Strong capital base with PureTech level cash,
cash equivalents and short-term investments of $339.5 million1 and
consolidated cash, cash equivalents and short-term investments of
$350.1 million,2 as of December 31, 2022.
Rapid advancement of PureTech’s Wholly Owned
Pipeline, with four clinical stage therapeutic candidates,
including LYT-100 (ongoing registration-enabling trial in IPF),
LYT-300 (Phase 2 ready in both anxiety and postpartum depression),
LYT-200 (two ongoing Phase 1b trials in solid tumors and
hematological malignancies) and LYT-503 (Phase 1 partnered
program).
Strong clinical, commercial and financial
momentum across PureTech’s Founded Entities, including Karuna’s two
positive Phase 3 trials for KarXT in schizophrenia, clinical data
from Vor and Vedanta, commercial progress with EndeavorRx® and
Plenity® and $1.28 billion raised by Founded Entities in the
period.3
As of March 31, 2023, PureTech level cash, cash
equivalents and short-term investments were $389.4 million,4
providing operational runway into Q1 2026.
Company to host a webcast and conference call
today at 9:00am EDT / 2:00pm BST
PureTech Health plc (Nasdaq: PRTC, LSE: PRTC) (“PureTech” or the
“Company”) today announces its results for the year ended December
31, 2022, as well as its cash balance as of the first quarter ended
March 31, 2023. The following information represents select
highlights from the full UK annual report and accounts, except as
noted herein, a portion of which will be filed as an exhibit to
PureTech’s Annual Report on Form 20-F for the year ended December
31, 2022, to be filed with the United States Securities and
Exchange Commission (the “SEC”) and is also available at
https://investors.puretechhealth.com/financials-filings/reports.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20230427006063/en/
(Photo: Business Wire)
Webcast and conference call details Members of the
PureTech management team will host a conference call at 9:00am EDT
/ 2:00pm BST today, April 28, 2022, to discuss these results. A
live webcast and presentation slides will be available on the
investors section of PureTech’s website under the Events and
Presentations tab. To join by phone, please dial:
United Kingdom (Local): 020 3936 2999 United States
(Local): 1 845 213 3398 All other locations: +44 20 3936
2999 Access Code: 661094
For those unable to listen to the call live, a replay will be
available on the PureTech website.
Commenting on the annual results, Daphne Zohar, Founder and
Chief Executive Officer of PureTech, said:
“2022 was an exceptional year that has shaped the next phase of
PureTech’s development and furthered our mission of giving life to
new classes of medicines to change the lives of patients with
devastating diseases.
“I’m proud that we continue to have one of the most productive
track records in biopharma. Across our Wholly Owned Pipeline and
Founded Entities, we’ve developed the platforms and programs
resulting in 27 therapeutics and therapeutic candidates. Two have
gone from inception at PureTech through FDA and EU regulatory
clearances, and a third (Karuna’s KarXT) is expected to be filed
soon for FDA approval. Within our Wholly Owned Pipeline alone, we
completed five clinical trials in 2022, making this our busiest
year in the clinic yet.
“Notably, it is due to the success of our unique model that we
have been able to generate non-dilutive funding to support our
clinical progress and innovation engine, and we have not needed to
raise money from the capital markets in over five years. In the
last 8 months alone, we generated approximately $215.4 million from
a combination of sale of Founded Entity stock and the upfront
payment from Royalty Pharma, which acquired an interest in our
royalty in Karuna’s KarXT for up to $500 million.
“Looking ahead to the next 12 months, we anticipate multiple
important catalysts. We have also advanced several additional
molecules into candidate selection, and we expect to announce
progress towards the clinic with these new candidates in due
course.
“PureTech is poised for another dynamic year as we enter the
next phase of our growth with a promising Wholly Owned Pipeline. We
believe we are in a position to move these new medicines forward
quickly and efficiently, and we expect to achieve a number of
milestones over the course of 2023 and beyond.”
