be included in the Controlled
Founded Entities segment to the extent that the Group maintains control over
these entities.
The table below summarizes the entities that comprised each of our segments as
of December 31, 2023:
Wholly-Owned Programs Segment Ownership Percentage
PureTech LYT 100.0%
PureTech LYT-100, Inc. 100.0%
Alivio Therapeutics, Inc. 100.0%
Controlled Founded Entities Segment
Entrega, Inc. 77.3%
Parent Company and Other(3)
Follica, LLC 85.4%
Gelesis, Inc. -%
Sonde Health, Inc.(1) 40.2%
Vedanta Biosciences, Inc.(2) 47.0%
PureTech Health plc 100.0%
PureTech Health LLC 100.0%
PureTech Securities Corporation 100.0%
PureTech Securities II Corporation 100.0%
PureTech Management, Inc. 100.0%
1 Sonde Health, Inc was deconsolidated on May 25, 2022.
2 Vedanta Biosciences, Inc. was deconsolidated on March 1, 2023.
3 Includes dormant, inactive and shell entities as well as Founded
Entities that were deconsolidated prior to 2023.
Components of Our Results of Operations
Revenue
To date, we have not generated any meaningful revenue from product sales and
we do not expect to generate any meaningful revenue from product sales in the
near future. We derive our revenue from the following:
Contract revenue
We generate revenue primarily from licenses, services and collaboration
agreements, including amounts that are recognized related to upfront payments,
milestone payments, royalties and amounts due to us for research and
development services. In the future, revenue may include additional milestone
payments and royalties on any net product sales under our licensing
agreements. We expect that any revenue we generate will fluctuate from period
to period as a result of the timing and amount of license, research and
development services and milestone and other payments.
Grant Revenue
Grant revenue is derived from grant awards we receive from governmental
agencies and non-profit organizations for certain qualified research and
development expenses. We recognize grants from governmental agencies and
non-profit organizations as grant revenue in the Consolidated Statement of
Comprehensive Income/(Loss), gross of the expenditures that were related to
obtaining the grant, when there is reasonable assurance that we will comply
with the conditions within the grant agreement and there is reasonable
assurance that payments under the grants will be received. We evaluate the
conditions of each grant as of each reporting date to ensure that we have
reasonable assurance of meeting the conditions of each grant arrangement, and
it is expected that the grant payment will be received as a result of meeting
the necessary conditions.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts, and the development of
our wholly-owned and our Controlled Founded Entities' therapeutic candidates,
which include:
• employee-related expenses, including salaries, related benefits
and equity-based compensation;
• expenses incurred in connection with the preclinical and clinical
development of our wholly-owned and our Founded Entities' therapeutic
candidates, including our agreements with contract research organizations;
• expenses incurred under agreements with consultants who supplement
our internal capabilities;
• the cost of lab supplies and acquiring, developing and
manufacturing preclinical study materials and clinical trial materials;
• costs related to compliance with regulatory requirements; and
• facilities, depreciation and other expenses, which include direct
and allocated expenses for rent and maintenance of facilities, insurance and
other operating costs.
We expense all research costs in the periods in which they are incurred and
development costs are capitalized only if certain criteria are met. For the
periods presented, we have not capitalized any development costs since we have
not met the necessary criteria required for capitalization.
Research and development activities are central to our business model. We
expect that our research and development expenses will continue to increase
for the foreseeable future in connection with our planned preclinical and
clinical development activities in the near term and in the future related to
our Wholly-Owned Programs and our existing, newly established and future
Founded Entities. The successful development of our wholly-owned and our
Founded Entities' therapeutic candidates is highly uncertain. As such, at this
time, we cannot reasonably estimate or know the nature, timing and estimated
costs of the efforts that will be necessary to complete the remainder of the
development of these therapeutic candidates through our funding or in
conjunction with our external partners. We are also unable to predict when, if
ever, material net cash inflows will commence from our wholly-owned or our
Founded Entities' therapeutic candidates. This is due to the numerous risks
and uncertainties associated with developing therapeutics, including the
uncertainty of:
• progressing research and development of our Wholly-Owned Programs
and Founded Entities and continuing to progress our various technology
platforms and other potential therapeutic candidates based on previous human
efficacy and clinically validated biology within our Wholly-Owned Programs and
Founded Entities;
• establishing an appropriate safety profile with investigational
new drug application;
• the success of our Founded Entities and their need for additional
capital;
• identifying new therapeutic candidates to add to our Wholly-Owned
Programs or Founded Entities;
• successful enrollment in, and the initiation and completion of,
clinical trials;
• the timing, receipt and terms of any marketing approvals from
applicable regulatory authorities;
• establishing commercial manufacturing capabilities or making
arrangements with third-party manufacturers;
• addressing any competing technological and market developments, as
well as any changes in governmental regulations;
• negotiating favorable terms in any collaboration, licensing or
other arrangements into which we may enter and performing our obligations
under such arrangements;
• maintaining, protecting and expanding our portfolio of
intellectual property rights, including patents, trade secrets and know-how,
as well as obtaining and maintaining regulatory exclusivity for our
wholly-owned and our Founded Entities' therapeutic candidates;
• continued acceptable safety profile of our therapeutics, if any,
following approval; and
• attracting, hiring and retaining qualified personnel.
A change in the outcome of any of these variables with respect to the
development of a therapeutic candidate could mean a significant change in the
costs and timing associated with the development of that therapeutic
candidate. For example, the FDA, the EMA, or another comparable foreign
regulatory authority may require us to conduct clinical trials beyond those
that we anticipate will be required for the completion of clinical development
of a therapeutic candidate, or we may experience significant trial delays due
to patient enrollment or other reasons, in which case we would be required to
expend significant additional financial resources and time on the completion
of clinical development. In addition, we may obtain unexpected results from
our clinical trials, and we may elect to discontinue, delay or modify clinical
trials of some therapeutic candidates or focus on others. Identifying
potential therapeutic candidates and conducting preclinical testing and
clinical trials is a time-consuming, expensive and uncertain process that
takes years to complete, and we may never generate the necessary data or
results required to obtain marketing approval and achieve product sales. In
addition, our wholly-owned and our Founded Entities' therapeutic candidates,
if approved, may not achieve commercial success.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance, corporate and business development and administrative
functions. General and administrative expenses also include professional fees
for legal, patent, accounting, auditing, tax and consulting services, travel
expenses and facility-related expenses, which include direct depreciation
costs and allocated expenses for rent and maintenance of facilities and other
operating costs.
We expect that our general and administrative expenses will increase in the
future as we support our increased number of consolidated Founded Entities,
continued research and development to support our Wholly-Owned Programs and
our technology platforms, as well as potential commercialization of our
Controlled Founded Entities' portfolio of therapeutic candidates.
Total Other Income/(Expense)
Gain on Deconsolidation of Subsidiary
Upon losing control over a subsidiary, the assets and liabilities are
derecognized along with any related non-controlling interest ("NCI"). Any
interest retained in the former subsidiary is measured at fair value when
control is lost. Any resulting gain or loss is recognized as profit or loss in
the Consolidated Statement of Comprehensive Income/(Loss).
Gain/(Loss) on Investments Held at Fair Value
Investments held at fair value include both unlisted and listed securities
held by us, which include investments in Akili, Karuna, Vor, Vedanta and Sonde
and other insignificant investments. We account for investments in convertible
preferred shares in accordance with IFRS 9 as investments held at fair value
when the preferred shares do not provide their holders with access to returns
associated with a residual equity interest. Under IFRS 9, the preferred share
investments are categorized as debt instruments that are presented at fair
value through profit and loss because the amounts receivable do not represent
solely payments of principal and interest.
Realized Gain/(Loss) on Sale of Investments
Realized gain/(loss) on sale of investments held at fair value relates to
realized differences in the per share disposal price of a listed security as
compared to the per share exchange quoted price at the time of disposal. The
realized loss in 2021 is attributable to a block sale discount, due to a
variety of market factors, primarily the number of shares being transacted was
significantly larger than the daily trading volume of the security. The
realized loss in 2022 is attributable to the settlement of call options
written by the Group on Karuna stock. The amount in 2023 is not significant.
Gain/(Loss) on Investments in Notes from Associates
Gain/(loss) on investments in notes from associates relates to our investment
in the notes from Gelesis and Vedanta. We account for these notes in
accordance with IFRS 9 as investments held at fair value, with changes in fair
value recognized through the Consolidated Statement of Comprehensive
Income/(Loss). The amount in 2023 is primarily attributable to a decrease in
the fair value of our notes from Gelesis. On October 30, 2023, Gelesis ceased
operations and filed a voluntary petition for relief under the United States
bankruptcy code.
Other Income (Expense)
Other income (expense) consists primarily of gains and losses on financial
instruments. In 2022, it relates primarily to the Backstop agreement with
Gelesis.
Finance Income/(Costs)
Finance costs consist of loan interest expense, interest expense due to
accretion of and adjustment to the sale of future royalties liability as well
as the changes in the fair value of certain liabilities associated with
financing transactions, mainly preferred share liabilities in respect of
preferred shares issued by our non-wholly owned subsidiaries to third parties.
Finance income consists of interest income on funds invested in money market
funds and U.S. treasuries.
Share of Net Income (Loss) of Associates Accounted for Using the Equity
Method, Gain on Dilution of Ownership Interest and Impairment of Investment in
Associates
Associates are accounted for using the equity method (equity accounted
investees) and are initially recognized at cost, or if recognized upon
deconsolidation, they are initially recorded at fair value at the date of
deconsolidation. The Consolidated Financial Statements include our share of
the total comprehensive income/(loss) of equity accounted investees, from the
date that significant influence commences until the date that significant
influence ceases. When the share of losses exceeds the net investment in the
investee, including the investment considered long-term interests, the
carrying amount is reduced to nil and recognition of further losses is
discontinued except to the extent that we have incurred legal or constructive
obligations or made payments on behalf of an investee.
We compare the recoverable amount of the investment to its carrying amount on
a go-forward basis and determine the need for impairment.
When our share in the equity of the investee changes as a result of equity
transactions in the investee (related to financing events of the investee), we
calculate a gain or loss on such change in ownership and related share in the
investee's equity. During the year ended December 31, 2022, we recorded a gain
on dilution of our ownership interest in Gelesis.
In 2023, we recorded our share of the net loss of Gelesis which reduced the
carrying amount of our investment to zero. On October 30, 2023, Gelesis ceased
operations and our significant influence in Gelesis ceased.
Income Tax
The amount of taxes currently payable or refundable is accrued, and deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets are also recognized for realizable loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
substantively enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. Net deferred
tax assets are not recorded if we do not assess their realization as probable.
The effect on deferred tax assets and liabilities of a change in income tax
rates is recognized in our financial statements in the period that includes
the substantive enactment date or the change in tax status.
Results of Operations
The following table, which has been derived from our audited financial
statements for the years ended December 31, 2023, 2022 and 2021, included
herein, summarizes our results of operations for the periods indicated,
together with the changes in those items:
Year ended December 31,
(in thousands) 2023 2022 2021 Change Change
(2022 to 2023) (2021 to 2022)
Contract revenue $750 $2,090 $9,979 $(1,340) $(7,889)
Grant revenue 2,580 13,528 7,409 (10,948) 6,119
Total revenue 3,330 15,618 17,388 (12,288) (1,770)
Operating expenses:
General and administrative expenses (53,295) (60,991) (57,199) 7,696 (3,792)
Research and development expenses (96,235) (152,433) (110,471) 56,199 (41,962)
Operating income/(loss) (146,199) (197,807) (150,282) 51,607 (47,524)
Other income/(expense):
Gain/(loss) on deconsolidation of subsidiary 61,787 27,251 - 34,536 27,251
Gain/(loss) on investments held at fair value 77,945 (32,060) 179,316 110,006 (211,377)
Realized gain/(loss) on sale of investments (122) (29,303) (20,925) 29,180 (8,378)
Gain/(loss) on investments in notes from associates (27,630) - - (27,630) -
Other income/(expense) (908) 8,131 1,592 (9,038) 6,539
Other income/(expense) 111,072 (25,981) 159,983 137,053 (185,965)
Net finance income/(costs) 5,078 138,924 5,050 (133,846) 133,875
Share of net income/(loss) of associates accounted for using the equity method (6,055) (27,749) (73,703) 21,695 45,954
Gain/(loss) on dilution of ownership interest in associate - 28,220 - (28,220) 28,220
Impairment of investment in associates - (8,390) - 8,390 (8,390)
Income/(loss) before income taxes (36,103) (92,783) (58,953) 56,680 (33,830)
Taxation (30,525) 55,719 (3,756) (86,243) 59,475
Net income/(loss) including non-controlling interest (66,628) (37,065) (62,709) (29,563) 25,644
Net income/(loss) for the year attributable to the Owners of the Group $(65,697) $(50,354) $(60,558) $(15,342) $10,204
Comparison of the Years Ended December 31, 2023 and 2022
Total Revenue
Year ended December 31,
(in thousands) 2023 2022 Change
Contract Revenue:
Controlled Founded Entities $750 $1,500 $(750)
Parent Company and Other - 590 (590)
Total Contract Revenue 750 2,090 (1,340)
Grant Revenue:
Wholly-Owned Programs 853 2,826 (1,973)
Parent Company and Other 1,727 10,702 (8,975)
Total Grant Revenue 2,580 13,528 (10,948)
Total Revenue $3,330 $15,618 $(12,288)
Our total revenue was $3.3 million for the year ended December 31, 2023, a
decrease of $12.3 million, or 79 percent compared to the year ended December
31, 2022. The decrease was primarily attributable to a decrease of $10.9
million in grant revenue, mainly as a result of inclusion of Vedanta's
activities only for a part of the year through its deconsolidation in March
2023, and a decrease of $2.0 million as a result of decreased grant-related
activities. The decrease was also attributed to a decrease of $1.3 million in
contract revenue due to the conclusion of certain collaboration agreements, as
well as a decrease of $0.6 million due primarily to the discontinuation of
royalty revenue from Gelesis as Gelesis ceased operations in October 2023.
Research and Development Expenses
Year ended December 31,
(in thousands) 2023 2022 Change
Research and Development Expenses:
Wholly-Owned Programs $(89,495) $(116,054) $(26,559)
Controlled Founded Entities (672) (1,051) (379)
Parent Company and Other (6,068) (35,328) (29,260)
Total Research and Development Expenses: $(96,235) $(152,433) $(56,199)
Our research and development expenses were $96.2 million for the year ended
December 31, 2023, a decrease of $56.2 million, or 37 percent compared to the
year ended December 31, 2022. The change was primarily attributable to a
decrease of $26.6 million in research and development expenses incurred by
the Wholly-Owned Programs, out of which $13.1 million is due to
prioritization of research and development projects, whereby the Group elected
to focus on programs where it believes it has the highest probability of
success and reduced efforts in research and clinical stage projects where such
probability of success is lower. The program prioritization and reduction in
the research activities further resulted in a decrease of $6.3 million in
payroll and headcount related costs, and $1.3 million of impairment cost of
fixed assets related to write down of lab equipment that was previously used
by the research team. In addition, there was a decrease of $12.4 million,
mainly in contract manufacturing expenses in the year ended December 31, 2023,
as compared to the year ended December 31, 2022, due to the ramp up of
clinical manufacturing efforts in the year ended December 31, 2022, in
preparation of the start of new clinical studies. These decreases in research
and development expenses were partially offset with increases of $4.7 million
in consulting fee and outside services. The decrease in research and
development expenses was also attributable to a decrease of $29.3 million in
the Parent Company and Other as a result of inclusion of Vedanta's activities
only for a part of the year 2023 through its deconsolidation in March 2023, as
compared with inclusion of the results for the full year in the year ended
December 31, 2022.
General and Administrative Expenses
Year ended December 31,
(in thousands) 2023 2022 Change
General and Administrative Expenses:
Wholly-Owned Programs $(14,020) $(8,301) $5,720
Controlled Founded Entities (562) (419) 143
Parent Company and Other (38,713) (52,272) (13,559)
Total General and Administrative Expenses $(53,295) $(60,991) $(7,696)
Our general and administrative expenses were $53.3 million for the year ended
December 31, 2023, a decrease of $7.7 million, or 13 percent compared to the
year ended December 31, 2022. The change was attributable to a decrease of
$13.6 million in Parent Company and Other offset by increases of
$5.7 million, and $0.1 million in the Wholly-Owned Programs segment and
the Controlled Founded Entities segment, respectively. The decrease in the
Parent Company and Other in 2023 was primarily attributable to the inclusion
of Vedanta's activities only for a part of the year 2023 through its
deconsolidation in March 2023, as compared with inclusion of the results for
the full year in the year ended December 31, 2022, partially offset with an
increase in consulting fees related to project evaluation and employee
compensation costs. The increases in the Wholly-Owned Programs segment and the
Controlled Founded Entities segments were primarily driven by increases, in
management fees, charged by the Parent Company during the year ended December
31, 2023 as compared to the year ended December 31, 2022.
Total Other Income/(Expense)
Total other income was $111.1 million for the year ended December 31, 2023
compared to a loss of $26.0 million for the year ended December 31, 2022,
reflecting a change of $137.1 million, or 528%. The increase in other income
was primarily attributable to the following:
• a gain from investments held at fair value of $77.9 million
primarily attributed to an increase in fair value of Karuna shares for the
year ended December 31, 2023, compared to a loss of $32.1 million for the
year ended December 31, 2022, reflecting an increase in other income of
$110.0 million.
• a gain from deconsolidation of Vedanta of $61.8 million for the
year ended December 31, 2023, compared to a gain from deconsolidation of Sonde
of $27.3 million for the year ended December 31, 2022, reflecting an increase
in other income of $34.5 million.
• a decrease of $29.2 million in realized loss from the sale of
investments.
These increases in total other income were partially offset by a loss from
investments in notes from associates of $27.6 million primarily due to
Gelesis ceasing operations in October 2023, for the year ended December 31,
2023, while no such loss occurred during the year ended December 31, 2022, as
well as a decrease in other income of $9.0 million due to a gain of
$7.6 million in respect of the Gelesis back-stop agreement recorded during
the year ended December 31, 2022.
Net Finance Income/(Costs)
Net finance income was $5.1 million for the year ended December 31, 2023,
compared to net finance income of $138.9 million for the year ended December
31, 2022, reflecting a decrease of $133.8 million or 96 percent in net
finance Income. The decrease was primarily attributable to the net change in
fair value of subsidiaries' financial instrument liabilities: during the year
ended December 31, 2023, net change in fair value of subsidiaries' preferred
shares, warrant and convertible note liabilities was an income of
$2.6 million, while for the year ended December 31, 2022, such change was an
income of $137.1 million, primarily related to change in fair value of
Vedanta preferred share liabilities, leading to decrease in income of $134.4
million. In addition, the decrease in net finance income is attributable to
non-cash interest expenses in the amount of $10.2 million recorded on the sale
of future royalties liability, during the year ended December 31, 2023, with
no such corresponding expense, or liability, in the year ended December 31,
2022. This decrease in net finance income was partially offset by an increase
in interest income in the amount of $10.2 million due to higher interest rates
and yields earned on financial assets and a decrease of $0.5 million in
contractual interest expense during the year ended December 31, 2023, as
compared to the year ended December 31, 2022.
Share of Net Income/(loss) of Associates Accounted for Using the Equity Method
For the year ended December 31, 2023, the share in net loss of associates
reported under the equity method was $6.1 million as compared to the share in
net loss of associates of $27.7 million for the year ended December 31, 2022,
resulting in a net decrease in loss of $21.7 million. The decrease was
primarily attributable to a decrease in Gelesis losses incurred in the year
ended December 31, 2023, due to the reduction in the carrying value of our
investment to zero.
Gain/(Loss) on Dilution of Ownership Interest in Associates and Impairment of
Investment in Associates
During the year ended December 31, 2022, the Group recorded a gain on dilution
of its equity ownership interest in Gelesis of $28.2 million as a result of
the completion of the merger with CapStar on January 13, 2022. In addition,
during the year ended December 31, 2022, the Group recorded an impairment loss
of $8.4 million in respect of its investment in Gelesis. No such gains or
impairment was incurred in the year ended December 31, 2023.
Taxation
Income tax expense was an expense of $30.5 million for the year ended
December 31, 2023, as compared to a benefit of $55.7 million for the year
ended December 31, 2022, reflecting an increase in income tax expense of
$86.2 million. The increase in the income tax expense in the year ended
December 31, 2023, was primarily attributable to lower pre-tax loss in the tax
consolidated U.S. group, the tax in respect of the sale of future royalties to
Royalty Pharma and the impact of derecognizing previously recognized deferred
tax assets that are no longer expected to be utilized. For the year ended
December 31, 2022, the Group recorded an income tax benefit, primarily
attributable to the increase in gains that are non-taxable. For a full
reconciliation from the statutory tax rate to the effective tax rate, see Note
27. Taxation to our Consolidated Financial Statements.
Comparison of the Years Ended December 31, 2022 and 2021
For the comparison of 2022 to 2021, refer to Part I, Item 5 "Operating and
Financial Review and Prospects" of our Annual Report on Form 20-F for the year
ended December 31, 2022.
Material Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and
results of operations is based on our financial statements, which we have
prepared in accordance with UK-adopted International Financial Reporting
Standards ("IFRSs"). The Consolidated Financial Statements also comply fully
with IFRSs as issued by the International Accounting Standards Board ("IASB").
In the preparation of these financial statements, we are required to make
judgments, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates
and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from
these estimates under different assumptions or conditions.
Our estimates and assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period or in the period of the
revisions and future periods if the revision affects both current and future
periods.
While our significant accounting policies are described in more detail in the
notes to our Consolidated Financial Statements appearing at the end of this
report, we believe the following accounting policies to be most critical to
the judgments and estimates used in the preparation of our financial
statements. See Note 1. Material Accounting Policies to our Consolidated
Financial Statements for a further detailed description of our significant
accounting policies.
Financial instruments
We account for our financial instruments according to IFRS 9. In accordance
with IFRS 9, we carry certain financial assets and financial liabilities at
fair value, with changes in fair value through profit and loss ("FVTPL").
Valuation of these financial instruments includes determining the appropriate
valuation methodology and making certain estimates such as the future expected
returns on the financial instrument in different scenarios, appropriate
discount rate, volatility, and term to exit.
In accordance with IFRS 9, when issuing preferred shares in our subsidiaries,
we determine the classification of financial instruments in terms of liability
or equity. Such determination involves judgement. These judgements include an
assessment of whether the financial instruments include any embedded
derivative features, whether they include contractual obligations upon us to
deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party at any point in the future prior to
liquidation, and whether that obligation will be settled by exchanging a fixed
amount of cash or other financial assets for a fixed number of the Group's
equity instruments.
Consolidation
The Consolidated Financial Statements include the financial statements of the
Group and the entities it controls. Based on the applicable accounting rules,
we control an investee when we are exposed, or have rights, to variable
returns from our involvement with the investee and have the ability to affect
those returns through our power over the investee. Therefore an assessment is
required to determine whether we have (i) power over the investee; (ii)
exposure, or rights, to variable returns from our involvement with the
investee; and (iii) the ability to use our power over the investee to affect
the amount of our returns. Judgement is required to perform such assessment
and it requires that we consider, among others, activities that most
significantly affect the returns of the investee, our voting shares,
representation on the board, rights to appoint board members and management,
shareholders agreements, de facto power and other contributing factors.
Sale of Future Royalties Liability
We account for the sale of future royalties liability as a financial
liability, as we continue to hold the rights under the royalty bearing
licensing agreement and have a contractual obligation to deliver cash to an
investor for a portion of the royalty we receive. Interest on the sale of
future royalties liability is recognized using the effective interest rate
over the life of the related royalty stream.
The sale of future royalties liability and the related interest expense are
based on our current estimates of future royalties expected to be paid over
the life of the arrangement. Forecasts are updated periodically as new data is
obtained. Any increases, decreases or a shift in timing of estimated cash
flows require us to re-calculate the amortized cost of the sale of future
royalties liability as the present value of the estimated future contractual
cash flows that are discounted at the liability's original effective interest
rate. The adjustment is recognized immediately in profit or loss as income or
expense.
In determining the appropriate accounting treatment for the Royalty Purchase
Agreement, management applied significant judgement.
Investment in Associates
When we do not control an investee but maintain significant influence over the
financial and operating policies of the investee, the investee is an
associate. Significant influence is presumed to exist when we hold 20 percent
or more of the voting power of an entity, unless it can be clearly
demonstrated that this is not the case. We evaluate if we maintain significant
influence over associates by assessing if we have the power to participate in
the financial and operating policy decisions of the associate.
Associates are accounted for using the equity method (equity accounted
investees) and are initially recognized at cost, or if recognized upon
deconsolidation, they are initially recorded at fair value at the date of
deconsolidation. The Consolidated Financial Statements include our share of
the total comprehensive income or loss of equity accounted investees, from the
date that significant influence commences until the date that significant
influence ceases. When our share of losses exceeds the net investment in an
equity accounted investee, including investments considered to be long-term
interests ("LTI"), the carrying amount is reduced to zero and recognition of
further losses is discontinued except to the extent that we have incurred
legal or constructive obligations or made payments on behalf of an investee.
To the extent we hold interests in associates that are not providing access to
returns underlying ownership interests, the instrument held by us is accounted
for in accordance with IFRS 9.
Judgement is required in order to determine whether we have significant
influence over financial and operating policies of investees. This judgement
includes, among others, an assessment whether we have representation on the
board of the investee, whether we participate in the policy-making processes
of the investee, whether there is any interchange of managerial personnel,
whether there is any essential technical information provided to the investee,
and if there are any transactions between us and the investee.
Judgement is also required to determine which instruments we hold in the
investee form part of the investment in associates, which is accounted for
under IAS 28 and scoped out of IFRS 9, and which instruments are separate
financial instruments that fall under the scope of IFRS 9. This judgement
includes an assessment of the characteristics of the financial instrument of
the investee held by us and whether such financial instrument provides access
to returns underlying an ownership interest.
Where the Group has other investments in an equity accounted investee that are
not accounted for under IAS 28, judgement is required in determining if such
investments constitute long-term interests for the purposes of IAS 28. This
determination is based on the individual facts and circumstances and
characteristics of each investment, but is driven, among other factors, by the
intention and likelihood to settle the instrument through redemption or
repayment in the foreseeable future, and whether or not the investment is
likely to be converted to common stock or other equity instruments.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Note 2. New Standards
and Interpretations to our Consolidated Financial Statements.
Cash Flow and Liquidity
Our cash flows may fluctuate and are difficult to forecast and will depend on
many factors, including:
• the expenses incurred in the development of wholly-owned and
Controlled Founded Entities' therapeutic candidates;
• the revenue, if any, generated by wholly-owned and
Controlled-Founded Entities' therapeutic candidates;
• the revenue, if any, generated from licensing and royalty
agreements with Founded Entities;
• the financing requirements of the Wholly-Owned Programs and our
Founded Entities; and
• the investing activities including the monetization, through sale,
of shares held in our public Founded Entities.
