UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1999
Commission file number 0-29338
NORTRAN PHARMACEUTICALS INC.
(Exact Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Translation of Registrants' Name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
3650 WESBROOK MALL, VANCOUVER, B.C., CANADA, V6S 2L2
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
COMMON SHARES WITHOUT PAR VALUE CANADIAN VENTURE
EXCHANGE INC.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: NONE
Number of outstanding shares of the each of the Company's classes of capital or
common stock as of the close of the period covered by the annual report:
35,902,942
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has elected
to follow.
[X] Item 17 [ ] Item 18
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TABLE OF CONTENTS
GLOSSARY 3
ITEM 1 - DESCRIPTION OF BUSINESS 6
ITEM 2 - DESCRIPTION OF PROPERTIES 28
ITEM 3 - LEGAL PROCEEDINGS 28
ITEM 4 - CONTROL OF REGISTRANT 28
ITEM 5 - NATURE OF TRADING MARKET 29
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS 30
ITEM 7 - TAXATION 31
ITEM 8 - SELECTED FINANCIAL DATA 37
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 39
ITEM 9A - MARKET RISK 41
ITEM 10 - DIRECTORS AND OFFICERS OF THE COMPANY 42
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS 44
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES 46
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS 49
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES 51
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS 51
ITEM 17 - FINANCIAL STATEMENTS 51
ITEM 18 - FINANCIAL STATEMENTS 51
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS 52
EXHIBIT LIST 54
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GLOSSARY
================================================================================
In this Annual Report, the following terms have the meanings set forth herein:
Anesthetics (local and dermal): Drugs which block the transmission of
impulses.
Action potential: Voltage change generated across the membrane of
a nerve or muscle cell when the cell is
activated by electrical, chemical or mechanical
stimuli.
Analgesic: An agent which either directly blocks pain or
blocks the perception of pain.
Analogue: A compound which is derived from another by
chemical modifications.
Antiarrhythmic: An agent which has the ability to decrease the
incidence of arrhythmias.
Arrhythmia: An abnormal electrical signal in the heart, or
an abnormal heart beat resulting from such a
signal.
Arrhythmogenic or Having the tendency to increase the incidence
Proarrhythmic: of arrhythmias.
Atrial Arrhythmia: Arrythmias in the atria of the heart.
Channel Blocker: A compound which decreases the ability of
charged atoms to pass through ion channels,
thus inhibiting the electrical activity of the
cell.
Ion Channels: Specialized pores in the membrane of cells
which assist in controlling and transferring
electrical impulses, called action potentials,
in the cell.
Ischemic tissue: Tissue whose blood supply is inadequate for its
requirements for oxygen, nutrients and removal
of metabolic by-products.
Ligand: A molecule that binds with a molecular target.
Myocardial infarction: Death of heart muscle, which usually occurs in
the region of the heart where blood flow has
been stopped, commonly referred to as heart
attack.
Myocardial ischemia: Lack of blood flow to the heart, often due to a
block in a coronary artery during a heart
attack.
Nociceptor: Pain receptors at peripheral nerve endings
that detect noxious stimuli.
Nociblocker or An agent which blocks or inhibits the
Nociceptor Blocker: nociceptor.
Pathology: The structural and functional manifestations of
disease.
Pathology targeting: Developing drugs based on the pathological
conditions of a disease rather than based on a
specific molecular target.
pH: A measure of acidity.
Pharmacokinetic: The activity or fate of drugs in the body over
a period of time, including the processes of
absorption, distribution, localization in
tissues, biotransformation, and excretion.
Pharmacology: The science that deals with the origin, nature,
chemistry, effects, and uses of drugs.
SAR (Structure Activity A study in which a series of compounds is
Relationship): synthesized and tested for pharmacological
activity and the chemical structure of each
compound in the series is prescribed based on
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the correlation of structure and activity of
all previous compounds. The structure activity
series is successful if it culminates in a
drug candidate with a good therapeutic index.
SCD (Sudden Cardiac Death): The term applied to those patients who, during
the onset of a heart attack, abruptly die due
to the sudden onset of ventricular
fibrillation.
Small molecule drug: A drug which is constituted of a low molecular
weight compound, usually a synthesized organic
compound.
Therapeutic index: Experimental index of the relative safety of a
compound.
Ventricles: The lower chambers of the heart, where the
majority of the muscular pumping action of the
heart takes place.
Ventricular arrhythmias: Arrhythmias in the ventricles of the heart.
Ventricular fibrillation: A form of ventricular arrhythmia most often
associated with SCD where the associated
electrical activity results in a complete
cessation of the pumping of the blood by the
heart.
Ventricular tachycardia: An arrhythmia originating in the ventricles of
the heart where aberrant electrical activity is
triggering the heart to beat much too
frequently; this often prevents proper blood
circulation, resulting in fainting and possibly
death.
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NORTRAN PHARMACEUTICALS INC.
(referred to as "Nortran", the "Company" and the "Registrant")
PART I
CURRENCY EXCHANGE RATES
- -----------------------
In this Form 20-F all references to dollars ($) are expressed in Canadian funds.
As of March 31, 2000, the exchange rate for conversion to U.S. Dollars was $1.00
Canadian = $0.6879 U.S. The following table sets forth, for each of the periods
indicated, the high and low rates of exchange of Canadian dollars into U.S.
dollars, the average of such exchange rates during each period, and the end of
period rates. Exchange rates represent the noon buying rate in New York City
for cable transfers payable in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York. The average rates presented
in the table below represent the average of the exchange rates on the last day
of each month during a year for the past 5 calendar years.
- ----------------------------------------------------------------------
YEARS ENDED PERIOD END AVERAGE LOW HIGH
DECEMBER 31
- ----------------------------------------------------------------------
1999 0.6925 0.6744 0.6625 0.6925
- ----------------------------------------------------------------------
1998 0.6504 0.6724 0.6351 0.7502
- ----------------------------------------------------------------------
1997 0.6999 0.7198 0.6999 0.7422
- ----------------------------------------------------------------------
1996 0.7301 0.7329 0.7235 0.7513
- ----------------------------------------------------------------------
1995 0.7331 0.7285 0.7009 0.7533
- ----------------------------------------------------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These factors include, but are not limited to,
the Company's early stage of development, the fact that the Company's technology
is in the research stage and therefore its potential benefits for human therapy
are unproven, the possibility that favorable relationships with collaborators
cannot be established or, if established will be abandoned by the collaborators
before completion of product development, the possibility that the Company or
its collaborators will not successfully develop any products, the possibility
that advances by competitors will cause the Company's proposed products not to
be viable, uncertainties as to the requirement that a drug be found to be safe
and effective after extensive clinical trials and the possibility that the
results of such trials, if commenced and completed, will not establish the
safety or the efficacy of the company's products, risks relating to requirements
for approvals by government agencies such as the FDA before products can be
marketed and the possibility that such approvals will not be obtained in a
timely manner or at all or will be conditioned in a manner that would impair the
Company's ability to market the product successfully, the risk that the
Company's patents could be invalidated or narrowed in scope by judicial actions
or that the Company's technology could infringe the patent or other intellectual
property rights of third parties, the possibility that the Company will not be
able to raise adequate capital to fund its operations through the process of
developing and testing a successful product or that future financing will be
completed on unfavorable terms, the possibility that any products successfully
developed by the Company will not achieve market acceptance, and other risks and
uncertainties which may not be described herein. Further information concerning
these and other risks and uncertainties is included herein under the caption
"Item 1 Description of Business - Risk Factors." These risks and uncertainties
should be considered when evaluating forward-looking statements, and undue
reliance should not be placed upon forward-looking statements.
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ITEM 1 - DESCRIPTION OF BUSINESS
================================================================================
GENERAL
- -------
Nortran Pharmaceuticals Inc. was incorporated under the Company Act (British
Columbia) on December 12, 1986 under the name Nortran Resources Ltd. In June
1992 the Company changed the focus of its business from mining exploration to
drug research and development and changed its name to Nortran Pharmaceuticals
Inc. In this Annual Report, the words "Company", "Registrant" or "Nortran"
refers to Nortran Pharmaceuticals Inc. together with its wholly-owned
subsidiaries, Rhythm-Search Developments Ltd. ("Rhythm-Search"), a British
Columbia company and Atriven Cardiology Corp. (formerly 3629490 Canada Inc.), a
company incorporated under the Canada Business Corporations Act. The Company's
head office is located at 3650 Wesbrook Mall, Vancouver, British Columbia, V6S
2L2, and the address of the registered office of the Company is 1100 - 1055 West
Hastings Street, Vancouver, BC, V6E 2E9, Canada.
The Company's common shares trade on the Canadian Venture Exchange (the "CDNX")
under the symbol "NRT", and in the Unites States are quoted on the NASD OTC
Electronic Bulletin Board under the symbol "NTRDF".
The Company's fiscal year end is November 30th. The Company's consolidated
financial statements are stated in Canadian Dollars and are prepared in
accordance with Accounting Principles Generally Accepted in Canada ("Canadian
GAAP"), the application of which, in the case of the Company, conforms in all
material respects for the periods presented with Accounting Principles Generally
Accepted in the United States ("US GAAP") except as noted in Note 13 to the
consolidated financial statements (See "Item 19 - Financial Statements and
Exhibits").
The information set forth in this Form-20F is as of November 30, 1999 unless
another date is indicated.
INTRODUCTION
- ------------
DESCRIPTION OF BUSINESS AND GENERAL DEVELOPMENT
Nortran is a drug discovery company engaged in the treatment of pathologies and
conditions which are mediated by cellular ion channels. Nortran's core research
is focussed on the discovery and development of drugs designed to prevent
cardiac arrhythmias and for the treatment of acute unproductive cough. The
Company's research and development activities involve technology licensed to it
by third parties as well as technology it has itself developed.
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COMMERCIAL FOCUS
Nortran is a commercially focussed pharmaceutical discovery company. This
commercial focus is based on a drug discovery and development approach that has
historically been used by the major multinational pharmaceutical companies, and
a focus on ion channel modulating drugs which the Company's management believe
will capitalize on significant market opportunities.
DRUG DISCOVERY APPROACH
The Company's approach to drug discovery is based on the specific steps outlined
below.
Novel Idea
- ----------
Nortran attempts to address major unmet medical needs by beginning with a novel
idea about treating a disease. This step is critical and underlies all of
Nortran's programs as well as those of its competitors. Such novel ideas may
come from within Nortran, from its network of scientific collaborators, or from
other sources.
Pathology Targeting
- -------------------
Some diseases have specific molecules in the disease pathway which are critical
to the disease process. For these diseases, individual molecules can be
targeted and high affinity drugs can be developed which may be potent against
that particular disease. Nortran has chosen to specialize in those diseases,
such as ventricular arrhythmias in the setting of myocardial ischemia, for which
no specific single molecule plays a critical role in the pathology. Nortran
therefore uses "pathology targeting" to discover new drugs. Pathology targeting
involves understanding the physiology, biochemistry and pathology of a
particular disease, developing a model which best represents the human
pathology, and then using that model to develop a treatment with the required
pharmacological properties.
Known Molecule as Lead
- ----------------------
After the pathology of a particular disease has been identified and an
appropriate model developed, Nortran uses the known universe of existing drugs
as a starting point for the identification of potential drug candidates. Nortran
then initiates a program to synthesize and screen analogues and derivatives of
the lead molecule, identifying the relationship between drug structure and
activity to maximize potency and minimize unwanted side effects.
BUSINESS STRATEGY
A central principle of Nortran's business strategy is to minimize the risk
inherent in an early stage drug discovery company. See "Risk Factors". Nortran
emphasizes a project portfolio approach to diversify risk across multiple
independent projects. This portfolio approach also enables Nortran to source
projects both internally and externally, for a more diverse selection of
projects.
Nortran operates as a "semi-virtual" research organization, intending to reduce
internal operating expenses so as to allow Nortran flexibility and to maintain a
low level of operating losses. The Company maintains a small, core team of
scientists and staff with the necessary generalist skill base, and contracts out
the specialized work required for its projects, such as preclinical toxicology
services and contract manufacturing. The Company's strategy is to have the
costly late stage clinical trials and product marketing activities handled by
its licensing partners. See "Collaborations".
ION CHANNEL FOCUS
Nortran's research and development program is focussed on developing drugs for
diseases involving ion channels disorders. See "Research & Development -
Current Projects". This allows the Company to work in multiple therapeutic
areas with major unmet medical needs. Cardiology, respirology and analgesia are
Nortran's primary therapeutic areas of interest. Nortran currently has four
projects in development in the following therapeutic fields:
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* antiarrhythmics (to treat atrial and ventricular arrhythmias)
* antitussives (to treat unproductive cough)
* local anaesthetics
* pro-erectiles (to treat male sexual dysfunction)
RESEARCH AND DEVELOPMENT
- ------------------------
ION CHANNEL FOCUS
Nortran's research and development strategy is based upon the utilization of its
expertise in the field of ion channels. Nortran focuses on the development of
drugs which will modulate the activity of ion channels in a way that cures or
ameliorates the impact of a particular pathology.
Ion channels are cell membrane spanning proteins which permit the movement of
selected ions through the channel when it is an open state. The molecular
structure of the ion channel protein determines whether the channel is in one of
three states; rested (closed but able to be opened by a stimulus), activated
(open), or inactivated (closed and unable to be opened by a stimulus).
Nortran's drugs are developed to target these ion channels and modulate their
activity by either blocking or controlling the flow of ions through these pores.
See Figure 1.
ION CHANNEL ION CHANNEL
CLOSED OPEN
[GRAPHIC OMITTED]
FIGURE 1.
VOLTAGE-GATED ION CHANNEL SHOWING STRUCTURE
An example of ion channel modulators used therapeutically is Nortran's local
anesthetic program. The mechanism of action of Nortran's drug candidate is
primarily sodium channel modulation. In effect, Nortran's drugs bind to a ligand
associated with the ion channel which causes the ion channel to close.
CURRENT PROJECTS
Nortran's research and development programs are centered around four projects.
Of these four projects, the Company has to date focussed the majority of its
resources on the development of the antiarrhythmic project and the cough
project.
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ANTIARRHYTHMIC PROJECT
Arrhythmia are abnormal rhythms of the heart. The term arrhythmia refers to a
deviation from the normal sequence of initiation and conduction of electrical
impulses which cause the heart to beat.
I. Ventricular Antiarrhythmic Program
Ventricular tachycardia and ventricular fibrillation are two types of life
threatening arrhythmias. In humans, ventricular tachycardias are arrhythmia
that originate in, and drive, the ventricles at rates above normal, and may be
non-sustained, lasting a few seconds, or sustained, which may last for minutes
or hours. During ventricular fibrillation the ventricles are unable to contract
rhythmically and are unable to pump blood to the body. Ventricular tachycardia
and fibrillation can reduce the heart's ability to maintain blood pressure; both
conditions can cause Sudden Cardiac Death ("SCD"). It is estimated that, in
the US alone, 250,000 people die annually from SCD brought on by ventricular
arrhythmia (American Heart Association, 1999 Heart & Stroke Statistical
Update).
Ventricular arrhythmia are often caused by the occurrence of ischemia during a
heart attack. Ischemia causes misfiring of ion channels which leads to the
generation of aberrant electrical signals that interfere with the normal
electrical signal that controls the operation of the heart. While ischemic
tissue from a heart attack may only develop in a portion of the heart, the
electrical effect can be profound in that the disruption of the electrical
signal caused in this area may disrupt the electrical impulse for the entire
heart. See Figure 2. Such a malfunction may result in SCD.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
NORMAL HEART ISCHEMIC HEART
FIGURE 2.
NORMAL ELECTRICAL CONDUCTION IN THE HEART VIS-A-VIS CONDUCTION IN ISCHEMIC
TISSUE
Most drugs currently used to prevent arrhythmia following myocardial infarctions
have effects on the entire heart muscle, including both healthy and damaged
tissue. Drugs which globally block ion channels in the heart have been
associated with other forms of life-threatening arrhythmia called torsades de
points.
In contrast to currently available antiarrhythmic drugs, the Company's
antiarrhythmic drug candidates are designed to be ischemia selective. Instead
of having activity throughout the heart, Nortran's drug candidates are designed
to be activated by the conditions found in ischemic heart tissue, and
preferentially block ion channels in such ischemic tissue. Consequently, these
compounds are designed to have much less activity in the healthy tissue and
therefore should be safer than existing drugs.
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II. Atrial Fibrillation Antiarrhythmic (AFA) Program
Atrial fibrillation is a condition affecting the upper chamber of the heart.
This condition is common but not acutely life-threatening. A recent study
(American Heart Association, 1999 - Heart and Stroke Statistical Update) has
indicated that up to 4% of the US population suffers occasionally or chronically
from atrial arrhythmias. The main danger from such arrhythmias is that they may
cause stroke or if prolonged may lead to heart failure. Atrial fibrillation
occurs in up to 1.5 million patients annually in the US (American Heart
Association, 1995 Atrial Arrhythmias). Several drug candidates developed in the
course of the Company's antiarrhythmic program have shown efficacy in models of
atrial fibrillation. The Company intends to develop one of these candidates for
treatment of atrial fibrillation.
Nortran's drug candidates selectively target those ion channels which are
uniquely important for such atrial arrhythmias. Blockade of these channels with
the Company's atrial fibrillation drug candidates has been shown in pre-clinical
studies to effectively terminate atrial fibrillation. Results from pre-clinical
studies show that Nortran's potential clinical candidates appear to target these
channels which control susceptibility to atrial arrhythmia without disrupting
potassium channels that control normal functioning of the ventricular
myocardium. Based on these results, the Company's management expects that its
clinical candidates will display a superior cardiovascular safety profile
compared with other available and emerging therapies.
Nortran's antiarrhythmic clinical candidates are currently being developed
internally. To date, the Company has filed several patent applications in
relation to this program. See "Proprietary Protection - Patents".
Nortran is working with AstraZeneca of G teberg, Sweden and Aventis Pharma
(formerly Hoechst Marion Roussel) of Frankfurt, Germany on its antiarrhythmic
project. See "Alliances".
The antiarrhythmic project is in the pre-clinical development stage. It is
anticipated that a preclinical toxicology program will be initiated in 2000.
COUGH PROJECT
Coughing is a reflex triggered by either a mechanical or other stimulus. In
most incidences, this reflex provides critical protection to the airways,
ensuring that unwanted material is expelled. It can also be triggered
apparently needlessly resulting in an undesirable, unproductive cough. Such
acute unproductive cough may last for days or hours, may be distressing to the
patient and may lead to extreme fatigue in extreme cases.
Many individuals suffer from episodes of acute unproductive cough. No
satisfactory non-narcotic treatments have been developed for this type of cough.
Aerosolized lidocaine (a local anaesthetic) may be used clinically to create
numbness in the lungs which somewhat lessens the coughing compulsion. For
extreme cases, aerosolized or systemic morphine is used. However there are a
number of side effects associated with morphine use including addiction,
constipation, and respiratory depression.
Nortran is investigating certain compounds shown in pre-clinical studies
conducted internally to block ion channel transport. Nortran believes that one
class of its compounds might be effective in the treatment of the cough reflex
by blocking transmission of stimuli at the local nerve endings in the airway.
The Company has identified a clinical candidate, CP1, which has been shown in
pre-clinical studies conducted by the Company to be highly effective in
suppressing cough. In October 1999, the Phase I human clinical trial of CP1 was
completed. This trial was conducted at Inveresk Research, UK, a clinical
research organization offering contract clinical and regulatory services to the
pharmaceutical industry. Planning is now underway for a Phase II trial to test
the drug's efficacy in lung cancer patients.
The technology underlying the clinical candidate, CP1, was derived from the
Nociblocker Agreement with D. Quastel and B. MacLeod, and from the internal
research of the Company, and is subject to four pending patent applications
filed by Nortran. See " Proprietary Protection - Patents".
This project is in the clinical development stage, scheduled to commence Phase
II clinical trials in the early part of 2000.
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RSD921 LOCAL ANAESTHETIC PROJECT
Local anaesthetic drugs work by reversibly interrupting the conduction of
impulses in peripheral nerves. Local anaesthetics can be applied directly on
the skin and mucous membranes for superficial surgery, or be used to block pain
impulses by means of injection near the nerve tracts or spinal cord, preventing
the pain signal from being relayed to the central nervous system.
Nortran has internally assembled extensive pre-clinical and clinical data which
indicate that the Company's proprietary compound, RSD921, is an excellent local
anaesthetic, featuring rapid onset and an attractive safety profile. Nortran
has completed a successful Phase II clinical trial providing dose-ranging data
as well as proof of efficacy as compared to current leading local anaesthetic
drugs. Nortran intends to seek potential partners for the project in each of
Europe, North America and Japan. No assurance can be given that any such
proposed partnership arrangements will be entered into, or, if entered into,
will be successful in completing the development programs for the drug candidate
in any particular jurisdiction. See "Risk Factors".
This project is in the clinical development stage in Asia and in the clinical
candidate stage elsewhere. The Phase II clinical trial conducted with the
Company's development partner, Chemical Company of Malaysia Berhad, provided
"proof of concept" data supporting the use of RSD921 in humans.