Also commenting on the annual results, Christopher Viehbacher,
Chair of PureTech’s Board, said:
“As a member of PureTech’s Board of Directors for nearly a
decade, I have seen the Company grow as a biopharmaceutical
pioneer, and 2022 was the most noteworthy year yet. PureTech’s
track record of clinical success is six times the industry average,
and the Company has pioneered new classes of medicine that are
positioned to impact the lives of millions of patients.
“What also stands out to me is how our disciplined approach to
development and financial management has created a focused,
well-capitalized organization with a clear mission and
differentiated value. I have consistently been impressed by how
much PureTech achieves with very little resources, especially
relative to many of its peers. Given the current macro-economic
conditions, this will only become more imperative for companies and
the patients and shareholders they serve.
“I am proud to have worked so closely with such a talented and
passionate team as I conclude my tenure as Board Chair. As PureTech
embarks on a new phase of clinical expansion, I look forward to the
multiple exciting milestones ahead in important areas of medical
need. The groundbreaking business model and seasoned management
team of PureTech remain standouts in the industry, and I believe
this will steer the enterprise through continued success in 2023
and beyond. On behalf of the Board, I thank our shareholders for
your continued support of our work to change the treatment paradigm
for patients.”
As previously noted, Mr. Viehbacher was recently appointed
President, Chief Executive Officer and a member of the Board of
Biogen Inc. (Nasdaq: BIIB). Given the time commitment required by
this new role, Mr. Viehbacher will not stand for re-election at the
Company’s 2023 Annual General Meeting (AGM) and accordingly will
step down from the Company’s Board of Directors effective from the
close of the AGM. The Nomination Committee has initiated a process
to identify a new Chair, and, in the interim, Dr. Raju Kucherlapati
will serve as Interim Chair to fulfill the leadership requirements
and governance obligations of the role. In addition, Dr. John
LaMattina will join the Audit Committee of the Board, filling the
seat vacated by Mr. Viehbacher. The changes to the Board roles of
Drs. Kucherlapati and LaMattina will be effective from the close of
the Company’s AGM.
Continued advancement and growth of PureTech’s Wholly Owned
Programs5 PureTech’s Wholly Owned Programs advanced rapidly in
2022. Its pipeline includes five therapeutic candidates, four of
which are currently clinical stage, including one partnered
program. The majority of these candidates are centered around
enhancing on-target efficacy, enabling oral administration or
improving tolerability to unlock new classes of medicine that have
previously been held back by one of these issues. PureTech achieves
this by applying unique insights or technology. Several upcoming
milestones are anticipated for these candidates, including the
following:
- LYT-100 (deupirfenidone) is in development for the potential
treatment of conditions involving inflammation and fibrosis,
including idiopathic fibrosis (IPF), for which current standards of
care are associated with significant tolerability issues, resulting
in approximately three out of four patients in the U.S. foregoing
treatment with these otherwise efficacious medicines.6 LYT-100 is a
deuterated form of one of the two standard of care treatments,
pirfenidone, which has proven efficacy and has been shown to
improve survival in these patients by approximately three years,
but its side effects cause patients to discontinue or dose reduce,
thereby limiting its effectiveness.7 LYT-100 has shown a 50%
reduction in gastrointestinal tolerability issues in a head-to-head
study versus pirfenidone, and it can be dosed at a higher exposure
level, but with a lower Cmax, than the FDA-approved dosage of
pirfenidone, potentially enabling improved efficacy. PureTech is
currently evaluating two doses of LYT-100, one with comparable
exposure to the approved dose of pirfenidone and one with a higher
level of exposure, in a global, randomized double blind,
placebo-controlled trial in patients with IPF, which is expected to
serve as the first of two registration enabling trials. Topline
results are expected in 2024.