As of December 31, 2023, we had cash and cash equivalents of $191.1 million
and short-term investments of $136.1 million. As of December 31, 2023, we had
PureTech Level cash, cash equivalents and short-term investments of
$326.0 million. PureTech Level cash, cash equivalents and short-term
investments is a non-IFRS measure (for a definition of PureTech Level cash,
cash equivalents and short-term investments and a reconciliation with the IFRS
number, see the section Measuring Performance earlier in this Financial
Review). In March 2024, we received total proceeds of $292.7 million before
income tax in exchange for our holding of 886,885 shares of Karuna common
stock as a result of the completion of Karuna acquisition by Bristol Myers
Squibb ("BMS").
Cash Flows
The following table summarizes our cash flows for each of the periods
presented:
Year ended December 31,
(in thousands) 2023 2022 2021
Net cash used in operating activities $(105,917) $(178,792) $(158,274)
Net cash provided by (used in) investing activities 68,991 (107,223) 197,375
Net cash provided by (used in) financing activities 78,141 (29,827) 22,727
Net increase (decrease) in cash and cash equivalents $41,215 $(315,842) $61,827
Operating Activities
Net cash used in operating activities was $105.9 million for the year ended
December 31, 2023, as compared to $178.8 million for the year ended December
31, 2022, resulting in a decrease of $72.9 million in net cash used in
operating activities. The decrease in outflows is primarily attributable to
our lower operating loss mainly due to a decrease in research and development
activities in the Wholly-Owned Programs and Controlled Founded Entities and a
decrease of operating cash flows as a result of the deconsolidation of Vedanta
on March 1, 2023.
Net cash used in operating activities was $178.8 million for the year ended
December 31, 2022, as compared to $158.3 million for the year ended December
31, 2021, resulting in an increase of $20.5 million in net cash used in
operating activities. The increase in outflows is primarily attributable to
our higher operating loss mainly due to an increase in research and
development activities in the Wholly-Owned Programs segment, partially offset
by the timing of receipts and payments in the normal course of business.
Investing Activities
Net cash provided by investing activities was $69.0 million for the year ended
December 31, 2023, as compared to net cash outflow of $107.2 million for the
year ended December 31, 2022, resulting in an increase of $176.2 million in
net cash from investing activities. The increase in net cash from investing
activities was primarily attributable to increased cash inflow from short-term
investment activities (redemptions, net of purchases) amounting to $264.4
million, partially offset by a reduction in proceeds from the sale of
investments held at fair value of $85.4 million.
Net cash used in investing activities was $107.2 million for the year ended
December 31, 2022, as compared to cash inflows of $197,375 for the year ended
December 31, 2021, resulting in a decrease of $304.6 million in net cash
resulting from investing activities. The decrease in the net cash resulting
from investing activities was primarily attributed to a decrease in proceeds
from the sale of investments held at fair value of $99.4 million and to the
purchase of short-term investments, net of redemptions amounted to $198.7
million for the year ended December 31, 2022.
Financing Activities
Net cash provided by financing activities was $78.1 million for the year ended
December 31, 2023, as compared to net cash used in financing activities of
$29.8 million for the year ended December 31, 2022, resulting in an increase
of $108.0 million in the net cash provided by financing activities. The
increase in the net cash provided by financing activities was primarily
attributable to the receipts of $100.0 million upfront payment from Royalty
Pharma upon execution of Royalty Purchase Agreement in March 2023, and a $6.8
million decrease in treasury stock purchase in 2023 as compared to 2022.
Net cash used in financing activities was $29.8 million for the year ended
December 31, 2022, as compared to net cash provided by financing activities of
$22.7 million for the year ended December 31, 2021, resulting in a decrease of
$52.6 million in the net cash resulting from financing activities. The
decrease in the net cash resulting from financing activities was primarily
attributable to the fact that in the year ended December 31, 2021, there was
an issuance of subsidiary preferred shares of $37.6 million while for the year
ended December 31, 2022, there was no such issuance, and due to the treasury
share purchases of $26.5 million for the year ended December 31, 2022 while
there were no such purchases for the year ended December 31, 2021. This
decrease was partially offset by the fact that during the year ended December
31, 2021, there were payments to settle stock based awards of $13.3 million,
while for the year ended December 31, 2022, there were no such payments made.
Funding Requirements
We have incurred operating losses since inception. Based on our current plans,
we believe our existing financial assets as of December 31, 2023, will be
sufficient to fund our operations and capital expenditure requirements into at
least 2027. We expect to incur substantial additional expenditures in the near
term to support our ongoing and future activities. We anticipate to continue
to incur net operating losses for the foreseeable future to support our
existing Founded Entities and newly launched Founded Entities (Seaport
Therapeutics and Gallop Oncology), and our strategy around creating and
supporting other Founded Entities, should they require it, to reach
significant development milestones over the period of the assessment in
conjunction with our external partners. We also expect to incur significant
costs to advance our Wholly-Owned Programs, to continue research and
development efforts, to discover and progress new therapeutic candidates and
to fund the Group's operating costs into at least 2027. Our ability to fund
our therapeutic development and clinical operations as well as ability to fund
our existing, newly founded and future Founded Entities, will depend on the
amount and timing of cash received from planned financings, monetization of
shares of public Founded Entities and potential business development
activities. Our future capital requirements will depend on many factors,
including:
• the costs, timing and outcomes of clinical trials and regulatory
reviews associated with our wholly-owned therapeutic candidates;
• the costs of preparing, filing and prosecuting patent applications
and maintaining, enforcing and defending intellectual property related claims;
• the emergence of competing technologies and products and other
adverse marketing developments;
• the effect on our therapeutic and product development activities
of actions taken by the U.S. Food and Drug Administration ("FDA"), the
European Medicines Agency ("EMA") or other regulatory authorities;
• the number and types of future therapeutics we develop and support
with the goal of commercialization;
• The costs, timing and outcomes of identifying, evaluating, and
investing in technologies and drug candidates to develop as Wholly-Owned
Programs or as Founded Entities; and
• the success of our Founded Entities and their need for additional
capital.
A change in the outcome of any of these or other variables with respect to the
development of any of our wholly-owned therapeutic candidates could
significantly change the costs and timing associated with the development of
that therapeutic candidate.
Further, our operating plans may change, and we may need additional funds to
meet operational needs and capital requirements for clinical trials and other
research and development activities. We currently have no credit facility or
other committed sources of capital beyond our existing financial assets.
Because of the numerous risks and uncertainties associated with the
development and commercialization of our wholly-owned therapeutic candidates,
we have only a general estimate of the amounts of increased capital outlays
and operating expenditures associated with our current and anticipated
therapeutic development programs and these may change in the future.
Financial Position
Summary Financial Position
As of December 31,
(in thousands) 2023 2022 Change
Investments held at fair value $317,841 $251,892 $65,949
Other non-current assets 28,930 64,562 (35,632)
Non-current assets 346,771 316,454 30,317
Cash and cash equivalents, and short-term investments 327,143 350,095 (22,952)
Other current assets 20,059 36,097 (16,039)
Current assets 347,201 386,192 (38,991)
Total assets 693,973 702,647 (8,674)
Lease liability 18,250 24,155 (5,906)
Deferred tax liability 52,462 19,645 32,817
Sale of future royalties liability 110,159 - 110,159
Other non-current liabilities 3,501 14,372 (10,871)
Non-current liabilities 184,371 58,172 126,199
Trade and other payables 44,107 54,840 (10,733)
Notes payable 3,699 2,345 1,354
Preferred shares 169 27,339 (27,170)
Other current liabilities 3,394 12,361 (8,967)
Current liabilities 51,370 96,885 (45,516)
Total liabilities 235,741 155,057 80,684
Net assets 458,232 547,589 (89,358)
Total equity $458,232 $547,589 $(89,358)
Investments Held at Fair Value
Investments held at fair value increased by $65.9 million to $317.8 million
as of December 31, 2023. As of December 31, 2023, Investments held at fair
value consist primarily of our common share investment in Karuna, Vor and
Akili (Akili was in the form of preferred shares until August 2022) and our
preferred share investment in Sonde (from May 2022) and Vedanta (from March
2023). The increase is primarily attributed to an increase of $73.5 million
in the value of Karuna shares as well as the Group recognizing its investment
in the convertible preferred shares of Vedanta in the amount of $20.5 million
subsequent to Vedanta being deconsolidated from the Group's financial
statements, partially offset by decreases in fair value of various
investments.
Cash, Cash Equivalents, and Short-Term Investments
Consolidated cash, cash equivalents and short-term investments decreased by
$23.0 million to $327.1 million as of December 31, 2023. The decrease is
primarily attributed to net cash used in operating activities of $105.9
million, purchase of treasury stock of $19.6 million, purchase of convertible
note from associate of $16.9 million, and cash derecognized upon loss of
control over Vedanta of $13.8 million, partially offset by proceeds of
$33.3 million from sale of Karuna shares during the year ended December 31,
2023, and receipts of $100.0 million upfront payment from Royalty Pharma upon
execution of Royalty Purchase Agreement in March 2023.
Non-Current Liabilities
Non-current liabilities increased by $126.2 million to $184.4 million as of
December 31, 2023. The increase was driven by the Group receiving a $100.0
million non-refundable initial payment at the execution of the Royalty
Purchase Agreement with Royalty Pharma, which is accounted for as a
non-current sale of future royalties liability, as well as the accretion of
non-cash interest expense on the sale of future royalties liability, and a
$32.8 million increase in our deferred tax liabilities, partially offset by a
$10.2 million decrease in long-term loan due to Vedanta being deconsolidated
in 2023.
Trade and Other Payables
Trade and other payables decreased by $10.7 million to $44.1 million as of
December 31, 2023. The decrease reflected primarily the deconsolidation of
Vedanta and the timing of payments as of December 31, 2023.
Preferred Shares
Preferred share liability in subsidiaries decreased by $27.2 million as of
December 31, 2023. The decrease in the preferred share liability primarily
relates to a decrease of $24.6 million due to the deconsolidation of Vedanta
during the year ended December 31, 2023.
Quantitative and Qualitative Disclosures about Financial Risks
Interest Rate Sensitivity
As of December 31, 2023, we had cash and cash equivalents of $191.1 million
and short-term investments of $136.1 million, while we had PureTech Level
cash, cash equivalents and short-term investments of $326.0 million. PureTech
Level cash, cash equivalents and short-term investments is a non-IFRS measure
(for a definition of PureTech Level cash, cash equivalents and short-term
investments and a reconciliation with the IFRS number, see the section
Measuring Performance earlier in this Financial review). Our exposure to
interest rate sensitivity is impacted by changes in the underlying U.K. and
U.S. bank interest rates. We have not entered into investments for trading or
speculative purposes. Due to the conservative nature of our investment
portfolio, which is predicated on capital preservation and investments in
short duration, high-quality U.S. Treasury Bills and related money market
accounts, we do not believe a change in interest rates would have a material
effect on the fair market value of our portfolio, and therefore, we do not
expect our operating results or cash flows to be significantly affected by
changes in market interest rates.
Foreign Currency Exchange Risk
We maintain our consolidated financial statements in our functional currency,
which is the U.S. dollar. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the
functional currency at rates of exchange prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing
at the date of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income (loss)
for the respective periods. Such foreign currency gains or losses were not
material for all reported periods.
Controlled Founded Entity Investments
We maintain investments in certain Controlled Founded Entities. Our
investments in Controlled Founded Entities are eliminated as intercompany
transactions upon financial consolidation. We are exposed to a preferred share
liability owing to the terms of existing preferred shares and the ownership of
Controlled Founded Entities preferred shares by third parties. The liability
of preferred shares is maintained at fair value through profit and loss. We
view our exposure to third-party preferred share liability as low as of
December 31, 2023 as the liability is not significant. Please refer to Note
16. Subsidiary Preferred Shares to our Consolidated Financial Statements for
further information regarding our exposure to Controlled Founded Entity
investments.
Deconsolidated Founded Entity Investments
We maintain certain debt or equity holdings in Founded Entities which have
been deconsolidated. These holdings are deemed either as investments carried
at fair value under IFRS 9 with changes in fair value recorded through profit
and loss or as associates accounted for under IAS 28 using the equity method.
Our exposure to investments held at fair value and investments in notes from
associates was $317.8 million and $4.6 million, respectively, as of December
31, 2023, and we may or may not be able to realize the value in the future.
Accordingly, we view the risk as high. Our exposure to investments in
associates is limited to the carrying amount of the investment. We are not
exposed to further contractual obligations or contingent liabilities beyond
the value of initial investment. As of December 31, 2023, Sonde was the only
associate, and the carrying amount of the investments in Sonde accounted for
under the equity method was $3.2 million. Accordingly, we do not view this
risk as high.
Equity Price Risk
As of December 31, 2023, we held 886,885 common shares of Karuna, 2,671,800
common shares of Vor, and 12,527,477 common shares of Akili. The fair value of
our investments in the common shares of Karuna, Vor and Akili was
$280.7 million, $6.0 million, and $6.1 million, respectively.
The investments in Karuna, Vor and Akili are exposed to fluctuations in the
market price of these common shares. The effect of a 10.0 percent adverse
change in the market price of Karuna, Vor and Akili common shares as of
December 31, 2023, would cause a loss of $29.3 million to be recognized as a
component of other income (expense) in our Consolidated Statement of
Comprehensive Income/(Loss). However, we view exposure to equity price risk as
low due to the definitive merger agreement Karuna entered into with Bristol
Myers Squibb ("BMS") in December 2023 under which Karuna common shares were
acquired by BMS for $330 per share in March 2024. See Note 28. Subsequent
Events.
Liquidity Risk
We do not believe we will encounter difficulty in meeting the obligations
associated with our financial liabilities that are settled by delivering cash
or another financial asset. While we believe our cash and cash equivalents and
short-term investments do not contain excessive risk, we cannot provide
absolute assurance that in the future, our investments will not be subject to
adverse changes or decline in value based on market conditions.
Credit Risk
We maintain an investment portfolio in accordance with our investment policy.
The primary objectives of our investment policy are to preserve principal,
maintain proper liquidity and meet operating needs. Although our investments
are subject to credit risk, our investment policy specifies credit quality
standards for our investments and limits the amount of credit exposure from
any single issue, issuer or type of investment. We do not own derivative
financial instruments. Accordingly, we do not believe that there is any
material market risk exposure with respect to derivative or other financial
instruments.
Credit risk is also the risk of financial loss if a customer or counterparty
to a financial instrument fails to meet its contractual obligations. We are
potentially subject to concentrations of credit risk in accounts receivable.
Concentrations of credit risk with respect to receivables is owed to the
limited number of companies comprising our receivable base. However, our
exposure to credit losses is currently low due to relatively low receivable
balance, a small number of counterparties and the high credit quality or
healthy financial conditions of these counterparties.
Foreign Private Issuer Status
Owing to our U.S. listing on the Nasdaq Global Market, we report under the
Securities Exchange Act of 1934, as amended, or the Exchange Act, as a
non-U.S. company with foreign private issuer status. As long as we qualify as
a foreign private issuer under the Exchange Act, we will be exempt from
certain provisions of the Exchange Act that are applicable to U.S. domestic
public companies, including:
• the sections of the Exchange Act regulating the solicitation of
proxies, consents or authorizations in respect of a security registered under
the Exchange Act;
• sections of the Exchange Act requiring insiders to file public
reports of their stock ownership and trading activities and liability for
insiders who profit from trades made in a short period of time;
• the rules under the Exchange Act requiring the filing with the SEC
of quarterly reports on Form 10-Q containing unaudited financial and other
specified information, or current reports on Form 8-K, upon the occurrence of
specified significant events; and
• Regulation FD, which regulates selective disclosures of material
information by issuers.
Consolidated Statement of Comprehensive Income/(Loss)
For the years ended December 31
Note 2023 2022 2021
$000s $000s $000s
Contract revenue 3 750 2,090 9,979
Grant revenue 3 2,580 13,528 7,409
Total revenue 3,330 15,618 17,388
Operating expenses:
General and administrative expenses 8 (53,295) (60,991) (57,199)
Research and development expenses 8 (96,235) (152,433) (110,471)
Operating income/(loss) (146,199) (197,807) (150,282)
Other income/(expense):
Gain/(loss) on deconsolidation of subsidiary 5 61,787 27,251 -
Gain/(loss) on investments held at fair value 5 77,945 (32,060) 179,316
Realized gain/(loss) on sale of investments 5 (122) (29,303) (20,925)
Gain/(loss) on investments in notes from associates 7 (27,630) - -
Other income/(expense) (908) 8,131 1,592
Other income/(expense) 111,072 (25,981) 159,983
Finance income/(costs):
Finance income 10 16,012 5,799 214
Finance costs - contractual 10 (3,424) (3,939) (4,771)
Finance income/(costs) - fair value accounting 10 2,650 137,063 9,606
Finance costs - non cash interest expense related to sale of future royalties 17 (10,159) - -
Net finance income/(costs) 5,078 138,924 5,050
Share of net income/(loss) of associates accounted for using the equity method 6 (6,055) (27,749) (73,703)
Gain/(loss) on dilution of ownership interest in associates 6 - 28,220 -
Impairment of investment in associates 6 - (8,390) -
Income/(loss) before taxes (36,103) (92,783) (58,953)
Taxation 27 (30,525) 55,719 (3,756)
Income/(loss) for the year (66,628) (37,065) (62,709)
Other comprehensive income/(loss):
Items that are or may be reclassified as profit or loss
Equity-accounted associate - share of other comprehensive income (loss) 6 92 (166) -
Reclassification of foreign currency differences on dilution of interest - (213) -
Total other comprehensive income/(loss) 92 (379) -
Total comprehensive income/(loss) for the year (66,535) (37,444) (62,709)
Income/(loss) attributable to:
Owners of the Group (65,697) (50,354) (60,558)
Non-controlling interests (931) 13,290 (2,151)
(66,628) (37,065) (62,709)
Comprehensive income/(loss) attributable to:
Owners of the Group (65,604) (50,733) (60,558)
Non-controlling interests (931) 13,290 (2,151)
(66,535) (37,444) (62,709)
$ $ $
Earnings/(loss) per share:
Basic earnings/(loss) per share 11 (0.24) (0.18) (0.21)
Diluted earnings/(loss) per share 11 (0.24) (0.18) (0.21)
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Financial Position
As of December 31,
Note 2023 2022
$000s $000s
Assets
Non-current assets
Property and equipment, net 12 9,536 22,957
Right of use asset, net 23 9,825 14,281
Intangible assets, net 13 906 831
Investments held at fair value 5 317,841 251,892
Investment in associates - equity method 6 3,185 9,147
Investments in notes from associates 7 4,600 16,501
Lease receivable - long-term 23 - 835
Other non-current assets 878 10
Total non-current assets 346,771 316,454
Current assets
Trade and other receivables 24 2,376 11,867
Income tax receivable 27 11,746 10,040
Prepaid expenses 4,309 11,617
Lease receivable - short-term 23 - 450
Other financial assets 14 1,628 2,124
Short-term investments 24 136,062 200,229
Cash and cash equivalents 24 191,081 149,866
Total current assets 347,201 386,192
Total assets 693,973 702,647
Equity and liabilities
Equity
Share capital 5,461 5,455
Share premium 290,262 289,624
Treasury stock (44,626) (26,492)
Merger reserve 138,506 138,506
Translation reserve 182 89
Other reserve (9,538) (14,478)
Retained earnings 83,820 149,516
Equity attributable to the owners of the Group 15 464,066 542,220
Non-controlling interests 20 (5,835) 5,369
Total equity 458,232 547,589
Non-current liabilities
Sale of future royalties liability 17 110,159 -
Deferred tax liability 27 52,462 19,645
Lease liability, non-current 23 18,250 24,155
Long-term loan 22 - 10,244
Liability for share-based awards 9 3,501 4,128
Total non-current liabilities 184,371 58,172
Current liabilities
Deferred revenue 3 - 2,185
Lease liability, current 23 3,394 4,972
Trade and other payables 21 44,107 54,840
Notes payable 19 3,699 2,345
Warrant liability 18 - 47
Preferred shares 16, 18 169 27,339
Current portion of long-term loan 22 - 5,156
Total current liabilities 51,370 96,885
Total liabilities 235,741 155,057
Total equity and liabilities 693,973 702,647
Please refer to the accompanying Notes to the consolidated financial
information. Registered number: 09582467.
The Consolidated Financial Statements were approved by the Board of Directors
and authorized for issuance on April 25, 2024 and signed on its behalf by:
Bharatt Chowrira
Chief Executive Officer
April 25, 2024
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Changes in Equity
For the years ended December 31
Share Capital Treasury Shares
Note Shares Amount Share premium Shares Amount Merger reserve $000s Translation reserve Other reserve Retained earnings/ (accumulated deficit) Total Parent equity Non-controlling interests Total
$000s $000s $000s $000s $000s $000s $000s $000s Equity
$000s
Balance January 1, 2021 285,885,025 5,417 288,978 - - 138,506 469 (24,050) 260,429 669,748 (16,209) 653,539
Net income/(loss) - - - - - - - - (60,558) (60,558) (2,151) (62,709)
Total comprehensive income/(loss) for the year - - - - - - - - (60,558) (60,558) (2,151) (62,709)
Exercise of stock options 9 1,911,560 27 326 - - - - - - 352 - 352
Revaluation of deferred tax assets related to share-based awards - - - - - - - 615 - 615 - 615
Equity-settled share-based awards 9 - - - - - - - 7,109 - 7,109 6,252 13,361
Settlement of restricted stock units 9 - - - - - - - (10,749) - (10,749) - (10,749)
Reclassification of equity settled awards to liability awards - - - - - - - (6,773) - (6,773) - (6,773)
Vesting of share-based awards and net share exercise 9 - - - - - - - (2,582) - (2,582) - (2,582)
Acquisition of subsidiary non-controlling interest - - - - - - - (9,636) - (9,636) 8,668 (968)
NCI exercise of share options in subsidiaries 9 - - - - - - - 5,988 - 5,988 (5,922) 66
Other - - - - - - - - - - (6) (6)
Balance December 31, 2021 287,796,585 5,444 289,303 - - 138,506 469 (40,077) 199,871 593,515 (9,368) 584,147
Net income/(loss) - - - - - - - - (50,354) (50,354) 13,290 (37,065)
Other comprehensive income/(loss), net - - - - (379) - - (379) - (379)
Total comprehensive income/(loss) for the year - - - - - - (379) - (50,354) (50,733) 13,290 (37,444)
Deconsolidation of Subsidiary 5 - - - - - - - - - - 11,904 11,904
Exercise of stock options 9 577,022 11 321 - - - - 332 - 332
Purchase of Treasury stock 15 - - - (10,595,347) (26,492) - - - - (26,492) - (26,492)
Revaluation of deferred tax assets related to share-based awards - - - - - - - 45 - 45 - 45
Equity-settled share-based awards 9 - - - - - - - 8,856 - 8,856 4,711 13,567
Settlement of restricted stock units 9 788,046 - - - - - - 1,528 - 1,528 - 1,528
NCI exercise of share options in subsidiaries 9 - - - - - - - 15,171 - 15,171 (15,164) 7
Other - - - - - - - - - - (4) (4)
Balance December 31, 2022 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 89 (14,478) 149,516 542,220 5,369 547,589
Balance January 1, 2023 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 89 (14,478) 149,516 542,220 5,369 547,589
Net income/(loss) - - - - - - - - (65,697) (65,697) (931) (66,628)
Other comprehensive income/(loss) for the period - - - - - - 92 - - 92 - 92
Total comprehensive income/(loss) for the period - - - - - - 92 - (65,697) (65,604) (931) (66,535)
Deconsolidation of Subsidiary 5 - - - - - - - - - - (9,085) (9,085)
Exercise of stock options 9 306,506 6 638 239,226 530 - - (22) - 1,153 - 1,153
Purchase of Treasury stock 15 - - - (7,683,526) (19,650) - - - - (19,650) - (19,650)
Equity-settled share-based awards 9 - - - - - - - 3,348 - 3,348 277 3,625
Settlement of restricted stock units 9 - - - 425,219 986 - - 156 - 1,142 - 1,142
Expiration of share options in subsidiary - - - - - - - 1,458 - 1,458 (1,458) -
Other - - - - - - - - - - (6) (6)
Balance December 31, 2023 289,468,159 5,461 290,262 (17,614,428) (44,626) 138,506 182 (9,538) 83,820 464,066 (5,835) 458,232
The accompanying notes are an integral part of these financial statements.