PRO-ERECTILE PROJECT FOR SEXUAL DYSFUNCTION
Erectile dysfunction ("ED") is a common condition with an incidence estimated at
90 million men worldwide. Given the link of aging and diabetes to ED, the
incidence is expected to continue to rise as the population ages and the
incidence of diabetes increases. Of the approximately 28 million men in the
United States suffering from ED, 80-90% have "some organic component" to their
dysfunction. The remaining 10-20% have ED resulting from purely psychogenic
causes. It is believed by researchers in the area, however, that the majority
of ED sufferers have both organic and psychogenic components to their
dysfunction (Scrip Reports: New Treatments for Erectile Dysfunction, 1998).
The Company has discovered that a specific series of its proprietary compounds
appear to have erectogenic properties in preclinical in vivo studies. A
detailed investigation has been undertaken by Nortran which has indicated the
likely mechanism of action. Nortran has five patent applications pending in
respect of the technology it has developed in its pro-erectile project. See
"Proprietary Protection - Patents".
Nortran believes that sexual dysfunction is a complex therapeutic area both
scientifically and sociologically, and is therefore seeking a development and
marketing partner to move this program forward. No assurance can be given that
any such proposed partnership arrangements will be entered into, or, if entered
into, will be successful in completing the development programs for the drug
candidate in any particular jurisdiction. See "Risk Factors".
This project is in the pre-clinical development stage.
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PROJECT DEVELOPMENT STATUS
The following chart summarizes Nortran's current research and development
programs and product candidates, including the targeted clinical market and the
stage of development.
================================================================================
PRODUCT CANDIDATE THERAPEUTIC FOCUS STAGE OF DEVELOPMENT
================================================================================
RSD11XX, 12XX Arrhythmia (cardiovascular) Pre-clinical (1)
- --------------------------------------------------------------------------------
CP1 Cough Phase I(2)
- --------------------------------------------------------------------------------
RSD921 Local Anaesthetics Phase II (3)
- --------------------------------------------------------------------------------
RSD992 Erectile Dysfunction Pre-clinical
================================================================================
(1) "Pre-clinical" includes pharmacological and efficacy testing in animals,
toxicology testing and formulation work based on in vitro results. After
completing pre-clinical studies, the product must be taken through Phase
I, II and III clinical trials before the Company can apply for regulatory
approval to market the product. See "Government Regulation".
(2) Nortran completed a Phase I clinical trial in the U.K. in October 1999
and is scheduled to commence a Phase II trial in early 2000.
(3) A Phase II clinical trial was completed in November 1998. The Company
is undertaking additional pre-clinical studies on this compound.
POTENTIAL MARKETS
INTRODUCTION
Nortran's focus on developing drugs for diseases involving ion channels allows
it to work in multiple therapeutic areas, each with major unmet medical needs.
Nortran's programs are in varying stages of development. Products that may
result from the Company's research and development programs are not expected to
be commercially available for a number of years, if at all. See "Risk Factors -
Uncertainties Related to Early Stage of Development". Therefore, any discussion
of a market for Nortran's products is of a very preliminary nature.
ANTIARRHYTHMIC PROJECT
The primary focus of the Company is the design and development of new
antiarrhythmic drugs to treat life-threatening heart malfunctions known as
arrhythmias in patients who are undergoing or have suffered a myocardial
infarction (heart attack). Coronary Heart Disease ("CHD") caused 476,124 deaths
in the United States in 1996 - 1 of every 4.9 deaths that year. In 1999, an
estimated 1.1 million Americans will have a new or recurrent coronary attack
(defined as myocardial infarction or fatal CHD). About 650,000 of these will be
first attacks and 450,000 will be recurrent attacks. About one third of the
people experiencing these attacks will die of them (American Heart Association -
1999 Heart & Stroke Statistical Update).
There is extensive competition within the areas of antiarrhythmic drugs from
existing therapies and therapies under development. The worldwide annual sales
of the eight highest selling antiarrythmics are approximately US$900 million
(Annual Reports 1998 of the following companies: Sanofi-Synthelabo; Schering AG;
3M Pharmaceuticals; Knoll (BASF); Warner-Lambert; Pharmacia & Upjohn; and
Proctor & Gamble). Many drugs are currently sold in this marketplace, and
several new products are in the development phase. To the best of the Company's
knowledge only one other company is working in the area of ischemia-targeted
antiarrhythmic drugs.
COUGH PROJECT
Acute unproductive cough is a secondary diagnosis of a broad range of primary
airway and pulmonary diseases. There are two classifications of cough:
productive cough in which fluids and secretions are expelled; and a dry,
unproductive cough. Acute unproductive cough is presently treated by two groups
of agents: those which are centrally active, affecting the cough centre of the
central nervous system; and those which are peripherally active, affecting the
airway tissues or the local airway tissue surface.
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Over 115 million patients worldwide are affected by intractable cough. Patients
suffering from: lung cancer, emphysema, asthma, pneumonia and influenza are
included in this estimate. The hospital use nebulizer delivery market for
intractable cough treatments is estimated at US$500 million worldwide (based on
the assumption of cost of US$100 treatment per annum). (Wind River Partners -
Chronic Cough, A Market Assessment, 1998).
Some currently prescribed therapeutics in the chronic cough market include
benzonatate, quaifenesin, beta-agonists, xanthines, phenergan, dextromethorphan,
and hydrocodone. As well, aerosolized lidocaine and aerosolized or systemic
morphine are also used in a hospital setting. In addition to the established
treatments mentioned above, there are several novel cough treatments in the
development pipeline (Pharmaprojects, July 1998). The Company believes its
product candidates may serve the unmet medical need for an effective and safe
non-narcotic acute unproductive cough suppressant.
RSD921 LOCAL ANAESTHETIC PROJECT
Sales of the top three anaesthetic compounds in 1997 were: lidocaine, US$240
million; bupivacaine, US$84 million; and ropivacaine, US$12 million (Astra
Annual Report, 1997). Astra Pain Control AB, with these three compounds and
other products, is the market leader in the area of treatment of pain. The
total local anaesthetic market is estimated to exceed US$1 billion worldwide
(Datamonitor - Market Dynamics - Pain, 1997).
The Company's drug candidate appears to have a wider therapeutic index (relative
to the cardiotoxicity risk caused by accidental intravenous administration) than
currently available drugs.
PRO-ERECTILE PROJECT
It has been estimated that 90 million men worldwide suffer from erectile
dysfunction ("ED"). The US market for erectile dysfunction treatments is
presently dominated by Pfizer Inc.'s Viagra. Viagra, in its first year of
launch, reached approximately 17.5 million prescriptions with sales of US$2
billion in just over one year on the market. Viagra is effective in only 75% of
all patients suffering from ED. This leaves an implied market of US$500 million
for which Viagra is ineffective (Scrip Magazine, 1999).
This project is not associated with ion channels and therefore not within the
Company's area of expertise. It is, therefore, the Company's intention to seek
a development partner at the earliest opportunity to further develop this
therapeutic area.
COMPETITION
The pharmaceutical and related biotechnology industries are characterized by
extensive research efforts, rapid technology change and intense competition.
See "Risk Factors". Competition in the biopharmaceutical industry is based
primarily on product performance, including efficacy, safety, ease of use and
adaptability to various modes of administration, patient compliance, price,
acceptance by physicians, marketing, and distribution. Barriers to entry into
the market include the availability of patent protection in the United States
and other jurisdictions of commercial interest and the ability and time needed
and cost to obtain governmental approval for testing, manufacturing and
marketing.
The Company is aware of a number of companies engaged in the development of
drugs in all of its therapeutic areas of interest. Additionally, there is a
significant number of other pharmaceutical and biotechnology companies
developing and/or marketing ion channel focussed therapeutics. Some of these
companies have substantially more financial and technical resources, more
extensive research and development capabilities, products at a later stage of
development, and greater marketing, distribution, production and human resources
than the Company. See "Risk Factors".
RESEARCH AND DEVELOPMENT EXPENSES
During the year ended November 30, 1999, the Company spent $3,248,775 (1998:
$3,311,362; 1997: $1,306,147;) on research and development. The Company
believes research and development costs will continue to increase in
proportionate share to its overall budget as Nortran moves its lead compounds in
each of the four project areas toward and through clinical trials.
<PAGE>
Page 14
PERSONNEL
At March 31, 2000, Nortran had 32 full-time employees, 26 of whom are involved
in research and development. Nortran anticipates hiring 1 additional person in
2000 in order to accommodate its planned business.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
- --------------------------------------------
PROPRIETARY PROTECTION
GENERAL
The cornerstone of Nortran's patent strategy is to pursue in selected
jurisdictions the broadest possible patent protection on its proprietary
products and technology. Based on what is known to the Company in the prior art
on the subject matter to be protected, it is the Company's intention to file the
strongest possible patent claims. Accordingly, for novel compounds, claims for
the compound, composition and use will be made and for known compounds, claims
directed to novel composition and/or use will be made in the patent application.
The Company plans to protect its technology, inventions and improvements to its
inventions by filing patent applications in selected key countries according to
industry standard in a timely fashion.
In addition to its patents and licenses, Nortran also relies upon trade secrets,
know-how and continuing technological innovations to develop its competitive
position. It is Nortran's policy to require its directors, employees,
consultants, members of its scientific advisory board and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, consulting or collaborative relationships with the
Company. In the case of employees and consultants, the agreements provide that
all inventions resulting from work performed for the Company utilizing property
of Nortran or relating to the Company's business and conceived or completed by
the individual during employment are the exclusive property of the Company to
the extent permitted by law.
PATENTS
Nortran, and technology licensors who have granted Nortran commercial rights,
have been granted patents or have filed patent applications in the United States
of America and other jurisdictions in respect of certain core technologies
utilized by the Company. Given that the patent applications for these
technologies involve complex legal, scientific and factual questions, there can
be no assurance that patent applications relating to the technology used by the
Company will result in patents being issued or that, if issued, the patents will
provide a competitive advantage or will afford protection against competitors
with similar technology, or will not be challenged successfully or circumvented
by competitors.
UBC was granted a patent in each of the United States, Australia and Europe
directed to the use of a series of compounds, including RSD921. Two additional
patent applications in this family are pending in Japan and Canada. This
technology has been licensed exclusively to the Company. To further broaden the
coverage of this series of compounds, the Company filed, on its own behalf, a US
provisional patent application ("PPA") on certain mixtures in 1997. In 1998,
this PPA was converted to a regular US non-provisional patent application
("NPA") and the corresponding Patent Cooperation Treaty ("PCT") application.
Concurrently, applications in several non-PCT Asian countries were also filed
for additional protection. The pending applications related to this technology
are directed to composition and use.
The PCT is a multilateral treaty that was concluded in Washington in 1970 and
entered into force in 1978. It is administered by the International Bureau of
the World Intellectual Property Organization ("WIPO"), headquartered in Geneva,
Switzerland. The PCT facilitates the obtaining of protection for inventions
where such protection is sought in any or all of the PCT contracting states
(total of 104 at July 1999). It provides for the filing of one patent
application (the "international application"), with effect in several
contracting states, instead of filing several separate national and/or regional
patent applications. At the present time, an international application may
include designations for regional patents in respect of contracting states party
to any of the following regional patent treaties: the Protocol on Patents and
Industrial Designs within the framework of the African Regional Industrial
Property Organization, the Eurasian Patent Convention, the European Patent
Convention, and the Agreement Establishing the African Intellectual Property
<PAGE>
Page 15
Organization. The PCT does not eliminate the necessity of prosecuting the
international application in the national phase of processing before the
national or regional offices, but it does facilitate such prosecution in several
important respects by virtue of the procedures carried out first on all
international applications during the international phase of processing under
the PCT. The formalities check, the international search and (optionally) the
international preliminary examination carried out during the international
phase, as well as the automatic deferral of national processing which is
entailed, give the applicant more time and a better basis for deciding whether
and in what countries to further pursue the application. Further information
may be obtained from the WIPO official internet website (http://www.wipo.int).
--------------------
UBC has been granted two US patents covering another series of antiarrhythmic
compounds which the Company has licensed under the UBC License Agreement (see
"Licenses and Collaborative Research Agreements"). Additional patent
applications in the US and a number of other countries are pending. The
Company has also filed a total of four PPAs with respect to other antiarrhythmic
compounds developed internally, of which two have been converted to the
corresponding NPA and PCT applications. The pending applications related to
this technology are directed to use, use and compound, or composition.
In 1998, the Company converted the PPA filed in respect of the use of the
Company's first series of Nociblockers to a NPA and the corresponding PCT
application. Applications in several non-PCT Asian countries were also filed.
A second PPA has also been filed to broaden the coverage of the Company's
Nociblocker technology. The pending applications related to this technology are
directed to use.
Nortran filed two PPAs in 1998 protecting the proprietary technology of its
cough project. Both PPAs have been converted to the corresponding NPA and PCT
applications. The pending applications related to this technology are directed
to compound and use, or composition and use.
Nortran has five pending patent applications covering various compounds that
have demonstrated efficacy as pro-erectile agents in animal models and may be
useful in the treatment of sexual dysfunction including impotence. The pending
applications related to this technology are directed to compound and use, or
composition and use.
The following table sets forth the issued patents licensed by the Company from
UBC relating to the antiarrhythmic project and local anaesthetic project:
ISSUED PATENTS
================================================================================
PATENT NO. SCOPE OF PATENTS COUNTRY DATE ISSUED
- --------------------------------------------------------------------------------
5,506,257 Use US 09 April 1996
- --------------------------------------------------------------------------------
668,932 Use Australia 10 September 1996
- --------------------------------------------------------------------------------
632,806 Use Europe(1) 02 July 1997
- --------------------------------------------------------------------------------
5,637,583 Compound & Use US 10 June 1997
- --------------------------------------------------------------------------------
5,885,984 Compound & Use US 23 March 1999
================================================================================
(1) Registration of the granted European patent has been effected in the
following countries: France, Germany, Great Britain, Ireland, Italy, Spain and
Switzerland. Extension of the Great Britain registration to Hong Kong and
Brunei has been made.
<PAGE>
Page 16
The following table sets forth the patent applications owned or licensed from
UBC by the Company relating to the four projects:
PATENT APPLICATIONS
================================================================================
PATENT APPLICATION NO. COUNTRY DATE FILED OWNED/LICENSED
- --------------------------------------------------------------------------------
ANTIARRHYTHMIC PROJECT AND THE RSD LOCAL ANAESTHETIC PROJECT
- --------------------------------------------------------------------------------
2,132,841 Canada 26 March 1993(1) Licensed
- --------------------------------------------------------------------------------
5-516,135 Japan 26 March 1993(1) Licensed
- --------------------------------------------------------------------------------
09/271,087 US 17 March 1999 Licensed
- --------------------------------------------------------------------------------
2,172,513 Canada 23 September 1994(2) Licensed
- --------------------------------------------------------------------------------
94/926,755.3 Europe 23 September 1994(2) Licensed
- --------------------------------------------------------------------------------
60/119,887 US 12 February 1999 Owned
- --------------------------------------------------------------------------------
09/283,873 US 31 March 1999(3) Owned
- --------------------------------------------------------------------------------
PCT/CA99/00280 PCT 1 April 1999(3) Owned
- --------------------------------------------------------------------------------
2,268,590 Canada 12 April 1999 Owned
- --------------------------------------------------------------------------------
09/160,734 US 25 September 1998(4) Owned
- --------------------------------------------------------------------------------
PCT/CA98/00905 PCT 25 September 1998(4) Owned
- --------------------------------------------------------------------------------
87115941 Taiwan 25 September 1998 Owned
- --------------------------------------------------------------------------------
046295 Thailand 24 September 1998 Owned
- --------------------------------------------------------------------------------
98/2526 The Philippines 25 September 1998 Owned
- --------------------------------------------------------------------------------
PI 9804386 Malaysia 25 September 1998 Owned
- --------------------------------------------------------------------------------
60/122,858 US 4 March 1999 Owned
- --------------------------------------------------------------------------------
COUGH PROJECT
- --------------------------------------------------------------------------------
09/328,540 US 9 June 1998(5) Owned
- --------------------------------------------------------------------------------
PCT/CA99/00535 PCT 9 June 1999(5) Owned
- --------------------------------------------------------------------------------
09/328,541 US 9 June 1999(6) Owned
- --------------------------------------------------------------------------------
PCT/CA99/00534 PCT 9 June 1999(6) Owned
- --------------------------------------------------------------------------------
NOCIBLOCKER PROJECT
- --------------------------------------------------------------------------------
09/140,027 US 26 August 1998(7) Owned
- --------------------------------------------------------------------------------
PCT/CA98/00842 PCT 3 September 1998(7) Owned
- --------------------------------------------------------------------------------
045858 Thailand 31 August 1998 Owned
- --------------------------------------------------------------------------------
87114395 Taiwan 31 August 1998 Owned
- --------------------------------------------------------------------------------
1-1998-02246 The Philippines 31 August 1998 Owned
- --------------------------------------------------------------------------------
PI 9804017 Malaysia 2 September 1998 Owned
- --------------------------------------------------------------------------------
60/154,436 US 17 September 1999 Owned
================================================================================
<PAGE>
Page 17
================================================================================
PATENT APPLICATION NO. COUNTRY DATE FILED OWNED/LICENSED
- --------------------------------------------------------------------------------
PRO-ERECTILE PROJECT
- --------------------------------------------------------------------------------
09/111,684 US 8 July 1998(8) Owned
- --------------------------------------------------------------------------------
PCT/CA98/00662 PCT 9 July 1998(8) Owned
- --------------------------------------------------------------------------------
87113676 Taiwan 19 August 1998 Owned
- --------------------------------------------------------------------------------
PCT/US99/15571 PCT 8 July 1999(9) Owned
- --------------------------------------------------------------------------------
PCT/US99/27484 PCT 19 November 1999(10) Owned
================================================================================
NOTE: In the foregoing table, "PCT" refers to a filing pursuant to the
International Patent Cooperation Treaty.
(1) Claims priority to US application filed 26 March 1992.
(2) Claims priority to US application filed 24 September 1993.
(3) Claims priority to US application (#60/080,347) filed 1 April 1998 and
US application (#60/118,954) filed 5 February 1999.
(4) Claims priority to US application (#60/060,154) filed 26 September 1997.
(5) Claims priority to US application (#60/088,597) filed 9 June 1998.
(6) Claims priority to US application (#60/088,587) filed 9 June 1998.
(7) Claims priority to US application (#60/056,312) filed 3 September 1997.
(8) Claims priority to US application (#60/052,051) filed 9 July 1997.
(9) Claims priority to US application (#60/092,097) filed 8 July 1998.
(10) Claims priority to US application (#60/109,255) filed 19 November 1998.
COLLABORATIONS
COLLABORATION STRATEGY
Nortran's current core of expertise lies in the ability of its personnel to
research and develop potential drug candidates to the stage where such compounds
demonstrate sufficient potential to warrant the undertaking of clinical trials.
As part of its business strategy, Nortran will seek collaborative partners with
experience in the development and marketing of drugs in the relevant therapeutic
areas. The intention is to select partners with both the human and financial
resources to spearhead the clinical development of the Company's products as
required by the Food & Drug Administration, US (FDA), the Health Protection
Branch, Canada (HPB), and drug regulatory agencies in other countries. The form
of collaboration would depend in part on the product candidate, the stage of
development, and the partner's expertise. Nortran would also expect any
potential partner to market the products. No assurance can be given that any
such proposed partnership arrangements will be entered into, or, if entered
into, will be successful in completing the development programs for the drug
candidate in any particular jurisdiction. See "Risk Factors".
The rationale behind this strategy is to:
* avoid the large expenses incurred in the later stages of clinical development
* obtain early returns in the form of upfront fees and milestone payments
* utilize expertise and resources of major multinational pharmaceutical
companies
* obtain long term revenue streams through royalty payments on product sales
The Company presently has no plans for developing an in-house marketing or
manufacturing capability.
ALLIANCES
ASTRAZENECA AGREEMENT
Nortran entered into an arm's length agreement dated November 17, 1998 (the
"AstraZeneca Agreement") with AstraZeneca of Goteberg, Sweden ("Astra") under
which Nortran and Astra have agreed to conduct collaborative research to test
four antiarrhythmic compounds developed by each of the companies. The studies
will encompass tests in the Company's specialized models as well as testing in
Astra's laboratories. Under the terms of the AstraZeneca Agreement, Astra will
<PAGE>
Page 18
fund US $45,000 of the costs which the Company expects to be the major portion
of the costs of these studies. An extension has been granted on the AstraZeneca
Agreement to allow completion by both parties of the work programs.
AVENTIS PHARMA AGREEMENT
By an arm's length agreement dated May 1999 (the "Aventis Agreement") between
Nortran and Aventis Pharma ("Aventis") of Frankfurt, Germany, the parties
agreed to conduct collaborative research in the areas of cardiac arrhythmias.
The terms of the Aventis Agreement provide that the Company and Aventis will
test antiarrhythmic compounds developed by each of the companies. The companies
will evaluate the pharmacological profiles of their compounds through the use of
both Nortran's and Aventis' proprietary electrophysiological models. Each party
will bear its own costs for research on its compounds under the Aventis
Agreement.