- LYT-300 (oral allopregnanolone) is in development for the
potential treatment of anxiety disorders and postpartum depression
(PPD) where there is a need for more effective treatments that work
quickly, have more favorable tolerability and can be administered
orally. A placebo-controlled, Phase 2a, proof-of-concept trial
using a validated clinical model of anxiety in healthy volunteers
is expected to begin in the first half of 2023, with topline
results anticipated by the end of 2023. An open-label, Phase 2a,
proof-of-concept clinical trial in women with PPD is expected to
begin in the second half of 2023.
- LYT-200 (anti-galectin-9 mAb) is in development for the
potential treatment of metastatic solid tumors that have poor
survival rates as well as hematological malignancies, such as acute
myeloid leukemia (AML), where more than 50% of patients either
don’t respond to initial treatment or experience relapse after
responding to initial treatment.8 In 2022, PureTech initiated a
Phase 1b trial in AML, and initial results from a subset of
patients are expected by the end of 2023. In the 2023 post-period,
PureTech also initiated a Phase 1b trial of LYT-200 in combination
with an anti PD-1 antibody, tislelizumab, in patients with
urothelial or head and neck cancer. Topline results are expected in
2024.
- LYT-310 (oral cannabidiol [CBD]) is in development to expand
the therapeutic application of CBD across a range of epilepsies and
neurological disorders. LYT-310 is designed to enable oral
administration of CBD in a capsule or other patient-friendly metho
of administration; expand the use of CBD into a broad range of
therapeutic areas and patient populations (such as adolescents and
adults) where higher doses are required to achieve a therapeutic
effect; potentially improve safety and reduce gastrointestinal (GI)
tract side effects that are associated with the currently approved
CBD-based treatment by reducing GI and liver exposure; and allow
for a readily scalable, consistent product in a cost-effective
manner. LYT-310 is expected to enter the clinic in the fourth
quarter of 2023.
Financial Highlights
- In 2022, PureTech disposed of 602,100 shares of Karuna common
stock for cash consideration of approximately $115.4 million.
- PureTech level cash, cash equivalents and short-term
investments were $339.5 million as of December 31, 2022. 1
- Consolidated cash, cash equivalents and short-term investments,
which includes cash held at the PureTech level and at Controlled
Founded Entities, were $350.1 million as of December 31,
2022.2
- PureTech’s Founded Entities raised $1.28 billion in 2022,3
almost entirely from third parties.
- PureTech level cash, cash equivalents and short-term
investments were $389.4 million,4 based on consolidated cash, cash
equivalents and short-term investments of $391.5 million,9 as of
March 31, 2023
- PureTech’s operational runway extends into the first quarter of
2026.
Strong Clinical, Commercial and Financial Momentum Across
PureTech’s Founded Entities10
For details on the progress of PureTech’s Founded Entities,
please see pages 12 to 14 of PureTech’s 2022 UK Annual Report and
Accounts.
PureTech Health today released its Annual Report for the year
ended December 31, 2022. In compliance with the Financial Conduct
Authority’s Listing Rule 9.6.3, the following documents have today
been submitted to the National Storage Mechanism and will shortly
be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
- Annual Report and Accounts for the year ended December 31,
2022; and
- Notice of 2023 Annual General Meeting.
Printed copies of these documents together with the Form of
Proxy will be posted to shareholders in accordance with applicable
UK rules. The Company will provide a hard copy of the Annual Report
containing its audited financial statements, free of charge, to its
shareholders upon request in accordance with Nasdaq requirements.
Requests should be directed in writing by email to
ir@puretechhealth.com. Copies are also available electronically on
the Investor Relations section of the Company's website at
https://investors.puretechhealth.com/financials-filings/reports.
PureTech’s 2023 AGM will be held on June 13, 2023, at 11:00am
EDT / 4:00pm BST at PureTech’s headquarters, which is located at 6
Tide Street, Boston, Massachusetts, United States. Please note that
the Company has decided to hold the AGM in the United States where
most of the Directors are resident for reasons of efficiency and
savings of travel costs.