Consolidated Statement of Cash Flows
For the years ended December 31
Note 2023 2022 2021
$000s $000s $000s
Cash flows from operating activities
Income/(loss) for the year (66,628) (37,065) (62,709)
Adjustments to reconcile income/(loss) for the period to net cash used in
operating activities:
Non-cash items:
Depreciation and amortization 12, 23 4,933 8,893 7,287
Share-based compensation expense 9 4,415 14,698 13,950
(Gain)/loss on investment held at fair value 5 (77,945) 32,060 (179,316)
Realized loss on sale of investments 5 265 29,303 20,925
Gain on dilution of ownership interest in associate 6 - (28,220) -
Impairment of investment in associates 6 - 8,390 -
Gain on deconsolidation of subsidiary 5 (61,787) (27,251) -
Share of net loss of associates accounted for using the equity method 6 6,055 27,749 73,703
Loss on investments in notes from associates 7 27,630 - -
Fair value gain on other financial instruments 6, 18 - (8,163) (800)
Loss on disposal of assets 318 138 53
Impairment of fixed assets 1,260 -
Income taxes, net 27 30,525 (55,719) 3,756
Finance (income)/costs, net 10 (5,078) (138,924) (5,050)
Changes in operating assets and liabilities:
Trade and other receivables 9,750 (7,734) (617)
Prepaid expenses 2,834 (862) (5,350)
Deferred revenue (283) 2,123 (1,407)
Trade and other payables 21 3,844 22,033 8,338
Other 1,374 359 (103)
Income taxes paid (150) (20,696) (27,766)
Interest received 14,454 3,460 214
Interest paid (1,701) (3,366) (3,382)
Net cash used in operating activities (105,917) (178,792) (158,274)
Cash flows from investing activities:
Purchase of property and equipment 12 (70) (2,176) (5,571)
Proceeds from sale of property and equipment 865 - 30
Purchases of intangible assets 13 (175) - (90)
Investment in associates 6 - (19,961) -
Purchase of investments held at fair value 5 - (5,000) (500)
Sale of investments held at fair value 5 33,309 118,710 218,125
Purchase of short-term note from associate - - (15,000)
Repayment of short-term note from associate - 15,000 -
Purchase of Convertible Note from associate 7 (16,850) (15,000) -
Cash derecognized upon loss of control over subsidiary (see table below) 5 (13,784) (479) -
Purchases of short-term investments (178,860) (248,733) -
Proceeds from maturity of short-term investments 244,556 50,000 -
Receipt of payment of sublease - 415 381
Net cash provided by (used in) investing activities 68,991 (107,223) 197,375
Cash flows from financing activities:
Receipt of cash from sale of future royalties 17 100,000 - -
Issuance of subsidiary preferred Shares 16 - - 37,610
Issuance of Subsidiary Convertible Note - 393 2,215
Payment of lease liability 23 (3,338) (4,025) (3,375)
Exercise of stock options 1,153 332 352
Settlement of restricted stock unit equity awards - - (10,749)
Vesting of restricted stock units and net share exercise - - (2,582)
NCI exercise of stock options in subsidiary - 7 66
Purchase of treasury stock 15 (19,650) (26,492) -
Acquisition of a non-controlling Interest of a subsidiary - - (806)
Other (23) (41) (5)
Net cash provided by (used in) financing activities 78,141 (29,827) 22,727
Net increase (decrease) in cash and cash equivalents 41,215 (315,842) 61,827
Cash and cash equivalents at beginning of year 149,866 465,708 403,881
Cash and cash equivalents at end of year 191,081 149,866 465,708
Supplemental disclosure of non-cash investment and financing activities:
Purchase of intangible assets not yet paid in cash 25 -
Settlement of restricted stock units through issuance of equity 1,142 1,528 -
Purchase of property, plant and equipment against trade and other payables - - 1,841
Leasehold improvements purchased through lease incentives (deducted from Right - - 1,010
of Use Asset)
Conversion of subsidiary convertible note into preferred share liabilities - - 25,797
Supplemental disclosure of non-cash investment and financing activities
(continued):
Assets, Liabilities and non-controlling interests in deconsolidated subsidiary
2023 2022
$000s $000s
Trade and other receivables (702) -
Prepaid assets (3,516) -
Property, plant and equipment, net (8,092) -
Right of use asset, net (2,477) -
Trade and other Payables 15,078 1,407
Deferred revenue 1,902 -
Lease liabilities (including current potion) 4,146 -
Long-term loan (including current portion) 15,446 -
Subsidiary notes payable - 3,403
Subsidiary preferred shares and warrants 24,568 15,853
Other assets and liabilities, net (323) 123
Non-controlling interest 9,085 (11,904)
55,115 8,882
Investment retained in deconsolidated subsidiary 20,456 18,848
Gain on deconsolidation (61,787) (27,251)
Cash in deconsolidated subsidiary 13,784 479
The accompanying notes are an integral part of these financial statements.
Notes to the Consolidated Financial Statements
(Amounts in thousands, except share and per share data, or exercise price and
conversion price)
1. Material Accounting Policies
Description of Business
PureTech Health plc (the "Parent") is a public company incorporated, domiciled
and registered in the United Kingdom ("UK"). The registered number is 09582467
and the registered address is 13th Floor, One Angel Court, London, EC2R 7HJ,
United Kingdom.
The Parent and its subsidiaries are together referred to as the "Group". The
Parent company financial statements present financial information about the
Parent as a separate entity and not about its Group.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these group financial
statements.
Basis of Presentation
The consolidated financial statements of the Group (the "Consolidated
Financial Statements") are presented as of December 31, 2023 and 2022, and for
the years ended December 31, 2023, 2022 and 2021. The Consolidated Financial
Statements have been approved by the Directors on April 25, 2024, and are
prepared in accordance with UK-adopted International Financial Reporting
Standards ("IFRSs"). The Consolidated Financial Statements also comply fully
with IFRSs as issued by the International Accounting Standards Board ("IASB").
UK-adopted IFRSs differs in certain respects from IFRSs as issued by the IASB.
However, the differences have no impact for the periods presented.
For presentation of the Consolidated Statement of Comprehensive Income/(Loss),
the Group uses a classification based on the function of expenses, rather than
based on their nature, as it is more representative of the format used for
internal reporting and management purposes and is consistent with
international practice.
Certain amounts in the Consolidated Financial Statements and accompanying
notes may not add due to rounding. All percentages have been calculated using
unrounded amounts.
Basis of Measurement
The Consolidated Financial Statements are prepared on the historical cost
basis except that the following assets and liabilities are stated at their
fair value: investments held at fair value, investments in notes from
associates and liabilities classified as fair value through the profit or
loss.
Use of Judgments and Estimates
In preparing the Consolidated Financial Statements, management has made
judgements, 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 these estimates. Estimates
and underlying assumptions are reviewed on an on-going basis.
Significant estimation is applied in determining the following:
• Financial instruments valuations (see Note 18. Financial
Instruments): In accordance with IFRS 9, the Group carries certain financial
assets and financial liabilities at fair value, with changes in fair value
through profit and loss ("FVTPL"). Valuation of the aforementioned financial
instruments (assets and liabilities) includes making significant estimates,
specifically determining the appropriate valuation methodology and making
certain estimates such as the future expected returns on the financial
instrument in different scenarios, appropriate discount rate, volatility, and
term to exit.
Significant judgement is also applied in determining the following:
• Whether financial instruments should be classified as liability or
equity (see Note 16. Subsidiary Preferred Shares.). The judgement includes an
assessment of whether the financial instruments include contractual
obligations of the Group to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with another party, and
whether those obligations could be settled by the Group exchanging a fixed
amount of cash or other financial assets for a fixed number of its own equity
instruments. Further information about these critical judgements and estimates
is included below under Financial Instruments.
• Whether the power to control investees exists (see Note 5.
Investments Held at Fair Value and Note 6. Investments in Associates and
accounting policy with regard to Subsidiaries below). The judgement includes
an assessment of whether the Group has (i) power over the investee; (ii)
exposure, or rights, to variable returns from its involvement with the
investee; and (iii) the ability to use its power over the investee to affect
the amount of its own returns. The Group considers among others its voting
shares, shareholder agreements, ability to appoint board members,
representation on the board, rights to appoint management, de facto control,
investee dependence on the Group, etc. If the power to control the investee
exists, it consolidates the financial statements of such investee in the
Consolidated Financial Statements of the Group. Upon issuance of new shares in
an investee and/or a change in any shareholders or governance agreements, the
Group reassesses its ability to control the investee based on the revised
voting interest, revised board composition and revised subsidiary governance
and management structure. When such new circumstances result in the Group
losing its power to control the investee, the investee is deconsolidated. On
March 1 2023 Vedanta was deconsolidated. Although the Group holds 47% of the
voting rights and the other shareholders are widely dispersed, the Group does
not have de facto control because the investor rights agreement stipulates
that the relevant activities of Vedanta are directed by Vedanta's Board and
the Group does not control Vedanta's Board decision making. Voting rights are
not the dominant factor for directing Vedanta's relevant activities.
• Whether the Group has significant influence over financial and
operating policies of investees in order to determine if the Group should
account for its investment as an associate based on IAS 28 or a financial
instrument based on IFRS 9. (refer to Note 5. Investments Held at Fair Value
and Note 6. Investments in Associates ). This judgement includes, among
others, an assessment whether the Group has representation on the board of
directors of the investee, whether the Group participates in the policy making
processes of the investee, whether there is any interchange of managerial
personnel, whether there is any essential technical information provided to
the investee and if there are any transactions between the Group and the
investee.
• Upon determining that the Group does have significant influence
over the financial and operating policies of an investee, if the Group holds
more than a single instrument issued by its equity-accounted investee,
judgement is required to determine whether the additional instrument forms
part of the investment in the associate, which is accounted for under IAS 28
and scoped out of IFRS 9, or it is a separate financial instrument that falls
in the scope of IFRS 9. This judgement includes an assessment of the
characteristics of the financial instrument of the investee held by the Group
and whether such financial instrument provides access to returns underlying an
ownership interest.
• When the Group has other investments in an equity accounted
investee that are not accounted for under IAS 28, judgement is required in
determining if such investments constitute long-term interests ("LTI") for the
purposes of IAS 28. This determination is based on the individual facts and
circumstances and characteristics of each investment, but is driven, among
other factors, by the intention and likelihood to settle the instrument
through redemption or repayment in the foreseeable future, and whether or not
the investment is likely to be converted to common stock or other equity
instruments. After considering the individual facts and circumstances of the
Group's investment in its associate's preferred stock in the manner described
above, including the long-term nature of such investment, the ability of the
Group to convert its preferred stock investment to an investment in common
shares and the likelihood of such conversion, the Group concluded that such
investment was considered a long term interest.
• In determining the appropriate accounting treatment for the
Royalty Purchase Agreement, management applied significant judgement (refer to
Note 17. Sale of Future Royalties Liability).
As of December 31, 2023, the Group had cash and cash equivalents of $191,081
and short-term investments of $136,062. Considering the Group's financial
position as of December 31, 2023, and its principal risks and opportunities,
the Group prepared a going concern analysis covering a period of at least the
twelve-month period from the date of signing the Consolidated Financial
Statements ("the going concern period") utilizing realistic scenarios and
applying a severe but plausible downside scenario. Even under the downside
scenario, the analysis demonstrates the Group continues to maintain sufficient
liquidity headroom and continues to comply with all financial obligations. The
Board of Directors believe the Group and the Parent is adequately resourced to
continue in operational existence for at least the twelve-month period from
the date of signing the Consolidated Financial Statements. Accordingly, the
Board of Directors considered it appropriate to adopt the going concern basis
of accounting in preparing the Consolidated Financial Statements and the
PureTech Health plc Financial Statements.
Basis of consolidation
The Consolidated Financial Statements as of December 31, 2023 and 2022, and
for each of the years ended December 31, 2023, 2022 and 2021, comprises
PureTech Health plc and its consolidated subsidiaries. Intra-group balances
and transactions, and any unrealized income and expenses arising from
intra-group transactions, are eliminated.
Subsidiaries
As used in these financial statements, the term subsidiaries refers to
entities that are controlled by the Group. Under applicable accounting rules,
the Group controls an entity when it is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. In assessing control,
the Group takes into consideration potential voting rights, board
representation, shareholders' agreements, ability to appoint board of
directors and management, de facto control and other related factors. The
financial statements of subsidiaries are included in the Consolidated
Financial Statements from the date that control commences until the date that
control ceases. Losses applicable to the non-controlling interests in a
subsidiary are allocated to the non-controlling interests even if doing so
causes the non-controlling interests to have a deficit balance.
A list of all current and former subsidiaries organized with respect to
classification as of December 31, 2023, and the Group's total voting
percentage, based on outstanding voting common and preferred shares as of
December 31, 2023, 2022 and 2021, is outlined below. All current subsidiaries
are domiciled within the United States and conduct business activities solely
within the United States.
Voting percentage at December 31, through the holdings in
2023 2022 2021
Subsidiary Common Preferred Common Preferred Common Preferred
Subsidiary operating companies
Alivio Therapeutics, Inc.(2) - 100.0 - 100.0 - 100.0
Entrega, Inc. (indirectly held through Enlight)(2) - 77.3 - 77.3 - 77.3
PureTech LYT, Inc. (formerly Ariya Therapeutics, Inc.)(2) - 100.0 - 100.0 - 100.0
PureTech LYT 100, Inc.(2) - 100.0 - 100.0 - 100.0
PureTech Management, Inc.(3) 100.0 - 100.0 - 100.0 -
PureTech Health LLC(3) 100.0 - 100.0 - 100.0 -
Deconsolidated former subsidiary operating companies
Sonde Health, Inc.(2,5) - 40.2 - 40.2 - 51.8
Akili Interactive Labs, Inc.(2,6) 14.6 - 14.7 - - 26.7
Gelesis, Inc.(1,2) - - 22.8 - 4.8 19.7
Karuna Therapeutics, Inc.(2,6) 2.3 - 3.1 - 5.6 -
Vedanta Biosciences, Inc.(2, 4) - 47.0 - 47.0 - 48.6
Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)(2, 4) - 47.0 - 47.0 - 48.6
Vor Biopharma Inc(.2,6) 3.9 - 4.1 - 8.6 -
Nontrading holding companies
Endra Holdings, LLC (held indirectly through Enlight)(2) 86.0 - 86.0 - 86.0 -
Ensof Holdings, LLC (held indirectly through Enlight)(2) 86.0 - 86.0 - 86.0 -
PureTech Securities Corp.(2) 100.0 - 100.0 - 100.0 -
PureTech Securities II Corp.(2) 100.0 - 100.0 - 100.0 -
Inactive subsidiaries
Appeering, Inc.(2) - 100.0 - 100.0 - 100.0
Commense Inc.(2) - 99.1 - 99.1 - 99.1
Enlight Biosciences, LLC(2) 86.0 - 86.0 - 86.0 -
Ensof Biosystems, Inc. (held indirectly through Enlight)(2) 57.7 28.3 57.7 28.3 57.7 28.3
Follica, LLC (2) 28.7 56.7 28.7 56.7 28.7 56.7
Knode Inc. (indirectly held through Enlight)(2) - 86.0 - 86.0 - 86.0
Libra Biosciences, Inc.(2) - 100.0 - 100.0 - 100.0
Mandara Sciences, LLC(2) 98.3 - 98.3 - 98.3 -
Tal Medical, Inc.(2) - 100.0 - 100.0 - 100.0
1 On October 30, 2023, Gelesis ceased operations and filed a
voluntary petition for relief under the United States bankruptcy code. See
Note 6. Investments in Associates for details.
2 Registered address is Corporation Trust Center, 1209 Orange St.,
Wilmington, DE 19801, USA.
3 Registered address is 2711 Centerville Rd., Suite 400, Wilmington,
DE 19808, USA.
4 On March 1, 2023, the Group lost control over Vedanta and Vedanta
was deconsolidated from the Group's financial statements, resulting in only
the profits and losses generated by Vedanta through the deconsolidation date
being included in the Group's Consolidated Statement of Comprehensive
Income/(Loss). See Notes 5. Investments Held at Fair Value for further details
about the accounting for the investments in Vedanta subsequent to
deconsolidation.
5 On May 25, 2022, the Group lost control over Sonde and Sonde was
deconsolidated from the Group's financial statements, resulting in only the
profits and losses generated by Sonde through the deconsolidation date being
included in the Group's Consolidated Statement of Comprehensive Income/(Loss).
See Notes 5. Investments Held at Fair Value and 6. Investments in Associates
for further details about the accounting for the investments in Sonde
subsequent to deconsolidation.
6 See Notes 5. Investments Held at Fair Value and 6. Investments in
Associates for additional discussion on the Group's investment held in
Akili, Karuna and Vor.
7 Follica became inactive during 2023.
Change in Subsidiary Ownership and Loss of Control
Changes in the Group's interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are
derecognized along with any related non-controlling interest ("NCI"). Any
interest retained in the former subsidiary is measured at fair value when
control is lost. Any resulting gain or loss is recognized as profit or loss in
the Consolidated Statement of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities
in which the Group has no control but maintains significant influence over the
financial and operating policies. Significant influence is presumed to exist
when the Group holds between 20 and 50 percent of the voting power of an
entity, unless it can be clearly demonstrated that this is not the case. The
Group evaluates if it maintains significant influence over associates by
assessing if the Group has the power to participate in the financial and
operating policy decisions of the associate.
Application of the Equity Method to Associates
Associates are accounted for using the equity method (equity accounted
investees) and are initially recognized at cost, or if recognized upon
deconsolidation, they are initially recorded at fair value at the date of
deconsolidation. The Consolidated Financial Statements include the Group's
share of the total comprehensive income or loss of equity accounted investees,
from the date that significant influence commences until the date that
significant influence ceases.
To the extent the Group holds interests in associates that are not providing
access to returns underlying ownership interests, the instrument is accounted
for in accordance with IFRS 9 as investments held at fair value.
When the Group's share of losses exceeds its equity method investment in the
investee, losses are applied against long-term interests, which are
investments accounted for under IFRS 9. Investments are determined to be
long-term interests when they are long-term in nature and in substance they
form part of the Group's net investment in that associate. This determination
is impacted by many factors, among others, whether settlement by the investee
through redemption or repayment is planned or likely in the foreseeable
future, whether the investment can be converted and/or is likely to be
converted to common stock or other equity instrument and other factors
regarding the nature of the investment. Whilst this assessment is dependent on
many specific facts and circumstances of each investment, typically conversion
features whereby the investment is likely to convert to common stock or other
equity instruments would point to the investment being a long-term interest.
Similarly, where the investment is not planned or likely to be settled through
redemption or repayment in the foreseeable future, this would indicate that
the investment is a long-term interest. When the net investment in the
associate, which includes the Group's investments in other long-term
interests, is reduced to nil, recognition of further losses is discontinued
except to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of an investee.
The Group has adopted the amendments to IAS 28 Investments in Associates that
addresses the dual application of IAS 28 and IFRS 9 when equity method losses
are applied against long-term interests. The amendments provide the annual
sequence in which both standards are to be applied in such a case. The Group
has applied the equity method losses to the long-term interests presented as
part of Investments held at fair value subsequent to remeasuring such
investments to their fair value at balance sheet date.
Sale of Future Royalties Liability
The Group accounts for the sale of future royalties liability as a financial
liability, as it continues to hold the rights under the royalty bearing
licensing agreement and has a contractual obligation to deliver cash to an
investor for a portion of the royalty it receives. Interest on the sale of
future royalties liability is recognized using the effective interest rate
over the life of the related royalty stream.
The sale of future royalties liability and the related interest expense are
based on the Group's current estimates of future royalties expected to be paid
over the life of the arrangement. Forecasts are updated periodically as new
data is obtained. Any increases, decreases or a shift in timing of estimated
cash flows require the Group to re-calculate the amortized cost of the sale of
future royalties liability as the present value of the estimated future
contractual cash flows that are discounted at the liability's original
effective interest rate. The adjustment is recognized immediately in profit or
loss as income or expense.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement
categories:
• Those to be measured subsequently at fair value either through
other comprehensive income "FVOCI", or through profit or loss "FVTPL", and
• Those to be measured at amortized cost.
The classification depends on the Group's business model for managing the
financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are recorded in profit or
loss.
Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at FVTPL, transaction costs that
are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets that are carried at FVTPL are expensed.
Impairment
The Group assesses on a forward-looking basis the expected credit losses
associated with its debt instruments carried at amortized cost. For trade
receivables, the Group applies the simplified approach permitted by IFRS 9,
which requires expected lifetime losses to be recognized from initial
recognition of the receivables.
Financial Assets
The Group's financial assets consist of cash and cash equivalents, investments
in debt securities, trade and other receivables, notes, restricted cash
deposits and investments in equity securities. The Group's financial assets
are virtually all classified into the following categories: investments held
at fair value, notes, trade and other receivables, short-term investments and
cash and cash equivalents. The Group determines the classification of
financial assets at initial recognition depending on the purpose for which the
financial assets were acquired.
Investments held at fair value are investments in equity instruments. Such
investments consist of the Group's minority interest holdings where the Group
has no significant influence or preferred share investments that are not
providing access to returns underlying ownership interests and are categorized
as debt instruments that are presented at fair value through profit and loss
because the amounts receivable do not represent solely payments of principal
and interest. These financial assets are initially measured at fair value and
subsequently re-measured at fair value at each reporting date. The Group
has elected to record the changes in fair values for the financial assets
falling under this category through profit and loss. Please refer to Note 5.
Investments Held at Fair Value.
Changes in the fair value of financial assets at FVTPL are recognized in other
income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss)
as applicable.
The notes from an associate, since their contractual terms do not consist
solely of cash flow payments of principal and interest on the principal amount
outstanding, are initially and subsequently measured at fair value, with
changes in fair value recognized through profit and loss.
Cash and cash equivalents consist of demand deposits with banks and other
financial institutions and highly liquid instruments with original maturities
of three months or less at the date of purchase. Cash and cash equivalents are
carried at cost, which approximates their fair value.
Short-term investments consist of short-term US treasury bills that are held
to maturity. The contractual terms consist solely of payment of the principal
and interest and the Group's business model is to hold the treasury bills to
maturity. As such, such short-term investments are recorded at amortized cost.
As of balance sheet date, amortized cost approximated the fair value of such
short-term investments.
Trade and other receivables are non-derivative financial assets with fixed and
determinable payments that are not quoted on active markets. These financial
assets are carried at the amounts expected to be received less any expected
lifetime losses. Such losses are determined taking into account previous
experience, credit rating and economic stability of counterparty and economic
conditions. When a trade receivable is determined to be uncollectible, it is
written off against the available provision. As of balance sheet date, the
Group did not record any such expected lifetime losses related to the
outstanding trade and other receivable balances. Trade and other receivables
are included in current assets, unless maturities are greater than 12 months
after the end of the reporting period.
Financial Liabilities
The Group's financial liabilities primarily consist of trade and other
payables, and preferred shares.
The majority of the Group's subsidiaries have preferred shares and certain
notes payable with embedded derivatives, which are classified as current
liabilities. When the Group has preferred shares and notes with embedded
derivatives that qualify for bifurcation, the Group has elected to account for
the entire instrument as FVTPL after determining under IFRS 9 that the
instrument qualifies to be accounted for under such FVTPL method.
The Group derecognizes a financial liability when its contractual obligations
are discharged, cancelled or expire.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions, in accordance with IAS 32:
1. They include no contractual obligations upon the Group to deliver
cash or other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavorable to the Group; and
2. Where the instrument will or may be settled in the Group's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Group's own equity instruments or is a
derivative that will be settled by the Group exchanging a fixed amount of cash
or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is
classified as a financial liability. Where the instrument so classified takes
the legal form of the Group's own shares, the amounts presented in the Group's
shareholders' equity exclude amounts in relation to those shares.
Changes in the fair value of liabilities at FVTPL are recognized in net
finance income /(costs) in the Consolidated Statement of Comprehensive
Income/(Loss) as applicable.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue
recognition and is based on the concept of recognizing an amount that reflects
the consideration for performance obligations only when they are satisfied and
the control of goods or services is transferred.
The majority of the Group's contract revenue is generated from licenses and
services, some of which are part of collaboration arrangements.
Management reviewed contracts where the Group received consideration in order
to determine whether or not they should be accounted for in accordance with
IFRS 15. To date, the Group has entered into transactions that generate
revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for
Government Grants. Contract revenue is recognized at either a point-in-time or
over time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of IFRS 15 by
applying the following five step model:
• Identify the contract(s) with a customer - A contract with a
customer exists when (i) the Group enters into an enforceable contract with a
customer that defines each party's rights regarding the goods or services to
be transferred and identifies the payment terms related to those goods or
services, (ii) the contract has commercial substance and, (iii) the Group
determines that collection of substantially all consideration for goods or
services that are transferred is probable based on the customer's intent and
ability to pay the promised consideration.
• Identify the performance obligations in the contract - Performance
obligations promised in a contract are identified based on the goods or
services that will be transferred to the customer that are both capable of
being distinct, whereby the customer can benefit from the good or service
either on its own or together with other resources that are readily available
from third parties or from the Group, and are distinct in the context of the
contract, whereby the transfer of the goods or services is separately
identifiable from other promises in the contract.
• Determine the transaction price - The transaction price is
determined based on the consideration to which the Group will be entitled in
exchange for transferring goods or services to the customer. To the extent the
transaction price includes variable consideration, the Group estimates the
amount of variable consideration that should be included in the transaction
price utilizing either the expected value method or the most likely amount
method depending on the nature of the variable consideration. Variable
consideration is included in the transaction price if, in the Group's
judgement, it is probable that a significant future reversal of cumulative
revenue under the contract will not occur.
• Allocate the transaction price to the performance obligations in
the contract - If the contract contains a single performance obligation, the
entire transaction price is allocated to the single performance obligation.
Contracts that contain multiple performance obligations require an allocation
of the transaction price to each performance obligation based on a relative
standalone selling price basis.
• Recognize revenue when (or as) the Group satisfies a performance
obligation - The Group satisfies performance obligations either over time or
at a point in time as discussed in further detail below. Revenue is recognized
at the time the related performance obligation is satisfied by transferring a
promised good or service to a customer.
Revenue generated from services agreements (typically where licenses and
related services were combined into one performance obligation) is determined
to be recognized over time when it can be determined that the services meet
one of the following: (a) the customer simultaneously receives and consumes
the benefits provided by the entity's performance as the entity performs; (b)
the entity's performance creates or enhances an asset that the customer
controls as the asset is created or enhanced; or (c) the entity's performance
does not create an asset with an alternative use to the entity and the entity
has an enforceable right to payment for performance completed to date.
It was determined that the Group has contracts that meet criteria (a), since
the customer simultaneously receives and consumes the benefits provided by the
Group's performance as the Group performs. Therefore revenue is recognized
over time using the input method based on costs incurred to date as compared
to total contract costs. The Group believes that in research and development
service type agreements using costs incurred to date represents the most
faithful depiction of the entity's performance towards complete satisfaction
of a performance obligation.
Revenue from licenses that are not part of a combined performance obligation
are recognized at a point in time due to the licenses relating to intellectual
property that has significant stand-alone functionality and as such represent
a right to use the entity's intellectual property as it exists at the point in
time at which the license is granted.
Royalty income received in respect of licensing agreements when the license of
intellectual property is the predominant item in the arrangement is recognized
as the related third-party sales in the licensee occur.
Amounts that are receivable or have been received per contractual terms but
have not been recognized as revenue since performance has not yet occurred or
has not yet been completed are recorded as deferred revenue. The Group
classifies as non-current deferred revenue amounts received for which
performance is expected to occur beyond one year or one operating cycle.
Grant Revenue
The Group recognizes grants from governmental agencies as grant revenue in the
Consolidated Statement of Comprehensive Income/(Loss), gross of the
expenditures that were related to obtaining the grant, when there is
reasonable assurance that the Group will comply with the conditions within the
grant agreement and there is reasonable assurance that payments under the
grants will be received. The Group evaluates the conditions of each grant as
of each reporting date to ensure that the Group has reasonable assurance of
meeting the conditions of each grant arrangement and that it is expected that
the grant payment will be received as a result of meeting the necessary
conditions.
The Group submits qualifying expenses for reimbursement after the Group has
incurred the research and development expense. The Group records an unbilled
receivable upon incurring such expenses. In cases in which the grant revenue
is received prior to the expenses being incurred or recognized, the amounts
received are deferred until the related expense is incurred and/or recognized.
Grant revenue is recognized in the Consolidated Statement of Comprehensive
Income/(Loss) at the time in which the Group recognizes the related
reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
The Consolidated Financial Statements are presented in United States dollars
("US dollars"). The functional currency of all members of the Group is the
U.S. dollar. The Group's share in foreign exchange differences in associates
were reported in other comprehensive income/(loss).
Foreign Currency
Transactions in foreign currencies are translated to the respective functional
currencies of Group entities at the foreign exchange rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are retranslated to the functional
currency at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on remeasurement are recognized in the Consolidated
Statement of Comprehensive Income/(Loss). Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Share Capital
Ordinary shares are classified as equity. The Group's equity is comprised of
share capital, share premium, merger reserve, other reserve, translation
reserve, and retained earnings/accumulated deficit.