ACQUISITIONS
Nortran is actively seeking access to other technologies that will enable it to
obtain competitive advantages and accelerate product development. The Company's
strategy is to acquire licenses only for those technologies which Nortran
believes will add demonstrable value to its technology portfolio. Certain key
technologies utilized by the Company have been obtained under licenses described
below. Nortran expects to rely on these licenses for the development of certain
key product candidates.
ACQUISITION OF RHYTHM-SEARCH DEVELOPMENTS LTD
By agreement dated February 1, 1995 (the "RSD Share Exchange Agreement") made
among the Company, Magic Bullets Enterprises Ltd. ("MBE") and the shareholders
of MBE, the Company, which already owned 50% of Rhythm-Search, acquired the
remaining 50% of Rhythm-Search (valued by the parties at $3 million) in
consideration for the issuance of 3,000,000 Common Shares to MBE. As a result
of this transaction, Rhythm-Search became a wholly-owned subsidiary of the
Company.
LICENSES AND COLLABORATIVE RESEARCH AGREEMENTS
UBC LICENSE AGREEMENT AND UBC RESEARCH AGREEMENT
By agreement dated February 12, 1992, Nortran acquired an option from the
University of British Columbia ("UBC") to license the inventions which underlie
some of the Company's novel antiarrhythmic compounds. These compounds form the
basis of part of the Company's research and development efforts, being certain
technology relating to aminocyclohexylamides for antiarrhythmic and local
anaesthetic uses (the "Technology"). On March 29, 1996, the Company entered
into a formal license agreement with UBC (the "UBC License Agreement") whereby
UBC granted the Company, in consideration for the sum of $20,000 and the
issuance of 100,000 Common Shares, an exclusive, world-wide license to use and,
subject to the consent of UBC, sublicense the Technology, and any improvements
thereto, for antiarrhythmic and local anaesthetic uses, and to manufacture,
distribute and sell products derived therefrom to the general public during the
term of the UBC License Agreement. The UBC License Agreement will terminate
upon the expiration of the last patent obtained under it.
Under the terms of the UBC License Agreement, the Company has agreed to issue to
UBC a further 100,000 Common Shares within 30 days of the commencement of Phase
III clinical trials and an additional 100,000 Common Shares within 30 days of
receipt of notice of new drug approval for the first drug covered by a patent of
the Technology. The Company is also required to pay to UBC quarterly royalties
from manufacturing revenues ranging from 1.5% for products developed from
improvements to the Technology made by the Company to 3.5% for products
developed from the Technology or improvements to the Technology made by UBC or
UBC and the Company together, and further royalties from sublicensing revenues,
subject to minimum annual royalties of $10,000 in the first two years of
commercial sale and $50,000 thereafter. In addition, the Company will pay all
costs associated with patent applications.
<PAGE>
Page 19
Nortran is required to pay UBC a $75,000 grant in each of the first five years
of the UBC License Agreement, to be used at UBC's discretion to fund basic
scientific research related to some aspects of the Technology to be undertaken
by UBC in the laboratory of Dr. Michael Walker (the Company's Chairman of the
Board) or his successor. The Company does not have any rights in any
intellectual property arising from such research.
In addition, the Company and UBC have entered into a five year research
agreement (the "UBC Research Agreement") dated March 1, 1997, under which the
Company is required to fund a specific and mutually agreed upon research project
with respect to the Technology by paying to UBC a further $75,000 plus a further
sum equal to 38% of overhead costs associated with the project, estimated at
$28,500, in each of the first five years of the UBC Research Agreement. Under
the UBC Research Agreement, the Company has an option to license, on an
exclusive world-wide basis, any intellectual property arising from the work at
UBC under the UBC Research Agreement.
The UBC License Agreement and the UBC Research Agreement constituted arm's
length transactions. The consideration payable under both agreements was
determined through negotiations between the Company and UBC.
NOCIBLOCKER AGREEMENT
By agreement dated November 19, 1997 (the "Nociblocker Agreement") entered into
between Nortran and Drs. MacLeod and Quastel, the Company acquired ownership to
certain intellectual property related to Nociblocker technology and all their
therapeutic uses. The Nociblocker Agreement provides that Nortran will pay to
each of Drs. MacLeod and Quastel $25,000 in each of the first five years as a
University grant-in-aid, commencing April 1, 1997. The Company is also required
to pay to each of Drs. MacLeod and Quastel $250,000 upon commencement of Phase
III clinical trials on a Nociblocker compound licensed to the Company under the
Nociblocker Agreement, and a further $1,000,000 upon the filing of a new drug
application in the United States of America or Canada for a Nociblocker licensed
by the Company under the Nociblocker Agreement. The Nociblocker Agreement
further requires the Company to spend a minimum of $200,000 each year for five
years on the research and development of Nociblocker drugs, including
expenditures under the cough project.
The consideration payable under the Nociblocker Agreement was determined by
arm's length negotiations between the Company and Drs. MacLeod and Quastel.
CCM HEADS OF AGREEMENT
By agreement in principle (the "CCM Heads of Agreement") dated October 21, 1997,
Chemical Company of Malaysia Berhad ("CCM") was granted exclusive rights by the
Company to make, and have made, promote, sell and distribute Nortran's drug
RSD921 in the People's Republic of China, Taiwan and any of the member countries
of ASEAN (the "Territory"). The CCM Heads of Agreement provides that Nortran
and CCM will share equally the out-of-pocket expenses of the Phase II and Phase
III trials of RSD921 to be conducted in the Territory until the Company has
expended a maximum of $1,200,000. Further clinical development of RSD921 (Phase
III) is not currently scheduled. The Phase II trial provided "proof of concept"
data supporting the use of RSD921 in man. Management is currently focussing on
further development and partnership opportunities in North America and Europe.
The CCM Heads of Agreement provides that the CCM will pay the Company a royalty
on net sales of RSD921 at a rate which is to be negotiated but will be in the
range of 5% to 12%.
The CCM Heads of Agreement contemplates that a detailed license agreement will
be negotiated but this has not yet been finalized. Under the CCM Heads of
Agreement, CCM is also required to make certain milestone payments to the
Company upon the achievement of certain milestones.
GOVERNMENT REGULATION
- ----------------------
The research and development, manufacture and marketing of pharmaceutical
products are subject to regulation in the United States by the Food and Drug
Administration (the "FDA"), in Canada by the Health Protection Branch ("HPB") of
the Department of Health and Welfare Canada and by comparable authorities in
other foreign countries. These national agencies and other federal, state,
provincial and local entities regulate the testing, manufacture, safety and
promotion of the Company's products.
<PAGE>
Page 20
UNITED STATES REGULATION
The Company is required by the FDA to comply with certain procedures prior to
marketing all of its products. These procedures include (i) preclinical
laboratory and animal toxicology tests; (ii) submission of an investigational
new drug application (an "IND"), which must become effective before human
clinical trials commence; (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug for its intended
indication; (iv) the submission of a new drug application (an "NDA") to the FDA;
and (v) FDA approval of a NDA prior to any commercial sale or shipment of the
product, including pre-approval and post approval inspections of its
manufacturing facilities.
Preclinical laboratory and animal toxicology tests must be performed to assess
the safety and potential efficacy of the product. The results of these
preclinical tests are then submitted to the FDA as part of an IND requesting
authorization to initiate human clinical trials. Upon approval of the IND by
the FDA, clinical trials may be initiated.
Clinical trials involve the administration of the pharmaceutical product to
individuals under the supervision of qualified medical investigators. Clinical
studies are conducted in accordance with protocols that detail the objectives of
a study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol is submitted to the FDA prior to the
commencement of each clinical trial. Clinical studies are typically conducted
in three sequential phases, which may overlap. In Phase I, the initial
introduction of the product into human subjects, the compound is tested for
safety, dosage, tolerance, metabolic interaction, distribution, excretion and
pharmacodynamics. Phase II involves studies in a limited patient population to
(i) determine the efficacy of the product for specific, targeted indications,
(ii) determine optimal dosage and (iii) identify possible adverse effects and
safety risks. In the event Phase II evaluations demonstrate that the drug is
effective and has an acceptable safety profile, Phase III clinical trials are
undertaken to further evaluate clinical efficacy of the product and to further
test for its safety within an expanded patient population at geographically
dispersed clinical study sites. The FDA or the Company may suspend clinical
trials at any time if they believe the clinical subjects are being exposed to
unacceptable health risks. The results of the product development, analytical
laboratory studies and clinical studies are submitted to the FDA as part of an
NDA for approval of the marketing and commercialization of the controlled
release product.
If the approval being sought is for a new therapeutic area on a previously
clinically tested drug the approval process will require a new full clinical
trial regime, from preclinical to Phase III. If however, the approval being
sought is for a new indication within a therapeutic area on a drug that has been
through one or more stages of clinical trials, then it is possible if the
indication is close enough to that of the original submission, that any clinical
data available on this drug might be used to avoid repetition of these trials.
The FDA may deny approval of an NDA if applicable regulatory criteria are not
satisfied or may require additional testing. Product approvals may be withdrawn
if compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. The FDA may require further testing and
surveillance programs to monitor the pharmaceutical product that has been
commercialized. Noncompliance with applicable requirements can result in fines
and other judicially imposed sanctions, including product seizures, injunction
actions and criminal prosecutions.
CANADIAN REGULATION
The requirements for selling pharmaceutical drugs in Canada are substantially
similar to those of the United States described above.
Before conducting clinical trials of a new drug in Canada, the Company must
submit an IND to the HPB. This application includes information about the
methods of manufacture of the drug and controls, and preclinical laboratory and
animal toxicology tests on the safety and potential efficacy of the drug. If,
within 60 days of receiving the application, the HPB does not notify the Company
that its application is unsatisfactory, the Company may proceed with clinical
trials of the drug. The phases of clinical trials are the same as those
described above.
Before selling a new drug in Canada, the Company must submit a New Drug
Submission (an "NDS") to the HPB and receive a notice of compliance from the HPB
to sell the drug. The NDS includes information describing the new drug,
including its proper name, the proposed name under which the new drug will be
<PAGE>
Page 21
sold, a quantitative list of ingredients of the new drug, the methods of
manufacturing, processing, and packaging the new drug, the controls applicable
to these operations, the tests conducted to establish the safety of the new
drug, the tests to be applied to control the potency, purity, stability and
safety of the new drug, the results of clinical trials and the effectiveness of
the new drug when used as intended. The HPB reviews the NDS. If the NDS meets
the requirements of Canada's Food and Drugs Act and Regulations, the HPB will
issue a notice of compliance for the new drug.
The HPB may deny approval of an NDS if applicable regulatory criteria are not
satisfied or may require additional testing. Product approvals may be withdrawn
if compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. The HPB may require further testing and
surveillance programs to monitor the pharmaceutical product which has been
commercialized. Noncompliance with applicable requirements can result in fines
and other judicially imposed sanctions, including product seizures and criminal
prosecutions.
ADDITIONAL REGULATORY CONSIDERATIONS
There can be no assurance that problems will not arise which could delay or
prevent the commercialization of the Company's products currently under
development, or that the FDA, HPB and foreign regulatory agencies will be
satisfied with the results of clinical trials to approve the marketing of such
products.
Certain provincial regulatory authorities in Canada have the ability to
determine whether the cost of a drug sold within such province will be
reimbursed by a provincial government health plan by listing drugs on
formularies. These provincial formularies may affect the prices of drugs sold
within provinces and the volume of drugs sold within provinces.
In addition to the regulatory approval process, pharmaceutical companies are
subject to regulations under provincial, state and federal law, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and future local, provincial, state, federal and foreign regulations, including
possible future regulations of the pharmaceutical industry.
Proposals have recently been made that, if implemented, would significantly
change Canada's drug approval system. In general, the recommendations emphasize
the need for efficiency in Canadian drug review. Proposals include
establishment of a separate agency for drug regulation and modeling the approval
system on those found in European Community countries. There is no assurance,
however, that such changes will be implemented or, if implemented, will expedite
the approval of controlled release products.
The Canadian government has regulations which prohibit the issuance of a notice
of compliance for a medicine, other than the first medicine marketed in Canada,
provided that the patent owner of the medicine has filed a list of its Canadian
patents covering that medicine with the HPB. After receiving the list, the HPB
may refuse to issue a notice of compliance permitting the importation or sale of
a patented medicine to persons other than a patent owner until patents on the
medicine expire or are declared invalid by a court of competent jurisdiction.
REGULATION IN OTHER JURISDICTIONS
Based on clinical and commercial factors, the Company may elect from time to
time to develop one or more of its compounds first in regions outside North
America and Europe. In the regions where the Company is currently working to
commence development of its first drug, South East Asia (with an initial focus
on Malaysia and Taiwan) and South American countries (with an initial focus on
Brazil), the regulatory environment has become very similar to that seen in
North America, at least for the stages of development which are to be
accomplished by the Company. In other words, a movement towards world
harmonization has greatly influenced the regulation of the three major
activities of the Company which will eventually contribute to an application for
marketing approval:
1. Preclinical toxicology, including genotoxicity, carcinogenicity,
teratogenicity, sub-acute and chronic toxicity;
2. Formulation and scale-up, including validating the process of
manufacturing the drug and the materials used in preparing the final
dosage form;
3. The clinical Phase I trial: a small trial in healthy volunteers to
establish safety of the drug in humans.
<PAGE>
Page 22
The Company intends to meet or exceed the North American regulatory guidelines
for each of these three development programs, in addition to meeting any
specific requirements of the country for which the drug is first intended to be
commercialized.
Sales of the Company's products by licensees outside of the United States and
Canada are subject to local regulatory requirements governing the testing,
registration and marketing of pharmaceuticals, which vary widely from country to
country.
RISK FACTORS
- ------------
The following offers a brief overview of some of the risk factors to be
considered in relation to the Company's business. Specific risk factors to be
considered include, but are not limited to, the following:
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
The Company is at an early stage of development. The Company has not completed
the development of any commercial products and, accordingly, has no profitable
operating history upon which investors may rely. The Company has received
limited revenues from its operations and expects that most of its revenues in
the foreseeable future will result from future corporate collaborations, if any.
The Company's product candidates will require significant additional investment
in research and development and in clinical trials. There can be no assurance
that any of Nortran's products will meet applicable health regulatory standards,
obtain required regulatory approvals, or be produced in commercial quantities at
reasonable costs. Products that may result from the Company's research and
development programs are not expected to be commercially available for a number
of years, if at all, and it will be a number of years, if ever, before the
Company will receive any significant revenues from commercial sales of such
products. There can be no assurance that the Company will be able to enter into
any corporate collaborations or that the Company will ever achieve
profitability.
LIMITED REVENUES; HISTORY OF SIGNIFICANT LOSSES; DEFICIT
The Company has no sales revenue to date. Although the Company has been involved
with pharmaceuticals since 1992, it has engaged only in research and
development. The Company has generated limited non-sales revenues and incurred
significant operating losses. See "Item 8 - Selected Financial Data" and "Item
19 - Financial Statements and Exhibits". The future growth and profitability of
the Company will be principally dependent upon its ability to successfully
complete development of, obtain regulatory approvals for, and market or license
its proposed products. Accordingly, the Company's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in
connection with the establishment of a new business in a highly competitive
industry, characterized by frequent new product introductions. The Company
anticipates that it will incur substantial operating expenses in connection with
the research, development, testing and approval of its proposed products and
expects these expenses to result in continuing and significant operating losses
until such time as the Company is able to achieve adequate revenue levels. There
can be no assurance that the Company will be able to significantly increase
revenues or achieve profitable operations. "See Item 9 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<PAGE>
Page 23
FUTURE CAPITAL NEEDS; UNCERTAINTIES OF ADDITIONAL FUNDING
The Company will require substantial capital resources in order to conduct its
operations. The Company's future capital requirements will depend on many
factors, including, among others, the following: continued scientific progress
in its discovery, research and development programs; the magnitude and scope of
these activities; the ability of the Company to establish corporate
collaborations and licensing arrangements; progress with preclinical studies and
clinical trials; the time and costs involved in obtaining regulatory approvals;
the costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; the potential need to develop, acquire or license new
technologies and products; and other factors not within the Company's control.
The Company intends to seek such additional funding through corporate
collaborations, public or private equity or debt financings and capital lease
transactions; however, there can be no assurance that additional financing will
be available on acceptable terms, if at all. Additional equity financings could
result in significant dilution to shareholders. If sufficient capital is not
available, the Company may be required to delay, reduce the scope of, eliminate
or divest one or more of its discovery, research or development programs, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 9 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NO ASSURANCE OF REGULATORY APPROVAL: POTENTIAL DELAYS
The preclinical testing and clinical trials of any products developed by the
Company or its corporate collaborators and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to regulation by federal, state and
local governmental authorities in the United States, principally by the FDA, and
by other similar agencies in other countries. Any product developed by the
Company or its corporate collaborators must receive all relevant regulatory
approvals or clearances before it may be marketed and sold in a particular
country. The regulatory process, which includes extensive preclinical studies
and clinical trials of each product in order to establish its safety and
efficacy, is uncertain, can take many years and requires the expenditure of
substantial resources. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval or clearance. In addition, delays or rejections may be
encountered based upon changes in regulatory policy during the period of product
development and/or the period of review of any application for regulatory
approval or clearance for a product. Delays in obtaining regulatory approvals or
clearances would adversely affect the marketing of any products developed by the
Company or its corporate collaborators, impose significant additional costs on
the Company and its corporate collaborators, diminish any competitive advantages
that the Company or its corporate collaborators may attain and adversely affect
the Company's ability to receive royalties and generate revenues and profits.
There can be no assurance that, even after such time and expenditures, any
required regulatory approvals or clearances will be obtained for any products
developed by or in collaboration with the Company.
Regulatory approval, if granted, may entail limitations on the indicated uses
for which the new product may be marketed that could limit the potential market
for such product, and product approvals, once granted, may be withdrawn if
problems occur after initial marketing. Furthermore, manufacturers of approved
products are subject to pervasive review, including compliance with detailed
regulation governing GMP ("Good Manufacturing Procedures"). Failure to comply
with applicable regulatory requirements can result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, refusal of the government
to renew marketing applications and criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Company's discovery, research and development work. In addition, the Company
cannot predict the extent of government regulations which might have an adverse
effect on the discovery, development, production and marketing of the Company's
products, and there can be no assurance that the Company will not be required to
incur significant costs to comply with current or future laws or regulations or
that the Company will not be adversely affected by the cost of such compliance.
<PAGE>
Page 24
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that any products successfully developed by the
Company or its corporate collaborators, if approved for marketing, will ever
achieve market acceptance. The Company's products, if successfully developed,
may compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical and biotechnology companies, as well as new
products currently under development by such companies and others. The degree of
market acceptance of any products developed by the Company or its corporate
collaborators will depend on a number of factors, including the establishment
and demonstration of the clinical efficacy and safety of the product candidates,
their potential advantage over alternative treatment methods and reimbursement
policies of government and third party payors. There can be no assurance that
physicians, patients or the medical community in general will accept and utilize
any products that may be developed by the Company or its corporate
collaborators.
SUBSTANTIAL COMPETITION
The pharmaceutical industry is very competitive. Many companies, as well as
research organizations, currently engage in or have in the past engaged in
efforts related to the development of products in the same therapeutic areas as
the Company.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in discovery, research
and development, manufacturing, preclinical and clinical testing, obtaining
regulatory approvals and marketing than the Company. Other smaller companies may
also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Academic institutions
government agencies and other public and private research organizations may also
conduct research, seek patent protection and establish collaborative
arrangements for discovery, research, clinical development and marketing of
products similar to those of the Company. These companies and institutions
compete with the Company in recruiting and retaining qualified scientific and
management personnel as well as in acquiring technologies complementary to the
Company's programs. The Company will face competition with respect to product
efficacy and safety, ease of use and adaptability to various modes of
administration, acceptance by physicians, the timing and scope of regulatory
approvals, availability of resources, reimbursement coverage, price and patent
position, including potentially dominant patent positions of others. There can
be no assurance that competitors will not develop more effective or more
affordable products, or achieve earlier patent protection or product
commercialization than the Company and its corporate collaborators, or that such
competitive products will not render the Company's products obsolete. "See Item
1 Description of Business - Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent on certain key employees, the loss of whose services
might significantly delay or prevent the Company's achievement of its scientific
or business objectives. Competition among biotechnology and pharmaceutical
companies for qualified employees is intense, and the ability to retain and
attract qualified individuals is critical to the success of the Company. There
can be no assurance that the Company will be able to attract and retain such
individuals currently or in the future on acceptable terms, or at all, and the
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company does not
maintain "key person" life insurance on any officer, employee or consultant of
the Company. The Company also has relationships with scientific collaborators at
academic and other institutions, some of whom conduct research at the Company's
request or assist the Company in formulating its research and development
strategy. These scientific collaborators are not employees of the Company and
may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to the Company. In addition, these
collaborators may have arrangements with other companies to assist such other
companies in developing technologies that may prove competitive to those of the
Company.
<PAGE>
Page 25
NO ASSURANCE REGARDING LICENSING OF PROPRIETARY TECHNOLOGY OWNED BY OTHERS
The manufacture and sale of any products developed by the Company will involve
the use of processes, products, or information, the rights to certain of which
are owned by others. Although the Company has obtained licenses or rights with
regard to the use of certain of such processes, products, and information, there
can be no assurance that such licenses or rights will not be terminated or
expired during critical periods, that the Company will be able to obtain
licenses or other rights which may be important to it, or, if obtained, that
such licenses will be obtained on favorable terms. Some of these licenses
provide for limited periods of exclusivity that may be extended only with the
consent of the licensor. There can be no assurance that extensions will be
granted on any or all such licenses. This same restriction may be contained in
licenses obtained in the future.