Shareholders are strongly encouraged to submit a proxy vote in
advance of the meeting and to appoint the Chair of the meeting to
act as their proxy. If a shareholder wishes to attend the meeting
in person, we ask that the shareholder notify the Company by email
to ir@puretechhealth.com to assist us in planning and implementing
arrangements for this year’s AGM.
The Company appreciates that a number of its shareholders are
not resident or located in the United States and asks shareholders
to participate in the AGM by submitting any questions in advance
and voting via proxy rather than attending in person. As such, any
specific questions on the business of the AGM and resolutions can
be submitted ahead of meeting by e-mail to ir@puretechhealth.com
(marked for the attention of Dr. Bharatt Chowrira).
Shareholders are encouraged to complete and return their votes
by proxy, and to do so no later than 4:00 pm (BST) on June 9, 2023.
This will appoint the chair of the meeting as proxy and will ensure
that votes will be counted even though attendance at the meeting is
restricted and you are unable to attend in person. Details of how
to appoint a proxy are set out in the notice of AGM.
PureTech will keep shareholders updated of any changes it may
decide to make to the current plans for the AGM. Please visit the
Company’s website at www.puretechhealth.com for the most up to date
information.
About PureTech Health PureTech is a clinical-stage
biotherapeutics company dedicated to giving life to new classes of
medicine to change the lives of patients with devastating diseases.
The Company has created a broad and deep pipeline through its
experienced research and development team and its extensive network
of scientists, clinicians and industry leaders that is being
advanced both internally and through its Founded Entities.
PureTech’s R&D engine has resulted in the development of 27
therapeutics and therapeutic candidates, including two (Plenity®
and EndeavorRx®) that have received both US FDA clearance and
European marketing authorization and a third (KarXT) that is
expected to be filed soon for FDA approval. A number of these
programs are being advanced by PureTech or its Founded Entities in
various indications and stages of clinical development, including
registration enabling studies. All of the underlying programs and
platforms that resulted in this pipeline of therapeutic candidates
were initially identified or discovered and then advanced by the
PureTech team through key validation points.
For more information, visit www.puretechhealth.com or connect
with us on Twitter @puretechh.
Cautionary Note Regarding Forward-Looking Statements This
press release contains statements that are or may be
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements contained
in this press release that do not relate to matters of historical
fact should be considered forward-looking statements, including
without limitation those statements that relate to expectations
regarding PureTech’s and its Founded Entities’ future prospects,
development plans and strategies, the progress and timing of
clinical trials and data readouts, the timing of potential
regulatory submissions, and the sufficiency of available resources
and expected operational runway. The forward-looking statements are
based on current expectations and are subject to known and unknown
risks, uncertainties and other important factors that could cause
actual results, performance and achievements to differ materially
from current expectations, including, but not limited to, the
following: our history of incurring significant operating losses
since our inception; our need for additional funding to achieve our
business goals, which may not be available and which may force us
to delay, limit or terminate certain of our therapeutic development
efforts; our limited information about and limited control or
influence over our Non-Controlled Founded Entities; the lengthy and
expensive process of preclinical and clinical drug development,
which has an uncertain outcome and potential for substantial
delays; potential difficulties with enrolling patients in clinical
trials, which could delay our clinical development activities; side
effects, adverse events or other safety risks which could be
associated with our therapeutic candidates and delay or halt their
clinical development; our ability to obtain regulatory approval for
and commercialize our therapeutic candidates; our ability to
realize the benefits of our collaborations, licenses and other
arrangements; our ability to maintain and protect our intellectual
property rights; our reliance on third parties, including clinical
research organizations, clinical investigators and manufacturers;
our vulnerability to natural disasters, global economic factors,
geo-political actions and unexpected events; and those additional
important factors described under the caption "Risk Factors" in our
Annual Report on Form 20-F for the year ended December 31, 2022
filed with the SEC and in our other regulatory filings. These
forward-looking statements are based on assumptions regarding the
present and future business strategies of the Company and the
environment in which it will operate in the future. Each
forward-looking statement speaks only as at the date of this press
release. Except as required by law and regulatory requirements, we
disclaim any obligation to update or revise these forward-looking
statements, whether as a result of new information, future events
or otherwise.