Treasury Shares
Treasury shares are recognized at cost and are deducted from shareholders'
equity. No gain or loss is recognized in profit and loss for the purchase,
sale, re-issue or cancellation of the Group's own equity shares.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset. Assets under construction
represent leasehold improvements and machinery and equipment to be used in
operations or research and development activities. When parts of an item of
property and equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment. Depreciation is
calculated using the straight-line method over the estimated useful life of
the related asset:
Laboratory and manufacturing equipment 2-8 years
Furniture and fixtures 7 years
Computer equipment and software 1-5 years
Leasehold improvements 5-10 years, or the remaining term of the lease, if shorter
Depreciation methods, useful lives and residual values are reviewed at each
balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses with finite
useful lives, are carried at historical cost less accumulated amortization, if
amortization has commenced. Intangible assets with finite lives are amortized
from the time they are available for their intended use. Amortization is
calculated using the straight-line method to allocate the costs of patents and
licenses over their estimated useful lives.
Research and development intangible assets, which are still under development
and have accordingly not yet obtained marketing approval, are presented as
In-Process Research and Development (IPR&D). The cost of IPR&D
represents upfront payments as well as additional contingent payments based on
development, regulatory and sales milestones related to certain license
agreement where the Group licenses IP from a third party. These milestones are
capitalized as the milestone is triggered. See Note 25. Commitments and
Contingencies. IPR&D is not amortized since it is not yet available for
its intended use, but it is evaluated for potential impairment on an annual
basis or more frequently when facts and circumstances warrant.
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and equipment and
intangible assets at each reporting date to determine whether there are
indicators of impairment. If any such indicators of impairment exist, then an
asset's recoverable amount is estimated. The recoverable amount is the higher
of an asset's fair value less cost of disposal and value in use.
The Group's IPR&D intangible assets are not yet available for their
intended use. As such, they are tested for impairment at least annually.
An impairment loss is recognized when an asset's carrying amount exceeds its
recoverable amount. For the purposes of impairment testing, assets are grouped
at the lowest levels for which there are largely independent cash flows. If a
non- financial asset instrument is impaired, an impairment loss is recognized
in the Consolidated Statement of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only if, objective
evidence indicates that one or more events, which occurred after the initial
recognition, have had an impact on the future cash flows from the net
investment and that impact can be reliably estimated. If an impairment exists,
the Group measures an impairment by comparing the carrying value of the net
investment in the associate to its recoverable amount and recording any excess
as an impairment loss. See Note 6. Investments in Associates for impairment
recorded in respect of an investment in associate during the year ended
December 31, 2022.
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and expensed as the related service is provided. A liability is recognized for
the amount expected to be paid if the Group has a present legal or
constructive obligation due to past service provided by the employee, and the
obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which an
entity pays fixed contributions into a separate entity and has no legal or
constructive obligation to pay further amounts. Obligations for contributions
to defined contribution plans are recognized as an employee benefit expense in
the periods during which related services are rendered by employees.
Share-based Payments
Share-based payment arrangements, in which the Group receives goods or
services as consideration for its own equity instruments, are accounted for as
equity-settled share-based payment transactions (except certain restricted
stock units - see below) in accordance with IFRS 2, regardless of how the
equity instruments are obtained by the Group. The grant date fair value of
employee share-based payment awards is recognized as an expense with a
corresponding increase in equity over the requisite service period related to
the awards. The amount recognized as an expense is adjusted to reflect the
actual number of awards for which the related service and non-market
performance conditions are expected to be met, such that the amount ultimately
recognized as an expense is based on the number of awards that do meet the
related service and non-market performance conditions at the vesting date. For
share-based payment awards with market conditions, the grant date fair value
is measured to reflect such conditions and there is no true-up for differences
between expected and actual outcomes.
Certain restricted stock units are treated as liability settled awards
starting in 2021. Such awards are remeasured at every reporting date until
settlement date and are recognized as compensation expense over the requisite
service period. Differences in remeasurement are recognized in profit and
loss. The cumulative cost that will ultimately be recognized in respect of
these awards will equal to the amount at settlement.
The fair value of the awards is measured using option pricing models and other
appropriate models, which take into account the terms and conditions of the
awards granted.
Development Costs
Expenditures on research activities are recognized as incurred in the
Consolidated Statement of Comprehensive Income/(Loss). In accordance with IAS
38, development costs are capitalized only if the expenditure can be measured
reliably, the product or process is technically and commercially feasible,
future economic benefits are probable, the Group can demonstrate its ability
to use or sell the intangible asset, the Group intends to and has sufficient
resources to complete development and to use or sell the asset, and it is able
to measure reliably the expenditure attributable to the intangible asset
during its development. The point at which technical feasibility is determined
to have been reached is, generally, when regulatory approval has been received
where applicable. Management determines that commercial viability has been
reached when a clear market and pricing point have been identified, which may
coincide with achieving meaningful recurring sales. Otherwise, the development
expenditure is recognized as incurred in the Consolidated Statement of
Comprehensive Income/(Loss). As of balance sheet date, the Group has not
capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statement of Financial Position
when the Group has a present legal or constructive obligation due to a past
event that can be reliably measured, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate
that reflects risks specific to the liability.
Leases
The Group leases real estate for use in operations. These leases have lease
terms of approximately 10 years. The Group includes options that are
reasonably certain to be exercised as part of the determination of the lease
term. The group determines if an arrangement is a lease at inception of the
contract in accordance with guidance detailed in IFRS 16. Right-of-use (ROU)
assets represent the Group's right to use an underlying asset for the lease
term and lease liabilities represent the Group's obligation to make lease
payments arising from the lease. Operating lease ROU assets and lease
liabilities are recognized at commencement date based on the present value of
the lease payments over the lease term. As most of the Group's leases do not
provide an implicit rate, the Group used its estimated incremental borrowing
rate, based on information available at commencement date, in determining the
present value of future payments.
The Group's leases are virtually all leases of real estate.
The Group has elected to account for lease payments as an expense on a
straight-line basis over the life of the lease for:
• Leases with a term of 12 months or less and containing no purchase
options; and
• Leases where the underlying asset has a value of less than $5,000.
The right-of-use asset is depreciated on a straight-line basis and the lease
liability gives rise to an interest charge.
Finance Income and Finance Costs
Finance income consists of interest income on funds invested in money market
funds and U.S. treasuries. Finance income is recognized as it is earned.
Finance costs consist mainly of loan, notes and lease liability interest
expenses, interest expense due to accretion of and adjustment to sale of
future royalties liability as well as the changes in the fair value of
financial liabilities carried at FVTPL (such changes can consist of finance
income when the fair value of such financial liabilities decreases).
Taxation
Tax on the profit or loss for the year comprises current and deferred income
tax. In accordance with IAS 12, tax is recognized in the Consolidated
Statement of Comprehensive Income/(Loss) except to the extent that it relates
to items recognized directly in equity.
Current income tax is the expected tax payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantially enacted
at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized due to temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax assets are recognized for
unused tax losses, unused tax credits and deductible temporary differences to
the extent that it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets with respect to
investments in associates are recognized only to the extent that it is
probable the temporary difference will reverse in the foreseeable future and
taxable profit will be available against which the temporary difference can be
utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax
benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances
on a net basis.
Fair Value Measurements
The Group's accounting policies require that certain financial assets and
certain financial liabilities be measured at their fair value.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximizing
the use of relevant observable inputs and minimizing the use of unobservable
inputs. Fair values are categorized into different levels in a fair value
hierarchy based on the inputs used in the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value hierarchy at
the end of the reporting period during which the change has occurred.
The carrying amount of cash and cash equivalents, accounts receivable,
restricted cash, deposits, accounts payable, accrued expenses and other
current liabilities in the Group's Consolidated Statement of Financial
Position approximates their fair value because of the short maturities of
these instruments.
Operating Segments
Operating segments are reported in a manner that is consistent with the
internal reporting provided to the chief operating decision maker ("CODM").
The CODM reviews discrete financial information for the operating segments in
order to assess their performance and is responsible for making decisions
about resources allocated to the segments. The CODM has been identified as the
Group's Board of Directors.
2. New Standards and Interpretations
The Group has applied the following amendments for the first time for its
annual reporting period commencing January 1, 2023:
• IFRS 17 Insurance Contracts
• Definition of Accounting Estimates (Amendments to IAS 8)
• Deferred Tax related to Assets and Liabilities Arising from a
Single Transaction (Amendments to IAS 12)
The amendments listed above did not have any impact on the amounts recognized
in prior and current periods and are not expected to significantly affect the
future periods.
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for December 31,
2023 reporting periods and have not been early adopted by the Group. These
standards, amendments or interpretations are not expected to have a material
impact on the Group in the current or future reporting periods and on
foreseeable future transactions.
3. Revenue
Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss)
consists of the following:
For the years ended December 31, 2023 2022 2021
$ $ $
Contract revenue 750 2,090 9,979
Grant revenue 2,580 13,528 7,409
Total revenue 3,330 15,618 17,388
All amounts recorded in contract revenue were generated in the United States.
For the years ended December 31, 2023, 2022 and 2021, contract revenue
includes royalties received from an associate in the amounts of zero, $509
and $231, respectively.
Substantially all of the Group's contracts related to contract revenue for the
years ended December 31, 2023, 2022 and 2021 were determined to have a single
performance obligation which consists of a combined deliverable of license of
intellectual property and research and development services. Therefore, for
such contracts, revenue is recognized over time based on the input method
which the Group believes is a faithful depiction of the transfer of goods and
services. Progress is measured based on costs incurred to date as compared to
total projected costs. Payments for such contracts are primarily made up-front
on a periodic basis.
During the year ended December 31, 2021, the Group received a $6,500 payment
from Imbrium Therapeutics, Inc. following the exercise of the option to
acquire an exclusive license for the Initial Product Candidate, as defined in
the agreement. Since the license transferred was a right to use license,
revenue from the option exercise was recognized at a point in time upon
transfer of the license, which occurred during the year ended December 31,
2021.
Disaggregated Revenue
The Group disaggregates contract revenue in a manner that depicts how the
nature, amount, timing, and uncertainty of revenue and cash flows are affected
by economic factors. The Group disaggregates revenue based on contract revenue
or grant revenue, and further disaggregates contract revenue based on the
transfer of control of the underlying performance obligations.
Timing of contract revenue recognition 2023 2022 2021
For the years ended December 31, $ $ $
Transferred at a point in time - Licensing Income - 527 6,809
Transferred over time 750 1,563 3,171
750 2,090 9,979
Customers over 10% of revenue 2023 2022 2021
$ $ $
Customer A 750 1,500 1,500
Customer B - - 7,250
Customer C - 509 -
750 2,009 8,750
Accounts receivables represent rights to consideration in exchange for
products or services that have been transferred by the Group, when payment is
unconditional and only the passage of time is required before payment is due.
Accounts receivables do not bear interest and are recorded at the invoiced
amount. Accounts receivables are included within trade and other receivables
on the Consolidated Statement of Financial Position. The accounts receivables
related to contract revenue were $555 and $606 as of December 31, 2023 and
2022, respectively.
4. Segment Information
Basis for Segmentation
The Directors are the Group's chief operating decision-makers. The Group's
operating segments are determined based on the financial information provided
to the Board of Directors periodically for the purposes of allocating
resources and assessing performance. During the second half of 2023, the Group
changed the financial information that was regularly reviewed by the Board of
Directors to allocate resources and assess performance. The Group has
determined each of its Wholly-Owned Programs represents an operating segment
and the Group has aggregated each of these operating segments into one
reportable segment, the Wholly-Owned Programs segment, given the high level of
operational and financial similarities across its Wholly-Owned Programs. Each
of the Group's Controlled Founded Entities represents an operating segment.
The Group aggregates each Controlled Founded Entity operating segment into one
reportable segment, the Controlled Founded Entities segment. For the Group's
entities that do not meet the definition of an operating segment, the Group
presents this information in the Parent & Other column in its segment
footnote to reconcile the information in this footnote to the Consolidated
Financial Statements. Substantially all of the Group's revenue and profit
generating activities are generated within the United States and, accordingly,
no geographical disclosures are provided.
The Group has retroactively recast its fiscal year 2022 and 2021 results on
the new basis for comparability.
Following is the description of the Group's reportable segments:
Wholly-Owned Programs
The Wholly-Owned Programs segment is advancing Wholly-Owned Programs which are
focused on treatments for patients with devastating diseases. The Wholly-Owned
Programs segment is comprised of the technologies that are wholly-owned and
will be advanced through with either the Group's funding or non-dilutive
sources of financing. The operational management of the Wholly-Owned Programs
segment is conducted by the PureTech Health team, which is responsible for the
strategy, business development, and research and development.
Controlled Founded Entities
The Controlled Founded Entities segment is comprised of the Group's
consolidated operational subsidiaries as of December 31, 2023 that either
have, or have plans to hire, independent management teams and currently have
already raised third-party dilutive capital. These subsidiaries have active
research and development programs and either have entered into or plan to seek
an equity or debt investment partner, who will provide additional industry
knowledge and access to networks, as well as additional funding to continue
the pursued growth of the entity.
The Group's entities that were determined not to meet the definition of an
operating segment are included in the Parent Company and Other column to
reconcile the information in this footnote to the financial statements. This
column captures activities not directly attributable to the Group's operating
segments and includes the activities of the Parent, corporate support
functions and certain research and development support functions that are not
directly attributable to a strategic business segment as well as the
elimination of intercompany transactions. This column also captures the
operating results for the deconsolidated entities through the date of
deconsolidation (e.g. Vedanta in 2023 and Sonde in 2022) and accounting for
the Group's holdings in Founded Entities for which control has been lost,
which primarily represents: the activity associated with deconsolidating an
entity when the Group no longer controls the entity (e.g. Vedanta in 2023 and
Sonde in 2022), the gain or loss on the Group's investments accounted for at
fair value (e.g. the Group's ownership stakes in Karuna, Vor and Akili) and
the Group's net income or loss of associates accounted for using the equity
method.
(The term "Founded Entities" refers to entities which the Company incorporated
and announced the incorporation as a Founded Entity externally. It includes
certain of the Company's wholly-owned subsidiaries which have been announced
by the Company as Founded Entities, Controlled Founded Entities and
deconsolidated Founded Entities.)
In January 2024, the Group launched two new Founded Entities to advance
certain programs from the Wholly-Owned Programs segment. Refer to Note 28.
Subsequent Events for detail. The financial results of these programs were
included in the Wholly-Owned Programs segment as of December 31, 2023 and 2022
and for the three years ended December 31, 2023, 2022 and 2021, respectively.
Upon raising dilutive third-party financing, the financial results of these
two entities will be included in the Controlled Founded Entities segment to
the extent that the Group maintains control over these entities.
The Group's Board of Directors reviews segment performance and allocates
resources based upon revenue and operating loss as well as the funds available
for each segment. The Board of Directors do not review any other information
for purposes of assessing segment performance or allocating resources.
For the year ended December 31, 2023
Wholly-Owned Programs Controlled Founded Entities Parent Company & Consolidated
$ $ Other $
$
Contract revenue - 750 - 750
Grant revenue 853 - 1,727 2,580
Total revenue 853 750 1,727 3,330
General and administrative expenses (14,020) (562) (38,713) (53,295)
Research and development expenses (89,495) (672) (6,068) (96,235)
Total operating expense (103,516) (1,233) (44,781) (149,530)
Operating income/(loss) (102,662) (483) (43,054) (146,199)
Income/expenses not allocated to segments
Other income/(expense):
Gain on deconsolidation of subsidiary 61,787
Gain/(loss) on investment held at fair value 77,945
Realized loss on sale of investments (122)
Gain/(loss) on investment in notes from associates (27,630)
Other income/(expense) (908)
Total other income/(expense) 111,072
Net finance income/(costs) 5,078
Share of net income/(loss) of associates accounted for using the equity method (6,055)
Income/(loss) before taxes (36,103)
As of December 31, 2023
Available Funds
Cash and cash equivalents 2,140 675 188,266 191,081
Short-term Investments - - 136,062 136,062
Consolidated cash, cash equivalents and short-term investments 2,140 675 324,328 327,143
For the year ended December 31, 2022
Wholly-Owned Programs Controlled Founded Entities Parent Consolidated
$ $ Company & $
Other
$
Contract revenue - 1,500 590 2,090
Grant revenue 2,826 - 10,702 13,528
Total revenue 2,826 1,500 11,292 15,618
General and administrative expenses (8,301) (419) (52,272) (60,991)
Research and development expenses (116,054) (1,051) (35,328) (152,433)
Total Operating expenses (124,355) (1,470) (87,600) (213,425)
Operating income/(loss) (121,529) 30 (76,308) (197,807)
Income/expenses not allocated to segments
Other income/(expense):
Gain on deconsolidation 27,251
Gain/(loss) on investment held at fair value (32,060)
Realized loss on sale of investments (29,303)
Other income/(expense) 8,131
Total other income/(expense) (25,981)
Net finance income/(costs) 138,924
Share of net income/(loss) of associate accounted for using the equity method (27,749)
Gain on dilution of ownership interest in associate 28,220
Impairment of investment in associates (8,390)
Income/(loss) before taxes (92,783)
As of December 31, 2022
Available Funds
Cash and cash equivalents 7,306 823 141,737 149,866
Short-term Investments - - 200,229 200,229
Consolidated cash, cash equivalents and short-term investments 7,306 823 341,966 350,095
For the year ended December 31, 2021
Wholly-Owned Programs Controlled Founded Entities Parent Consolidated
$ $ Company & $
Other
$
Contract revenue 8,129 1,500 350 9,979
Grant revenue 1,253 - 6,156 7,409
Total revenue 9,382 1,500 6,506 17,388
General and administrative expenses (8,673) (365) (48,161) (57,199)
Research and development expenses (65,444) (918) (44,108) (110,471)
Total operating expense (74,118) (1,284) (92,269) (167,671)
Operating income/(loss) (64,736) 216 (85,763) (150,282)
Income/expenses not allocated to segments
Other income/(expense):
Gain/(loss) on investment held at fair value 179,316
Realized loss on sale of investments (20,925)
Other income/(expense) 1,592
Other income/(expense) 159,983
Net finance income/(costs) 5,050
Share of net income/(loss) of associate accounted for using the equity method (73,703)
Income/(loss) before taxes (58,953)
5. Investments Held at Fair Value
Investments held at fair value include both unlisted and listed securities
held by the Group. These investments, which include interests in Akili, Vor,
Karuna, Sonde, Vedanta, Gelesis and other insignificant investments, are
initially measured at fair value and are subsequently re-measured at fair
value at each reporting date with changes in the fair value recorded through
profit and loss. Activities related to such investments during the periods are
shown below:
Investments held at fair value $
Balance as of January 1, 2022 493,888
Investment in Sonde preferred shares - Sonde deconsolidation 11,168
Sale of Karuna and Vor shares (118,710)
Loss realised on sale of investments as a result of written call option (29,303)
Investment in Akili common shares 5,000
Gelesis Earn-out Shares received in the SPAC exchange 14,214
Exchange of Gelesis preferred shares to Gelesis common shares (92,303)
Loss - change in fair value through profit and loss (32,060)
Balance as of December 31, 2022 and January 1, 2023 251,892
Investment in Vedanta preferred shares - Vedanta deconsolidation 20,456
Investment in Gelesis 2023 Warrants 1,121
Sale of Karuna shares (33,309)
Loss realised on sale of investments (265)
Gain - change in fair value through profit and loss 77,945
Balance as of December 31, 2023 317,841
¶Vedanta
On March 1, 2023, Vedanta issued convertible debt to a syndicate of investors.
The Group did not participate in this round of financing. As part of the
issuance of the debt, the convertible debt holders were granted representation
on Vedanta's Board of Directors and the Group lost control over the Vedanta
Board of Directors and the power to direct the relevant Vedanta activities.
Consequently, Vedanta was deconsolidated on March 1, 2023 and its results of
operations are included in the Consolidated Financial Statements through the
date of deconsolidation.
Following deconsolidation, the Group has significant influence over Vedanta
through its voting interest in Vedanta and its remaining representation on
Vedanta's Board of Directors. However, the Group only holds convertible
preferred shares in Vedanta that do not provide their holders with access to
returns associated with a residual equity interest, and as such are accounted
for under IFRS 9, as investments held at fair value with changes in fair value
recorded in profit and loss. Under IFRS 9, the preferred share investments are
categorized as debt instruments that are presented at fair value through
profit and loss because the amounts receivable do not represent solely
payments of principal and interest.
Upon deconsolidation, the Group derecognized its assets, liabilities and
non-controlling interest in respect of Vedanta and recorded its aforementioned
investment in Vedanta at fair value. The deconsolidation resulted in a gain of
$61,787. As of the date of deconsolidation, the investment in Vedanta
convertible preferred shares held at fair value amounted to $20,456.
During the year ended December 31, 2023, the Group recognized a loss of $6,303
for the changes in the fair value of the investment in Vedanta that was
included in gain/(loss) on investments held at fair value within the
Consolidated Statement of Comprehensive Income/(Loss). The fair value of the
Group's investment in Vedanta is $14,153 as of December 31, 2023.
Karuna
Karuna was deconsolidated in March 2019. During 2019, Karuna completed its IPO
and the Group lost its significant influence in Karuna. The shares held in
Karuna are accounted for as an investment held at fair value under IFRS 9.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for
$118,000. On November 9, 2021, the Group sold an additional 750,000 common
shares of Karuna for $100,125. As a result of the aforementioned sales, the
Group recorded a loss of $20,925, attributable to blockage discount included
in the sales price, in realized gain/(loss) on sale of investments within the
Consolidated Statement of Comprehensive Income/(Loss).
2022
On August 8, 2022, the Group sold 125,000 shares of Karuna common stock. In
addition, the Group wrote a series of call options entitling the holders
thereof to purchase up to 477,100 Karuna common stock at a set price, which
were exercised in full in August and September 2022. Aggregate proceeds to the
Group from all aforementioned transactions amounted to $115,457, net of
transaction fees. As a result of the aforementioned sales, the Group recorded
a loss of $29,303, attributable to the exercise of the aforementioned call
options, in realized gain/(loss) on sale of investment within the Consolidated
Statement of Comprehensive Income/(Loss).
2023
During the three months ended December 31, 2023, the Group sold 167,579 shares
of Karuna common stock with aggregate proceeds of $33,309, net of transaction
fees.
During the years ended December 31, 2023, 2022, and 2021 the Group recorded
gains of $107,079, $134,952, $109,987, respectively for the changes in the
fair value of the Karuna investment that were included in gain/(loss) on
investments held at fair value within the Consolidated Statement of
Comprehensive Income/(Loss). As of December 31, 2023, the Group held 886,885
shares or 2.3 percent of total outstanding Karuna common stock. In December
2023, Karuna entered into a definitive merger agreement with Bristol Myers
Squibb ("BMS") under which Karuna common shares were acquired by Bristol Myers
Squibb for $330 per share in March 2024. See Note 28. Subsequent Events. The
fair value of the Group's investment in Karuna is $280,708 as of December 31,
2023.
Vor
Vor was deconsolidated in February 2019. As the Group did not hold common
shares in Vor upon deconsolidation and the preferred shares it held did not
have equity-like features. Therefore, the preferred shares held by the Group
fell under the guidance of IFRS 9 and were treated as a financial asset held
at fair value with changes in fair value recorded in the Consolidated
Statement of Comprehensive Income/(Loss).
2021
On January 8, 2021, the Group participated in the second closing of Vor's
Series B preferred share financing. For consideration of $500, the Group
received an additional 961,538 Series B preferred shares.
On February 9, 2021, Vor closed its initial public offering (the "IPO") of
9,828,017 shares of its common stock at a price of $18.00 per share.
Subsequent to the closing, the Group held 3,207,200 shares of Vor common
stock, representing 8.6 percent of Vor common stock.
2022
In August and December 2022, the Group sold an aggregate of 535,400 shares of
Vor common stock for aggregate proceeds of $3,253.
During the years ended December 31, 2023, 2022 and 2021, the Group
recognized a loss of $11,756, a loss of $16,247, and a gain of $3,903,
respectively, for the changes in the fair value of the investment that were
included in gain/(loss) on investments held at fair value within the
Consolidated Statement of Comprehensive Income/(Loss). The fair value of the
Group's investment in Vor is $6,012 as of December 31, 2023.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis was
accounted for under the equity method, while the preferred shares and warrants
held by the Group fell under the guidance of IFRS 9 and were treated as
financial assets held at fair value, with changes to the fair value of the
instruments recorded through the Consolidated Statement of Comprehensive
Income/(Loss). Please refer to Note 6. Investments in Associates for
information regarding the Group's investment in Gelesis as an associate.
2021
During the year ended December 31, 2021, as the equity method based investment
in Gelesis was reduced to zero previously, the Group allocated a portion of
its share in the net loss in Gelesis of $73,703, to its preferred share and
warrant investments in Gelesis, which were considered to be long-term
interests in Gelesis.
2022
On January 13, 2022, Gelesis completed its business combination with Capstar
Special Purpose Acquisition Corp ("Capstar"). As part of the business
combination, all shares in Gelesis, common and preferred, including the shares
held by the Group, were exchanged for common shares of the merged entity and
unvested common shares that will vest upon the stock price of the new combined
entity reaching certain target prices (hereinafter "Gelesis Earn-out Shares").
In addition, the Group invested $15,000 in the class A common shares of
Capstar as part of the Private Investment in Public Equity ("PIPE")
transaction that took place immediately prior to the closing of the business
combination and an additional approximately $4,961, as part of the Backstop
agreement signed with Capstar on December 30, 2021 (See Note 6. Investments in
Associates). Pursuant to the business combination, Gelesis became a
wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis
Holdings, Inc., which began trading on the New York Stock Exchange under the
ticker symbol "GLS" on January 14, 2022. The exchange of the preferred stock
(including warrants) for common stock (including common stock warrants)
represents an additional investment in Gelesis equity investment. The Group
recorded the changes in fair value of the preferred stock and warrants through
the date of the exchange upon which the preferred shares and warrants were
derecognized and recorded as an additional investment in Gelesis equity
interest. All equity method losses allocated in prior periods against the
investment in Gelesis held at fair value were reclassified to include within
the equity method investment in Gelesis and were offset against the gain on
dilution of interest.
As part of the aforementioned exchange, the Group received 4,526,622 Gelesis
Earn-out Shares, which were valued on the date of the exchange at $14,214. The
Group accounted for such Gelesis Earn-out Shares under IFRS 9 as investments
held at fair value with changes in fair value recorded through profit and
loss.
2023
In February and May 2023, as part of Gelesis' issuance of senior secured
promissory notes to the Group, Gelesis also issued to the Group (i) warrants
to purchase 23,688,047 shares of Gelesis common stock with an exercise price
of $0.2744 per share (ii) warrants to purchase 192,307,692 shares of Gelesis
common stock at an exercise price of $0.0182 per share and (iii) warrants to
purchase 43,133,803 shares of Gelesis common stock at an exercise price of
$0.0142 per share. These warrants expire five years after issuance and are
collectively referred to as the Gelesis 2023 Warrants.