PROPRIETARY TECHNOLOGY: UNPREDICTABILITY OF PATENT PROTECTION
The Company's success will depend in part upon its ability and that of its
future corporate collaborators, if any, to obtain strong patent protection or
licenses to well protected patents. The Company intends to file, when
appropriate, patent applications with respect to inventions. There can be no
assurance, however, that any patents will be issued or that, if issued, they
will be of commercial value. In addition, it is impossible to anticipate the
breadth or degree of protection that patents will afford products developed by
the Company or the underlying technology. There can be no assurance that (i)
any patents issued covering such products or any patents licensed to the Company
will not be successfully challenged, (ii) such products will not infringe the
patents of third parties, or (iii) patents of third parties may not have to be
designed around, potentially causing increased costs and delays in product
development and introduction or precluding the Company from developing,
manufacturing, or selling their planned products. The scope and validity of
patents which may be obtained by third parties, the extent to which the Company
may wish or need to obtain licenses thereunder, and the cost and availability of
such licenses are currently unknown. If such licenses are obtained, it is
likely they would be royalty-bearing and in that case the income of the Company
could be reduced: if licenses cannot be obtained on an economical basis, delays
in market introduction of the Company's planned products could occur or
introduction could be prevented, in some cases after the expenditure of
substantial funds. If the Company determines to defend or contest the validity
of patents relating to its products or the products of third party, the Company
could incur substantial legal expenses with no assurance of success.
In certain instances, the Company may elect not to seek patent protection but
instead rely on the protection of its technology by secrecy and confidentiality
agreements. The value of the Company's assets so protected could be reduced to
the extent that other persons obtain patents, or such secrecy and
confidentiality agreements are breached or become unenforceable. There can be
no assurance that others may not independently develop or obtain similar
technology and such others may be able to market competing products and obtain
regulatory approval through a showing of equivalency to an Company product which
has obtained regulatory approvals, without being required to undertake the same
lengthy and expensive clinical studies that the Company has already completed.
Litigation may also be necessary to enforce patents issued or licensed to the
Company or its corporate collaborators or to determine the scope and validity of
a third party's proprietary rights. The Company could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if the Company participates in patent suits brought against or
initiated by its corporate collaborators or if the Company initiates such suits,
and there can be no assurance that funds or resources would be available to the
Company in the event of any such litigation. Additionally, there can be no
assurance, that the Company or its corporate collaborators would prevail in any
such action. An adverse outcome in litigation or an interference to determine
priority or other proceeding in a court or patent office could subject the
Company to significant liabilities, require disputed rights to be licensed from
other parties or require the Company or its corporate collaborators to cease
using certain technology or products, any of which may have a material adverse
effect on the Company's business, financial condition and results of operations.
MANAGEMENT OF GROWTH
The Company's future growth, if any, may cause a significant strain on its
management, operational, financial and other resources. The Company's ability to
manage its growth effectively will require it to implement and improve its
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new management personnel and the development of additional expertise
<PAGE>
Page 26
by management. Any increase in resources devoted to research, product
development and marketing and sales efforts without a corresponding increase in
the Company's operational, financial, manufacturing and management information
systems could have a material adverse effect on the Company's business,
financial condition and results of operations.
NO ASSURANCE OF SUCCESSFUL MANUFACTURING
The Company has no experience manufacturing commercial quantities of products
and does not currently have the resources to manufacture any products which it
may develop. Accordingly, if the Company were able to develop any products with
commercial potential, the Company would either be required to develop the
facilities to manufacture independently or be dependent upon securing a contract
manufacturer or entering into another arrangement with third parties to
manufacture such products. There can be no assurance that the Company would be
able independently to develop such capabilities or that the terms of any such
arrangement would be favorable enough to permit the products to compete
effectively in the marketplace.
DELAYS FROM NON-COMPLIANCE WITH GOOD MANUFACTURING PRACTICES
The manufacture of the Company's pharmaceutical products will be subject to
current Good Manufacturing Practices ("GMP") or similar regulations prescribed
by the FDA, the HPB and similar authorities prior to the commercial manufacture
of any such products in the countries where the products are manufactured.
There can be no assurance that the Company or any entity manufacturing products
on behalf of the Company will be able to comply with GMP or satisfy certain
regulatory inspections in connection with the manufacture of the Company's
proposed products. Failure or delay by any manufacturer of the Company's
products to comply with GMP or similar regulations or satisfy regulatory
inspections would have a material adverse effect on the Company.
NO ASSURANCE OF SUCCESSFUL MARKETING
Although certain members of the Company have experience in marketing
pharmaceutical products, the Company does not currently have the resources to
market the products which it may develop. Marketing of new products and
processes presents greater risks than are posed by the continued marketing of
proven products and processes. Accordingly, if the Company is able to develop
any products with commercial potential, the Company would either have to develop
a marketing capability (including a sales force) or attempt to enter into a
joint venture, license, or other arrangement with third parties to provide a
substantial portion of the financial and other resources needed to market such
products. There can be no assurance that the Company would be able to develop
such a marketing capability or enter into such joint venture, license or other
arrangement with a third party on favorable terms or at all. In any event,
extensive licensing or joint venture agreements might result in lower level of
income to the Company than if the Company marketed the products itself.
DEPENDENCE ON AND MANAGEMENT OF FUTURE CORPORATE COLLABORATIONS
The success of the Company's business strategy is largely dependent on its
ability to enter into corporate collaborations and to effectively manage the
relationships that may come to exist as a result of this strategy. The Company
is currently seeking corporate collaborators, but there can be no assurance that
such efforts will lead to the establishment of any corporate collaborations on
favorable terms, or at all, or that if established, any such corporate
collaborations will result in the successful development of the Company's
products or the generation of significant revenues.
<PAGE>
Page 27
Because the Company plans to enter into research and development collaborations
at an early stage of product development, the Company's success is highly
reliant upon the performance of its future corporate collaborators, if any. The
amount and timing of resources to be devoted to activities by corporate
collaborators are not within the direct control of the Company, and there can be
no assurance that any of the Company's future or existing corporate
collaborators will commit sufficient resources to the Company's research and
development programs or the commercialization of its products. There can be no
assurance that the Company's corporate collaborators, if any, will perform their
obligations as expected. There can also be no assurance that the Company's
future and existing corporate collaborators, will not pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with the Company, or that disputes will not
arise with respect to ownership of technology developed under any such corporate
collaborations.
Because the success of the Company's business is largely dependent upon its
ability to enter into corporate collaborations and to effectively manage issues
that arise from such collaborations, management of these relationships will
require significant time and effort from the Company's management team and
effective allocation of the Company's resources. There can be no assurance that
the Company will be able to simultaneously manage a number of corporate
collaborations.
EXPOSURE TO PRODUCT LIABILITY CLAIMS
The products the Company will attempt to develop will, in most cases, undergo
extensive clinical testing and will require FDA and HPB approval prior to sale
in the United States and Canada respectively. However, despite all reasonable
efforts to ensure safety, it is possible that products which are defective or to
which patients react in an unexpected manner, or which are alleged to have side
effects, will be sold. The sale of such products may expose the Company to
potential liability resulting from the use of such products. Such liability
might result from claims made directly by consumers or by pharmaceutical
companies or others selling such products. It is impossible to predict the
scope of injury or liability from such defects or unexpected reactions, or the
impact on the market for such products of any allegations of these claims (even
if unsupported), or the measure of damages which might be imposed as a result of
any claims or the cost of defending such claims. Although the Company's
shareholders would not have personal liability for such damages, the expenses of
litigation in connection with any such injuries or alleged injuries and the
amount of any award imposed on the Company in excess of existing insurance
coverage, if any, may have a material adverse impact on the Company. In
addition, any liability that the Company may have as a result of the manufacture
of any products could have a material adverse effect on the Company's financial
condition, business and operations, to the extent insurance covering any such
liability is not available. It is anticipated that insurance equivalent to that
customarily maintained by other entities in the Company's industry and of its
approximate size will be carried by the Company against such claims. However,
obtaining insurance of all kinds has become increasingly more costly and
difficult and there can be no assurance that any such insurance will be
available or, if obtained, will be sufficient to satisfy asserted claims. To
date, the Company has acquired insurance solely for the purpose of clinical
trial testing of its drug candidates.
DILUTION
The Company has a substantial number of warrants and options outstanding. See
Item 12 - Options to Purchase Securities from Registrant or Subsidiaries. In
addition, the Company may raise additional funding through equity financings.
The exercise of warrants and options and the completion of equity financings, if
available, may result in substantial dilution to shareholders.
CONFLICTS OF INTEREST
Certain of the Company's directors and officers may serve as directors or
officers of other companies or have shareholdings in other companies and, to the
extent that such other companies may participate in ventures in which the
Company may participate, conflicts of interest may arise which may be harmful to
the interests of the Company. In the event that such a conflict of interest
arises at a meeting of the Company's directors, a director who has such a
conflict is required to abstain from voting for or against the approval of the
matter before the meeting. In accordance with the corporate laws affecting the
Company, the directors of the Company are required to act honestly, in good
faith and in the best interests of the Company.
<PAGE>
Page 28
NO DIVIDENDS
To date, the Company has not paid any dividends on its common shares and does
not intend to declare any dividends in the foreseeable future.
YEAR 2000
The Company initiated a program in 1998 to assess the risks of Year 2000
noncompliance, remediate all non-compliant systems, assess the readiness of key
third parties and develop contingency plans. The critical aspects of the Year
2000 readiness program were completed in the third quarter of 1999. The Company
has not experienced any significant business interruptions related to the
transition to the Year 2000, however, the Company continues to actively monitor
its systems and third party suppliers. Contingency plans are in place to
prevent the failure of critical systems from having a material effect on the
Company and address the risk of third party non-compliance. Total costs to
address the Year 2000 issue were not material to the Company's financial
position, results of operations or cashflows.
ITEM 2 - DESCRIPTION OF PROPERTIES
================================================================================
The Company and its subsidiaries currently lease 10,030 square feet of office
and laboratory space at 3650 Wesbrook Mall, Vancouver, BC V6S 2L2, Canada for
research, development and administrative purposes. The Company has executed an
agreement to lease the space for an initial term of 36 months ending March 31,
2002. The Company may at its discretion extend the term of the lease for a
further three option periods of 24 months each. Management anticipates the
current facilities will be adequate for the foreseeable future.
ITEM 3 - LEGAL PROCEEDINGS
================================================================================
Nortran is not a party to any material pending legal proceedings and is not
aware of any contemplated legal proceedings to which it may be a party.
ITEM 4 - CONTROL OF REGISTRANT
================================================================================
The Company is not directly or indirectly owned or controlled by another
corporation or by any foreign government. The following table sets forth certain
information as of March 31, 2000 concerning the beneficial ownership of common
shares of the Company as to (a) each person known to the management of the
Company that is the beneficial owner of more than 10% of the outstanding shares
of the Company and (b) Company's officers and directors, as a group:
================================================================================
TITLE OF CLASS IDENTITY OF PERSON OR GROUP AMOUNT OWNED PERCENT OF CLASS
- --------------------------------------------------------------------------------
Common shares CCM Investments Ltd.(1) 5,604,386 15.92%
- --------------------------------------------------------------------------------
Common shares Total voting securities 8,457,786 (3) 24.02%
owned by officers and
directors(2)
================================================================================
NOTES:
(1) Mr. Oh Kim Sun, a director of the Company, is also an indirect shareholder
and the Group Executive Director of the Chemical Company of Malaysia
Berhad, the parent company of CCM Investments Ltd.
(2) Drs. Michael Walker, Allen Bain and Clive Page, all directors of the
Company, are also directors and shareholders of 554238 B.C. Ltd., the
parent company of Magic Bullets Enterprises Ltd. holding directly and
indirectly 2,717,600 shares of the Company.
<PAGE>
Page 29
(3) In addition, the directors and officers of the Company, as a group, are
entitled, under existing incentive stock options, to acquire an aggregate
of 1,450,000 common shares of the Company. See Item 12 "Options to Purchase
Securities From Registrant or Subsidiaries".
ITEM 5 - NATURE OF TRADING MARKET
================================================================================
The Company's common shares are traded in Canada on the Canadian Venture
Exchange (the "CDNX") under the symbol NRT and are quoted on the NASD OTC
Electronic Bulletin Board in the United States under the symbol NTRDF.
The following table sets forth the volume of trading on the CDNX (or its
predecessor the Vancouver Stock Exchange), together with the high, low and
closing sales prices for the period December 1, 1998 through February 29, 2000:
================================================================================
SALES
CANADIAN DOLLARS
--------------------------------------------
QUARTER ENDED VOLUME HIGH LOW CLOSING
================================================================================
February 29, 2000 5,958,977 $1.55 $0.47 $1.39
November 30, 1999 1,163,929 $0.77 $0.50 $0.51
August 31, 1999 5,685,287 $1.73 $0.62 $0.78
May 31, 1999 5,285,336 $1.59 $0.87 $1.49
February 28, 1999 2,794,730 $1.39 $0.97 $1.02
November 30, 1998 6,112,534 $1.42 $0.87 $1.06
August 31, 1998 7,483,854 $1.83 $0.92 $0.94
May 31, 1998 24,790,979 $3.15 $1.34 $1.80
February 28, 1998 6,610,010 $1.69 $0.83 $1.65
================================================================================
The following table sets forth the volume of trading for the Company's common
shares recorded on the NASD OTC Electronic Bulletin Board in the United States,
together with the high, low and closing sales prices (U.S. Dollars) of the
Company's common shares for the period December 1, 1998 through February 29,
2000:
================================================================================
SALES
U.S. DOLLARS
-------------------------------------------
QUARTER ENDED VOLUME HIGH LOW CLOSING
================================================================================
February 29, 2000 1,046,500 $1.19 $0.25 $0.90
November 30, 1999 209,600 $0.56 $0.34 $0.45
August 31, 1999 622,800 $1.13 $0.40 $0.50
May 31, 1999 762,000 $1.09 $0.50 $0.83
February 28, 1999 278,200 $0.88 $0.63 $0.73
November 30, 1998 511,900 $0.94 $0.50 $0.69
August 31, 1998 599,500 $1.28 $0.58 $0.65
May 31, 1998 623,000 $3.25 $0.96 $1.00
February 28, 1998 281,900 $1.10 $0.50 $1.08
================================================================================
On March 31, 2000, the Company had 33 registered shareholders with addresses in
the United States holding approximately 4,308,313 shares or approximately 12.24%
of the total number of issued and outstanding shares. The Company is not aware
of the distribution of any warrants to US residents. Residents of the United
States may beneficially own common shares and warrants registered in the names
of non-residents of the United States.
<PAGE>
Page 30
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
================================================================================
There is no law or governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to a non-resident holder of common shares of the
Company, other than withholding tax requirements. See Item 7 "Taxation".
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident to hold or
vote Common shares of the Company, other than as provided in the Investment
Canada Act (Canada) (the "Investment Act"). The following discussion summarizes
the principal features of the Investment Act for a non-resident who proposes to
acquire common shares of the Company. It is general only, it is not a
substitute for independent advice from an investor's own advisor, and it does
not anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture (each an "entity") that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review the Director of
Investments appointed by the minister responsible for the Investment Act is
satisfied that the investment is likely to be of net benefit to Canada. An
investment in Common shares of the Company by a non-Canadian other than a "WTO
Investor" (as defined in the Investment Act and which term includes entities
which are nationals of or are controlled by nationals of member states of the
World Trade Organization) when the Company was not controlled by a WTO Investor,
would be reviewable under the Investment Act if it was an investment to acquire
control of the Company and the value of the assets of the Company, as determined
in accordance with the regulations promulgated under the Investment Act, was
Cdn.$5,000,000 or more, or if an order for review was made by the federal
cabinet on the grounds that the investment related to Canada's cultural heritage
or national identity, regardless of the value of the assets of the Company. An
investment in Common shares of the Company by a WTO Investor, or by a
non-Canadian when the Company was controlled by a WTO Investor, would be
reviewable under the Investment Act if it was an investment in 1998 to acquire
control of the Company and the value of the assets of the Company, as determined
in accordance with the regulations promulgated under the Investment Act, exceeds
Cdn.$179 million. A non-Canadian would acquire control of the Company for the
purposes of the Investment Act if the non-Canadian acquired a majority of the
Common shares of the Company. The acquisition of less than a majority but one
third or more of the Common shares of the Company would be presumed to be an
acquisition of control of the Company unless it could be established that, on
the acquisition, the Company was not controlled in fact by the acquiror through
the ownership of common shares.
Certain transactions relating to Common shares of the Company would be exempt
from the Investment Act, including
(a) acquisition of Common shares of the Company by a person in the ordinary
course of that person's business as a trader or dealer in securities,
(b) acquisition of control of the Company in connection with the realization
of security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act, and
(c) acquisition of control of the Company by reason of an amalgamation,
merger, consolidation or corporate reorganization following which the
ultimate direct or indirect control in fact of the Company, through the
ownership of Common shares, remained unchanged.
<PAGE>
Page 31
ITEM 7 - TAXATION
================================================================================
CANADIAN FEDERAL INCOME TAXATION
- --------------------------------
The following discussion summarizes the principal Canadian federal income tax
considerations generally applicable to a person (an "Investor") who acquires one
or more Common shares pursuant to this Registration Statement, and who at all
material times for the purposes of the Income Tax Act (Canada) (the "Canadian
Act") deals at arm's length with the Company, holds all Common shares solely as
capital property, is a non-resident of Canada, and does not, and is not deemed
to, use or hold any Common share in or in the course of carrying on business in
Canada. It is assumed that the Common shares will at all material times be
listed on a stock exchange that is prescribed for the purposes of the Canadian
Act.
This summary is based on the current provisions of the Canadian Act, including
the regulations thereunder, and the Canada-United States Income Tax Convention
(1980) (the "Treaty") as amended. This summary takes into account all specific
proposals to amend the Canadian Act and the regulations thereunder publicly
announced by the government of Canada to the date hereof and the Company's
understanding of the current published administrative and assessing practices of
Canada Customs and Revenue Agency. It is assumed that all such amendments will
be enacted substantially as currently proposed, and that there will be no other
material change to any such law or practice, although no assurances can be given
in these respects. Except to the extent otherwise expressly set out herein,
this summary does not take into account any provincial, territorial or foreign
income tax law or treaty.
This summary is not, and is not to be construed as, tax advice to any particular
Investor. Each prospective and current Investor is urged to obtain independent
advice as to the Canadian income tax consequences of an investment in Common
shares applicable to the Investor's particular circumstances.
An Investor generally will not be subject to tax pursuant to the Canadian Act on
any capital gain realized by the Investor on a disposition of a Common share
unless the Common share constitutes "taxable Canadian property" to the Investor
for purposes of the Canadian Act and the Investor is not eligible for relief
pursuant to an applicable bilateral tax treaty. A Common share that is disposed
of by an Investor will not constitute taxable Canadian property of the Investor
provided that the Common share is listed on a stock exchange that is prescribed
for the purposes of the Canadian Act (the Canadian Venture Exchange is so
prescribed), and that neither the Investor, nor one or more persons with whom
the Investor did not deal at arm's length, alone or together at any time in the
five years immediately preceding the disposition owned, or owned any right to
acquire, 25% or more of the issued shares of any class of the capital stock of
the Company. In addition, the Treaty generally will exempt an Investor who is a
resident of the United States for the purposes of the Treaty, and who would
otherwise be liable to pay Canadian income tax in respect of any capital gain
realized by the Investor on the disposition of a Common share, from such
liability provided that the value of the Common share is not derived principally
from real property (including resource property) situated in Canada or that the
Investor does not have, and has not had within the 12-month period preceding the
disposition, a "permanent establishment" or "fixed base", as those terms are
defined for the purposes of the Treaty, available to the Investor in Canada. The
Treaty may not be available to a non-resident investor that is a U.S. LLC which
is not subject to tax in the U.S.
Any dividend on a Common share, including a stock dividend, paid or credited, or
deemed to be paid or credited, by the Company to an Investor will be subject to
Canadian withholding tax at the rate of 25% on the gross amount of the dividend,
or such lesser rate as may be available under an applicable income tax treaty.
Pursuant to the Treaty, the rate of withholding tax applicable to a dividend
paid on a Common share to an Investor who is a resident of the United States for
the purposes of the Treaty will be reduced to 5% if the beneficial owner of the
dividend is a company that owns at least 10% of the voting stock of the Company,
and in any other case will be reduced to 15%, of the gross amount of the
dividend. It is Canada Customs and Revenue Agency 's position that the Treaty
reductions are not available to an Investor that is a "limited liability
company" resident in the United States. The Company will be required to
withhold any such tax from the dividend, and remit the tax directly to Canada
Customs and Revenue Agency for the account of the Investor.