Notes
- This represents a non-IFRS number and is comprised of cash,
cash equivalents and short-term investments held at PureTech Health
plc and our wholly-owned subsidiaries (PureTech LYT, PureTech
LYT-100, Alivio Therapeutics, Inc., PureTech Management, Inc.,
PureTech Health LLC, PureTech Securities Corp, PureTech Securities
II) as of December 31, 2022. For a reconciliation of this number to
the IFRS equivalent number, please see below under the heading
"Financial Review.”
- Cash, cash equivalents and short-term investments held at
PureTech Health plc and consolidated subsidiaries (please refer to
Note 1 to our consolidated financial statements for further
information with respect to our consolidated subsidiaries) as of
December 31, 2022. For more information, please see below under the
heading "Financial Review.”
- Funding figure includes private equity financings, loans and
promissory notes, public offerings or grant awards. Funding figure
excludes future milestone considerations received in conjunction
with partnerships and collaborations. Funding figure does not
include proceeds from Vedanta’s 2023 post-period financing.
- This represents a non-IFRS number and is comprised of cash,
cash equivalents and short-term investments held at PureTech Health
plc and our wholly-owned subsidiaries (PureTech LYT, PureTech
LYT-100, Alivio Therapeutics, Inc., PureTech Management, Inc.,
PureTech Health LLC, PureTech Securities Corp, PureTech Securities
II) as of March 31, 2023. For a reconciliation of this number to
IFRS, please see below under the heading "Financial Review.”
- References in this report to “Wholly Owned Programs” refer to
the Company’s five therapeutic candidates (LYT-100, LYT-200,
LYT-300, LYT-310, and LYT-503/IMB-150), Glyph platform and
potential future therapeutic candidates and platforms that the
Company may develop or obtain. References to “Wholly Owned
Pipeline” refer to LYT-100, LYT-200, LYT-300, LYT-310, and
LYT-503/IMB-150. On July 23, 2021, Imbrium Therapeutics exercised
its option to license LYT-503/IMB-150 pursuant to which it is
responsible for all future development activities and funding for
LYT-503/IMB-150.
- Dempsey, T. M., Payne, S., Sangaralingham, L., Yao, X., Shah,
N. D., & Limper, A. H. (2021). Adoption of the Antifibrotic
Medications Pirfenidone and Nintedanib for Patients with Idiopathic
Pulmonary Fibrosis. Annals of the American Thoracic Society, 18(7),
1121–1128. https://doi.org/10.1513/AnnalsATS.202007-901OC
- Fisher, M., Nathan, S. D., Hill, C., Marshall, J.,
Dejonckheere, F., Thuresson, P., & Maher, T. M. (2017).
Predicting Life Expectancy for Pirfenidone in Idiopathic Pulmonary
Fibrosis. Journal of Managed Care & Specialty Pharmacy, 23(3-b
Suppl), S17 -S24.
https://doi.org/10.18553/jmcp.2017.23.3-b.s17
- Walter, R. B., Othus, M., Burnett, A. K., L�wenberg, B.,
Kantarjian, H. M., Ossenkoppele, G. J., Hills, R. K., Ravandi, F.,
Pabst, T., Evans, A., Pierce, S. R., Vekemans, M. C., Appelbaum, F.
R., & Estey, E. H. (2015). Resistance prediction in AML:
analysis of 4601 patients from MRC/NCRI, HOVON/SAKK, SWOG and MD
Anderson Cancer Center. Leukemia, 29(2), 312–320.
https://doi.org/10.1038/leu.2014.242
- Cash, cash equivalents and short-term investments held at
PureTech Health plc and consolidated subsidiaries (please refer to
Note 1 to our consolidated financial statements for further
information with respect to our consolidated subsidiaries) as of
March 31, 2023. For more information, please see below under the
heading "Financial Review.” The consolidated figure does not
include Vedanta Biosciences, which was deconsolidated in the March
2023 post-period.