The Gelesis 2023 Warrants were recorded at their initial fair value of $1,121
and then subsequently re-measured to fair value through the profit and loss.
As of December 31, 2023, the fair value of the Gelesis 2023 Warrants was $0 as
Gelesis ceased operations in October 2023.
During the years ended December 31, 2023, 2022 and 2021, the Group recognized
a loss of $1,264, a loss of $18,476 and a gain of $34,566, respectively,
related to the change in the fair value of these instruments that was included
in gain/(loss) on investments held at fair value within the Consolidated
Statement of Comprehensive Income/(Loss).
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing, which
resulted in the Group losing control over Sonde and the deconsolidation of
Sonde. Therefore, the results of operations of Sonde are included in the
Consolidated Financial Statements through the date of deconsolidation.
Upon deconsolidation, the Group derecognized its assets and liabilities and
non-controlling interest in respect of Sonde and recorded its aforementioned
investments in Sonde at fair value. The deconsolidation resulted in a gain of
$27,251. As of the date of deconsolidation, the investment in Sonde preferred
shares held at fair value amounted to $11,168.
Following deconsolidation, the Group had significant influence in Sonde
through its 48.2% voting interest in Sonde and its remaining representation on
Sonde's Board of Directors. The Group holds Preferred A-1, A-2 and B shares.
The Preferred A-1 shares have the same terms as common stock and provide their
shareholders with access to returns associated with a residual equity
ownership in Sonde. Consequently, the investment in Preferred A-1 shares is
accounted for under the equity method. The convertible Preferred A-2 and B
shares do not provide their shareholders with access to returns associated
with a residual equity interest and as such are accounted for under IFRS 9, as
investments held at fair value with changes in fair value recorded in profit
and loss. Under IFRS 9, the A-2 and B preferred share investments are
categorized as debt instruments that are presented at fair value through
profit and loss because the amounts receivable do not represent solely
payments of principal and interest.
During the years ended December 31, 2023 and 2022, the Group recognized a loss
of $994, and a gain of $235, respectively, for the changes in the fair value
of the investment in Sonde that were included in gain/(loss) on investments
held at fair value within the Consolidated Statement of Comprehensive
Income/(Loss). The fair value of the Group's investment in Sonde is $10,408 as
of December 31, 2023.
Akili
Akili was deconsolidated in 2018. At time of deconsolidation, as the Group did
not hold common shares in Akili and the preferred shares it held did not have
equity-like features. Therefore, the preferred shares held by the Group fell
under the guidance of IFRS 9 and were treated as a financial asset held at
fair value and changes to the fair value of the preferred shares were recorded
through the Consolidated Statement of Comprehensive Income/(Loss), in
accordance with IFRS 9.
On May 25, 2021, Akili completed its Series D financing for gross proceeds of
$110,000 in which Akili issued 13,053,508 Series D preferred shares. The Group
did not participate in this round of financing and as a result, the Group's
interest in Akili was reduced from 41.9 percent to 27.5 percent.
On August 19, 2022, Akili Interactive merged with Social Capital Suvretta
Holdings Corp. I, a special purpose acquisition company. The combined
company's securities began trading on August 22, 2022 on the Nasdaq Stock
Market under the ticker symbol "AKLI". As part of this transaction, the Akili
Interactive shares held by the Group were exchanged for the common stock of
the combined company's securities as well as unvested common stock ("Akili
Earnout Shares") that will vest when the share price exceeds certain
thresholds. In addition, as part of a PIPE transaction that took place
concurrently with the closing of the transaction, the Group purchased 500,000
shares for a total consideration of $5,000. Following the closing of the
aforementioned transactions, the Group holds 12,527,477 shares of the combined
entity and 1,433,914 Akili Earn-out Shares, with fair value amounted to $6,422
as of December 31, 2023.
During the years ended December 31, 2023, 2022 and 2021, the Group recognized
a loss of $8,681, a loss of $131,419, and a gain of $32,151, respectively, for
the changes in the fair value of the investment in Akili that were included in
gain/(loss) on investments held at fair value within the Consolidated
Statement of Comprehensive Income/(Loss).
6. Investments in Associates
Gelesis
Gelesis was founded by the Group and raised funding through preferred shares
financings as well as issuances of warrants and loans. As of July 1, 2019,
Gelesis was deconsolidated from the Group's financial statements. Upon
deconsolidation, the preferred shares and warrants held by the Group fell
under the guidance of IFRS 9 Financial Instruments and were treated as
financial assets held at fair value and the investment in common shares of
Gelesis was subject to IAS 28 Investment in Associates as the Group had
significant influence over Gelesis.
2021
Due to the Group's share in the losses of Gelesis, in 2020, the Group's
investment in Gelesis accounted for under the equity method was reduced to
zero. Since the Group had investments in Gelesis warrants and preferred shares
that were deemed to be long-term interests, the Group continued recognizing
its share in Gelesis losses while applying such losses to its preferred share
and warrant investment in Gelesis accounted for as an investment held at fair
value. In 2021, total investment in Gelesis, including the long-term
interests, was reduced to zero. Since the Group did not incur legal or
constructive obligations or made payments on behalf of Gelesis, the Group
discontinued recognizing equity method losses in 2021. As of December 31,
2021, unrecognized equity method losses amounted to $38,101, which included
$709 of unrecognized other comprehensive loss.
During 2021, due to exercise of stock options into common shares in Gelesis,
the Group's equity interest in Gelesis was reduced from 47.9 percent at
December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting
from the issuance of shares to third parties and the resulting reduction in
the Group's share in the accumulated deficit of Gelesis under the equity
method was fully offset by the unrecognized equity method losses.
Backstop agreement - 2022 and 2021
On December 30, 2021, the Group signed a Backstop agreement with Capstar and
had committed to acquire Capstar class A common shares at $10 per share
immediately prior to the closing of the business combination between Gelesis
and Capstar, in case, the Available Funds, as defined in the agreement, were
less than $15,000. According to the Backstop agreement, if the Group had to
acquire any shares under the agreement, the Group would receive an additional
1,322,500 class A common shares of Capstar at no additional consideration.
The Group determined that such agreement meets the definition of a derivative
under IFRS 9 and as such should be recorded at fair value with changes in fair
value recorded through profit and loss. The derivative was initially recorded
at fair value adjusted to defer the day 1 gain equal to the difference between
the fair value of $11,200 and transaction price of zero on the effective date
of the Backstop agreement and as such was initially recorded at zero. The
deferred gain was amortized over the period from the effective date until
settlement date, January 13, 2022. During the years ended December 31, 2022
and 2021, the Group recognized income of $10,400 and $800, respectively, for
the amortization of the deferred gain. During the year ended December 31,
2022, the Group recognized a loss of $2,776 in respect of the decrease in the
fair value of the derivative until the settlement date, resulting in a net
gain of $7,624 recorded during the year ended December 31, 2022 in respect of
the Backstop agreement. The gain was included in other Income/(expense) in the
Consolidated Statement of Comprehensive Income/(Loss). The fair value of the
derivative on the settlement date in the amount of $8,424 represents an
additional investment in Gelesis as part of the SPAC transaction described
below.
On January 13, 2022, as part of the conclusion of the aforementioned Backstop
agreement, the Group acquired 496,145 class A common shares of Capstar for
$4,961 and received an additional 1,322,500 class A common shares of Capstar
for no additional consideration.
2022
Share exchange - Capstar
On January 13, 2022, Gelesis completed its business combination with Capstar.
As part of the business combination, all shares in Gelesis, common and
preferred, including the shares held by the Group, were exchanged for common
shares of the merged entity and unvested common shares that will vest upon the
stock price of the new combined entity reaching certain target prices (the
"Gelesis Earn-out Shares"). In addition, the Group invested $15,000 in the
class A common shares of Capstar as part of the PIPE transaction that took
place immediately prior to the closing of the business combination and an
additional $4,961, as part of the Backstop agreement described above. Pursuant
to the business combination, Gelesis became a wholly-owned subsidiary of
Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began
trading on the New York Stock Exchange under the ticker symbol "GLS" on
January 14, 2022. Following the closing of the business combination, the PIPE
transaction, the settlement of the aforementioned Backstop agreement with
Capstar, and the exchange of all preferred shares in Gelesis to common shares
in the new combined entity, the Group holds 16,727,582 common shares of
Gelesis Holdings Inc., which was equal to approximately 23.2% of Gelesis
Holdings Inc's outstanding common shares at the time of the exchange. Due to
the Group's significant equity holding and voting interest in Gelesis, the
Group continued to maintain significant influence in Gelesis and as such
continued to account for its Gelesis equity investment under the equity
method.
Gelesis was deemed to be the acquirer in Gelesis Holdings Inc. and the
financial assets and financial liabilities in Capstar were deemed to be
acquired by Gelesis in consideration for the shares held by Capstar legacy
shareholders. As such, the Group did not revalue the retained investment in
Gelesis but rather treated the exchange as a dilution of its equity interest
in Gelesis from 42.0 percent as of December 31, 2021 to 22.8 percent as of
January 13, 2022 (including warrants that provide its holders access to
returns associated with equity holders). After considering the aforementioned
additional investments, the exchange of the preferred stock, previously
accounted for as an investment held at fair value, to common stock (and
representing an additional equity investment in Gelesis), the earn-out shares
received in Gelesis (see Note 5. Investments Held at Fair Value) and the
offset of previously unrecognized equity method losses, the net gain recorded
on the dilution of interest amounted to $28,255.
Impairment
Following Gelesis' decline in its market price in 2022 and its lack of
liquidity, the Group recorded an impairment loss of $8,390 as of December 31,
2022 in respect of its investment in Gelesis. The recoverable amount of the
investment in Gelesis was $4,910 as of December 31, 2022, which was determined
based on fair value less costs to sell (which were estimated to be
insignificant). Fair value was determined based on level 1 of the fair value
hierarchy as Gelesis shares were traded on an active market as of December 31,
2022.
The impairment loss was presented separately in the Consolidated Statement of
Comprehensive Income/(loss) for the year ended December 31, 2022 in the line
item impairment of investment in associates.
2023
During the year ended December 31, 2023, the Group entered into agreements
with Gelesis to purchase senior secured convertible promissory notes and
warrants for shares of Gelesis common stock (see Note 7. Investment in Notes
from Associates). The warrants to purchase shares of Gelesis common stock
represented potential voting rights to the Group and it is therefore necessary
to consider whether they were substantive. If these potential voting rights
were substantive and the Group had the practical ability to exercise the
rights and take control of greater than 50% of Gelesis common stock, the Group
would be required to consolidate Gelesis under the accounting standards.
In February 2023, the Group obtained warrants to purchase 23,688,047 shares of
Gelesis common stock (the "February Warrants") at an exercise price of $0.2744
per share. The exercise of the February Warrants was subject to the approval
of the Gelesis stockholders until May 1, 2023. On May 1, 2023, stockholder
approval was no longer required for the Group to exercise the February
Warrants. The potential voting rights associated with the February Warrants
were not substantive as the exercise price of the February Warrants was at a
significant premium to the fair value of the Gelesis common stock.
In May 2023, the Group obtained warrants to purchase 235,441,495 shares of
Gelesis common stock (the "May Warrants"). The May Warrants were exercisable
at the option of the Group and had an exercise price of either $0.0182 or
$0.0142. The May Warrants were substantive as the Group would have benefited
from exercising such warrants since their exercise price was at the money or
at an insignificant premium over the fair value of the Gelesis common stock.
However, that benefit from exercising the May Warrants only existed for a
short period of time because in June 2023, the potential voting rights
associated with the May Warrants were impacted by the terms and conditions of
the Merger Agreement as described below and were no longer substantive.
In October 2023, the Group terminated the Merger Agreement with Gelesis and
the potential voting rights associated with the May Warrants were not
substantive. Also, in October 2023, Gelesis ceased operations and filed a
voluntary petition for relief under the provisions of Chapter 7 of Title 11 of
the United States Bankruptcy Code. A Chapter 7 trustee has been appointed by
the Bankruptcy Court who has control over the assets and liabilities of
Gelesis, effectively eliminating the authority and powers of the Board of
Directors of Gelesis and its executive officers to act on behalf of Gelesis.
The assets of Gelesis will be liquidated and Gelesis no longer has any
officers or employees. The Group ceased accounting for Gelesis as an equity
method investment as it no longer had significant influence in Gelesis. During
the year ended December 31, 2023, the Group recorded $4,910 as its share in
the losses of Gelesis and the Group's balance in this equity method investment
was zero as of December 31, 2023.
Merger Agreement
On June 12, 2023, PureTech Health LLC and Caviar Merger Sub LLC, a Delaware
limited liability company and a wholly-owned subsidiary of PureTech ("Merger
Sub"), entered into an agreement (the "Merger Agreement"), pursuant to which
Gelesis would merge with and into Merger Sub, with Merger Sub continuing as
the surviving company ( the "Merger"). If the Merger had been completed,
PureTech would have acquired all issued and outstanding shares of common stock
of Gelesis not otherwise held by PureTech, and Gelesis would have become an
indirect wholly-owned subsidiary of PureTech. On October 12, 2023, the Group
terminated the Merger Agreement.
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing. As a
result of the aforementioned financing, the Group's voting interest was
reduced below 50% and the Group lost its control over Sonde and as such ceased
to consolidate Sonde on the date the round of financing was completed.
Following deconsolidation, the Group has significant influence in Sonde
through its voting interest in Sonde and its remaining representation on
Sonde's Board of Directors. The Group's voting interest at date of
deconsolidation and as of December 31, 2022 was 48.2% and 40.17%,
respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred
A-1 shares, in substance, have the same terms as common stock and as such
provide their shareholders with access to returns associated with a residual
equity ownership in Sonde. Consequently, the investment in Preferred A-1
shares is accounted for under the equity method. The Preferred A-2 and B
shares, however, do not provide their shareholders with access to returns
associated with a residual equity interest and as such are accounted for under
IFRS 9, as investments held at fair value.
The fair value of the Preferred A-1 shares on the date of deconsolidation
amounted to $7,716, which is the initial value of the equity method investment
in Sonde.
During the years ended December 31, 2023 and 2022, the Group recorded losses
of $1,052 and $3,443, respectively, related to Sonde's equity method of
accounting. As of December 31, 2023, the Sonde equity method investment has
a balance of $3,185.
The following table summarizes the activity related to the investment in
associates balance for the years ended December 31, 2023 and 2022.
Investment in Associates $
As of January 1, 2022 -
Cash investment in associates 19,961
Additional investment as a result of settling the Backstop agreement (see 8,424
above)
Gain on dilution of interest in associate (*) 13,793
Investment in Sonde - deconsolidation 7,680
Share in net loss of associates (27,749)
Reversal of equity method losses recorded against LTI (due to decrease in the (4,406)
fair value of such LTI):
Share in other comprehensive loss of associates (166)
Impairment (8,390)
As of December 31, 2022 and January 1, 2023 9,147
Share in net loss of associates (6,055)
Share in other comprehensive income of associates 92
As of December 31, 2023 3,185
* Gain on dilution of interest was further increased due to the
receipt of Gelesis Earn-out Shares accounted for as investments held at fair
value (see above).
Summarized financial information
The following table summarizes the financial information of Gelesis as of
December 31, 2022 and for the years ended December 31, 2022 and 2021, as
included in its own financial statements, adjusted for fair value adjustments
at deconsolidation and differences in accounting policies. The table also
reconciles the summarized financial information to the carrying amount of the
Group's interest in Gelesis. As of December 31, 2023, the Group's investment
in Gelesis is $0 and Gelesis does not represent a significant equity method
investment. As a result, such a disclosure for Gelesis is not presented for
the year ended December 31, 2023.
2022
$
As of and for the year ended December 31,
Percentage ownership interest 22.5%
Non-current assets 333,040
Current assets 23,495
Non-current liabilities (99,053)
Current liabilities (80,010)
Non-controlling interests and options issued to third parties (46,204)
Net assets (deficit) attributable to shareholders of Gelesis Inc. 131,268
Group's share of net assets (net deficit) 29,504
Goodwill 3,858
Impairment (28,452)
Investment in associates 4,910
2022 2021
$ $
Revenue 25,767 11,185
Loss from continuing operations (100%) (111,567) (271,430)
Total comprehensive loss (100%) (112,285) (273,005)
Group's share in net losses - limited to net investment amount (*) (24,306) (73,703)
Group's share of total comprehensive loss - limited to net investment amount (24,472) (73,703)
* For the year ended December 31, 2022, the amount includes
$4,406 reversal of equity method losses recorded against long-term Interests
("LTI") due to the decrease in fair value of such LTI.
7. Investment in Notes from Associates
Gelesis
Unsecured Promissory Note
On July 27, 2022, the Group, as a lender, entered into an unsecured promissory
note (the "Junior Note") with Gelesis, as a borrower, in the amount of
$15,000. The Junior Note bears an annual interest rate of 15% per annum. The
maturity date of the Junior Note is the earlier of December 31, 2023 or five
business days following the consummation of a qualified financing by Gelesis.
Based on the terms of the Junior Note, due to the option to convert to a
variable amount of shares at the time of default, the Junior Note is required
to be measured at fair value with changes in fair value recorded through
profit and loss.
As of December 31, 2023 and December 31, 2022 the fair value of the Junior
Note was $0 and $16,501, respectively. In the year ended December 31, 2023,
the Group recorded a loss of $16,501 for the change in the fair value of the
Junior Note which was included in gain/(loss) on investments in notes from
associates within the Consolidated Statement of Comprehensive Income/(Loss).
The fair value of the Junior Note was determined to be $0 as of December 31,
2023 as Gelesis has ceased operations and filed for bankruptcy. In the year
ended December 31, 2022, the Group recorded interest income of $963 and a gain
of $539 for the change in the fair value of the Junior Note which was included
in other income/(expense) in the Consolidated Statement of Comprehensive
Income/(Loss).
Senior Secured Convertible Promissory Notes
During the year ended December 31, 2023, the Group entered into multiple
agreements with Gelesis to purchase for $11,850 senior secured convertible
promissory notes (the "Senior Notes") and warrants for share of Gelesis common
stock. The initial fair value of the Senior Notes was determined to be $10,729
while $1,121 was determined to be the initial fair value of the warrants. The
Senior Notes represent debt instruments that are presented at fair value
through profit and loss as the amounts receivable do not solely represent
payments of principal and interest as the Senior Notes are convertible into
Gelesis common stock.
The Senior Notes are secured by a first-priority lien on substantially all
assets of Gelesis and the guarantors (other than the equity interests in, and
assets held by Gelesis s.r.l., a subsidiary of Gelesis, and certain other
exceptions).
In October 2023, Gelesis ceased operations and filed a voluntary petition for
relief under the provisions of Chapter 7 of Title 11 of the United States
Bankruptcy Code. Therefore, the Group determined that the fair value of the
Senior Notes was $0 as of December 31, 2023 and the Group recorded a loss of
$10,729 for the changes in the fair value of the Senior Notes. The loss was
included in gain/(loss) on investments in notes from associates in the
Consolidated Statement of Comprehensive Income/(Loss).
Vedanta
On April 24, 2023, Vedanta closed the second tranche of its convertible debt
for additional proceeds of $18,000, of which $5,000 were invested by the
Group. The convertible debt carries an interest rate of 9 percent per annum.
The debt has various conversion triggers and the conversion price is
established at the lower of 80% of the equity price of the last financing
round, or a certain pre-money valuation cap established in the agreement. If
the convertible debt is not earlier converted or repaid, the entire
outstanding amount of the convertible debt shall be due and payable upon the
earliest to occur of (a) the later of (x) November 1, 2025 and (y) the date
which is sixty (60) days after all amounts owed under, or in connection with,
the loan Vedanta received from a certain investor have been paid in full, or
(b) the consummation of a Deemed Liquidation Event (as defined in Vedanta's
Amended and Restated Certificate of Incorporation).
Due to the terms of the convertible debt, the investment in such convertible
debt is measured at fair value with changes in the fair value recorded through
profit and loss. During the years ended December 31, 2023, the Group recorded
a loss of $400 for the changes in the fair value of the Vedanta convertible
debt which was included in gain/(loss) on investments in notes from associates
in the Consolidated Statement of Comprehensive Income/(Loss).
Following is the activity in respect of investments in notes from associates
during the periods. The fair value of the $4,600 note from associate as of
December 31, 2023 is determined using unobservable Level 3 inputs. See Note
18. Financial Instruments for additional information.
Investment in notes from associates $
Balance as of January 1, 2022 -
Investment In Gelesis notes 15,000
Changes in the fair value of the notes 1,501
Balance as of December 31, 2022 and January 1, 2023 16,501
Investment In Gelesis notes 10,729
Investment in Vedanta convertible debt 5,000
Changes in the fair value of the notes and convertible debt (27,630)
Balance as of December 31, 2023 4,600
8. Operating Expenses
Total operating expenses were as follows:
For the years ending December 31, 2023 2022 2021
$ $ $
General and administrative 53,295 60,991 57,199
Research and development 96,235 152,433 110,471
Total operating expenses 149,530 213,425 167,671
The average number of persons employed by the Group during the year, analyzed
by category, was as follows:
For the years ending December 31, 2023 2022 2021
General and administrative 40 57 52
Research and development 56 144 119
Total 96 201 171
The aggregate payroll costs of these persons were as follows:
2023 2022 2021
$ $ $
For the years ending December 31,
General and administrative 24,586 25,322 26,438
Research and development 21,102 36,321 28,950
Total 45,688 61,643 55,388
Detailed operating expenses were as follows:
2023 2022 2021
$ $ $
For the years ending December 31,
Salaries and wages 37,084 41,750 36,792
Healthcare and other benefits 2,599 2,908 2,563
Payroll taxes 1,590 2,286 2,084
Share-based payments 4,415 14,699 13,950
Total payroll costs 45,688 61,643 55,388
Amortization 1,979 3,048 2,940
Depreciation 2,955 5,845 4,347
Total amortization and depreciation expenses 4,933 8,893 7,287
Other general and administrative expenses 25,180 31,600 26,714
Other research and development expenses 73,729 111,288 78,282
Total other operating expenses 98,909 142,888 104,996
Total operating expenses 149,530 213,425 167,671
Please refer to Note 9. Share-based Payments for further disclosures related
to share-based payments and Note 26. Related Parties Transactions for
management's remuneration disclosures.
Auditor's remuneration:
For the years ending December 31, 2023 2022 2021
$ $ $
Audit of these financial statements 2,241 1,716 1,183
Audit of the financial statements of subsidiaries - 132 312
Audit of the financial statements of associate** - 814 571
Audit-related assurance services* 445 1,157 1,868
Non-audit related services 9 - -
Total 2,695 3,819 3,934
* 2023 - this amount represents assurance service relating to SOX
controls work for purposes of the ICFR audit of Form 20-F; 2021 - $468
represents prepaid expenses related to an expected initial public offering of
a subsidiary.
** Audit fees of $-, $720 and $500 in respect of financial statements of
Gelesis for the years ended December 31, 2023, 2022, and 2021 respectively,
are not included within the Consolidated Financial Statements. Fees related to
the audit of the financial statements of Gelesis have been disclosed in
respect of 2023, 2022, and 2021 as these fees went towards supporting the
audit opinion on the Group accounts.
9. Share-based Payments
Share-based payments includes stock options, time-based restricted stock units
("RSUs") and performance-based RSUs in which the expense is recognized based
on the grant date fair value of these awards, except for performance-based
RSUs to executives that are treated as liability awards where expense is
recognized based on reporting date fair value up until settlement date.
Share-based Payment Expense
The Group's share-based payment expense for the years ended December 31, 2023,
2022 and 2021, was $4,415, $14,699, and $13,950 respectively. The following
table provides the classification of the Group's consolidated share-based
payment expense as reflected in the Consolidated Statement of Income/(Loss):
Year ended December 31, 2023 2022 2021
$ $ $
General and administrative 3,185 8,862 9,310
Research and development 1,230 5,837 4,640
Total 4,415 14,699 13,950
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan (the "2015 PSP").
Under the 2015 PSP and subsequent amendments, awards of ordinary shares may be
made to the Directors, senior managers and employees, and other individuals
providing services to the Group up to a maximum authorized amount of 10.0
percent of the total ordinary shares outstanding. The shares have various
vesting terms over a period of service between one and four years, provided
the recipient remains continuously engaged as a service provider. The options
awards expire 10 years from the grant date.
In June 2023 the Group adopted a new Performance Stock Plan (the "2023 PSP")
that has the same terms as the 2015 PSP but instituted for all new awards a
limit of 10.0 percent of the total ordinary shares outstanding over a
five-year period.
The share-based awards granted under the PSPs are generally equity-settled
(see cash settlements below). As of December 31, 2023, the Group had issued
27,384,777 units of share-based awards under these plans.
RSUs
RSU activity for the years ended December 31, 2023, 2022 and 2021 is detailed
as follows:
Number of Shares/Units Weighted Average Grant Date Fair Value (GBP) (*)
Outstanding (Non-vested) at January 1, 2021 3,422,582 2.46
RSUs Granted in Period 2,195,133 2.15
Vested (1,176,695) 2.93
Forfeited (808,305) 2.25
Outstanding (Non-vested) at December 31, 2021 and January 1, 2022 3,632,715 1.91
RSUs Granted in Period 4,309,883 1.76
Vested (696,398) 2.80
Forfeited (1,155,420) 2.67
Outstanding (Non-vested) at December 31, 2022 and January 1, 2023 6,090,780 1.74
RSUs Granted in Period 3,679,669 1.28
Vested (716,029) 2.00
Forfeited (1,880,274) 1.94
Outstanding (Non-vested) at December 31, 2023 7,174,146 1.10
* For liability awards - based on fair value at reporting date.
Each RSU entitles the holder to one ordinary share on vesting and the RSU
awards are generally based on a vesting schedule over a one to three-year
requisite service period in which the Group recognizes compensation expense
for the RSUs. Following vesting, each recipient will be required to make a
payment of one pence per ordinary share on settlement of the RSUs.
RSUs granted to the non-executive directors are time-based and equity-settled.
The grant date fair value on such RSUs is recognized over the vesting term.
RSUs granted to executives are performance-based and vesting of such RSUs is
subject to the satisfaction of both performance and market conditions. The
performance condition is based on the achievement of the Group's strategic
targets. The market conditions are based on the achievement of the absolute
total shareholder return ("TSR"), TSR as compared to the FTSE 250 Index, and
TSR as compared to the MSCI Europe Health Care Index. The RSU award
performance criteria have changed over time as the criteria are continually
evaluated by the Group's Remuneration Committee.
The Group recognizes the estimated fair value of performance-based awards with
non-market conditions as share-based compensation expense over the performance
period based upon its determination of whether it is probable that the
performance targets will be achieved. The Group assesses the probability of
achieving the performance targets at each reporting period. Cumulative
adjustments, if any, are recorded to reflect subsequent changes in the
estimated outcome of performance-related conditions.