<PAGE>
Page 32
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States Federal
income tax law for U.S. holders that hold such common shares as a capital asset,
as defined under United States Federal income tax law and is limited to
discussion of U.S. Holders that own less than 10% of the common stock. This
discussion does not address all potentially relevant Federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of Federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder. In addition, this discussion does not
cover any state, local or foreign tax consequences. See Item 7 "Taxation -
Canadian Federal Income Taxation".
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"), Treasury Regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, this discussion does not consider
the potential effects, both adverse and beneficial, of any future legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. The following discussion is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of Common Shares of the Registrant and no opinion
or representation with respect to the United States Federal income tax
consequences to any such holder or prospective holder is made. Accordingly,
holders and prospective holders of Common Shares of the Registrant should
consult their own tax advisors about the Federal, state, local, and foreign tax
consequences of purchasing, owning and disposing of Common Shares of the
Registrant.
U.S. HOLDERS
As used herein, a "U.S. Holder" is a holder of Common Shares of the Registrant
who or which is a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for federal income tax purposes, a
corporation or partnership created or organized (or treated as created or
organized for federal income tax purposes) in the United States, including only
the States and District of Columbia, or under the law of the United States or
any State or Territory or any political subdivision thereof, or a trust or
estate the income of which is includable in its gross income for federal income
tax purposes without regard to its source, if, (i) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (ii) one or more United States trustees have the authority to control
all substantial decisions of the trust. For purposes of this discussion, a U.S.
Holder does not include persons subject to special provisions of Federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers and Holders who acquired their stock
through the exercise of employee stock options or otherwise as compensation.
DISTRIBUTIONS ON COMMON SHARES OF THE REGISTRANT
U.S. Holders, who do not fall under any of the provisions contained within the
"Other Consideration for U.S. Holders" section, and receiving dividend
distributions (including constructive dividends) with respect to Common Shares
of the Registrant are required to include in gross income for United States
Federal income tax purposes the gross amount of such distributions to the extent
that the Registrant has current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's United States Federal income tax liability or, alternatively,
may be deducted in computing the U.S. Holder's United States Federal taxable
income by those who itemize deductions. (See more detailed discussion at
"Foreign Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of the Registrant, they will be treated first
as a return of capital up to the U.S. Holder's adjusted basis in the Common
Shares and thereafter as gain from the sale or exchange of the Common Shares.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.
Dividends paid on the Common Shares of the Registrant will not generally be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the United States source portion of dividends received from the Registrant
(unless the Registrant qualifies as a "foreign personal holding company" or a
"passive foreign investment company", as defined below) if such U.S. Holder owns
<PAGE>
Page 33
shares representing at least 10% of the voting power and value of the
Registrant. The availability of this deduction is subject to several complex
limitations which are beyond the scope of this discussion.
FOREIGN TAX CREDIT
A U.S. Holder, who does not fall under any of the provisions contained within
the "Other Consideration for U.S. Holders" section, and who pays (or has
withheld from distributions) Canadian income tax with respect to the ownership
of Common Shares of the Registrant may be entitled, at the option of the U.S.
Holder, to either a deduction or a tax credit for such foreign tax paid or
withheld. Generally, it will be more advantageous to claim a credit because a
credit reduces United States Federal income taxes on a dollar-for-dollar basis,
while a deduction merely reduces the taxpayer's income subject to tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
by (or withheld from) the U.S. Holder during that year. There are significant
and complex limitations which apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate shares of the U.S.
Holder's United States income tax liability that the U.S. Holder's foreign
source income bears to his or its world-wide taxable income. In the
determination of the application of this limitation, the various items of income
and deduction must be classified into foreign and domestic sources. Complex
rules govern this classification process. There are further limitations on the
foreign tax credit for certain types of income such as "passive income", "high
withholding tax interest", "financial services income", "shipping income", and
certain other classifications of income. The availability of the foreign tax
credit and the application of the limitations on the credit are fact specific
and holders and prospective holders of Common Shares of the Registrant should
consult their own tax advisors regarding their individual circumstances.
DISPOSITION OF COMMON SHARES OF THE REGISTRANT
A U.S. Holder, who does not fall under any of the provisions contained within
the "Other Consideration for U.S. Holders" section, and will recognize gain or
loss upon the sale of Common Shares of the Registrant equal to the difference,
if any, between the amount of cash plus the fair market value of any property
received, and the Holder's tax basis in the Common Shares of the Registrant.
This gain or loss will be capital gain or loss if the Common Shares are a
capital asset in the hands of the U.S. Holder unless the Registrant were to
become a controlled foreign corporation. For the effect on the Registrant of
becoming a controlled corporation, see "Controlled Foreign Corporation Status"
below. Any capital gain will be a short-term or long-term capital gain or loss
depending upon the holding period of the U.S. Holder. Gains and losses are
netted and combined according to special rules in arriving at the overall
capital gain or loss for a particular tax year. Deductions for net capital
losses are subject to significant limitations. For U.S. Holders which are
individuals, any unused portion of such net capital loss may be carried over to
be used in later tax years until such net capital loss is thereby exhausted.
For U.S. Holders which are corporations (other than corporations subject to
Subchapter S of the Code), an unused net capital loss may be carried back three
years from the loss year and carried forward five years from the loss year to be
offset against capital gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS FOR U.S. HOLDERS
In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of Common Shares of the Registrant:
FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Registrant's outstanding shares is owned,
actually or constructively, by five or fewer individuals who are citizens or
residents of the United States and 60% or more of the Registrant's gross income
for such year was derived from certain passive sources (e.g., from dividends
received from its subsidiaries), the Registrant would be treated as a "foreign
personal holding company." In that event, U.S. Holders that hold Common Shares
of the Registrant would be required to include in income for such year their
allocable portion of the Registrant's passive income which would have been
treated as a dividend had that passive income actually been distributed.
<PAGE>
Page 34
FOREIGN INVESTMENT COMPANY
If 50% or more of the combined voting power or total value of the Registrant's
outstanding shares are held, actually or constructively, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Registrant is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Registrant might be treated as a "foreign investment company" as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging Common Shares of the Registrant to be treated as
ordinary income rather than capital gains.
PASSIVE FOREIGN INVESTMENT COMPANY
A U.S. Holder who holds stock in a foreign corporation during any year in which
such corporation qualifies as a passive foreign investment company ("PFIC") is
subject to U.S. federal income taxation of that foreign corporation under one of
two alternative tax methods at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in
the United States and, for any taxable year, either (i) 75% or more of its gross
income is "passive income," which includes but is not limited to interest,
dividends and certain rents and royalties or (ii) the average percentage, by
value (or, if the company is a controlled foreign corporation or makes an
election, adjusted tax basis), of its assets that produce or are held for the
production of "passive income" is 50% or more. The Registrant believes that it
is a PFIC.
As a PFIC, each U. S. Holder must determine under which of the alternative tax
methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a
timely manner to treat the Registrant as a Qualified Electing Fund ("QEF"), as
defined in the Code, (an "Electing U.S. Holder") will be subject, under Section
1293 of the Code, to current federal income tax for any taxable year in which
the Registrant's qualifies as a PFIC on his pro-rata share of the Registrant's
(i) "net capital gain" (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital gain to the
Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings and
profits over net capital gain), which will be taxed as ordinary income to the
Electing U.S. Holder, in each case, for the U.S. Holder's taxable year in which
(or with which) the Registrant taxable year ends, regardless of whether such
amounts are actually distributed.
A QEF election also allows the Electing U.S. Holder to (i) generally treat any
gain realized on the disposition of his Common Shares (or deemed to be realized
on the pledge of his Common Shares) as capital gain; (ii) treat his share of the
Registrant's net capital gain, if any, as long-term capital gain instead of
ordinary income, and (iii) either avoid interest charges resulting from PFIC
status altogether (see discussion of interest charge below), or make an annual
election, subject to certain limitations, to defer payment of current taxes on
his share of the Registrant's annual realized net capital gain and ordinary
earnings subject, however, to an interest charge. If the Electing U.S. Holder
is not a corporation, such an interest charge would be treated as "personal
interest" that is not deductible at all in taxable years beginning after 1990.
The procedure a U.S. Holder must comply with in making an timely QEF election
will depend on whether the year of the election is the first year in the U.S.
Holder's holding period in which the Registrant is a PFIC. If the U.S. Holder
makes a QEF election in such first year, (sometimes referred to as a "Pedigreed
QEF Election"), then the U.S. Holder may make the QEF election by simply filing
the appropriate documents at the time the U.S. Holder files its tax return for
such first year. If, however, the Registrant qualified as a PFIC in a prior
year, then in addition to filing documents, the U.S. Holder may also elect to
recognize as an "excess distribution" (i) under the rules of Section 1291
(discussed below), any gain that he would otherwise recognize if the U.S. Holder
sold his stock on the application date or (ii) if the Registrant is a controlled
foreign corporation ("CFC"), the Holder's pro rata share of the corporation's
earnings and profits. (But see "Elimination of Overlap Between Subpart F Rules
and PFIC Provisions"). Either the deemed sale election or the deemed dividend
election will result in the U.S. Holder being deemed to have made a timely QEF
election.
With respect to a situation in which a Pedigreed QEF election is made, if the
Registrant no longer qualifies as a PFIC in a subsequent year, normal Code rules
and not the PFIC rules will apply.
<PAGE>
Page 35
If a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S.
Holder"), then special taxation rules under Section 1291 of the Code will apply
to (i) gains realized on the disposition (or deemed to be realized by reason of
a pledge) of his Common Shares and (ii) certain "excess distributions", as
specially defined, by the Registrant.
A Non-electing U.S. Holder generally would be required to pro-rate all gains
realized on the disposition of his Common Shares and all excess distributions
over the entire holding period for the Common Shares. All gains or excess
distributions allocated to prior years of the U.S. Holder (other than years
prior to the first taxable year of the Registrant during such U.S. Holder's
holding period and beginning after January 1, 1987 for which it was a PFIC)
would be taxed at the highest tax rate for each such prior year applicable to
ordinary income. The Non-electing U.S. Holder also would be liable for interest
on the foregoing tax liability for each such prior year calculated as if such
liability had been due with respect to each such prior year. A Non-electing
U.S. Holder that is not a corporation must treat this interest charge as
"personal interest" which, as discussed above, is wholly non-deductible. The
balance of the gain or the excess distribution will be treated as ordinary
income in the year of the disposition or distribution, and no interest charge
will be incurred with respect to such balance.
If the Registrant is a PFIC for any taxable year during which a Non-electing
U.S. Holder holds Common Shares, then the Registrant will continue to be treated
as a PFIC with respect to such Common Shares, even if it is no longer by
definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC
status by electing to recognize gain (which will be taxed under the rules
discussed above for Non-Electing U.S. Holders) as if such Common Shares had been
sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing U.S. Holders that are generally not otherwise taxed, such as
gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it
is made after the first year during which the Registrant is a PFIC and the U.S.
Holder holds shares of the Registrant) (a "Non-Pedigreed Election"), the QEF
rules apply prospectively but do not apply to years prior to the year in which
the QEF first becomes effective. U.S. Holders should consult their tax advisors
regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special, generally adverse, rules will apply with respect to the Common
Shares while the Registrant is a PFIC whether or not it is treated as a QEF.
For example under Section 1298(b)(6) of the Code (as in effect prior to the
Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for
a loan (including a margin loan) will, except as may be provided in regulations,
be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code,
existing and proposed regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change. Any such change could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules requires the issuance of regulations which in
many instances have not been promulgated and which may have retroactive effect.
There can be no assurance that any of these proposals will be enacted or
promulgated, and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules,
U.S. Holders of the Registrant are strongly urged to consult their own tax
advisors concerning the impact of these rules on their investment in the
Registrant.
MARK-TO-MARKET ELECTION FOR PFIC STOCK UNDER THE TAXPAYER RELIEF ACT OF 1997
The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a
mark-to-market election with respect to the stock of the PFIC if such stock is
marketable as defined below. This provision is designed to provide a current
inclusion provision for persons that are Non-Electing Holders. Under the
election, any excess of the fair market value of the PFIC stock at the close of
the tax year over the Holder's adjusted basis in the stock is included in the
Holder's income. The Holder may deduct any excess of the adjusted basis of the
PFIC stock over its fair market value at the close of the tax year. However,
deductions are limited to the net mark-to-market gains on the stock that the
Holder included in income in prior tax years, or so called "unreversed
inclusions."
For purposes of the election, PFIC stock is marketable if it is regularly traded
on (1) a national securities exchange that is registered with the SEC, (2) the
national market system established under Section 11A of the Securities Exchange
<PAGE>
Page 36
Act of 1934, or (3) an exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents legitimate and sound fair
market value.
A Holder's adjusted basis of PFIC stock is increased by the income recognized
under the mark-to-market election and decreased by the deductions allowed under
the election. If a U.S. Holder owns PFIC stock indirectly through a foreign
entity, the basis adjustments apply to the basis of the PFIC stock in the hands
of the foreign entity for the purpose of applying the PFIC rules to the tax
treatment of the U.S. owner. Similar basis adjustments are made to the basis of
the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC
stock with respect to which an election is made is treated as ordinary income.
Deductions allowed under the election and loss on the sale of PFIC with respect
to which an election is made, to the extent that the amount of loss does not
exceed the net mark-to-market gains previously included, are treated as ordinary
losses. The U.S. or foreign source of any income or losses is determined as if
the amount were a gain or loss from the sale of stock in the PFIC.
If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S.
person that may make the mark-to-market election. Amounts includable in the
CFC's income under the election are treated as foreign personal holding company
income, and deductions are allocable to foreign personal holding company income.
The above provisions apply to tax years of U.S. persons beginning after December
31, 1997, and to tax years of foreign corporations ending with or within such
tax years of U.S. persons.
The rules of Code Section 1291 applicable to nonqualified funds generally do not
apply to a U.S. Holder for tax years for which a mark-to-market election is in
effect. If Code Section 1291 is applied and a mark-to-market election was in
effect for any prior tax year, the U.S. Holder's holding period for the PFIC
stock is treated as beginning immediately after the last tax year of the
election. However, if a taxpayer makes a mark-to-market election for PFIC stock
that is a nonqualified fund after the beginning of a taxpayer's holding period
for such stock, a coordination rule applies to ensure that the taxpayer does not
avoid the interest charge with respect to amounts attributable to periods before
the election.
CONTROLLED FOREIGN CORPORATION STATUS
If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Registrant is owned, directly or indirectly, by U.S.
Holders, each of whom own 10% or more of the total combined voting power of all
classes of stock of the Registrant, the Registrant would be treated as a
"controlled foreign corporation" or "CFC" under Subpart F of the Code. This
classification would bring into effect many complex results including the
required inclusion by such 10% U.S. Holders in income of their pro rata shares
of "Subpart F income" (as defined by the Code) of the Registrant and the
Registrant's earnings invested in "U.S. property" (as defined by the Code). In
addition, under Section 1248 of the Code, gain from the sale or exchange of
Common Shares of the Registrant by such a 10% U.S. Holder of Registrant at any
time during the five year period ending with the sale or exchange is treated as
ordinary dividend income to the extent of earnings and profits of the Registrant
attributable to the stock sold or exchanged. Because of the complexity of
Subpart F, and because the Registrant may never be a CFC, a more detailed review
of these rules is beyond of the scope of this discussion.
ELIMINATION OF OVERLAP BETWEEN SUBPART F RULES AND PFIC PROVISIONS
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be
treated as a PFIC with respect to certain 10% U.S. Holders. For the exception
to apply, (i) the corporation must be a CFC within the meaning of section 957(a)
of the Code and (ii) the U.S. Holder must be subject to the current inclusion
rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a
"United States Shareholder," see "Controlled Foreign Corporation," above). The
exception only applies to that portion of a U.S. Holder's holding period
beginning after December 31, 1997. For that portion of a United States Holder
before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this new provision, if the Registrant were ever to become a CFC,
U.S. Holders who are currently taxed on their pro rata shares of Subpart F
income of a PFIC which is also a CFC will not be subject to the PFIC provisions
with respect to the same stock if they have previously made a Pedigreed QEF
Election. The PFIC provisions will however continue to apply to PFIC/CFC U.S.
<PAGE>
Page 37
Holders for any periods in which they are not subject to Subpart F and to U.S.
Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects
to recognize gain on the PFIC shares held in the Registrant as if those shares
had been sold.
ITEM 8 - SELECTED FINANCIAL DATA
================================================================================
The following table sets forth selected consolidated financial data for the
Company which has been derived from the audited consolidated financial
statements of the Company prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP") which conforms to accounting
principles generally accepted in the U.S. ("U.S. GAAP") except as disclosed in
Note 13 to the audited financial statements included herein. This financial
data should be read in conjunction with the Company's consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included at Item 9 herein.
The following financial data is expressed in Canadian dollars as used in the
Company's financial statements. The exchange rate for conversion to US dollars
is detailed above at the beginning to Part I of this Form 20-F.
On March 1, 1995 the Company completed the acquisition of the remaining 50%
interest in Rhythm-Search. Accordingly, the results of operations of the
wholly-owned subsidiary are reflected in the consolidated financial statements
from that date. Prior to the acquisition of the remaining 50% interest in
Rhythm-Search the Company's research activities were reflected in the
Consolidated Financial Statements through its share of the loss of affiliated
companies.
The consolidated financial statements also include the results of operations of
the Company's newly incorporated subsidiary, Atriven Cardiology Corp.
<PAGE>
Page 38
<TABLE>
<CAPTION>
=====================================================================================================================
YEARS ENDED NOVEMBER 30
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Revenue
<S> <C> <C> <C> <C> <C>
Interest income $ 258,395 $ 320,286 $ 106,187 $ 32,498 $ 21,513
Grant and other revenue 191,868 45,576 22,260 139,313 137,094
- ---------------------------------------------------------------------------------------------------------------------
450,263 365,862 128,447 171,811 158,607
- ---------------------------------------------------------------------------------------------------------------------
Loss Before Undernoted Items 4,451,320 5,168,419 2,749,088 1,231,269 979,273
Loss on disposition of
affiliate - - - - 238,264
Non-controlling interest - - - - (40,265)
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS, CDN GAAP 4,451,320 5,168,419 2,749,088 1,231,269 1,177,272
- ---------------------------------------------------------------------------------------------------------------------
Net Loss per common share,
CDN GAAP $ 0.16 $ 0.19 $ 0.14 $0.09 $ 0.11
Weighted average number of
outstanding shares, CDN GAAP 28,331,730 26,780,674 19,546,048 13,048,683 11,072,610
=====================================================================================================================
Net Loss, Canadian GAAP 4,451,320 5,168,419 2,749,088 1,231,269 1,177,272
Adjustment for development
costs of affiliate - - - - (116,572)
Adjustment for stock-based
compensation 51,000 129,000 237,500 119,000 10,750
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS, U.S. GAAP 4,502,320 5,297,419 2,986,588 1,350,269 1,071,450
- ---------------------------------------------------------------------------------------------------------------------
Net Loss per common share,
US GAAP 0.17 0.21 0.17 0.12 0.11
Weighted number of shares
outstanding, US GAAP 26,831,730 25,280,674 18,046,048 11,548,683 9,572,610
=====================================================================================================================
AS AT NOVEMBER 30
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total Assets, CDN & US GAAP 9,863,730 8,808,686 11,111,530 4,211,595 3,586,465
Long term liabilities, CDN &
US GAAP 91,306 217,989 50,454 - -
=====================================================================================================================
</TABLE>
<PAGE>
Page 39
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements. The Consolidated Financial Statements are prepared in
accordance with CDN GAAP. A discussion of differences between CDN GAAP and US
GAAP is provided in Note 13 to the Consolidated Financial Statements.
Since its reorganization in 1992 as a drug research and development company,
Nortran has devoted its resources primarily to fund its research and development
programs. The Company's business is still at an early stage of development and
has been unprofitable. The Company expects to incur additional losses for the
next several years as it invests in product research and development,
pre-clinical studies and clinical trials, and regulatory compliance. Nortran's
business is subject to significant risks, including uncertainties associated
with the regulatory approval process and with obtaining and enforcing patents
important to the Company's business. See Item 1- "Description of Business -
Risk Factors".
The Company does not anticipate revenues from product sales for the foreseeable
future. Over the next several years, the Company expects to derive its sources
of funding from interest income and equity financing and, to the extent
negotiated, licensing and collaborative research agreements. All or a portion
of the payments that may be received under these agreements will likely be
conditional on Nortran achieving certain development milestones.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED NOVEMBER 30, 1999
- ----------------------------
The Company incurred a consolidated net loss of $4,451,320 ($0.16 per share) as
compared to $5,168,419 million (or $0.19 per share) for the preceding fiscal
year.
Research and development expenses totalled $3,248,775 as compared to $3,311,362
for the 1998 fiscal year. General and administration expenses declined to
$997,890 as compared to $1,553,337 for the preceding fiscal year. The decrease
in general administration expenses was primarily due to the lower consulting and
professional fees, and travel and accommodation expenses incurred.
YEAR ENDED NOVEMBER 30, 1998
- ----------------------------
The Company incurred a consolidated net loss of $5,168,419 ($0.19 per share) as
compared to $2,749,088 ($0.14 per share) for the preceding fiscal year.