The fair value of the performance-based awards with market conditions is based
on the Monte Carlo simulation analysis utilizing a Geometric Brownian Motion
process with 100,000 simulations to value those shares. The model considers
share price volatility, risk-free rate and other covariance of comparable
public companies and other market data to predict distribution of relative
share performance.
Liability settled RSUs classification
The RSUs to executives are treated as liability awards as the Group has a
historical practice of settling these awards in cash, and as such adjusted to
fair value at every reporting date until settlement with changes in fair value
recorded in earnings as stock based compensation expense.
The Group incurred share-based payment expenses for RSUs of $827 (including
$402 expense in respect of RSU liability awards), $1,637 (including $1,131
expense in respect of RSU liability awards), and $1,540 (including $589
expense in respect of RSU liability awards) for the years ended December 31,
2023, 2022 and 2021, respectively. The decrease in the share-based
compensation expense in respect of the RSUs for the year ended December 31,
2023, as compared to the year ended December 31, 2022 is due to reduction in
the fair value of the liability awards.
As of December 31, 2023, the carrying amount of the RSU liability awards was
$4,782, $1,281 current; $3,501 non current, out of which $1,283 related to
awards that have met all their performance and market conditions.
Stock Options
Stock option activity for the years ended December 31, 2023, 2022 and 2021, is
detailed as follows:
Number of Options Wtd Average Exercise Price (GBP) Wtd Average of Wtd Average Stock Price at Exercise (GBP)
remaining contractual
term (in years)
Outstanding at January 1, 2021 10,916,086 1.81 8.38
Granted 5,424,000 3.34
Exercised (2,238,187) 0.70 3.63
Forfeited and expired (687,781) 2.53
Options Exercisable at December 31, 2021 and January 1, 2022 4,773,873 1.42 6.50
Outstanding at December 31, 2021 and January 1, 2022 13,414,118 2.58 8.29
Granted 8,881,000 2.04
Exercised (577,022) 0.50 2.43
Forfeited and expired (3,924,215) 2.89
Options Exercisable at December 31, 2022 and January 1, 2023 6,185,216 2.03 6.21
Outstanding at December 31, 2022 and January 1, 2023 17,793,881 2.31 8.03
Granted 3,120,975 2.22
Exercised (534,034) 1.71 2.46
Forfeited and expired (3,424,232) 2.40
Options Exercisable at December 31, 2023 9,065,830 2.19 6.01
Outstanding at December 31, 2023 16,956,590 2.29 7.20
The fair value of the stock options awarded by the Group was estimated at the
grant date using the Black-Scholes option valuation model, considering the
terms and conditions upon which options were granted, with the following
weighted-average assumptions:
At December 31, 2023 2022 2021
Expected volatility 43.69% 41.70% 41.05%
Expected terms (in years) 6.16 6.11 6.16
Risk-free interest rate 4.04% 2.13% 1.06%
Expected dividend yield - - -
Exercise price (GBP) 2.22 2.04 3.34
Underlying stock price (GBP) 2.22 2.04 3.34
These assumptions resulted in an estimated weighted-average grant-date fair
value per share of stock options granted during the years ended December 31,
2023, 2022 and 2021 of $1.37 ,$1.15 and $1.87, respectively.
The Group incurred share-based payment expense for the stock options of
$3,310, $8,351 and $6,158 for the years ended December 31, 2023, 2022 and
2021, respectively.
For shares outstanding as of December 31, 2023, the range of exercise prices
is detailed as follows:
Range of Exercise Prices (GBP) Options Wtd Wtd Average of
Outstanding Average remaining contractual
Exercise term (in years)
Price (GBP)
0.01 439,490 - 5.76
1.00 to 2.00 4,989,572 1.54 5.64
2.00 to 3.00 6,664,028 2.25 8.55
3.00 to 4.00 4,863,500 3.33 7.10
Total 16,956,590 2.29 7.20
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option plans. A summary
of stock option activity by number of shares in these subsidiaries is
presented in the following table:
Outstanding as of January 1, 2023 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2023
Entrega 344,500 - - - - - 344,500
Follica 2,776,120 - - (2,170,547) (605,573) - -
Vedanta 1,824,576 - - (1,313) (29,607) (1,793,656) -
Outstanding as of January 1, 2022 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2022
Entrega 349,500 45,000 - (50,000) - - 344,500
Follica 2,686,120 90,000 - - - - 2,776,120
Sonde 2,049,004 - - - - (2,049,004) -
Vedanta 1,991,637 490,506 (400,000) (65,235) (192,332) - 1,824,576
Outstanding as of January 1, 2021 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2021
Alivio 3,888,168 197,398 (2,373,750) (506,260) (1,205,556) - -
Entrega 962,000 - (525,000) (87,500) - - 349,500
Follica 1,309,040 1,383,080 - (6,000) - - 2,686,120
Sonde 2,192,834 - - (51,507) (92,323) - 2,049,004
Vedanta 1,741,888 451,532 (52,938) (76,491) (72,354) - 1,991,637
The weighted-average exercise prices and remaining contractual life for the
options outstanding as of December 31, 2023, were as follows:
Outstanding at December 31, 2023 Number of options Weighted-average exercise price Weighted-average contractual life outstanding
$
Entrega 344,500 1.91 3.92
There were no grants in 2023 under any of the subsidiary option plans. The
weighted average exercise prices for the options granted for the years ended
December 31, 2022 and 2021, were as follows:
For the years ended December 31, 2022 2021
$ $
Entrega 0.02 -
Follica 1.86 1.86
Vedanta 14.94 19.69
The weighted average exercise prices for options forfeited during the year
ended December 31, 2023, were as follows:
Forfeited during the year ended December 31, 2023 Number of options Weighted-average exercise price
$
Follica 605,573 1.86
Vedanta 29,607 17.06
The weighted average exercise prices for options exercisable as of December
31, 2023, were as follows:
Exercisable at December 31, 2023 Number of Options Weighted-average exercise price Exercise Price Range
$ $
Entrega 329,500 1.99 0.02-2.36
There were no subsidiary options exercised during the year ended December 31,
2023.
For the years ended December 31, 2023, 2022 and 2021, the subsidiaries
incurred share-based payment expense of $277, $4,711 and $6,252, respectively.
10. Finance Income/(Costs), net
The following table shows the breakdown of finance income and costs:
2023 2022 2021
$ $ $
For the years ended December 31,
Finance income
Interest income from financial assets 16,012 5,799 214
Total finance income 16,012 5,799 214
Finance costs
Contractual interest expense on notes payable (1,422) (212) (1,031)
Interest expense on other borrowings (363) (1,759) (1,502)
Interest expense on lease liability (1,544) (1,982) (2,181)
Gain/(loss) on foreign currency exchange (94) 14 (56)
Total finance cost - contractual (3,424) (3,939) (4,771)
Gain/(loss) from change in fair value of warrant liability 33 6,740 1,419
Gain/(loss) from change in fair value of preferred shares 2,617 130,825 8,362
Gain/(loss) from change in fair value of convertible debt - (502) (175)
Total finance income/(costs) - fair value accounting 2,650 137,063 9,606
Total finance costs - non cash interest expense related to sale of future (10,159) - -
royalties
Finance income/(costs), net 5,078 138,924 5,050
¶
11. Earnings/(Loss) per Share
Basic earnings/(loss) per share is calculated by dividing the Group's net
income or loss for the year attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding, net of treasury
shares.
Diluted EPS is calculated by dividing the Group's net income or loss for the
year by the weighted average number of ordinary shares outstanding, net of
treasury shares, plus the weighted average number of ordinary shares that
would be issued at conversion of all the dilutive potential ordinary shares
into ordinary shares. Dilutive effects arise from equity-settled shares from
the Group's share-based plans.
For the years ended December 31, 2023, 2022 and 2021, the Group incurred a net
loss and therefore all outstanding potential securities were considered
anti-dilutive. The amount of potential securities that were excluded from the
diluted calculation amounted to 1,509,900, 3,134,131 and 6,553,905 shares,
respectively.
Earnings/(Loss) Attributable to Owners of the Group:
2023 2022 2021
Basic $ Diluted $ Basic $ Diluted $ Basic $ Diluted $
Income/(loss) for the year, attributable to the owners of the Group (65,697) (65,697) (50,354) (50,354) (60,558) (60,558)
Weighted-Average Number of Ordinary Shares:
2023 2022 2021
Basic Diluted Basic Diluted Basic Diluted
Issued ordinary shares at January 1, 278,566,306 278,566,306 287,796,585 287,796,585 285,885,025 285,885,025
Effect of shares issued & treasury shares purchased (2,263,773) (2,263,773) (3,037,150) (3,037,150) 705,958 705,958
Weighted average number of ordinary shares at December 31, 276,302,533 276,302,533 284,759,435 284,759,435 286,590,983 286,590,983
Earnings/(Loss) per Share:
2023 2022 2021
Basic $ Diluted $ Basic $ Diluted $ Basic $ Diluted $
Basic and diluted earnings/(loss) per share (0.24) (0.24) (0.18) (0.18) (0.21) (0.21)
12. Property and Equipment
Cost Laboratory and Manufacturing Equipment Furniture and Computer Equipment and Leasehold Improvements Construction in Total
$ Fixtures Software $ process $
$ $ $
Balance as of January 1, 2022 11,733 1,452 1,329 18,485 8,116 41,115
Additions, net of transfers 390 - 11 412 1,362 2,176
Disposals (118) - - - (77) (195)
Deconsolidation of subsidiaries - - (58) - - (58)
Reclassifications 1,336 58 137 5,067 (6,598) -
Balance as of December 31, 2022 13,341 1,510 1,419 23,964 2,803 43,037
Additions, net of transfers - - - - 87 87
Disposals/Impairment (2,886) - (137) - - (3,023)
Deconsolidation of subsidiaries (5,092) (438) (365) (8,799) (2,871) (17,565)
Reclassifications - - - - (18) (18)
Balance as of December 31, 2023 5,363 1,072 917 15,165 1 22,518
Accumulated depreciation and impairment loss Laboratory and Manufacturing Equipment Furniture and Computer Equipment and Leasehold Improvements Construction in Total
$ Fixtures Software $ process $
$ $ $
Balance as of January 1, 2022 (5,686) (663) (1,190) (6,806) - (14,344)
Depreciation (2,082) (212) (107) (3,444) - (5,845)
Disposals 57 - - - - 57
Deconsolidation of subsidiaries - - 53 - - 53
Balance as of December 31, 2022 (7,711) (875) (1,244) (10,250) - (20,080)
Depreciation (892) (162) (45) (1,856) - (2,955)
Disposals 543 - 38 - - 581
Deconsolidation of subsidiaries 3,917 339 357 4,858 - 9,472
Balance as of December 31, 2023 (4,142) (698) (894) (7,248) - (12,982)
Property and Equipment, net Laboratory and Manufacturing Equipment Furniture and Computer Equipment and Leasehold Improvements Construction in Total
$ Fixtures Software $ process $
$ $ $
Balance as of December 31, 2022 5,630 635 174 13,714 2,803 22,957
Balance as of December 31, 2023 1,221 375 23 7,917 1 9,536
¶Depreciation of property and equipment is included in the general and
administrative expenses and research and development expenses in the
Consolidated Statement of Comprehensive Income/(Loss). The Group recorded
depreciation expense of $2,955, $5,845 and $4,347 for the years ended December
31, 2023, 2022 and 2021, respectively.
13. Intangible Assets
Intangible assets consist of licenses of intellectual property acquired by the
Group through various agreements with third parties and are recorded at the
value of the consideration transferred. Information regarding the cost and
accumulated amortization of intangible assets is as follows:
Cost Licenses
$
Balance as of January 1, 2022 990
Additions 25
Impairment (163)
Deconsolidation of subsidiary (21)
Balance as of December 31, 2022 831
Additions 200
Impairment (105)
Deconsolidation of subsidiaries (19)
Balance as of December 31, 2023 906
Accumulated amortization Licenses
$
Balance as of January 1, 2022 (3)
Amortization (1)
Deconsolidation of subsidiary 4
Balance as of December 31, 2022 -
Amortization -
Deconsolidation of subsidiary -
Balance as of December 31, 2023 -
Intangible assets, net Licenses
$
Balance as of December 31, 2022 831
Balance as of December 31, 2023 906
Substantially all the intangible asset licenses represent
in-process-research-and-development assets since they are still being
developed and not ready for their intended use. As such, these assets are not
amortized but tested for impairment annually.
During the year ended December 31, 2023, the Group wrote off two of its
research intangible assets for which research was ceased in the amount of
$105.
During the year ended December 31, 2023, Vedanta , Inc. was deconsolidated and
as such, $19 net in intangible assets were derecognized.
During the year ended December 31,2022, the Group wrote off one of its
research intangible assets for which research was ceased in the amount of
$163.
During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated
and as such, $18 net intangible assets were derecognized.
The Group tested all intangible assets for impairment as of the balance sheet
date and concluded that none of such assets were impaired.
The Group had negligible amortization expense for the years ended December 31,
2022 and 2021 and no amortization expense for the year ended December 31,
2023.
14. Other Financial Assets
Other financial assets consist primarily of restricted cash reserved as
collateral against a letter of credit with a bank that is issued for the
benefit of a landlord in lieu of a security deposit for office space leased by
the Group. The restricted cash was $1,628 and $2,124 as of December 31, 2023
and 2022, respectively.
15. Equity
Total equity for the Group as of December 31, 2023, and 2022, was as follows:
December 31, 2023 December 31, 2022
$ $
Equity
Share capital, £0.01 par value, issued and paid 271,853,731 and 278,566,306 5,461 5,455
as of December 31, 2023 and 2022, respectively
Share premium 290,262 289,624
Treasury shares, 17,614,428 and 10,595,347 as of December 31, 2023 and 2022, (44,626) (26,492)
respectively
Merger Reserve 138,506 138,506
Translation reserve 182 89
Other reserves (9,538) (14,478)
Retained earnings/(accumulated deficit) 83,820 149,516
Equity attributable to owners of the Group 464,066 542,220
Non-controlling interests (5,835) 5,369
Total equity 458,232 547,589
Changes in share capital and share premium relate primarily to incentive
options exercises during the period.
Shareholders are entitled to vote on all matters submitted to shareholders for
a vote. Each ordinary share is entitled to one vote and is entitled to receive
dividends when and if declared by the Group's Directors.
On June 18, 2015, the Group acquired the entire issued share capital of
PureTech LLC in return for 159,648,387 ordinary shares. This was accounted for
as a common control transaction at cost. It was deemed that the share capital
was issued in line with movements in share capital as shown prior to the
transaction taking place. In addition, the merger reserve records amounts
previously recorded as share premium.
Other reserves comprise the cumulative credit to share-based payment reserves
corresponding to share-based payment expenses recognized through Consolidated
Statement of Comprehensive Income/(Loss), settlements of vested stock awards
as well as other additions that flow directly through equity such as the
excess or deficit from changes in ownership of subsidiaries while control is
maintained by the Group.
On May 9, 2022, the Group announced the commencement of a $50,000 share
repurchase program (the "Program") of its ordinary shares of one pence each
(the "Ordinary Shares"). The Group executed the Program in two equal tranches.
The Group entered into an irrevocable non-discretionary instruction with
Jefferies International Limited ("Jefferies") in relation to the purchase by
Jefferies of the Ordinary Shares for an aggregate consideration (excluding
expenses) of no greater than $25,000 for each tranche, and the simultaneous
on-sale of such Ordinary Shares by Jefferies to the Group, subject to certain
volume and price restrictions. Jefferies made its trading decisions in
relation to the Ordinary Shares independently of, and uninfluenced by, the
Group. Purchases could continue during any close period to which the Group was
subject. The instruction to Jeffries could be amended or withdrawn so long as
the Group was not in a close period or otherwise in possession of inside
information.
Any purchases of the Ordinary Shares under the Program were carried out on the
London Stock Exchange and could be carried out on any other UK recognized
investment exchange in accordance with pre-set parameters and subject to
limits prescribed by the Group's general authority to repurchase the Ordinary
Shares granted by its shareholders at its annual general meeting on May 27,
2021, and relevant Rules and Regulations. All Ordinary Shares repurchased
under the Program are held in treasury and re-issued for settlement of
share-based awards. As of December 31, 2023, the Group had repurchased an
aggregate of 18,278,873 Ordinary Shares under the share repurchase program
with 7,683,526 shares repurchased in 2023. The Program was completed during
the month ended February 2024.
As of December 31, 2023, the Group's issued share capital was 289,468,159
shares, including 17,614,428 shares repurchased under the Program and were
held by the Group in treasury. The Group does not have a limited amount of
authorized share capital.
16. Subsidiary Preferred Shares
Preferred shares issued by subsidiaries often contain redemption and
conversion features that are assessed under IFRS 9 in conjunction with the
host preferred share instrument. This balance represents subsidiary preferred
shares issued to third parties.
The subsidiary preferred shares are redeemable upon the occurrence of a
contingent event, other than full liquidation of the Group, that is not
considered to be within the control of the Group. Therefore these subsidiary
preferred shares are classified as liabilities. These liabilities are measured
at fair value through profit and loss. The preferred shares are convertible
into ordinary shares of the subsidiaries at the option of the holders and are
mandatorily convertible into ordinary shares under certain circumstances.
Under certain scenarios, the number of ordinary shares receivable on
conversion will change and therefore, the number of shares that will be issued
is not fixed. As such the conversion feature is considered to be an embedded
derivative that normally would require bifurcation. However, since the
preferred share liabilities are measured at fair value through profit and
loss, as mentioned above, no bifurcation is required.
The preferred shares are entitled to vote with holders of common shares on an
as converted basis.
The fair value of all subsidiary preferred shares as of December 31, 2023 and
December 31, 2022, is as follows:
2023 2022
$ $
As of December 31,
Entrega 169 169
Follica - 350
Vedanta Biosciences - 26,820
Total subsidiary preferred share balance 169 27,339
As is customary, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of a subsidiary, the holders of subsidiary preferred
shares which are outstanding shall be entitled to be paid out of the assets of
the subsidiary available for distribution to shareholders and before any
payment shall be made to holders of ordinary shares. A merger, acquisition,
sale of voting control or other transaction of a subsidiary in which the
shareholders of the subsidiary immediately before the transaction 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.
As of December 31, 2023 and December 31, 2022, the minimum liquidation
preference reflecting the amounts that would be payable to the subsidiary
preferred holders upon a liquidation event of the subsidiaries, is as follows:
2023 2022
$ $
As of December 31,
Entrega 2,216 2,216
Follica 6,405 6,405
Vedanta Biosciences - 149,568
Total minimum liquidation preference 8,621 158,189
For the years ended December 31, 2023 and 2022, the Group recognized the
following changes in the value of subsidiary preferred shares:
$
Balance as of January 1, 2022 174,017
Decrease in value of preferred shares measured at fair value - finance costs (130,825)
(income)
Deconsolidation of subsidiary - (Sonde) (15,853)
Balance as of December 31, 2022 27,339
Decrease in value of preferred shares measured at fair value - finance costs (2,617)
(income)
Deconsolidation of subsidiary - (Vedanta) (24,554)
Balance as of December 31, 2023 169
¶17. Sale of Future Royalties Liability
On March 4, 2011, the Group entered into a license agreement with Karuna
Therapeutics, Inc. ("Karuna") according to which the Group granted Karuna an
exclusive license to research, develop and sell KarXT in exchange for a
royalty on annual net sales, development and regulatory milestones and a fixed
portion of sublicensing income, if any (hereinafter "License Agreement").
On March 22, 2023, the Group signed an agreement with Royalty Pharma
(hereinafter "Royalty Purchase Agreement"), according to which the Group sold
Royalty Pharma a partial right to receive royalty payments made by Karuna in
respect of net sales of KarXT, if and when received. According to the Royalty
Purchase Agreement, all royalties due to the Group under the License Agreement
will be paid to Royalty Pharma up until an annual threshold of $60,000, while
all royalties above such annual threshold in a given year will be split 33% to
Royalty Pharma and 67% to the Group. Under the terms of the Royalty Purchase
Agreement, the Group received a non-refundable initial payment of $100,000 at
the execution of the Royalty Purchase Agreement and is eligible to receive
additional payments in the aggregate of up to an additional $400,000 based on
the achievement of certain regulatory and commercial milestones.
The Group continues to hold the rights under the License Agreement and has a
contractual obligation to deliver cash to Royalty Pharma for a portion of the
royalties it receives. Therefore, the Group will continue to account for any
royalties and regulatory milestones due to the Group under the License
Agreement as revenue in its Consolidated Statement of Comprehensive
Income/(Loss) and record the proceeds from the Royalty Purchase Agreement as a
financial liability on its Consolidated Statement of Financial Position. In
determining the appropriate accounting treatment for the Royalty Purchase
Agreement, management applied significant judgement.
The acquisition of Karuna by Bristol Meyers Squibb (NYSE: BMY), which closed
on March 18, 2024, had no impact on the Group's rights or obligations under
the License Agreement or Royalty Purchase Agreement, each of which remains in
full force and effect.
In order to determine the amortized cost of the sale of future royalties
liability, management is required to estimate the total amount of future
receipts from and payments to Royalty Pharma under the Royalty Purchase
Agreement over the life of the agreement. The $100,000 liability, recorded at
execution of the Royalty Purchase Agreement, will be accreted to the total of
these receipts and payments as interest expense over the life of the Royalty
Purchase Agreement. These estimates contain assumptions that impact both the
amortized cost of the liability and the interest expense that will be
recognized in future periods.
Additional proceeds received from Royalty Pharma will increase the Group's
financial liability. As royalty payments are made to Royalty Pharma, the
balance of the liability will be effectively repaid over the life of the
Royalty Purchase Agreement. The estimated timing and amount of royalty
payments to and proceeds from Royalty Pharma are likely to change over the
life of the Royalty Purchase Agreement. A significant increase or decrease in
estimated royalty payments, or a significant shift in the timing of cash
flows, will materially impact the sale of future royalties liability, interest
expense and the time period for repayment. The Group will periodically assess
the expected payments to, or proceeds from, Royalty Pharma, and any such
changes in amount or timing of cash flows will require the Group to
re-calculate the amortized cost of the sale of future royalties liability as
the present value of the estimated future cash flows from the Royalty Purchase
Agreement that are discounted at the liability's original effective interest
rate. The adjustment is recognized immediately in profit or loss as income or
expense.
The following shows the activity in respect of the sale of future royalties
liability:
Sale of future royalties liability $
Balance as of January 1, 2023 -
Amounts received at closing 100,000
Non cash interest expense recognized 10,159
Balance as of December 31, 2023 110,159
18. Financial Instruments
The Group's financial instruments consist of financial assets in the form of
notes, convertible notes and investment in shares, and financial liabilities,
including preferred shares. Many of these financial instruments are presented
at fair value, with changes in fair value recorded through profit and loss.
Fair Value Process
For financial instruments measured at fair value under IFRS 9, the change in
the fair value is reflected through profit and loss. Using the guidance in
IFRS 13, the total business enterprise value and allocable equity of each
entity being valued can be determined using a market backsolve approach
through a recent arm's length financing round (or a future probable arm's
length transaction), market/asset probability-weighted expected return method
("PWERM") approach, discounted cash flow approach, or hybrid approaches. The
approaches, in order of strongest fair value evidence, are detailed
as follows:
Valuation Method Description
Market - Backsolve The market backsolve approach benchmarks the original issue price (OIP) of the
company's latest funding transaction as current value.
Market/Asset - PWERM Under a PWERM, the company value is based upon the probability-weighted
present value of expected future investment returns, considering each of the
possible future outcomes available to the enterprise. Possible future outcomes
can include IPO scenarios, potential SPAC transactions, merger and acquisition
transactions as well as other similar exit transactions of the investee.
Income Based - DCF The income approach is used to estimate fair value based on the income
streams, such as cash flows or earnings, that an asset or business can be
expected to generate.
At each measurement date, investments held at fair value (that are not
publicly traded) as well as the fair value of preferred share liabilities,
including embedded conversion rights that are not bifurcated, were determined
using the following allocation methods: option pricing model ("OPM"), PWERM,
or hybrid allocation framework. The methods are detailed as follows:
Allocation Method Description
OPM The OPM model treats preferred stock as call options on the enterprise's
equity value, with exercise prices based on the liquidation preferences of the
preferred stock.
PWERM Under a PWERM, share value is based upon the probability-weighted present
value of expected future investment returns, considering each of the possible
future outcomes available to the enterprise, as well as the rights of each
share class.
Hybrid The hybrid method is a combination of the PWERM and OPM. Under the hybrid
method, multiple liquidity scenarios are weighted based on the probability of
the scenario's occurrence, similar to the PWERM, while also utilizing the OPM
to estimate the allocation of value in one or more of the scenarios.
Valuation policies and procedures are regularly monitored by the Group. Fair
value measurements, including those categorized within Level 3, are prepared
and reviewed for reasonableness and compliance with the fair value
measurements guidance under IFRS accounting standards. The Group measures fair
value using the following fair value hierarchy that reflects the significance
of the inputs used in making the measurements:
Fair Value Description
Hierarchy Level
Level 1 Inputs that are quoted market prices (unadjusted) in active markets for
identical instruments.
Level 2 Inputs other than quoted prices included within Level 1 that are observable
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 Inputs that are unobservable. This category includes all instruments for which
the valuation technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the instruments' valuation.
Whilst the Group considers the methodologies and assumptions adopted in fair
value measurements as supportable and reasonable, 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.
Subsidiary Preferred Shares Liability and Subsidiary Convertible Notes
The following table summarizes the changes in the Group's subsidiary preferred
shares and convertible notes liabilities measured at fair value, which were
categorized as Level 3 in the fair value hierarchy:
Subsidiary Preferred Shares Subsidiary Convertible
$ Notes
$
Balance at January 1, 2021 118,972 25,000
Value at issuance 37,610 2,215
Conversion to subsidiary preferred shares 25,797 (25,797)
Accrued interest - contractual - 867
Change in fair value (8,362) 175
Balance at December 31, 2021 and January 1, 2022 174,017 2,461
Value at issuance - 393
Accrued interest - contractual - 48
Deconsolidation - Sonde (15,853) (3,403)
Change in fair value (130,825) 502
Balance at December 31, 2022 and January 1, 2023 27,339 -
Change in fair value (2,617) -
Deconsolidation - Vedanta (24,554) -
Balance at December 31, 2023 169 -
The change in fair value of preferred shares and convertible notes liabilities
are recorded in finance income/(costs) - fair value accounting in the
Consolidated Statement of Comprehensive Income/(Loss).
Investments Held at Fair Value
Karuna, Vor and Akili Valuation
Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq: AKLI) and additional
immaterial investments are listed entities on an active exchange, and as such,
the fair value as of December 31, 2023, was calculated utilizing the quoted
common share price which is categorized as Level 1 in the fair value
hierarchy.
Vedanta and Sonde
As of December 31, 2023, the Group accounts for the following investments
under IFRS 9 as investments held at fair value with changes in fair value
through the profit and loss: Sonde preferred A-2 and B shares and Vedanta
convertible preferred shares (subsequent to the date of deconsolidation). The
valuation of the aforementioned investments is categorized as Level 3 in the
fair value hierarchy due to the use of significant unobservable inputs to
value such assets. During the year ended December 31, 2023, the Group recorded
such investments at fair value and recognized a loss of $7,298 for the change
in fair value of the investments. In addition, the Group determined that the
fair value of its investment in the Gelesis 2023 Warrants was $0 as Gelesis
ceased operations in October 2023.
The following table summarizes the changes in all the Group's investments held
at fair value, which were categorized as Level 3 in the fair value hierarchy:
$
Balance at January 1, 2021 206,892
Cash purchase of Vor preferred shares 500
Reclassification of Vor from level 3 to level 1 (33,365)
Gain/(loss) on change in fair value 65,505
Balance at December 31, 2021 239,533
Deconsolidation of Sonde 11,168
Gelesis Earn-out Shares received in the SPAC exchange 14,214
Exchange of Gelesis preferred shares to Gelesis common shares (92,303)
Reclassification of Akili to level 1 investment (128,764)
Gain/(loss) on change in fair value (31,253)
Balance at December 31, 2022 12,593
Deconsolidation of Vedanta - new investment in Vedanta preferred shares 20,456
Investment in Gelesis 2023 Warrants 1,121
Gain/(loss) on changes in fair value (9,299)
Balance as of December 31, 2023 24,872
The change in fair value of investments held at fair value is recorded in
gain/(loss) on investments held at fair value in the Consolidated Statement of
Comprehensive Income/(Loss).
At December 31, 2023, the Group's material investments held at fair value
categorized as Level 3 in the fair value hierarchy include the preferred
shares of Sonde and Vedanta, with fair value of $10,408 and $14,153,
respectively. The significant unobservable inputs used at December 31, 2023 in
the fair value measurement of these investments and the sensitivity of the
fair value measurements for these investments to changes to these significant
unobservable inputs are summarized in the table below.
As of December 31, 2023 Investment (Sonde) Measured through
Market Backsolve & OPM
Unobservable Inputs Input Value Sensitivity Range Investment Fair Value Increase/(Decrease)
$
Equity Value 53,242 -5% (464)
+5% 463
Time to Liquidity 2.00 -6 Months 39
+ 6 Months (42)
Volatility 60% -10% 19
+10% (35)
As of December 31, 2023 Investment (Vedanta) Measured through Market Backsolve that Leverages a
Monte Carlo Simulation
Unobservable Inputs Input Value Sensitivity Range Investment Fair Value Increase/(Decrease)
$
Equity Value 127,883 -5% (1,416)
+5% 1,069
Time to Liquidity 1.23 - 6 Months (3,907)
+ 6 Months 1,261
Volatility 120% -10% (954)
+10% 474
Investments in Notes from Associates
As of December 31, 2022, the investment in notes from associates was $16,501
and represents investments the Group made in convertible promissory notes of
Gelesis. During the year ended December 31, 2023, the Group invested $10,729
in convertible promissory notes of Gelesis and $5,000 in a convertible note of
Vedanta. The Group recorded a loss of $27,630 for the change in fair value of
the notes from associates in the gain/(loss) on investments in notes from
associates within the Consolidated Statement of Comprehensive Income/Loss. The
loss was driven by a reduction in the fair value of the Gelesis convertible
promissory notes of $27,230 as Gelesis filed for bankruptcy in October 2023
and a change in the fair value of the Vedanata convertible note of $400.
The convertible debt issued by Vedanta was valued using a market backsolve
approach that leverages a Monte Carlo simulation. The significant unobservable
inputs categorized as Level 3 in the fair value hierarchy used at December 31,
2023, in the fair value measurement of the convertible debt are the same as
the inputs disclosed above for Vedanta preferred shares.
Fair Value Measurement and Classification
The fair value of financial instruments by category as of December 31, 2023
and 2022:
2023
Carrying Amount Fair Value
Financial Assets Financial Liabilities Level 1 Level 2 Level 3 Total
$ $ $ $ $ $
Financial assets(3):
Money Markets(1,2) 156,705 - 156,705 - - 156,705
Investment in notes from associates 4,600 - - - 4,600 4,600
Investments held at fair value 317,841 - 292,970 - 24,872 317,841
Total financial assets 479,146 - 449,675 - 29,472 479,146
Financial liabilities:
Subsidiary preferred shares - 169 - - 169 169
Share-based liability awards - 4,782 - - 4,782 4,782
Total financial liabilities - 4,951 - - 4,951 4,951
1 Issued by a diverse group of corporations, largely consisting of
financial institutions, virtually all of which are investment grade.
2 Included within cash and cash equivalents.
3. Excluded from the table above are short-term investments of $136,062
that are classified at amortized cost as of December 31, 2023. The cost of
these short-term investments approximates current fair value.
The Group has a number of financial instruments that are not measured at fair
value in the Consolidated Statement of Financial Position. For these
instruments the fair values are not materially different from their carrying
amounts.
2022
Carrying Amount Fair Value
Financial Assets Financial Liabilities Level 1 Level 2 Level 3 Total
$ $ $ $ $ $
Financial assets:
Money Markets(1,2) 95,249 - 95,249 - - 95,249
Short-term investments(1) 200,229 - 200,229 - - 200,229
Note from associate 16,501 - - - 16,501 16,501
Investments held at fair value 251,892 - 239,299 - 12,593 251,892
Trade and other receivables(3) 11,867 - - 11,867 - 11,867
Total financial assets 575,738 - 534,777 11,867 29,094 575,738
Financial liabilities:
Subsidiary warrant liability - 47 - - 47 47
Subsidiary preferred shares - 27,339 - - 27,339 27,339
Subsidiary notes payable - 2,345 - 2,097 248 2,345
Share-based liability awards - 5,932 4,396 - 1,537 5,932
Total financial liabilities - 35,664 4,396 2,097 29,171 35,664
1 Issued by a diverse group of corporations, largely consisting of
financial institutions, virtually all of which are investment grade.
2 Included within cash and cash equivalents.
3 Outstanding receivables are owed primarily by government agencies
and large corporations, virtually all of which are investment grade.
19. Subsidiary Notes Payable
The subsidiary notes payable are comprised of loans and convertible notes. As
of December 31, 2023 and December 31, 2022, the loan in Follica and the
convertible notes for Knode and Appeering did not contain embedded derivatives
and therefore these instruments continue to be held at amortized cost. The
notes payable consist of the following:
As of December 31, 2023 2022
$ $
Loans 3,439 2,097
Convertible notes 260 248
Total subsidiary notes payable 3,699 2,345
Loans
In October 2010, Follica entered into a loan and security agreement with
Lighthouse Capital Partners VI, L.P. The loan is secured by Follica's assets,
including Follica's intellectual property and bears interest at a rate of 5.0
percent in the interest only period and 12.0 percent in the repayment period.
Convertible Notes
Convertible Notes outstanding were as follows:
Knode Appeering Sonde Total
$ $ $ $
January 1, 2022 94 141 2,461 2,696
Gross principal - issuance of notes - financing activity - - 393 393
Accrued interest on convertible notes - finance costs 5 8 48 60
Change in fair value - finance costs - - 502 502
Deconsolidation - - (3,403) (3,403)
December 31, 2022 and January 1, 2023 99 149 - 248
Accrued interest on convertible notes - finance costs 5 8 - 13
December 31, 2023 104 156 - 260
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible
promissory notes to its existing shareholders for a combined total of $4,329,
of which $2,215 were issued to third-party shareholders (and $2,113 were
issued to the Group and eliminated in consolidation). In addition, in March
2022, Sonde issued an additional amount of $921, of which $393 were issued to
third parties (and $528 issued to the Group and eliminated in consolidation).
The notes bore interest at an annual rate of 6.0 percent and were to mature on
the second anniversary of the issuance. The notes were to mandatorily convert
in a Qualified Financing, as defined in the note purchase agreement, at a
discount of 20.0 percent from the price per share in the Qualified Financing.
In addition, the notes allowed for optional conversion concurrently with a
discount of 20.0 percent from the price per share in the Non Qualified Equity
Financing. Upon the completion of the Preferred B round of financing in Sonde
on May 25, 2022, the Group lost control in Sonde and all convertible notes
were derecognized as part of the deconsolidation - See Note 5. Investments
Held at Fair Value.
For Sonde convertible notes, since these notes contained embedded derivatives,
the notes were assessed under IFRS 9 and the entire financial instruments were
elected to be accounted for as FVTPL. The Sonde notes were deconsolidated in
May 2022 as described above.
20. Non-Controlling Interest
As of December 31, 2023, non-controlling interests include Entrega and
Follica. Ownership interests of the non-controlling interests in these
entities as of December 31, 2023 were 11.7 percent, and 19.9 percent,
respectively. As of December 31, 2022, non-controlling interests include
Entrega, Follica, and Vedanta. Ownership interests of the non-controlling
interests in these entities were 11.7 percent , 19.9 percent, and 12.2
percent, respectively. As of December 31, 2021, non-controlling interests
include Entrega, Follica, Sonde, and Vedanta. Ownership interests of the
non-controlling interests in these entities were 11.7 percent, 19.9 percent,
6.2 percent and 3.7 percent, respectively. During the year ended December 31,
2023, Vedanta Biosciences, Inc was deconsolidated. During the year ended
December 31, 2022, Sonde Health, Inc was deconsolidated. See Note 5.
Investments Held at Fair Value.
Non-controlling interests include the amounts recorded for subsidiary stock
options.
On June 11, 2021, the Group acquired the remaining 17.1 percent of the
minority non-controlling interests of Alivio (after exercise of all in the
money stock options) increasing its ownership to 100.0 percent of Alivio. The
consideration for such non-controlling interests amounted to $1,224, to be
paid in three equal installments, with the first installment of $408 paid at
the effective date of the transaction and two additional installments to be
paid upon the occurrence of certain contingent events. The Group recorded a
contingent consideration liability of $560 at fair value for the two
additional installments, resulting in a total acquisition cost of $968. The
excess of the consideration paid over the book value of the non-controlling
interest of approximately $9,636 was recorded directly as a charge to
shareholders' equity. The second installment of $408 was paid in July 2021,
upon the occurrence of the contingent event specified in the agreement. The
contingent consideration liability was adjusted to fair value at the end of
each reporting period with changes in fair value recorded in earnings. Changes
in fair value of the aforementioned contingent consideration liability were
not material. As of December 31, 2022, the remaining contingent liability was
reduced to zero as the second contingent event did not occur.
On December 1, 2021, option holders in Entrega exercised options into shares
of common stock, increasing the NCI interest held from 0.2 percent to 11.7
percent. During 2021, option holders in Vedanta exercised options and
increased the NCI interest to 3.7 percent. The exercise of the options
resulted in an increase in the NCI share in Entrega and Vedanta shareholder's
deficit of $5,887. The amount together with the consideration paid by NCI
($101) amounted to $5,988 and was recorded as a gain directly in shareholders'
equity.
On February 15, 2022, option holders in Vedanta exercised options into shares
of common stock, increasing the NCI interest held from 3.7 percent to 12.2
percent. The exercise of the options resulted in an increase in the NCI share
in Vedanta shareholder's deficit of $15,171. The amount together with the
consideration paid by NCI ($7) amounted to $15,171 and was recorded as a gain
directly in shareholders' equity.
21. Trade and Other Payables
Information regarding Trade and other payables was as follows:
As of December 31, 2023 2022
$ $
Trade payables 14,637 26,504
Accrued expenses 28,187 24,518
Income tax payable - 57
Liability for share-based awards 1,281 1,805
Other 3 1,957
Total trade and other payables 44,107 54,840
¶22. Long-term loan
In September 2020, Vedanta entered into a $15,000 loan and security agreement
with Oxford Finance LLC. The loan is secured by Vedanta's assets, including
equipment, inventory and intellectual property. The loan bears a floating
interest rate of 7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR
reported in the Wall Street Journal or (ii) 0.17 percent. The loan matures
September 2025 and requires interest-only payments prior to 2023. The loan
also carries a final fee upon full repayment of 7.0 percent of the original
principal, or $1,050. As part of the loan agreement, Vedanta also issued
Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise
price of $23.28 per share, expiring September 2030. The outstanding loan
balance totaled approximately $15,400 as of December 31, 2022. On March 1,
2023, the Group derecognized the loan in connection with Vedanta's
deconsolidation. Refer to Note 5. Investments Held at Fair Value.
The following table summarizes long-term loan activity for the years ended
December 31, 2023 and 2022:
Long-term loan
2023 2022
$ $
Balance at January 1, 15,400 15,118
Accrued interest 363 1,755
Interest paid (300) (1,436)
Other (17) (38)
Deconsolidation of subsidiary (15,446) -
Balance at December 31, - 15,400
The long-term loan is presented as follows in the Statement of Financial
Position as of December 31, 2023 and 2022:
Long-term loan
2023 2022
$ $
Current portion of long-term loan - 5,156
Long-term loan - 10,244
Total Long-term loan - 15,400
23. Leases and subleases
The activity related to the Group's right of use asset and lease liability for
the years ended December 31, 2023 and 2022 is as follows:
Right of use asset, net
2023 2022
$ $
Balance at January 1, 14,281 17,166
Additions - 163
Depreciation (1,979) (3,047)
Deconsolidated (2,477) -
Balance at December 31, 9,825 14,281
Total lease liability
2023 2022
$ $
Balance at January 1, 29,128 32,990
Additions - 163
Cash paid for rent - principal - financing cash flow (3,338) (4,025)
Cash paid for rent - interest (1,544) (1,982)
Interest expense 1,544 1,982
Deconsolidated (4,146) -
Balance at December 31, 21,644 29,128
Depreciation of the right-of-use assets, which virtually all consist of leased
real estate, is included in the general and administrative expenses and
research and development expenses line items in the Statement of Comprehensive
Income/(Loss). The Group recorded depreciation expense of $1,979, $3,047 and
$2,938 for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table details the short-term and long-term portion of the lease
liability as of December 31, 2023 and 2022:
Total lease liability
2023 2022
$ $
Short-term portion of lease liability 3,394 4,972
Long-term portion of lease liability 18,250 24,155
Total lease liability 21,644 29,128
The following table details the future maturities of the lease liability,
showing the undiscounted lease payments to be paid after the reporting date:
2023
$
Less than one year 4,689
One to two years 4,644
Two to three years 4,419
Three to four years 4,551
Four to five years 4,687
More than five years 2,796
Total undiscounted lease maturities 25,785
Interest 4,141
Total lease liability 21,644
During the year ended December 31, 2019, the Group entered into a lease
agreement for certain premises consisting of 50,858 rentable square feet of
space located at 6 Tide Street, Boston, Massachusetts. The lease commenced on
April 26, 2019 for an initial term consisting of ten years and three months,
and there is an option to extend the lease for two consecutive periods of five
years each. The Group assessed at the lease commencement date whether it was
reasonably certain to exercise the extension options, and deemed such options
were not reasonably certain to be exercised. The Group will reassess whether
it is reasonably certain to exercise the options only if there is a
significant event or significant change in circumstances within its control.
On June 26, 2019, the Group executed a sublease agreement with Gelesis. The
lease is for 9,446 rentable square feet located on the sixth floor of the
Group's former office at 501 Boylston Street, Boston, Massachusetts. The
sublease was set to expire on August 31, 2025, and was determined to be a
finance lease. Gelesis ceased operations and filed for bankruptcy on October
30, 2023. As a result, the Group wrote off its receivable in the lease of
$1,266 in 2023.
On January 23, 2023, the Group executed a sublease agreement with Allonnia,
LLC ("Allonnia"). The sublease is for approximately 11,000 rentable square
feet located on the third floor of the 6 Tide Street building where the
Group's offices are currently located. Allonnia obtained possession of the
premises on February 17, 2023 with a rent commencement date of May 17, 2023.
The lease term is two years from the rent commencement date, and Allonnia has
the option to extend the sublease for an additional year at the same terms.
The annual lease fee is $1,111 per year. The sublease was determined to be an
operating lease, and as such, the total lease payments under the sublease
agreement are recognized over the lease term on a straight-line basis. In
February 2024, Allonnia exercised the option and extended the lease term
through May 31, 2026.
Rental income recognized by the Group during the year ended December 31, 2023
was $781 which was included in the other income/(expense) line item in the
Consolidated Statement of Comprehensive Income/(Loss). In the year ended
December 31, 2022, the Group did not recognize any rental income.
24. Capital and Financial Risk Management
Capital Risk Management
The Group's capital and financial risk management policy is to maintain a
strong capital base to support its strategic priorities, maintain investor,
creditor and market confidence as well as sustain the future development of
the business. The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern, to provide returns for
shareholders and benefits for other stakeholders, and to maintain an optimal
capital structure to reduce the cost of capital. To maintain or adjust the
capital structure, the Group may issue new shares or incur new debt. The Group
has no material externally imposed capital requirements. The Group's share
capital is set out in Note 15. Equity.
Management continuously monitors the level of capital deployed and available
for deployment in the Wholly-Owned Programs segment and at Founded Entities.
The Directors seek to maintain a balance between the higher returns that might
be possible with higher levels of deployed capital and the advantages and
security afforded by a sound capital position.
The Group's Directors have overall responsibility for the establishment and
oversight of the Group's capital and risk management framework. The Group is
exposed to certain risks through its normal course of operations. The Group's
main objective in using financial instruments is to promote the development
and commercialization of intellectual property through the raising and
investing of funds for this purpose. The nature, amount and timing of
investments are determined by planned future investment activity. Due to the
nature of activities and with the aim to maintain the investors' funds as
secure and protected, the Group's policy is to hold any excess funds in highly
liquid and readily available financial instruments and maintain minimal
exposure to other financial risks.
The Group has exposure to the following risks arising from financial
instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. Financial instruments that potentially subject the Group to
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments, and trade and other receivables. The
Group held the following balances (not including the income tax receivable
resulting from overpayment of income taxes as of December 31, 2022. See Note
27. Taxation):
As of December 31 2023 2022
$ $
Cash and cash equivalents 191,081 149,866
Short-term investments 136,062 200,229
Trade and other receivables 2,376 11,867
Total 329,518 361,961
The Group invests its excess cash in U.S. Treasury Bills (presented as
short-term investments), and money market accounts, which the Group believes
are of high credit quality. Further, the Group's cash and cash equivalents and
short-term investments are held at diverse, investment-grade financial
institutions.
The Group assesses the credit quality of customers on an ongoing basis. The
credit quality of financial assets is assessed by historical and recent
payment history, counterparty financial position, and reference to credit
ratings (if available) or to historical information about counterparty default
rates. The Group does not have expected credit losses due to the high credit
quality or healthy financial conditions of these counterparties. As of
December 31, 2023 and 2022, none of the trade and other receivables were
impaired.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting
the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Group actively manages its
liquidity risk by closely monitoring the maturity of its financial assets and
liabilities and projected cash flows from operations, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage
to the Group's reputation. Due to the nature of these financial liabilities,
the funds are available on demand to provide optimal financial flexibility.
The table below summarizes the maturity profile of the Group's financial
liabilities, including subsidiary preferred shares that have customary
liquidation preferences, as of December 31, 2023 and 2022, based on
contractual undiscounted payments:
As of December 31 2023
Carrying Amount Within Three Months Three to Twelve Months One to Five Years Total
$ $ $ $ $ (*)
Subsidiary notes payable 3,699 3,699 - - 3,699
Trade and other payables 44,107 44,107 - - 44,107
Subsidiary preferred shares (Note 16)(1) 169 169 - - 169
Total 47,975 47,975 - - 47,975
As of December 31 2022
Carrying Amount Within Three Months Three to Twelve Months One to Five Years Total
$ $ $ $ $ (*)
Long-term loan 15,400 1,838 5,281 11,413 18,531
Subsidiary notes payable 2,345 2,345 - - 2,345
Trade and other payables 54,840 54,840 - - 54,840
Warrants(2) 47 47 - - 47
Subsidiary preferred shares (Note 16)(1) 27,339 27,339 - - 27,339
Total 99,971 86,409 5,281 11,413 103,103
1 Redeemable only upon a liquidation or deemed liquidation
event, as defined in the applicable shareholder documents.
2 Warrants issued by subsidiaries to third parties to purchase
preferred shares.
* Does not include payments in respect of lease obligations. For
the contractual future payments related to lease obligations, see Note 23.
Leases and subleases.
Interest Rate Sensitivity
As of December 31, 2023, the Group had cash and cash equivalents of $191,081,
and short-term investments of $136,062. The Group's exposure to interest rate
sensitivity is impacted by changes in the underlying U.K. and U.S. bank
interest rates. The Group has not entered into investments for trading or
speculative purposes. Due to the conservative nature of the Group's investment
portfolio, which is predicated on capital preservation and investments in
short duration, high-quality U.S. Treasury Bills and related money market
accounts, a change in interest rates would not have a material effect on the
fair market value of the Group's portfolio, and therefore, the Group does not
expect operating results or cash flows to be significantly affected by changes
in market interest rates.
Controlled Founded Entity Investments
The Group maintains investments in certain Controlled Founded Entities. The
Group's investments in Controlled Founded Entities are eliminated as
intercompany transactions upon financial consolidation. The Group is, however,
exposed to a preferred share liability owing to the terms of existing
preferred shares and the ownership of Controlled Founded Entities preferred
shares by third parties. As discussed in Note 16. Subsidiary Preferred Shares,
certain of the Group's subsidiaries have issued preferred shares that include
the right to receive a payment in the event of any voluntary or involuntary
liquidation, dissolution or winding up of a subsidiary, including in the event
of "deemed liquidation" as defined in the incorporation documents of the
entities, which shall be paid out of the assets of the subsidiary available
for distribution to shareholders, and before any payment shall be made to
holders of ordinary shares. The liability of preferred shares is maintained at
fair value through the profit and loss. The Group's cash position supports the
business activities of the Controlled Founded Entities. Accordingly, the Group
views exposure to the third party preferred share liability as low.
Deconsolidated Founded Entity Investments
The Group maintains certain debt or equity holdings in Founded Entities that
are deconsolidated. These holdings are deemed either as investments and
accounted for as investments held at fair value, or as associates and
accounted for under the equity method. The Group's exposure to investments
held at fair value is $317,841 as of December 31, 2023, and the Group may or
may not be able to realize the value in the future. Accordingly, the Group
views the risk as high. The Group's exposure to investments in associates is
limited to the carrying amount of the investment in an associate. The Group is
not exposed to further contractual obligations or contingent liabilities
beyond the value of the initial investments. Accordingly, the Group does not
view this as a high risk. As of December 31, 2023, Sonde is the only
associate, and the carrying amount of the investment as associate is $3,185.
Equity Price Risk
As of December 31, 2023, the Group held 886,885 common shares of Karuna,
2,671,800 common shares of Vor and 12,527,477 common shares of Akili. The fair
value of these investments in Karuna, Vor and Akili was $292,831, of which
approximately 96% is related to the Karuna common shares.
The investments in Karuna, Vor and Akili are exposed to fluctuations in the
market price of these common shares. The effect of a 10.0 percent adverse
change in the market price of Karuna, Vor and Akili common shares would cause
a loss of approximately $29,283 to be recognized as a component of other
income (expense) in the Consolidated Statement of Comprehensive Income/(Loss).
However, the Group views exposure to equity price risk as low due to the
definitive merger agreement Karuna entered into with Bristol Myers Squibb
"BMS") in December 2023 under which Karuna common shares were acquired by
Bristol Myers Squibb for $330 per share in March 2024.
Foreign Exchange Risk
The Group maintains consolidated financial statements in the Group's
functional currency, which is the U.S. dollar. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated
into the functional currency at exchange rates prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing
at the date of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income (loss)
for the respective periods. Such foreign currency gains or losses were not
material for all reported periods.
The Group does not currently engage in currency hedging activities since its
foreign currency risk is limited, but the Group may begin to do so in the
future if and when its foreign currency risk exposure changes.
25. Commitments and Contingencies
The Group is a party to certain licensing agreements where the Group is
licensing IP from third parties. In consideration for such licenses, the Group
has made upfront payments and may be required to make additional contingent
payments based on developmental and sales milestones and/or royalty on future
sales. As of December 31, 2023, certain milestone events have not yet
occurred, and therefore, the Group does not have a present obligation to make
the related payments in respect of the licenses. Such milestones are dependent
on events that are outside of the control of the Group, and many of these
milestone events are remote of occurring. As of December 31, 2023 and December
31, 2022, payments in respect of developmental milestones that are dependent
on events that are outside the control of the Group but are reasonably
possible to occur amounted to approximately $7,371 and $8,666, respectively.
These milestone amounts represent an aggregate of multiple milestone payments
depending on different milestone events in multiple agreements. The
probability that all such milestone events will occur in the aggregate is
remote. Payments made to license IP represent the acquisition cost of
intangible assets.
The Group was a party to certain sponsored research arrangements and is a
party to arrangements with contract manufacturing and contract research
organizations, whereby the counterparty provides the Group with research
and/or manufacturing services. As of December 31, 2023 and 2022, the
noncancellable commitments in respect of such contracts amounted to
approximately $16,422 and $11,288, respectively.
In March 2024, a complaint was filed in Massachusetts District Court against
the Group alleging breach of contract with respect to certain payments alleged
to be owed to a previous employee of a Group subsidiary based on purported
terms of a contract between such individual and the Group. The Group intends
to defend itself vigorously though the ultimate outcome of this matter and the
timing for resolution remains uncertain. No determination has been made that a
loss, if any, arising from this matter is probable or that the amount of any
such loss, or range of loss, is reasonably estimable.
The Group is involved from time-to-time in various legal proceedings arising
in the normal course of business. Although the outcomes of these legal
proceedings are inherently difficult to predict, the Group does not expect the
resolution of such legal proceedings to have a material adverse effect on its
financial position or results of operations. The Group did not book any
provisions and did not identify any contingent liabilities requiring
disclosure for any legal proceedings other than already included above for the
years ended December 31, 2023 and 2022.
26. Related Parties Transactions
Related Party Subleases and Royalties
During 2019, the Group executed a sublease agreement with a related party,
Gelesis. As of December 31, 2022, the sublease receivable amounted to $1,285.
During 2023, the sublease receivable was written down to $0 as Gelesis ceased
operations and filed for bankruptcy.
The Group recorded $23, $89 and $113 of interest income with respect to the
sublease during the years ended December 31, 2023, 2022, and 2021,
respectively, which is presented within finance income in the Consolidated
Statement of Comprehensive Income/(Loss).