The Company expended $3,311,362 in its research and development activities as
compared to $1,306,147 for the 1997 fiscal year. The increase in research and
development expenditures was primarily due to an escalation in research expenses
connected to clinical trials, expansion of research team and related overhead is
associated with the increased activity in this department. The Company expended
$1,553,337 in its administrative activities as compared to $1,100,747 during the
1997 fiscal year. The increase in administrative expenses was primarily due to
the expansion of the Company's administrative support staff with associated
increases in overhead.
YEAR ENDED NOVEMBER 30, 1997
- ----------------------------
The Company incurred a consolidated net loss of $2,749,088 ($0.14 per share) as
compared to $1,231,269 ($0.09 per share) for the preceding fiscal year. The
Company expended $1,306,147 in its research activities as compared to $631,008
during the 1996 fiscal year. The increase in research and development
expenditures was due to the increased expenses incurred in clinical trials and
the expansion of the research team. The Company expended $1,100,747 in its
administrative activities as compared to $418,394 during the 1996 fiscal year.
The increase in administration expenses was due to increased overhead and
recruitment of additional support staff.
<PAGE>
Page 40
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since its change of business to pharmaceutical research and development, the
Company has financed its operations through equity financing, research fees,
government grants and refundable tax credits.
Nortran's activities during the fiscal year ended November 30, 1999 were
financed primarily by its working capital carried forward from the previous
fiscal year and net proceeds collected from the private placement described
below. Working capital at November 30, 1999 was approximately $6.2 million.
Under its various research programs, the Company is obligated to make minimum
research expenditures of approximately $474,000 in the next two years ($320,500
and $153,500 in fiscal 2000 and 2001 respectively). In addition, the Company
has operating lease commitments of approximately $559,000 in the next three
years ($238,000, $241,000 and $80,000 in each of fiscal 2000, 2001 and 2002
respectively).
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants (the "Special Warrants") at a price of $0.70 each for total
gross proceeds of $5.1 million. In connection with the private placement, the
Company paid a cash commission of $304,496 and granted 728,564 compensation
options (the "Compensation Options") to the lead agent of this financing, First
Marathon Securities Limited (the "Agent"). The net proceeds from this financing
support the Company's on-going research and development, primarily in the areas
of antiarrhythmic drugs and acute cough suppressants, and general corporate
purposes.
Each Special Warrant was converted into one common share of the Company, without
additional payment. Each Compensation Option was converted into one share
purchase warrant (the "Agent's Warrant") at no additional cost. Each Agent's
Warrant entitles the Agent to purchase one common share of the Company at $0.70
per share until August 11, 2001.
At November 30, 1999 the Company's cash and cash equivalents and short-term
investments was $6,784,170 as compared to $5,283,814 at November 30, 1998 and
$7,713,399 at November 30, 1997. The Company's working capital surplus at
November 30, 1999 was $6,237,713 as compared to $5,058,958 at November 30, 1998
and $7,648,879 at November 30, 1997.
In fiscal 1998, the Company received $2,410,659 in gross proceeds from the
issuance of equity securities pursuant to the exercise of options and warrants.
On November 10, 1997, the Company completed a non-U.S. non-brokered private
placement of 2.7 million units at $1.60 per unit for gross proceeds of
$4,320,000. Each unit comprised one common share and 0.3 warrant. Each full
warrant entitles the holder to acquire one common share at $2.00 at any time
during the period ending November 10, 1998, this period was subsequently
extended to November 10, 1999.
In June 1997, the Company completed a brokered private placement for one million
units at $0.72 per unit sold exclusively to non-US resident subscribers for
gross proceeds of $720,000. Each unit consists of one common share and one
warrant with each warrant entitling the holder to purchase one share of the
Company at $0.72 in the first year and at $0.90 in the subsequent year with an
expiry date of June 29, 1999. The agent, McDermid St. Lawrence, was paid a 1.5%
commission and granted 100,000 broker warrants, the terms of which are identical
to those for the warrants.
On May 9, 1997 the Company completed a non-U.S. non-brokered private placement
of 2.5 million units at $0.72 per unit, each unit consisting of one common share
and one warrant, and each warrant entitling its holder to purchase one share of
the Company at $0.72 in the first year and at $0.90 in the subsequent year.
This financing generated gross proceeds of $1.8 million from the initial sale of
the units.
During the year ended November 30, 1996 the Company raised approximately $1.5
million net of financing costs in a Special Warrants private placement. This
offering was for 2.5 million units at a price of $0.80, each unit consisting of
one common share and one share purchase warrant. Each warrant entitled the
holder thereof to purchase one additional common share of the Company at a price
of $0.80 on or before May 5, 1997. All of the warrants granted in the 1996
private placements were exercised resulting in a total of an additional $2.1
million in capital for the Company. The proceeds from these offerings were used
to fund research and development activities and to pay administration costs.
<PAGE>
Page 41
The Company completed a private placement of 624,096 units in the 1995 financial
year for total proceeds of approximately $518,000. Each unit consisted of one
common share and one share purchase warrant exercisable at $0.83 in the first
year and $0.95 in the second year to acquire an additional common share. During
the year ended November 30, 1996 the Company raised approximately $1.5 million
net of financing costs in a Special Warrants private placement. This offering
was for 2.5 million units at a price of $0.80, each unit consisting of one
common share and one share purchase warrant. Each warrant entitled the holder
thereof to purchase one additional common share of the Company at a price of
$0.80 on or before May 5, 1997. All of the warrants granted in the 1995 and
1996 private placements were exercised resulting in an additional $0.6 million
and $2.1 million, respectively, in capital for the Company. The proceeds from
these offerings were used to fund research and development activities and to pay
administration costs.
The Company expects that reliance on equity financing will continue during
preclinical development and through the early clinical stages of development.
The longer term sustainability of the Company will be achieved through
collaborative and licensing arrangements and the creation, development and
ultimate disposition of intellectual property. As much as possible, the
disposition of intellectual property will be carried out so as to ensure an
appropriate balance between future earnings potential and current liquidity.
The Company believes that the cash on hand at November 30, 1999 will be
sufficient to fund the operations for the next 18 months. However, the
Company's future cash requirements may vary materially from those now expected
because of a number of factors including the progress of clinical trials,
progress in product development and changes in the focus and direction of the
Company's product development programs. The Company will continue to rely on
outside sources of financing to meet its capital needs beyond the next two
years. However, there can be no assurance that additional financing will be
available on acceptable terms, if at all. If the Company is unable to raise
funds to satisfy its varying cash requirements, the Company's business,
financial condition and results of operations could be materially adversely
affected.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its outstanding Common
Shares since its inception and does not anticipate that it will do so in the
foreseeable future. The declaration of dividends on the Common Shares of the
Company is within the discretion of the Company's Board of Directors and will
depend on the assessment of, among other factors, earnings, capital requirements
and the operating and financial condition of the Company. At the present time
the Company's anticipated capital requirements are such that it intends to
follow a policy of retained earnings in order to finance the further development
of its business.
ITEM 9A - MARKET RISK
================================================================================
The Company does not hold any market risk sensitive instruments.
<PAGE>
Page 42
ITEM 10 - DIRECTORS AND OFFICERS OF THE COMPANY
================================================================================
All directors hold office until the next annual general meeting or until they
resign or are removed from office in accordance with the Company's articles and
the Company Act (British Columbia).
Directors and executive officers of the Company, their position and the period
during which each served as a director or officer are as follows:
================================================================================
NAME POSITION PERIOD SERVED
- --------------------------------------------------------------------------------
Dr. Michael J.A. Walker Director since 1992
Chairman of the Board since 1996
Robert W. Rieder Director since 1997
President, Chief Executive Officer since 1998
Dr. Clive P. Page Director since 1996
Colin R. Mallet Director since 1996
Dr. Allen I. Bain Director since 1996
Oh Kim Sun Director since 1997
Darrell Elliott Director since 1999
Gregory N. Beatch VP Research since 1997
Sheila M. Grant Secretary, since 1997
Director of Finance & Administration since 1996
================================================================================
The following are short biographies on the directors and senior officers of the
Company:
MICHAEL JOHN ALFRED WALKER, PH.D. - CHAIRMAN OF THE BOARD AND DIRECTOR
Dr. Walker has been Chairman of the Board since January 16, 1996 and a Director
of Nortran since February 12, 1992. Dr. Walker devotes approximately 20% of his
time towards the scientific direction and general corporate development of the
Company. Dr. Walker has been a Professor of Pharmacology in the Faculty of
Medicine at UBC since 1986. He graduated with a specialized degree in
pharmacology at the University of London, trained in industrial pharmacology at
Pfizer, UK, and has held teaching positions in Europe, Asia and Africa. Dr.
Walker is also the President and a director of Rhythm-Search.
ROBERT WILLIAM RIEDER, M.B.A. - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Rieder has been a director since April 1997, and has been employed by the
Company on a full-time basis as its President and CEO since April 1998. Mr.
Rieder has extensive experience in venture capital and in operational
management. He was most recently (1994 to 1998) Vice-President at MDS Ventures
Pacific Inc., the Vancouver-based affiliate of MDS Capital Corp., Canada's
largest medical investment fund. Mr. Rieder was Chief Operating Officer for dba
Telecom Inc. in 1994, and was a director of SFG Technology Inc., all
Vancouver-based technology companies and to the best of Mr. Rieder's knowledge,
all of which still carry on business. Mr. Rieder currently serves as a director
of Micrologix Biotech Inc. and StressGen Biotechnologies Corp. Mr. Rieder
received his M.B.A. from the University of Western Ontario.
CLIVE PETER PAGE, PH.D. - DIRECTOR
Dr. Page has been a Director of Nortran Pharmaceuticals since January 16, 1996.
Dr. Page has been a Professor of Pharmacology at Kings College, University of
London, UK, since 1994 and a consultant to the pharmaceutical industry. He is
recognized as a world expert in asthma and other inflammatory diseases and has
published widely on these subjects as well as on pharmacology in general.
Professor Page has had pharmaceutical industry experience in his previous work
for Sandoz Switzerland, a pharmaceutical company. Professor Page acts as
<PAGE>
Page 43
consultant to the Company in the development and partnering of the cough and
local anaesthetic programme. Additionally, Professor Page is a member of the
Company's audit committee and compensation committee.
COLIN ROGER MALLET - DIRECTOR
Mr. Mallet has been a Director of the Company since January 16, 1996. Currently
retired, Mr. Mallet is the former President and Chief Executive Officer of
Sandoz Canada. Mr. Mallet guided the successful growth and development of this
Canadian pharmaceutical company with 540 employees and annual sales of $180
million in 1994. Under his leadership, Sandoz Canada increased its market share
ranking from fifth to first, among the top-ten subsidiaries of its parent
company, Sandoz Pharma Ltd. Mr. Mallet is also past Chairman of the
Pharmaceutical Manufacturers Association and was an active member of the
organization's executive committee from 1991 to 1995. He is a past director of
the Robarts Institute and was founding Chairman of the Institute for Industrial
Pharmacy Research. Mr. Mallet contributes several hours per month in advising
Management in matters of corporate development and product positioning, in
addition to attendance at directors' meetings. Mr. Mallet is Chair of the
Company's audit committee and corporate governance committee and also serves as
a member of the Company's compensation committee.
ALLEN IAN BAIN, PH.D. - DIRECTOR
Dr. Bain has been a Director of the Company since May 13, 1996. Dr. Bain was
President of Nortran Pharmaceuticals Inc. from March 1, 1997 to April 15, 1998.
Dr. Bain received his Ph.D. in pharmacology from the University of British
Columbia, Canada in 1994 for work in neuroscience. Dr. Bain is President, CEO of
Immune Network Research. Dr. Bain is a member of the Company's corporate
governance committee.
OH KIM SUN - DIRECTOR
Mr. Oh was appointed to the Company's Board of Directors in November, 1997 upon
the closing of a private placement with the Chemical Company of Malaysia Berhad
(CCM), as required by the terms of the Investor's subscription agreement. Mr.
Oh is the Group Executive Director of the CCM Group. Mr. Oh, a chartered
accountant, orchestrated the management buy-out of CCM from Imperial Chemical
Industries Ltd. (ICI) where he had held various senior executive positions for
several years. Mr. Oh is a member of the Company's audit committee.
DARRELL ELLIOTT - DIRECTOR
Mr. Elliott was appointed to the Company's Board of Directors in January 1999.
Mr. Elliott is currently Senior Vice-President of MDS Capital Corp. Until
recently, Mr. Elliott was Regional Vice President of Royal Bank Capital
Corporation ("RBCC"). In that role, he was National Managing Director of RBCC's
Life Sciences Fund. With a degree in economics from the University of South
Africa (Pretoria), Mr. Elliott has 27 years of merchant banking, venture capital
and analogous operating experience in Africa, Europe and Canada. As
Vice-Chairman and Financial Director, he assisted one foreign conglomerate in
growing from 6 to 42 companies over an 18 month period. He has also served on
numerous boards of directors, including currently those of several Canadian
private and public companies such as Inex Pharmaceuticals Corp., B.C. Research
Inc., Chromos Molecular Systems Inc. as well as others. Mr. Elliott is a member
of the Company's corporate governance committee.
GREGORY NORBERT BEATCH, PH.D. - VICE PRESIDENT RESEARCH
Dr. Beatch has been VP Research since June 1997. Dr. Beatch joined the Company
in September 1996 as Head of Pharmacology on a one year renewable exchange
program from the Health Protection Branch. Dr. Beatch was a Research Scientist
for the Drugs Directorate of the Health Protection Branch of the Canadian
Government, the equivalent of the US FDA. In this capacity, Dr. Beatch has been
involved in the new drug submission and approval process. Dr. Beatch also holds
Assistant Professorships in Cardiology and Pharmacology, at the University of
Ottawa Heart Institute. Dr. Beatch has published numerous papers proceeding from
peer reviewed grants in the field of cardiovascular drug research.
SHEILA GRANT, MBA - CORPORATE SECRETARY, DIRECTOR OF FINANCE & ADMINISTRATION
Ms. Grant has been Secretary of the Company since May 1, 1997. Ms. Grant joined
the Company as Manager of Business Operations in September 1996. Prior to this
date Ms. Grant acted as business consultant to De Novo Enzyme Corporation and
Coopers & Lybrand. Ms. Grant has also worked in research positions for Schering
Agrochemicals Ltd. UK, Wellcome Biotechnologies U.K. and Serono Diagnostics U.K.
<PAGE>
Page 44
SCIENTIFIC ADVISORY BOARD
Management receives guidance from a Scientific Advisory Board, presently
composed of the following members:
PETER JOHN BARNES, MA, DM, DSC, FRCP
Dr. Barnes is a professor of Thoracic Medicine and Director of the Department of
Thoracic Medicine at the National Heart and Lung Institute (London, U.K.). He is
also the Chairman of Respiratory Sciences at the Imperial College School of
Medicine and is a Consultant Physician to the Royal Brompton Hospital in London.
Dr. Barnes has published over 600 peer reviewed papers of his own and now serves
on the Editorial Boards of numerous medical and pharmacological journals
including the New England Journal of Medicine. Dr. Barnes is an Associate
Editor of the American Journal of Respiratory and Critical Care Medicine, was an
Associate Editor for the European Respiratory Journal and the British Journal of
Clinical Pharmacology, and served as the Editor for Pulmonary Pharmacology.
GUNNAR ABERG, PH.D.
Dr. Aberg is the founder and President of Bridge Pharma Inc., a research and
early development pharmaceutical company based in Sarasota, Florida. Since its
inception, Bridge Pharma's rapidly growing portfolio of diversified patented
products is a credit to his considerable skill and experience in pharmaceutical
and intellectual property issues. Prior to founding Bridge Pharma, Dr. Aberg
was Senior Vice President of Research for Sepracor Inc., where he directed a
research and development group focused on improvement of existing therapies.
Notably, he directed Sepracor's development of Allegra, a non-sedating
antihistamine without cardiotoxicity. Dr. Aberg has also held several senior
research and development positions with major pharmaceutical companies including
Bristol-Myers Squibb Company, Ciba-Geigy Corporation and Astra Pharmaceuticals
Inc. He led research teams in these companies that have brought to the market
products such as Monopril, Lopressor and Lotensin (all three are used for the
treatment of high blood pressure), Tonocard (for cardiac arrhythmia), and
Marcaine (for local anesthesia).
JOEL MORGANROTH, M.D., F.A.C.C., F.A.C.P.
Dr. Morganroth holds teaching positions at the University of Pennsylvania School
of Medicine and the Jefferson Medical College of Thomas Jefferson University,
has published more than 300 scientific papers in the field of cardiology and has
edited 23 books on cardiology and antiarrhythmic drugs. Dr. Morganroth also has
played a role in a number of major multicenter clinical trials including the
CAST trial which assesses the therapeutic value of therapeutic antiarrhythmics.
Dr. Morganroth is currently the CEO of Premier Research Worldwide.
STANLEY NATTEL
Dr. Nattel obtained BSc (1972) and MDCM (1974) degrees at McGill University, and
then trained in Internal Medicine (1974-76, at the Royal Victoria Hospital) and
Clinical Pharmacology (1976-78, at the Montreal General Hospital). After
research and clinical training in Cardiology at the Krannert Institute of
Cardiology in Indianapolis (1978-80) and an additional year of research training
in Physiology at the University of Pennsylvania in Philadelphia (1980-81), he
became a faculty member in Pharmacology and Medicine at McGill University and a
Cardiologist/Clinical Pharmacologist at the Montreal General Hospital. In 1987,
he moved to the Montreal Heart Institute and the University of Montreal. Since
1990, Dr. Nattel has been the Scientific Director of the Research Center of the
Montreal Heart Institute. Dr. Nattel's research interests have focused on the
basic mechanisms determining cardiac arrhythmogenesis and governing the efficacy
and safety of antiarrhythmic therapy. His work as an independent researcher over
the past 20 years has been marked by a broad "bench to bedside" type of
approach.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
================================================================================
The aggregate compensation (solely salary) paid to all directors and executive
officers of the Company, as a group, for the fiscal year ended November 30, 1999
was $325,000.
For purposes of this Item, "executive officer" and "named executive officer" of
the Company means an individual who at any time during the year was the chairman
or a vice-chairman of the board of directors, where such person performed the
functions of such office on a full-time basis, the president, any vice-president
in charge of a principal business unit such as sales, finance or production, or
<PAGE>
Page 45
any officer of the Company or of a subsidiary or other person who performed a
policy-making function in respect of the Company.
COMPENSATION OF EXECUTIVE OFFICERS
- ----------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation information paid by the
Registrant and its subsidiaries for the last fiscal year for the Company's Chief
Executive Officer and the next four highest paid officers who are paid more than
$100,000 per year.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED
OTHER SECURITIES SHARES OR
ANNUAL UNDER RESTRICTED
COMPENSATION OPTIONS SHARE LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS ($) GRANTED UNITS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Michael J.A. Walker 1999 Nil Nil Nil Nil Nil Nil Nil
Chairman, Former CEO
- -----------------------------------------------------------------------------------------------------------------------------------
Robert W. Rieder 1999 $200,000 Nil Nil Nil Nil Nil Nil
Director, President
and CEO
- -----------------------------------------------------------------------------------------------------------------------------------
Dr. Gregory N. Beatch 1999 $125,000 Nil Nil Nil Nil Nil $ (7)
V.P. Research
===================================================================================================================================
</TABLE>
LONG TERM COMPENSATION
During the most recently completed financial year ended November 30, 1999, the
Company did not make any long-term incentive plan awards to its Directors,
officers or employees.
OPTIONS
The Company did not grant stock options to its Named Executive Officers during
the year ended November 30, 1999. During the most recently completed financial
year ended November 30, 1999, the Directors and Officers exercised zero stock
options. See Item 12 "Options to Purchase Securities From Registrant or
Subsidiaries".
PENSION PLAN
The Company does not maintain a pension plan for its employees, officers or
directors.
<PAGE>
Page 46
COMPENSATION OF DIRECTORS
- ---------------------------
During the financial year ended November 30, 1999, the following directors of
the Company received the amounts of compensation shown:
================================================================================
DIRECTOR SALARY DIRECTORS' FEES CONSULTING FEES
- --------------------------------------------------------------------------------
Michael Walker nil nil nil
Robert Rieder $200,000 nil nil
Clive Page nil $10,000 $39,261
Colin Mallet nil $10,000 $2,000
Darrell Elliott nil $8,333 $6,500 (1)
Allen Bain nil nil nil
Oh Kim Sun nil nil nil
================================================================================
(1) Paid to Isuma Strategies Inc., a company owned by Mr. Elliott
Other than as disclosed herein, none of the directors of the Company, in their
role of as directors, have received any remuneration, other than reimbursement
for travel and other out-of-pocket expenses incurred for the benefit of the
Company during the most recently completed financial year.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM
REGISTRANT OR SUBSIDIARIES
================================================================================
INCENTIVE STOCK OPTIONS
- -----------------------
The Company is subject to the policies of the Canadian Venture Exchange ("CDNX")
in respect of the grant of stock options. Under the CDNX policy guidelines the
aggregate number of shares that may be reserved for issuance pursuant to
director or employee stock options must not exceed
(a) 10% of the issued shares at the time of the grant unless the grant is
pursuant to a stock option plan which has been accepted by the CDNX, and
(b) 5% of the issued shares to any one individual at the time of the grant.