The Group received royalties from Gelesis on its product sales. The Group
recorded zero, $509, and $231 of royalty revenue during the years ended
December 31, 2023, 2022, 2021, respectively, which is presented in contract
revenue in the Consolidated Statement of Comprehensive Income/(Loss).
Key Management Personnel Compensation
Key management includes executive directors and members of the executive
management team of the Group (not including non-executive directors). The key
management personnel compensation of the Group was as follows for the years
ended December 31:
As of December 31 2023 2022 2021
$ $ $
Short-term employee benefits 9,714 4,162 4,612
Post-employment benefits 41 55 54
Termination Benefits 417 152 -
Share-based payment expense 599 2,741 4,045
Total 10,772 7,109 8,711
Short-term employee benefits include salaries, health care and other non-cash
benefits. Post-employment benefits include 401K contributions from the Group.
Termination benefits include severance pay. Share-based payments are generally
subject to vesting terms over future periods. See Note 9. Share-based
Payments. As of 12/31/2023, the payable due to the key management employees
was $4,732.
In addition the Group paid remuneration to non-executive directors in the
amounts of $475, $655 and $605 for the years ended December 31, 2023, 2022 and
2021, respectively. Also, the Group incurred $373, $365, and $161 of stock
based compensation expense for such non-executive directors for the years
ended December 31, 2023, 2022, and 2021, respectively.
During the years ended December 31, 2023 and 2022, the Group incurred $46, and
$51, respectively, of expenses paid to related parties.
Convertible Notes Issued to Directors
Certain related parties of the Group have invested in convertible notes issued
by the Group's subsidiaries. As of December 31, 2023 and December 31, 2022,
the outstanding related party notes payable totaled $104 and $99,
respectively, including principal and interest. The notes issued to related
parties bear interest rates, maturity dates, discounts and other contractual
terms that are the same as those issued to outside investors during the same
issuances.
Directors' and Senior Managers' Shareholdings and Share Incentive Awards
The Directors and senior managers hold beneficial interests in shares in the
following businesses and sourcing companies as of December 31, 2023:
Business name (share class) Number of shares held as of December 31, 2023 Number of options held as of December 31, 2023 Number of RSUs held as of December 31, 2023 Ownership
interest¹
Directors:
Dr Robert Langer Entrega (Common) 250,000 82,500 - 4.09%
Dr Raju Kucherlapati Enlight (Class B Common) - 30,000 - 3.00%
Dr John LaMattina(2) Akili (Common) 56,554 - - 0.07%
Vedanta Biosciences (Common) 25,000 15,000 - 0.24%
Senior Managers:
Dr Bharatt Chowrira Karuna (Common) 5,000 - - 0.01%
1 Ownership interests as of December 31, 2023 are calculated on
a diluted basis, including issued and outstanding shares, warrants and options
(and written commitments to issue options) but excluding unallocated shares
authorized to be issued pursuant to equity incentive plans and any shares
issuable upon conversion of outstanding convertible promissory notes.
2 Dr John LaMattina holds convertible notes issued by Appeering
in the aggregate principal amount of $50,000.
Directors and senior managers hold 23,547,554 ordinary shares and 11.5 percent
voting rights of the Group as of December 31, 2023. This amount excludes
options to purchase 2,262,500 ordinary shares. This amount also excludes
7,301,547 shares, which are issuable based on the terms of performance based
RSU awards granted to certain senior managers covering the financial years
2023, 2022 and 2021, and 102,732 shares, which are issuable to directors
immediately prior to the Group's 2024 Annual General Meeting of Stockholders,
based on the terms of the RSU awards granted to non-executive directors in
2023. Such shares will be issued to such senior managers and non-executive
directors in future periods provided that performance and/or service
conditions are met, and certain of the shares will be withheld for payment of
customary withholding taxes.
Other
See Note 7. Investment in Notes from Associates for details on the notes
issued by Gelesis and Vedanta to the Group.
As of December 31, 2023, the Group has a receivable from Sonde and Vedanta in
the amount of $1,569.
See Note 6. Investments in Associates for details on the execution and
termination of Merger Agreement with Gelesis.
27. Taxation
Tax on the profit or loss for the year comprises current and deferred income
tax. Tax is recognized in the Consolidated Statement of Comprehensive
Income/(Loss) except to the extent that it relates to items recognized
directly in equity.
For the years ended December 31, 2023, 2022 and 2021, the Group filed a
consolidated U.S. federal income tax return which included all subsidiaries in
which the Group owned greater than 80 percent of the vote and value. For the
years ended December 31, 2023, 2022 and 2021, the Group filed certain
consolidated state income tax returns which included all subsidiaries in which
the Group owned greater than 50 percent of the vote and value. The remaining
subsidiaries file separate U.S. tax returns.
Amounts recognized in Consolidated Statement of Comprehensive Income/(Loss):
For the year ended December 31 2023 2022 2021
$ $ $
Income/(loss) for the year (66,628) (37,065) (62,709)
Income tax expense/(benefit) 30,525 (55,719) 3,756
Income/(loss) before taxes (36,103) (92,783) (58,953)
Recognized Income Tax Expense/(Benefit):
For the year ended December 31 2023 2022 2021
$ $ $
Federal - current (2,246) 13,065 22,138
State - current (46) 1,336 109
Total current income tax expense/(benefit) (2,292) 14,401 22,247
Federal - deferred 29,294 (48,240) (15,416)
State - deferred 3,523 (21,880) (3,075)
Total deferred income tax expense/(benefit) 32,817 (70,120) (18,491)
Total income tax expense/(benefit), recognized 30,525 (55,719) 3,756
The income tax expense/(benefit) was $30,525, $(55,719) and $3,756 in 2023,
2022 and 2021 respectively. The increase in tax expense for the year ended
December 31, 2023 was primarily attributable to a lower pre-tax loss in the
tax consolidated U.S. group, the tax in respect of the sale of future
royalties to Royalty Pharma and the tax impact of derecognizing previously
recognized deferred tax assets that are no longer expected to be utilized.
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the U.S. A reconciliation of the
U.S. federal statutory tax rate to the effective tax rate is as follows:
2023 2022 2021
For the year ended December 31 $ % $ % $ %
US federal statutory rate (7,573) 21.00 (19,486) 21.00 (12,380) 21.00
State taxes, net of federal effect (3,974) 11.01 (8,043) 8.67 (4,484) 7.61
Tax credits (9,167) 25.39 (6,876) 7.41 (5,056) 8.58
Stock-based compensation 589 (1.63) 788 (0.85) 555 (0.94)
Finance income/(costs) - fair value accounting (556) 1.54 (28,783) 31.02 (2,017) 3.42
Loss with respect to associate for which no deferred tax asset is recognized 249 (0.69) 1,413 (1.52) 11,542 (19.58)
Revaluation of deferred due to rate change - 0.00 (8,856) 9.54 - -
Nondeductible compensation 872 (2.42) 300 (0.32) 746 (1.27)
Recognition of deferred tax assets and tax benefits not previously recognized (433) 1.20 (184) 0.20 (414) 0.70
Unrecognized deferred tax asset 83,984 (232.63) 17,287 (18.63) 14,375 (24.38)
Deconsolidation of subsidiary (17,506) 48.49 (3,572) 3.85 - -
Other 1,321 (3.65) 293 (0.32) 889 (1.51)
Worthless stock deduction (17,281) 47.87 - - - -
30,525 (84.52) (55,719) 60.05 3,756 (6.37)
The Group is also subject to taxation in the UK, but to date, no taxable
income has been generated in the UK. Changes in corporate tax rates can change
both the current tax expense (benefit) as well as the deferred tax expense
(benefit).
Deferred Tax Assets and Liabilities
Deferred tax assets have been recognized in the U.S. jurisdiction in respect
of the following items:
For the year ended December 31 2023 2022
$ $
Operating tax losses 3,849 48,317
Tax credits 2,425 11,101
Share-based payments 5,210 8,423
Capitalized research & development expenditures 39,422 36,084
Investment in Associates - 13,036
Lease liability 5,133 7,143
Sale of future royalties 35,920 -
Other temporary differences 1,770 2,957
Deferred tax assets 93,729 127,061
Investments held at fair value (53,411) (47,877)
Right of use assets (2,330) (3,519)
Property and equipment, net (1,637) (2,348)
Investment in Associates (755) -
Deferred tax liabilities (58,133) (53,744)
Deferred tax assets (liabilities), net 35,596 73,317
Deferred tax liabilities, net, recognized (52,462) (19,645)
Deferred tax assets (liabilities), net, not recognized 88,058 92,962
The Group has recognized deferred tax assets due to future reversals of
existing taxable temporary differences that will be sufficient to recover the
deferred tax assets. Our unrecognized deferred tax assets of $88,058 are
primarily related to tax credits, capitalized research & development
expenditures and deferred tax asset related to the sale of future royalties to
Royalty Pharma. The Group does not believe it is probable that future taxable
profit will be available to support the realizability of these unrecognized
deferred tax assets.
Unrecognized Deferred Tax Assets
Deferred tax assets have not been recognized in respect of the following
carryforward losses, credits and temporary differences, because it is not
probable that future taxable profit will be available against which the Group
can use the benefits therefrom.
For the year ended December 31 2023 2022
$ $
Gross Amount Tax Effected Gross Amount Tax Effected
Deductible temporary difference 353,323 83,741 132,145 33,544
Tax losses 13,681 3,849 219,466 48,317
Tax credits 468 468 11,101 11,101
Total 367,472 88,058 362,712 92,962
Tax Losses and Tax Credits Carryforwards
Tax losses and tax credits for which no deferred tax asset was recognized are
presented below:
As of December 31 2023 2022
$ $
Gross Amount Tax Effected Gross Amount Tax Effected
Tax losses expiring:
Within 10 years 4,741 1,284 23,930 5,387
More than 10 years 6,635 1,455 42,822 10,509
Available Indefinitely 2,305 1,110 152,714 32,421
Total 13,681 3,849 219,466 48,317
Tax credits expiring:
Within 10 years 43 43 43 43
More than 10 years 425 425 11,058 11,058
Available indefinitely - - - -
Total 468 468 11,101 11,101
The Group had U.S. federal net operating losses carry forwards ("NOLs") of
$13,681, $219,466 and $215,400 as of December 31, 2023, 2022 and 2021,
respectively, which are available to offset future taxable income. These NOLs
expire through 2037 with the exception of $2,305 which is not subject to
expiration. The Group had U.S. federal research and development tax credits of
approximately $1,396, $4,500 and $3,900 as of December 31, 2023, 2022 and
2021, respectively, which are available to offset future taxes that expire at
various dates through 2043. The Group also had Federal Orphan Drug credits of
approximately $930 and $6,100 as of December 31, 2023, and 2022, which are
available to offset future taxes that expire at various dates through 2043. A
portion of these federal NOLs and credits can only be used to offset the
profits from the Group's subsidiaries who file separate federal tax returns.
These NOLs and credits are subject to review and possible adjustment by the
Internal Revenue Service.
The Group had state net operating losses carry forwards ("NOLs") of
approximately $111,446, $71,700 and $27,900 for the years ended December 31,
2023, 2022 and 2021, respectively, which are available to offset future
taxable income. These NOLs expire at various dates beginning in 2030. The
Group had Massachusetts research and development tax credits of approximately
$98, $600 and $1,300 for the years ended December 31, 2023, 2022 and 2021,
respectively, which are available to offset future taxes and expire at various
dates through 2038. These NOLs and credits are subject to review and possible
adjustment by state taxing authority.
Utilization of the NOLs and research and development credit carryforwards may
be subject to a substantial annual limitation under Section 382 of the
Internal Revenue Code of 1986 due to ownership change limitations that have
occurred previously or that could occur in the future. These ownership changes
may limit the amount of NOL and research and development credit carryforwards
that can be utilized annually to offset future taxable income and tax,
respectively. The Group has performed a Section 382 analysis through
December 31, 2023. The results of this analysis concluded that certain net
operating losses were subject to limitation under Section 382 of the Internal
Revenue Code. None of the Group's net operating losses which are subject to a
Section 382 limitation has been recognized in the financial statements.
Tax Balances
The tax related balances presented in the Statement of Financial Position are
as follows:
For the year ended December 31 2023 2022
$ $
Income tax receivable - current 11,746 10,040
Trade and other payables - (57)
Uncertain Tax Positions
The Group has no uncertain tax positions as of December 31, 2023. U.S.
corporations are routinely subject to audit by federal and state tax
authorities in the normal course of business.
28. Subsequent Events
The Group has evaluated subsequent events after December 31, 2023, up to the
date of issuance, April 25, 2024, of the Consolidated Financial Statements,
and has not identified any recordable or disclosable events not otherwise
reported in these Consolidated Financial Statements or notes thereto, except
for the following:
In January 2024, the Group launched two new Founded Entities (Seaport
Therapeutics and Gallop Oncology) to advance certain programs from the
Wholly-Owned Programs segment. Seaport Therapeutics ("Seaport") will advance
certain central nervous system programs and relevant Glyph intellectual
property. Gallop Oncology will advance LYT-200 and other galectin-9
intellectual property. The financial results of these programs were included
in the Wholly-Owned Programs segment in the footnotes to the Consolidated
Financial Statements, as of December 31, 2023 and 2022, and for the three
years ended December 31, 2023, 2022 and 2021, respectively. Upon raising
dilutive third-party financing, the financial results of these two entities
will be included in the Controlled Founded Entities segment to the extent that
the Group maintains control over these entities.
On May 9, 2022, the Group announced the commencement of a $50,000 share
repurchase program (the "Program") of its ordinary shares of one pence each.
In February 2024, the Group completed the Program and has repurchased an
aggregate of 20,182,863 ordinary shares under the Program. These shares have
been held as treasury shares and are being used to settle the vesting of
restricted stock units or exercise of options.
In March 2024, Karuna was acquired by Bristol Myers Squibb ("BMS") in
accordance with a definitive merger agreement signed in December 2023. As a
result of this transaction, the Group received total proceeds of $292,672
before income tax in exchange for its holding of 886,885 shares of Karuna
common stock.
In March 2024, the Group announced a proposed capital return of $100,000 to
its shareholders by way of a tender offer (the "Tender Offer"). The Tender
Offer is expected to be launched in early May, subject to market conditions
and shareholder approval. If the full $100,000 is not returned, then the Group
intends to return any remainder following the completion of the Tender Offer,
by way of a special dividend.
In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised
$100,000 in a Series A financing, out of which $32,000 was invested by the
Group. Following the Series A financing, the Group holds equity ownership in
Seaport of 61.5 percent on a diluted basis.
In April 2024, the Gelesis' Chapter 7 Trustee provided notice that a third
party bid to purchase the assets subject to the bankruptcy had been accepted
as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of
the assets is ultimately approved by the Bankruptcy Court and consummated, it
is expected that PureTech could recover a portion of its investment in Gelesis
senior secured convertible promissory notes. The ultimate resolution of this
matter, any potential recovery, and the associated timing remain uncertain.
The Group has not recorded any amount in its Consolidated Financial Statements
related to amounts that may be received as a result of the bankruptcy process.
Parent Company Statement of Financial Position
For the years ended December 31
2023 2022
$000s $000s
Note
Assets
Non-current assets
Investment in subsidiary 2 456,864 452,374
Total non-current assets 456,864 452,374
Current assets
Other receivables - 57
Cash and cash equivalents 20,425 38,503
Total current assets 20,425 38,560
Total assets 477,289 490,934
Equity and liabilities
Equity
Share capital 3 5,461 5,455
Share premium 3 290,262 289,624
Treasury stock (44,626) (26,492)
Merger reserve 3 138,506 138,506
Other reserve 3 21,596 18,114
Retained earnings - (loss of $3,178 and income of $59,198 for 2023 and 2022, 3 41,997 45,175
respectively)
Total equity 453,196 470,382
Current liabilities
Trade and other payables 2,033 2,475
Intercompany payables 4 22,061 18,078
Total current liabilities 24,093 20,553
Total equity and liabilities 477,289 490,934
Please refer to the accompanying notes to the PureTech Health plc financial
information ("Notes"). Registered number: 09582467.
The PureTech Health plc financial statements were approved by the Board of
Directors and authorized for issuance on April 25, 2024 and signed on its
behalf by:
Bharatt Chowrira
Chief Executive Officer
April 25, 2024
The accompanying Notes are an integral part of these financial statements.
Parent Company Statement of Cash Flows
For the years ended December 31
2023 2022
$000s $000s
Cash flows from operating activities
Net income (loss) (3,178) 59,198
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Non-cash items:
Changes in operating assets and liabilities:
Other receivables 57 (57)
Intercompany payable 5,135 5,236
Accounts payable and accrued expenses (442) 619
Net cash provided by (used in) operating activities 1,572 64,995
Cash flows from investing activities:
Net cash provided by (used in) investing activities - -
Cash flows from financing activities:
Purchase of treasury stocks (19,650) (26,492)
Net cash provided by (used in) financing activities (19,650) (26,492)
Net increase (decrease) in cash and cash equivalents (18,078) 38,503
Cash and cash equivalents at beginning of year 38,503 -
Cash and cash equivalents at end of year 20,425 38,503
Supplemental disclosure of non-cash investing and financing activities:
Increase (decrease) in investment against share-based awards 4,489 10,384
Conversion of intercompany receivable (net of a portion of intercompany - 293,904
payable) into investment
Exercise of share-based awards against intercompany receivable/payable 1,153 332
The accompanying notes are an integral part of these financial statements.
Parent Company Statement of Changes in Equity
For the years ended December 31
Share Capital Treasury Shares
Shares Amount Share Shares Amount Merger Reserve Other Reserve Retained earnings/ (Accumulated Total equity
$000s Premium $000s $000s $000s deficit) $000s
$000s $000s
Balance January 1, 2022 287,796,585 5,444 289,303 - - 138,506 7,730 (14,022) 426,961
Total comprehensive income (loss) for the year - - - - - - - - -
Exercise of stock options 577,022 11 321 - - - - - 332
Equity-settled share-based payments - - - - - - 8,856 - 8,856
Settlement of restricted stock units 788,046 - - - - - 1,528 - 1,528
Purchase of treasury stock - - - (10,595,347) (26,492) - - - (26,492)
Net Income (loss) - - - - - - - 59,198 59,198
Balance December 31, 2022 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 18,114 45,175 470,382
Total comprehensive income (loss) for the year - - - - - - - - -
Exercise of stock options 306,506 6 638 239,226 530 - (22) - 1,153
Equity-settled share-based payments - - - - - - 3,348 - 3,348
Settlement of restricted stock units - - - 425,219 986 - 156 - 1,142
Purchase of treasury stock - - - (7,683,526) (19,650) - - - (19,650)
Net income (loss) - - - - - - - (3,178) (3,178)
Balance December 31, 2023 289,468,159 5,461 290,262 (17,614,428) (44,626) 138,506 21,596 41,997 453,196
The accompanying Notes are an integral part of these financial statements.
Notes to the Financial Statements
(amounts in thousands, except share and per share data)
1. Accounting policies
Basis of Preparation and Measurement
The financial statements of PureTech Health plc (the "Parent") are presented
as of December 31, 2023 and 2022, and for the years ended December 31, 2023
and 2022, and have been prepared under the historical cost convention in
accordance with international accounting standards in conformity with the
requirements of UK-adopted International Financial Reporting Standards
("IFRSs"). The financial statements of PureTech Health plc also comply fully
with IFRSs as issued by the International Accounting Standards Board (IASB). A
summary of the significant accounting policies that have been applied
consistently throughout the year are set out below.
Certain amounts in the Parent Company Financial Statements and accompanying
notes may not add due to rounding. All percentages have been calculated using
unrounded amounts.
Functional and Presentation Currency
The functional currency of the Parent is United States ("U.S.") Dollars and
the financial statements are presented in U.S. Dollars.
Investments
Investments are stated at historical cost less any provision for impairment in
value, and are held for long-term investment purposes. Provisions are based
upon an assessment of events or changes in circumstances that indicate that an
impairment has occurred, such as the performance and/or prospects (including
the financial prospects) of the investee company being significantly below the
expectations on which the investment was based, a significant adverse change
in the markets in which the investee company operates, or a deterioration in
general market conditions.
Impairment
If there is an indication that an asset might be impaired, the Parent would
perform an impairment review. An asset is impaired if the recoverable amount,
being the higher of fair value less cost to sell and value in use, is less
than its carrying amount. Value in use is measured based on future discounted
cash flows attributable to the asset. In such cases, the carrying value of the
asset is reduced to its recoverable amount with a corresponding charge
recognized in the profit and loss statement.
Dividend Income
Dividend received from the Parent's subsidiary is recorded as dividend income
in the profit and loss statement.
Financial Instruments
Currently the Parent does not enter into derivative financial instruments.
Financial assets and financial liabilities are recognized and cease to be
recognized on the basis of when the related titles pass to or from the Parent
company.
Share-Based Payments
Share-based payment awards granted in subsidiaries to employees, Board of
Directors and consultants to be settled in Parent's equity instruments are
accounted for as equity-settled share-based payment transactions in accordance
with IFRS 2. Restricted stock units granted in subsidiaries to the executives
are accounted for as share-based liability awards in accordance with IFRS 2 as
they can be cash-settled at PureTech's discretion and have a history of being
cash-settled. The grant date fair value of equity-settled share-based payment
awards and the settlement date fair value of the share-based liability awards
are recognized as an increase to the investment with a corresponding increase
in equity. For equity-settled restricted stock units, the grant date fair
value is the grant date share price. For share-based liability awards, the
fair value at each reporting date is measured using the Monte Carlo simulation
analysis considering share price volatility, risk-free rate, and other
covariance of comparable public companies and other market data to predict
distribution of relative share performance. For stock options, the fair value
is measured using an option pricing model, which takes into account the terms
and conditions of the options granted. When the subsidiary settles the equity
awards other than by the Parent's equity, the settlement is recorded as a
decrease in equity against a corresponding decrease to the investment account.
2. Investment in subsidiary
$000s
Balance at December 31, 2020 161,082
Decrease due to equity-settled share-based payments granted to employees and (12,996)
service providers in subsidiaries
Balance at December 31, 2021 148,086
Increase due to equity-settled share-based payments granted to employees and 10,384
service providers in subsidiaries
Conversion of intercompany receivable (net of a portion of intercompany 293,904
payable) into investment
Balance at December 31, 2022 452,374
Increase due to equity-settled share-based payments granted to employees and 4,489
service providers in subsidiaries
Balance at December 31, 2023 456,864
PureTech consists of the Parent and its subsidiaries (together, the "Group").
Investment in subsidiary represents the Parent's investment in PureTech LLC as
a result of the reverse acquisition of the Group's financial statements
immediately prior to the Parent's initial public offering ("IPO") on the
London Stock Exchange in June 2015. PureTech LLC operates in the U.S. as a
US-focused scientifically-driven research and development company that
conceptualizes, sources, validates and commercializes different approaches to
advance the needs of human health. For a summary of the Parent's indirect
subsidiaries, please refer to Note 1 of the Consolidated Financial Statements
of the Group.
The Parent recognizes in its investment in its operating subsidiary PureTech
LLC, share-based payments granted to employees, executives, non-executive
directors and service providers in its subsidiary. The decrease in 2021 and
increases in investment in subsidiary in 2022 and 2023, respectively, are due
to such share-based payments results from the expenses related to the grant of
equity-settled share-based awards, as well as settlements and payments of
these equity awards by the subsidiary, or settlement of share-based payments
through equity by PureTech.
3. Share capital and reserves
PureTech Health plc was incorporated with the Companies House under the
Companies Act 2006 as a public company on May 8, 2015.
On June 24, 2015, the Group authorized 227,248,008 of ordinary share capital
at one pence apiece. These ordinary shares were admitted to the premium
listing segment of the United Kingdom's Listing Authority and traded on the
Main Market of the London Stock Exchange for listed securities. In conjunction
with the authorization of the ordinary shares, the Parent completed an IPO on
the London Stock Exchange, in which it issued 67,599,621 ordinary shares at a
public offering price of 160 pence per ordinary share, in consideration for
$159.3 million, net of issuance costs of $11.8 million.
Additionally, the IPO included an over-allotment option equivalent to 15
percent of the total number of new ordinary shares. The stabilization manager
provided notice to exercise in full its over-allotment option on July 2, 2015.
As a result, the Parent issued 10,139,943 ordinary shares at the offer price
of 160 pence per ordinary share, which resulted in net proceeds of $24.2
million, net of issuance costs of $0.8 million.
On March 12, 2018, the Group raised approximately $100.0 million, before
issuance costs and other expenses, by way of a placing of 45,000,000 placing
shares.
During the years ended December 31, 2023 and 2022, other reserves increased by
$3,482 and $10,384, respectively, primarily due to equity-settled share-based
payments granted to employees, the Board of Directors and service providers in
subsidiaries. See Note 2 above.
Treasury stock
On May 9, 2022, the Group announced the commencement of a $50,000 share
repurchase program (the "Program") of its ordinary shares of one pence each
(the "Ordinary Shares"). The Group executed the Program in two equal tranches.
The Group entered into an irrevocable non-discretionary instruction with
Jefferies International Limited ("Jefferies") in relation to the purchase by
Jefferies of the Ordinary Shares for an aggregate consideration (excluding
expenses) of no greater than $25,000 for each tranche, and the simultaneous
on-sale of such Ordinary Shares by Jefferies to the Group. Jefferies made its
trading decisions in relation to the Ordinary Shares independently of, and
uninfluenced by, the Group. Purchases could continue during any close period
to which the Group was subject. The instruction to Jeffries could be amended
or withdrawn so long as the Group was not in a close period or otherwise in
possession of inside information.
Any purchases of the Ordinary Shares under the Program were carried out on the
London Stock Exchange and could be carried out on any other UK recognized
investment exchange in accordance with pre-set parameters and subject to
limits prescribed by the Group's general authority to repurchase the Ordinary
Shares granted by its shareholders at its annual general meeting on May 27,
2021, and relevant Rules and Regulations. All Ordinary Shares repurchased
under the Program are held in treasury.
As of December 31, 2023, the Group repurchased an aggregate of 18,278,873
Ordinary Shares under the share repurchase program. The Program was completed
during the month ended February 2024.
4. Intercompany payables
The Parent had a balance due to its operating subsidiary PureTech LLC of
$22,061 as of December 31, 2023, which is related to IPO costs and operating
expenses. These intercompany payables do not bear any interest and are
repayable upon demand.
5. Profit and loss account
As permitted by Section 408 of the Companies Act 2006, the Parent's profit and
loss account has not been included in these financial statements. The Parent's
loss for the year was $3,178.
6. Directors' remuneration, employee information and share-based payments
The remuneration of the executive Directors of the Parent company is disclosed
in Note 26. Related Parties Transactions, of the Group's Consolidated
Financial Statements. Full details of Directors' remuneration can be found in
the audited sections of the Directors' Remuneration Report. Full detail of the
share-based payment charge and the related disclosures can be found in Note 9.
Share-based Payments, of the Group's Consolidated Financial Statements.
The Parent had no employees during 2023 or 2022.
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