<PAGE>
Page 47
INCENTIVE STOCK OPTIONS
The following table summarizes, as at March 31, 2000, the outstanding incentive
stock options.
================================================================================
Date of Grant Number of Options Exercise Price Expiry Date
- --------------------------------------------------------------------------------
November 1, 1995 45,000 $0.63 October 31, 2000
April 11, 1996 200,000 $0.70 April 10, 2001
July 9, 1996 175,000 $1.00 July 8, 2001
April 3, 1997 310,000 $1.40 April 2, 2002
April 21, 1997 40,000 $1.42 April 20, 2002
May 30, 1997 90,000 $1.25 May 29, 2002
January 19, 1998 15,000 $0.97 January 18, 2003
March 18, 1998 600,000 $1.49 March 17, 2003
March 27, 1998 200,000 $1.85 April 26, 2001
June 12, 1998 260,000 $1.58 June 11, 2004
October 16, 1998 265,000 $1.05 October 15, 2004
January 11, 1999 35,000 $1.26 January 10, 2005
February 9, 1999 100,000 $1.10 February 8, 2004
February 25, 1999 50,000 $1.05 February 24, 2005
November 1, 1999 100,000 $0.61 October 31, 2002
November 1, 1999 50,000 $0.61 October 31, 2004
November 1, 1999 60,000 $0.61 October 31, 2005
February 14, 2000 130,000 $1.05 February 13, 2006
March 30, 2000 55,000 $1.81 March 29, 2005
- --------------------------------------------------------------------------------
TOTAL 2,780,000
================================================================================
The total number of incentive options outstanding as at March 31, 2000 is
2,780,000. The following table sets out certain details of these options that
are held by directors and senior officers of the Company as at March 31, 2000.
There can be no assurances that the options described above will be exercised in
whole or in part.
<PAGE>
Page 48
SUMMARY TABLE OF OPTIONS HELD BY
DIRECTORS AND OFFICERS OF NORTRAN PHARMACEUTICALS INC.
================================================================================
NAME NUMBER OF SHARES HELD EXERCISE PRICE EXPIRATION DATE
UNDER OPTION
- --------------------------------------------------------------------------------
Michael Walker 30,000 $0.63 Oct. 31, 2000
Robert Rieder 55,000 $1.81 March 29, 2005
600,000 $1.49 March 17, 2003
40,000 $1.42 April 20, 2002
Clive Page 100,000 $0.70 April 10, 2001
50,000 $0.61 Oct. 31, 2004
Colin Mallet 100,000 $0.70 April 10, 2001
Allen Bain 200,000 $1.85 April 26, 2001
Darrell Elliott 100,000 $1.10 Feb. 8, 2004
Gregory Beatch 60,000 $1.25 May 29, 2002
55,000 $1.05 Oct. 15, 2004
Sheila Grant 60,000 $1.40 April 2, 2002
- --------------------------------------------------------------------------------
TOTAL 1,450,000
================================================================================
In May 1998, the shareholders of the Company approved a share option plan (the
"Option Plan"). Directors, officers, employees and consultants of the Company
and any subsidiary of the Company are eligible to participate in the Option
Plan. The number of remaining common shares reserved for issuance under the
Option Plan is 1,132,000, excluding the 2,780,000 shares as at March 31, 2000,
reserved for issuance under presently outstanding incentive stock options.
All grants of options under the Option Plan are to be made by the board of
directors or an authorized committee of the board. The minimum exercise price
will be the 10-day trading average closing price of the Common shares on the
Canadian Venture Exchange immediately preceding the date of grant of the option.
All options granted under the Option Plan may be for a term of up to 10 years
from the date of grant thereof. Options granted to officers, employees or
consultants will vest annually after the date of grant at the rate of the
greater of 20,000 Common shares or 20% of the number of Common shares which may
be purchased on the exercise of the option. Options granted to directors will
vest immediately upon grant as to 20% of the number of Common shares which may
be purchased under the option and thereafter as to 20% on each anniversary of
the date of grant.
The maximum number of Common shares which may be reserved for issuance under the
Option Plan to any one person at any time will be 5% of the Common shares
outstanding on a non-diluted basis (the "Outstanding Issue") at that time, less
the aggregate number of common shares reserved for issuance to such person under
any other share compensation arrangement. The number of Common shares that may
be reserved for issuance under the Option Plan and any other share compensation
arrangement (i) to insiders of the Company may not exceed 2,500,000 Common
shares, (ii) in a one-year period insiders of the Company may not exceed 10% of
the Outstanding Issue at that time, and (iii) to any one insider, within a
one-year period, may not exceed 5% of the Outstanding Issue at that time. Under
the Option Plan, an insider is, generally, a director or senior officer of the
Company or its subsidiary, and includes an associate of the insider.
The number of Common shares subject to an option will be adjusted in the event
of any subdivision or consolidation of the Common shares or any dividend payable
in common shares and in the event of certain other reorganizations or other
events affecting the Common shares, as determined by the board of directors.
WARRANTS
- --------
On November 18, 1999, the Company completed a non-U.S. private placement of
7,285,643 special warrants (the "Special Warrants") at a price of $0.70 each for
total gross proceeds of $5.1 million. In connection with the private placement,
<PAGE>
Page 49
the Company paid a cash commission of $304,496 and granted 728,564 compensation
options (the "Compensation Options") to the lead agent of this financing, First
Marathon Securities Limited (the "Agent").
Each Special Warrant was converted into one common share of the Company, without
additional payment. Each Compensation Option was converted into one share
purchase warrant (the "Agent's Warrant") at no additional cost. Each Agent's
Warrant entitles the Agent to purchase one common share of the Company at $0.70
per share until August 11, 2001. There are no outstanding purchase warrants as
at March 31, 2000.
On November 10, 1997 the Company completed a non-U.S., non-brokered private
placement of 2,700,000 units at $1.60 per unit for gross proceeds of $4,320,000.
Each unit comprised one common share and 0.3 warrant. Each full warrant
entitled the holder to acquire one common share at $2.00 at any time during the
period ending November 10, 1999. As at March 31, 2000 all warrants have been
exercised.
On May 9, 1997 the Company entered into a non-U.S. non-brokered private
placement agreement for 2,500,000 units at a price of $0.72 per unit. Each unit
consisted of one common share and one non-transferable share purchase warrant
entitling the holder to purchase one additional common share exercisable at a
price of $0.72 per share if exercised by May 7, 1998 and at a price of $0.90 if
exercised by May 7, 1999. As at March 31, 2000 all warrants have been
exercised.
In addition to this non-brokered private placement the Company completed a
second, concurrent non-U.S. private placement. This brokered portion of the
private placement was for one million units at $0.72 per unit, each unit
consisting of one common share and one warrant, each warrant entitling the
holder to purchase one share of the Company at $0.72 in the first year and at
$0.90 in the subsequent year. The Agent for the offering was paid a commission
of and was granted 100,000 share purchase warrants, for which the terms are
identical to those for the warrants described above. As at March 31, 2000 all
warrants have been exercised or expired.
There are no outstanding share purchase warrants as at March 31, 2000.
ESCROW SHARES
As at March 31, 2000, the Company had cancelled 1,500,000 common shares that had
previously been held in escrow. The release of these shares was subject to the
approval of regulatory authorities and was based on the Company's cumulative
cashflow. These shares were included as outstanding shares prior to the
cancellation date and were returned to Treasury on March 13, 2000 and are
therefore excluded in the 35,204,506 issued and outstanding common shares
described in this Annual Report.
The Escrow Shares were held in escrow pursuant to the terms of an agreement
dated February 23, 1990 (the "Escrow Agreement") among the Company, Pacific
Corporate Trust Company, (the "Escrow Agent"), and the escrow holder. The
escrow restrictions contained in the Escrow Agreement provided that the shares
could not be traded in, dealt with in any manner whatsoever, or released, nor
may the Company, its transfer agent, or escrow holder make any transfer or
record any trading of the shares without the consent of the Superintendent of
Brokers for British Columbia (the "Superintendent") or, while the shares are
listed on the CDNX, the consent of the CDNX. The Escrow Shares could only have
been released upon written consent, order or direction of, and in accordance
with the general policies of, the Superintendent or the CDNX. The Escrow
Agreement provided that any shares not released from escrow before January 22,
2000 would be cancelled.
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
================================================================================
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
No directors or senior officers or any of their associates were indebted to the
Company in the most recently completed financial year.
<PAGE>
Page 50
CONFLICT OF INTEREST
Although the directors and officers of the Registrant have various fiduciary
obligations to the Registrant, situations may arise where the interests of the
directors and officers of the subsidiaries of the Registrant or of the other
shareholders thereof (other than the Registrant) could conflict with those of
the Registrant. The potential conflicts of interest arise as a result of common
ownership and certain common directors, officers and personnel of the
Registrant, such subsidiaries and their associates and their affiliates. These
conflicts are normally resolved in accordance with the applicable statutory
provisions and common law requirements for the disclosure of conflicts at
meetings of the directors held for the purposes, inter alia, of acquiring assets
or dealing in assets in which directors have an interest.
Some of the directors and officers of the Company are also directors and
officers of other reporting companies. It is possible, therefore, that a
conflict may arise between their duties as a director or officer of the Company
and their duties as a director or officer of such companies. All such conflicts
be disclosed by them in accordance with the Company Act (British Columbia) and
they govern themselves in respect thereof to the best of their ability in
accordance with the obligations imposed upon them by law.
RELATED PARTY TRANSACTIONS
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
Paid to companies with a common
director for:
- contract research services 163,954 48,041 -
- administrative consulting services 6,500 - -
Paid to directors for: - -
- research consulting services 37,761 - -
- administrative consulting services 3,500 - -
Paid to a partnership where a
director is a partner for
administrative consulting services - - 21,000
Accounts payable to directors
and/or companies with a common
director 40,690 - -
================================================================================
All transactions are recorded at their exchange amounts.
<PAGE>
Page 51
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
================================================================================
(NOT APPLICABLE)
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY
FOR REGISTERED SECURITIES AND USE OF PROCEEDS
================================================================================
(NOT APPLICABLE)
PART IV
ITEM 17 - FINANCIAL STATEMENTS
================================================================================
The financial statements filed as part of this annual report are listed in Item
19 - Financial Statements and Exhibits.
All financial statements herein, are stated in accordance with accounting
principles generally accepted in Canada. Such financial statements have been
reconciled to United States GAAP. For the history of exchange rates which were
in effect for Canadian dollars against United States dollars, see the forepart
to "Part I" above.
ITEM 18 - FINANCIAL STATEMENTS
================================================================================
The Company has elected to provide financial statements pursuant to Item 17
"Financial Statements".
<PAGE>
Page 52
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
================================================================================
A. FINANCIAL STATEMENTS
Auditor's Report
Consolidated Balance Sheets of the Company as at November 30, 1999 and 1998.
Consolidated Statements of Loss and Deficit for the years ended November 30,
1999, 1998 and 1997.
Consolidated Statements of Changes in Cash flows for the years ended November
30, 1999, 1998 and 1997.
Notes to the Consolidated Financial Statements.
B. EXHIBITS
1.1 Memorandum and Articles of the Company(1)
2.1 Warrant dated November 10, 1997 issued to the Chemical Company of
Malaysia Berhad (2)
2.2 License agreement dated November 15, 1997 with Bridge Pharma Inc. (3)
2.3 License agreement dated March 29, 1996 with the University of British
Columbia(4)
2.4 Research Agreement dated March 1, 1997 with the University of British
Columbia(5)
2.5 Agreement dated November 19, 1997 with Drs. MacLeod and Quastel(6)
2.6 Form of 1998 share option plan (7)
2.7 Escrow agreement dated February 23, 1990 with a number of escrow
holders(8)
3.1 Agreement dated May 6, 1998 with F. Hoffmann-La Roche Ltd. (9)
3.2 Agreement dated November 17, 1998 with Astra H ssle AB (10)
NOTES:
(1) Filed as exhibit No. 1.1 to the Company's Registration Statement on Form
20-F (File No. 0-29338 filed on August 22, 1997).
(2) Forms of warrant issued on November 10, 1997 have been previously filed
as exhibit No. 2.1 to the Company's Annual Report for 1997 on Form 20-F
(File No. 0-29338 filed on May 29, 1998).
(3) Filed as exhibit No. 2.3 to the Company's Annual Report on Form 20-F
(File No. 0-29338 for the fiscal year ended November 30, 1997).
(4) Filed as exhibit No. 3.1 to the Company's Registration Statement on Form
20-F (File No. 0-29338 filed on August 22, 1997).
(5) Filed as exhibit No. 3.4 to the Company's Registration Statement on Form
20-F (File No. 0-29338 filed on August 22, 1997).
(6) Filed as exhibit 2.8 to the Company's Annual Report on Form 20-F (File
No. 0-29338 for the fiscal year ended November 30, 1997).
(7) Filed as exhibit 2.11 to the Company's Annual Report on Form 20-F (File
No. 0-29338 for the fiscal year ended November 30, 1997).
(8) Filed as exhibit No. 3.8 to the Company's Registration Statement on Form
20-F (File No. 0-29338 filed on August 22, 1997).
(9) Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an application for confidential treatment
under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
(10) Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an application for confidential treatment
under Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
CONSOLIDATED FINANCIAL STATEMENTS
NORTRAN PHARMACEUTICALS INC.
NOVEMBER 30, 1999
<PAGE>
AUDITORS' REPORT
To the Shareholders of
NORTRAN PHARMACEUTICALS INC.
We have audited the consolidated balance sheets of NORTRAN PHARMACEUTICALS INC.
as at November 30, 1999 and 1998 and the consolidated statements of loss and
deficit and cash flows for each of the years in the three year period ended
November 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three year period ended November 30, 1999 in accordance with
accounting principles generally accepted in Canada. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
Vancouver, Canada, /s/ ERNST & YOUNG LLP
January 20, 2000. Chartered Accountants
<PAGE>
NORTRAN PHARMACEUTICALS INC.
Incorporated under the laws of British Columbia
CONSOLIDATED BALANCE SHEETS
As at November 30 (expressed in Canadian dollars)
1999 1998
$ $
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 4,209,003 3,919,564
Short-term investments [notes 3 and 6] 2,575,167 1,364,250
Other receivables and prepaid expenses 258,516 277,260
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,042,686 5,561,074
Capital assets [note 4] 461,576 649,982
Other assets [note 5] 2,359,468 2,597,630
- --------------------------------------------------------------------------------
TOTAL ASSETS 9,863,730 8,808,686
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 675,542 366,317
Current portion of obligations under capital
leases [note 10] 60,602 73,414
Current portion long-term debt [note 6] 68,829 62,385
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 804,973 502,116
Obligations under capital leases [note 10] 41,145 99,554
Long-term debt [note 6] 50,161 118,435
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 896,279 720,105
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital [note 7] 25,282,040 19,951,850
Deficit (16,314,589) (11,863,269)
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 8,967,451 8,088,581
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 9,863,730 8,808,686
- -------------------------------------------------------------------------------
Commitments and contingencies [note 10]
See accompanying notes
On behalf of the Board:
/s/Robert W. Rieder /s/Michael J. Walker
Director Director
<PAGE>
NORTRAN PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
- --------------------------------------------------------------------------------
$ $ $
- --------------------------------------------------------------------------------
REVENUE
Interest income 258,395 320,286 106,187
Grant and other revenue [note 8] 191,868 45,576 22,260
- --------------------------------------------------------------------------------
450,263 365,862 128,447
- --------------------------------------------------------------------------------
EXPENSES
Research and development [note 9] 3,248,775 3,311,362 1,306,147
General and administration 997,890 1,553,337 1,100,747
Amortization 654,918 669,582 470,641
- --------------------------------------------------------------------------------
4,901,583 5,534,281 2,877,535
- --------------------------------------------------------------------------------
LOSS FOR THE YEAR 4,451,320 5,168,419 2,749,088
Deficit, beginning of year 11,863,269 6,694,850 3,945,762
- --------------------------------------------------------------------------------
DEFICIT, END OF YEAR 16,314,589 11,863,269 6,694,850
- --------------------------------------------------------------------------------
BASIC LOSS PER COMMON SHARE 0.16 0.19 0.14
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 28,331,730 26,780,674 19,546,048
- --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
NORTRAN PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30 (expressed in Canadian dollars)
1999 1998 1997
- --------------------------------------------------------------------------------
$ $ $
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year (4,451,320) (5,168,419) (2,749,088)
Add items not affecting cash
Amortization 654,918 669,582 470,641
Loss on disposal of capital assets - 4,256 -
Changes in non-cash working capital
Other receivables and prepaid expenses 18,744 (127,045) (101,380)
Accounts payable and accrued liabilities 227,062 183,605 (56,520)
- --------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (3,550,596) (4,438,021) (2,436,347)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of share capital 5,412,353 2,410,659 9,623,066
Payment on obligations under capital leases (71,221) (46,776) (34,033)
Increase in long-term debt - 200,000 -
Repayment of long-term debt (61,830) (19,180) -
- --------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 5,279,302 2,544,703 9,589,033
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (60,190) (397,059) (356,673)
Patent costs capitalized (168,160) (139,208) (71,698)
Short-term investments (1,210,917) 5,205,483 (6,569,733)
- --------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,439,267) 4,669,216 (6,998,104)
- --------------------------------------------------------------------------------
INCREASE IN CASH DURING THE YEAR 289,439 2,775,898 154,582
Cash and cash equivalents, beginning
of year 3,919,564 1,143,666 989,084
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 4,209,003 3,919,564 1,143,666
- --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Page 1
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
1. NATURE OF OPERATIONS
Nortran Pharmaceuticals Inc. (the "Company") is a drug discovery company engaged
in the treatment of pathologies and conditions which are mediated by cellular
ion channels. The Company's primary focus is the discovery and development of
drugs designed to prevent cardiac arrhythmias and for the treatment of acute
unproductive cough. To date, the Company has not yet determined the ultimate
economic viability of the drugs and has not commenced commercial operations for
its drugs.
The continuation of the Company's research and development activities and the
commercialization of the targeted therapeutic products is dependent upon the
Company's ability to successfully complete its research and development programs
and finance its cash requirements through a combination of equity financings and
payments from potential strategic partners.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its accounts in accordance with generally accepted
accounting principles ("GAAP") in Canada. A reconciliation of amounts presented
in accordance with United States GAAP is detailed in note 13. The following is
a summary of significant accounting policies used in the preparation of these
consolidated financial statements:
USE OF ESTIMATES
The preparation of the financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results could
differ from those estimates.
CASH FLOW STATEMENT
The Company has adopted the new recommendations of the Canadian Institute of
Chartered Accountants Handbook for cash flow statements and has restated the
comparative periods to conform to this revised standard. Accordingly, the
Company has redefined cash and cash equivalents and has reclassified non-cash
transactions such as assets under capital leases within the statement of cash
flows.
CONSOLIDATION
These consolidated financial statements include the accounts of Nortran
Pharmaceuticals Inc. and its wholly-owned subsidiaries, Rhythm-Search
Developments Ltd. (RSD) and 3629490 Canada Inc.
<PAGE>
Page 2
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
and accrued liabilities the carrying amounts approximate fair value due to their
short-term nature. The term loan and the obligations under capital leases bear
interest at rates which, in management's opinion, approximate the current
interest rates and therefore, approximate their fair value.
FOREIGN CURRENCY TRANSLATION
The Company follows the temporal method of accounting for the translation of
foreign currency amounts into Canadian dollars. Under this method monetary
assets and liabilities in foreign currencies are translated at the exchange
rates in effect at the balance sheet date. All other assets and liabilities are
translated at rates prevailing when the assets were acquired or liabilities
incurred. Income and expense items are translated at the exchange rates in
effect on the date of the transaction. Resulting exchange gains or losses are
included in the determination of loss for the year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Cash equivalents which comprise
commercial papers, bankers' acceptances and term deposits with an average
interest rate of 4.5% [November 30, 1998 - 4.8%], are stated at cost, which
approximates market value.
SHORT-TERM INVESTMENTS
Short-term investments, which comprise mainly commercial papers and term
deposits with maturities to June 2001 [November 30, 1998 - June 2001] and an
average interest rate of 5.02% [November 30, 1998 - 5.06%], are recorded at the
lower of cost and market value. The carrying value of these investments
approximates their market value.
<PAGE>
Page 3
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated amortization. The Company
records amortization of laboratory, computer and office equipment on a
straight-line basis over 3 to 5 years. Leasehold improvements are amortized on
a straight-line basis over the term of the lease plus one renewal period.
Equipment under capital lease is amortized on a straight-line basis over 5
years.
TECHNOLOGY, LICENSE AND PATENT COSTS
The excess of the cost of investment in RSD over the fair value of the net
tangible assets acquired is ascribed to technology. Technology and licenses are
amortized on a straight-line basis over a period of ten years.
The Company capitalizes as patents the costs associated with the preparation,
filing, and obtaining of patents. The cost of the patents is amortized on a
straight-line basis over the estimated useful lives of the patents of ten years.
The amounts shown for technology, license and patent costs do not necessarily
reflect present or future values and the ultimate amount recoverable will be
dependent upon the successful development and commercialization of products
based on these rights. If management determines that such costs exceed
estimated net recoverable value, based on estimated future cash flows, the
excess of such costs are charged to operations.
GOVERNMENT ASSISTANCE
Government assistance towards current expenses is included in revenue when there
is reasonable assurance that the Company has complied with all conditions
necessary to receive the grants.
RESEARCH AND DEVELOPMENT REVENUES AND EXPENSES
Funding under collaborative research arrangements is not refundable, and
accordingly is recorded as research activities are performed under the term of
the arrangement. Research funding towards current expenses is deducted from the
cost of the related expenditure. Research costs are expensed in the period
incurred. Development costs are expensed in the period incurred unless the
Company believes a development project meets generally accepted accounting
criteria for deferral and amortization.
<PAGE>
Page 4
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
STOCK BASED COMPENSATION
The Company grants stock options to executive officers and directors, employees,
consultants and clinical advisory board members pursuant to a stock option plan
described in note 7[e]. No compensation is recognized for these plans when
common shares are awarded or stock options are granted. Any consideration
received on exercise of stock options or the purchase of stock is credited to
share capital. If common shares are repurchased, the excess or deficiency of
the consideration paid over the carrying amount of the common shares cancelled
is charged or credited to contributed surplus or retained earnings.
INCOME TAXES
The Company uses the deferral method in accounting for income taxes.
LOSS PER COMMON SHARE
Loss per share has been calculated using the weighted average number of common
shares outstanding in each respective period including escrow shares. Fully
diluted loss per share is not presented since the issue of shares upon the
exercise of stock options and warrants would be anti-dilutive.
3. CREDIT FACILITY
At November 30, 1999 the Company has available an unused operating line of
credit of $200,000 [1998 - $200,000] which is collateralized by a cashable
certificate of $200,000 [1998 - $200,000] which is included in short-term
investments.
<PAGE>
Page 5
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Laboratory equipment 380,805 184,143 196,662
Computer equipment 315,964 237,479 78,485
Equipment under capital lease 211,086 73,116 137,970
Office equipment 71,851 29,791 42,060
Leasehold improvements 6,884 485 6,399
- ---------------------------------------------------------------------------------------------------
986,590 525,014 461,576
- ---------------------------------------------------------------------------------------------------
1998
Laboratory equipment 318,982 87,598 231,384
Computer equipment 288,819 136,427 152,392
Equipment under capital lease 252,332 52,897 199,435
Office equipment 66,268 15,992 50,276
Leasehold improvements 128,920 112,425 16,495
- ---------------------------------------------------------------------------------------------------
1,055,321 405,339 649,982
- ---------------------------------------------------------------------------------------------------
5. OTHER ASSETS
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
1999
Technology 3,396,193 1,613,496 1,782,697
License 105,208 31,561 73,647
Patents 626,309 123,185 503,124
- ---------------------------------------------------------------------------------------------------
Total 4,127,710 1,768,242 2,359,468
- ---------------------------------------------------------------------------------------------------
1998
Technology 3,396,193 1,273,877 2,122,316
License 105,208 21,041 84,167
Patents 458,149 67,002 391,147
- ---------------------------------------------------------------------------------------------------
Total 3,959,550 1,361,920 2,597,630
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 6
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
6. LONG-TERM DEBT
1999 1998
$ $
- --------------------------------------------------------------------------------
Promissory note bearing interest at 10.77% per
annum, repayable in blended monthly instalments
of $6,468 per month commencing August 1, 1998
until July 1, 2001 118,990 180,820
Less: current portion 68,829 62,385
- --------------------------------------------------------------------------------
50,161 118,435
- --------------------------------------------------------------------------------
As collateral, the Company has assigned term deposits with a maturity value of
$200,000 to the lender. Subsequent to November 30, 1999, $100,000 of the
assigned term deposits were released to the Company.
Interest expense during the year ended November 30, 1999 amounted to $15,786
[1998 - $6,692].
Principal amounts of the promissory note repayable over the next two years are
as follows:
$
- --------------------------------------------------------------------------------
2000 68,829
2001 50,161
- --------------------------------------------------------------------------------
118,990
- --------------------------------------------------------------------------------
<PAGE>
Page 7
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL
a] AUTHORIZED
200,000,000 common shares without par value
b] ISSUED
Number
of Shares Amount
# $
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996 15,478,503 7,918,125
Issued for cash upon exercise of options 292,000 221,730
Issued for cash upon exercise of warrants 3,124,096 2,592,891
Issued for cash pursuant to private
placements, net of issuance costs 6,200,000 6,808,445
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 25,094,599 17,541,191
Issued for cash upon exercise of options 658,700 740,259
Issued for cash upon exercise of warrants 1,920,000 1,670,400
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1998 27,673,299 19,951,850
Issued for cash upon exercise of options 5,000 5,000
Issued for cash upon exercise of warrants 939,000 845,100
Issued for cash pursuant to private
placements, net of issuance costs 7,285,643 4,480,090
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1999 35,902,942 25,282,040
- --------------------------------------------------------------------------------
c] PRIVATE PLACEMENTS
On November 18, 1999, the Company completed a private placement of 7,285,643
special warrants at a price of $0.70 each for a total gross proceeds of
$5,099,950. Each special warrant was converted into one common share at no
additional cost. In connection with the private placement, the Company paid a
cash commission of $304,496 and legal and professional fees of $315,364 and
granted 728,564 compensation options to the lead agent of this financing which
were converted into 728,564 share purchase warrants. Each share purchase
warrant entitles the holder to purchase one common share at $0.70 until August
11, 2001. All of these purchase warrants are outstanding as at November 30,
1999.
<PAGE>
Page 8
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (CONT'D.)
On November 10, 1997, the Company completed a non-brokered private placement of
2,700,000 units at $1.60 per unit for gross proceeds of $4,320,000. Each unit
comprised one common share and 0.3 warrant. Each full warrant entitles the
holder to acquire one common share at $2.00 expiring November 10, 1998, which
was subsequently extended to November 10, 1999. All of these warrants expired
on November 10, 1999.
On June 30, 1997, the Company completed a brokered private placement of
1,000,000 units at $0.72 per unit for gross proceeds of $720,000. Each unit
comprised one common share and one common share purchase warrant. In addition,
the underwriting agent received 100,000 share purchase warrants. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 1,100,000 warrants issued,
220,000 were exercised during the 1998 fiscal year and 139,000 were exercised
during the year ended November 30, 1999. The balance of 741,000 expired on June
29, 1999.
On May 9, 1997, the Company completed a non-brokered private placement of
2,500,000 units at $0.72 per unit for gross proceeds of $1,800,000. Each unit
comprised one common share and one common share purchase warrant. Each share
purchase warrant entitled the holder to acquire one common share at $0.72 in the
first year and $0.90 in the subsequent year. Of the 2,500,000 share purchase
warrants issued, 1,700,000 were exercised during the 1998 fiscal year. The
remaining 800,000 were exercised during the year ended November 30, 1999.
d] SHARE PURCHASE WARRANTS
At November 30, 1999 common share purchase warrants outstanding were as follows:
NUMBER OF COMMON SHARES ISSUABLE EXERCISE PRICE DATE OF EXPIRY
- --------------------------------------------------------------------------------
728,564 $0.70 August 11, 2001
- --------------------------------------------------------------------------------
<PAGE>
Page 9
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (CONT'D.)
e] STOCK OPTIONS
In May 1998, the shareholders approved a stock option plan for which up to four
million common shares can be reserved for issuance to directors, officers,
employees and consultants of the Company. The shares available for issuance
under the stock option plan vest over a period beginning immediately to 5 years.
At November 30, 1999 the Company has 2,683,000 common shares reserved for
issuance under this plan.
At November 30, 1999 stock options to directors, employees and others
outstanding were as follows:
NUMBER OF COMMON SHARES
UNDER OPTION CURRENTLY EXERCISABLE EXERCISE PRICE DATE OF EXPIRY
- --------------------------------------------------------------------------------
63,000 63,000 $0.63 October 31, 2000
200,000 160,000 $0.70 April 10, 2001
200,000* 200,000 $1.85 April 26, 2001
190,000 190,000 $1.00 July 8, 2001
310,000 310,000 $1.40 April 2, 2002
40,000 40,000 $1.42 April 20, 2002
90,000 90,000 $1.25 May 29, 2002
20,000 20,000 $0.97 January 18, 2003
600,000 240,000 $1.49 March 17, 2003
270,000 195,000 $1.58 June 11, 2004
280,000 210,000 $1.05 October 15, 2004
60,000 - $1.26 January 10, 2005
100,000 20,000 $1.10 February 8, 2004
50,000 - $1.05 February 24, 2005
100,000 50,000 $0.61 October 31, 2002
50,000 50,000 $0.61 October 31, 2004
60,000 - $0.61 October 31, 2005
- --------------------------------------------------------------------------------
2,683,000 1,838,000
================================================================================
*During the year ended November 30, 1999 the expiry date relating to 200,000
options was extended from April 26, 1999 to April 26, 2001.
<PAGE>
Page 10
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
7. SHARE CAPITAL (CONT'D.)
Stock options for the respective periods and the number of stock options
outstanding are summarized as follows:
NUMBER OF WEIGHTED AVERAGE
COMMON SHARES EXERCISE PRICE
UNDER OPTION $
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996 828,000 0.78
Options granted 1,230,000 1.32
Options exercised (292,000) 0.76
Options cancelled (70,000) 1.40
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 1,696,000 1.15
Options granted 1,755,000 1.48
Options exercised (658,700) 1.12
Options cancelled (425,000) 1.67
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1998 2,367,300 1.31
Options granted 480,000 0.92
Options exercised (5,000) 1.00
Options cancelled (159,300) 1.21
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1999 2,683,000 1.25
- --------------------------------------------------------------------------------
The weighted average exercise price of the common shares exercisable at November
30, 1999 is $1.25.
f] ESCROW SHARES
The Company has 1,500,000 common shares held in escrow. The release of these
shares is subject to the approval of regulatory authorities and is based on the
Company's cumulative cash flow. Any shares not released by February 22, 2000
will be cancelled.
g] COMMITMENT TO ISSUE SHARES
Under the terms of a licensing agreement the Company has agreed to issue 200,000
common shares upon the achievement of certain milestones.
<PAGE>
Page 11
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
8. GRANT AND OTHER REVENUE
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
Grant 45,810 4,234 22,260
Other revenue 146,058 41,342 -
- --------------------------------------------------------------------------------
191,868 45,576 22,260
- --------------------------------------------------------------------------------
9. RESEARCH AND DEVELOPMENT
Research and development expenses are net of research funding of $336,818 [1998
- - $187,425; 1997 - $nil].
10. COMMITMENTS AND CONTINGENCIES
[a] COMMITMENTS
OPERATING LEASES
The company has entered into a lease agreement for its premises requiring
minimum payments in future periods as follows:
- --------------------------------------------------------------------------------
$
- --------------------------------------------------------------------------------
2000 238,000
2001 241,000
2002 80,000
- --------------------------------------------------------------------------------
559,000
- --------------------------------------------------------------------------------
<PAGE>
Page 12
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
10. COMMITMENTS AND CONTINGENCIES (CONT'D.)
CAPITAL LEASES
Future minimum payments under capital leases together with the balances of the
obligations due under capital leases are as follows:
- --------------------------------------------------------------------------------
$
- --------------------------------------------------------------------------------
2000 67,665
2001 43,416
- --------------------------------------------------------------------------------
Total minimum lease payments 111,081
Less: amount representing interest (from 8.5% to 13.5%) 9,334
- --------------------------------------------------------------------------------
101,747
- --------------------------------------------------------------------------------
Less: current portion of obligations under capital lease 60,602
- --------------------------------------------------------------------------------
Long term portion of obligations under capital lease 41,145
- --------------------------------------------------------------------------------
Interest expense during the year ended November 30, 1999 amounted to $11,918
[1998 - $5,771].
RESEARCH AGREEMENTS
The Company has entered into various collaborative research agreements requiring
it to fund research expenditures approximately as follows:
- --------------------------------------------------------------------------------
$
- --------------------------------------------------------------------------------
2000 320,500
2001 153,500
- --------------------------------------------------------------------------------
474,000
- --------------------------------------------------------------------------------
LICENSE AGREEMENTS
Pursuant to a license agreement, the Company is responsible for payment of
royalties based on a percentage of revenue, subject to certain minimum annual
royalties.
Pursuant to an agreement, the Company is responsible for payment of $500,000
upon commencement of Phase III clinical trials and a further $2,000,000 upon
filing a New Drug Application in the United States or Canada for the licensed
Nociblocker technology. The agreement expires on the expiry date of the last
patent relating to certain technology.
<PAGE>
Page 13
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
10. COMMITMENTS AND CONTINGENCIES (CONT'D.)
[b] CONTINGENCIES
UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties will be fully resolved.
11. LOSSES AND UNUSED DEDUCTIONS CARRIED FORWARD FOR INCOME TAX PURPOSES
At November 30, 1999, the Company has non-capital losses for income tax purposes
which expire as follows:
- --------------------------------------------------------------------------------
$
- --------------------------------------------------------------------------------
2000 591,000
2001 178,000
2002 331,000
2003 545,000
2004 1,530,000
2005 2,830,000
2006 2,680,000
- --------------------------------------------------------------------------------
8,685,000
- --------------------------------------------------------------------------------
The Company also has net timing differences relating primarily to capital
assets, share issue costs and scientific research and experimental development
expenditures of approximately $6,392,000 which may be used to reduce future
income tax. In addition, the Company has approximately $1,360,000 of unclaimed
investment tax credits expiring between 2003 and 2009, which may be used to
reduce future income taxes otherwise payable. The ability of the Company to
utilize the losses and other tax balances carried forward in the future is not
reasonably assured and therefore the benefit has not been recognized in the
financial statements.
<PAGE>
Page 14
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
12. RELATED PARTY TRANSACTIONS
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
Paid to companies with a common
director for:
- contract research services 163,954 48,041 -
- administrative consulting services 6,500 - -
Paid to directors for:
- research consulting services 37,761 - -
- administrative consulting services 3,500 - -
Paid to a partnership where a director
is a partner for administrative
consulting services - - 21,000
Accounts payable to directors and/or
companies with a common director 40,690 - -
- --------------------------------------------------------------------------------
All transactions are recorded at their exchange amounts.
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares the consolidated financial statements in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which as
applied in these consolidated financial statements conform in all material
respects to those accounting principles generally accepted in the United States
("U.S. GAAP"), except as follows:
[a] Under U.S. GAAP, the liability method is used in accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in
effect for the year in which the differences are expected to reverse.
For reconciliation to U.S. GAAP purposes, a valuation allowance has been
recognized to offset deferred tax assets totalling approximately $6,800,000
[1998 - $5,700,000] arising from temporary differences, tax credits and
non-capital loss carryforwards, for which realization is uncertain.
<PAGE>
Page 15
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D.)
Certain of the Company's losses available for carryforward and deductible
temporary differences originated with the Company's 1995 acquisition of
RSD. Accordingly, when realization of these tax benefits becomes more
likely than not, they will be applied to reduce any unamortized intangible
balances recorded on this acquisition to nil before being recognized in
earnings under U.S. GAAP.
[b] Basic earnings per share under U.S. GAAP excludes any dilutive effects of
options, warrants, and escrow shares. Dilutive earnings per share are
calculated in accordance with the treasury stock method and are based on
the weighted average number of common shares and dilutive common share
equivalents outstanding.
[c] For reconciliation purposes to U.S. GAAP the Company has elected to
follow Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB25) in accounting for its employee stock options.
Under APB 25, because the exercise price of the Company's options for
common shares granted to Employees is not less than the fair market value
of the underlying stock on the date of grant, no compensation expense has
been recognized.
[d] Under US GAAP, stock based compensation to non-employees must be
recorded at the fair market value of the options granted. This
compensation, determined using a Black-Scholes pricing model, is expensed
over the vesting periods of each option grant. For purposes of
reconciliation to US GAAP, the Company would record additional compensation
expense of $51,000 in respect of options granted to non-employees [1998 -
129,000; 1997 - $237,500]. Additional compensation expense of $18,000 will
be recorded over future vesting periods.
The effect of the above on the Company's consolidated financial statements is
set out below:
STATEMENTS OF LOSS AND DEFICIT
- --------------------------------------------------------------------------------
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
Loss for year Canadian GAAP 4,451,320 5,168,419 2,749,088
Adjustment for stock-based compensation 51,000 129,000 237,500
- --------------------------------------------------------------------------------
Loss and comprehensive loss for year
U.S. GAAP 4,502,320 5,297,419 2,986,588
Deficit, beginning of year, U.S. GAAP 12,359,519 7,062,100 4,075,512
- --------------------------------------------------------------------------------
Deficit, end of year, U.S. GAAP 16,861,839 12,359,519 7,062,100
- --------------------------------------------------------------------------------
<PAGE>
Page 16
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
13. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONT'D.)
LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share under U.S. GAAP:
- --------------------------------------------------------------------------------
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
NUMERATOR
Loss for of the year under U.S. GAAP 4,502,320 5,297,149 2,986,588
- --------------------------------------------------------------------------------
DENOMINATOR
Weighted average number of common
shares outstanding 28,331,730 26,780,674 19,546,048
Escrowed shares (1,500,000) (1,500,000) (1,500,000)
- --------------------------------------------------------------------------------
26,831,730 25,280,674 18,046,048
- --------------------------------------------------------------------------------
$ $ $
- --------------------------------------------------------------------------------
Basic and diluted loss per share under
U.S. GAAP 0.17 0.21 0.17
- --------------------------------------------------------------------------------
The Company's common shares issuable upon the exercise of stock options,
warrants and the escrowed shares were excluded from the determination of diluted
loss per share as their effect would be anti-dilutive.
BALANCE SHEETS
Material variations in balance sheet accounts under U.S. GAAP are as follows:
1999 1998
$ $
- --------------------------------------------------------------------------------
Share capital 25,856,290 20,448,100
- --------------------------------------------------------------------------------
<PAGE>
Page 17
Nortran Pharmaceuticals Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 1999 (expressed in Canadian dollars)
14. SEGMENTED INFORMATION
The Company operates primarily in one business segment with all of its assets
and operations located in Canada. All of the Company's revenues are generated
in Canada. During the year ended November 30, 1999 in addition to the research
funding as detailed in note 9 which is derived from one entity in Switzerland,
84.6% and 15.4% of other revenue was earned from two major collaborators in
Switzerland and Sweden [1998 - 100% from one collaborator in Switzerland].
15. SUBSEQUENT EVENTS
Subsequent to the year end, options to acquire 15,000 common shares at $1.26 per
share with an expiry date of January 10, 2005 were cancelled.
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirement of Section 12 of the Securities Exchange Act of
1934, the Company certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NORTRAN PHARMACEUTICALS INC.
/s/Dr. Michael J. Walker
Dr. Michael J. Walker
Chairman of the Board
Date: April 10, 2000
<PAGE>
EXHIBIT LIST
================================================================================
EXHIBIT SEQUENTIALLY
NUMBER NAME OF EXHIBIT NUMBERED PAGE
1.1 Memorandum and Articles of the Company(1)
2.1 Warrant dated November 10, 1997 issued to the Chemical Company of
Malaysia Berhad (2)
2.2 License agreement dated November 15, 1997 with Bridge Pharma Inc. (3)
2.3 License agreement dated March 29, 1996 with the University of British
Columbia(4)
2.4 Research Agreement dated March 1, 1997 with the University of British
Columbia(5)
2.5 Agreement dated November 19, 1997 with Drs. MacLeod and Quastel(6)
2.6 Form of 1998 share option plan (7)
2.7 Escrow agreement dated February 23, 1990 with a number of escrow
holders(8)
3.3 Agreement dated May 6, 1998 with F. Hoffmann-La Roche Ltd. (9)
3.4 Agreement dated November 17, 1998 with Astra H ssle AB (10)
NOTES:
(1) Filed as exhibit No. 1.1 to the Company's Registration Statement on
Form 20-F (File No. 0-29338 filed on August 22, 1997).
(2) Forms of warrant issued on November 10, 1997 have been previously filed
as exhibit No. 2.1 to the Company's Annual Report for 1997 on Form 20-F
(File No. 0-29338 filed on May 29, 1998).
(3) Filed as exhibit No. 2.3 to the Company's Annual Report on Form 20-F
(File No. 0-29338 for the fiscal year ended November 30, 1997).
(4) Filed as exhibit No. 3.1 to the Company's Registration Statement on
Form 20-F (File No. 0-29338 filed on August 22, 1997).
(5) Filed as exhibit No. 3.4 to the Company's Registration Statement on
Form 20-F (File No. 0-29338 filed on August 22, 1997).
(6) Filed as exhibit 2.8 to the Company's Annual Report on Form 20-F (File
No. 0-29338 for the fiscal year ended November 30, 1997).
(7) Filed as exhibit 2.11 to the Company's Annual Report on Form 20-F (File
No. 0-29338 for the fiscal year ended November 30, 1997).
(8) Filed as exhibit No. 3.8 to the Company's Registration Statement on
Form 20-F (File No. 0-29338 filed on August 22, 1997).
(9) Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an application for confidential
treatment under Rule 24b-2 promulgated under the Securities Exchange
Act of 1934, as amended.
(10) Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an application for confidential
treatment under Rule 24b-2 promulgated under the Securities Exchange
Act of 1934, as amended.
<PAGE>