- Our Founded Entities are comprised of our Controlled Founded
Entities and our Non-Controlled Founded Entities, all of which are
incorporated in the United States. References to our “Controlled
Founded Entities” refer to Follica, Incorporated, and Entrega,
Inc., for all periods prior to March 1, 2023, Vedanta Biosciences,
Inc., for all periods prior to May 25, 2022, Sonde Health Inc., and
for all periods prior to June 10, 2021, Alivio Therapeutics, Inc.
References to our “Non-Controlled Founded Entities” refer to Akili
Interactive Labs, Inc., Karuna Therapeutics, Inc., Vor Bio, Inc.,
Gelesis, Inc., for all periods following May 25, 2022, Sonde
Health, Inc., for all periods following March 1, 2023, Vedanta
Biosciences, Inc., and, for all periods prior to December 18, 2019,
resTORbio, Inc. We formed each of our Founded Entities and have
been involved in development efforts in varying degrees. In the
case of our Controlled Founded Entities Follica, Incorporated and
Entrega, Inc., we continue to maintain majority voting control.
With respect to our Non-Controlled Founded Entities, we may benefit
from appreciation in our minority equity investment as a
shareholder of such companies.
Letter from the Chair
As a member of PureTech’s Board of Directors for nearly a
decade, I have seen the Company grow as a biopharmaceutical
pioneer, and 2022 was the most noteworthy year yet. We achieved
multiple firsts as we advanced our goal of delivering new classes
of medicines for patients with unmet need.
I have been reflecting on how PureTech has grown and evolved.
Its track record of clinical success is six times the industry
average, and the Company has pioneered new classes of medicine that
are positioned to impact the lives of millions of patients.
What stands out to me is how our disciplined approach to
development and financial management has created a focused,
well-capitalized organization with a clear mission and
differentiated value. I have consistently been impressed by how
much PureTech achieves with very little resources, especially
relative to many of its peers.
The team takes swift action when they see a potential hurdle,
and – while it is never easy to deprioritize a program – being
decisive and following the data is what ultimately creates true
value for patients and for shareholders. This team is a force, and
I believe the discipline and focus demonstrated by its strong
management team will continue to inspire employees to achieve great
things.
PureTech’s “do more with less” ethos is something our industry
at large would do well to embrace. To me, it is this approach that
makes PureTech an exemplar of impact investing and what can be
accomplished in a capital-efficient manner. Given the current
macro-economic conditions, this will only become more imperative
for companies and the patients and shareholders they serve.
PureTech’s model is unique in the industry and keeps the Company
well-positioned to weather the current economic downturn. For
example, the Company’s Founded Entities are a significant source of
non-dilutive cash, and to date, over $780 million has been
generated from the sales of Founded Entity equity and royalties to
fund PureTech’s operations. PureTech also derives value from its
Founded Entities in the form of royalties, milestone payments and
sublicense revenues, which will similarly be invested back into the
Wholly Owned Programs. This innovative strategy means the Company
has not needed to dilute shareholders by tapping the equity market
in over five years.
Another remarkable aspect about PureTech is the team’s ability
to be ahead of the times. One example is its potential impact on
mental health through its Founded Entities Karuna (Nasdaq: KRTX),
Akili (Nasdaq: AKLI) and Sonde, as well as a number of PureTech’s
wholly-owned CNS programs enabled by its Glyph™ platform. As the
greater industry has started to produce disease modifying therapies
for chronic neurologic disorders, the importance of remote
screening – and even remote early diagnosis – could provide a much
less expensive and invasive way to identify and stratify those who
may benefit from the treatments.
PureTech also took a leading position in the role of the
microbiome in medicine. Our Founded Entity Vedanta was formed on
the idea of harnessing the power of the body’s ecosystem by using
bacteria to make medicines to the same standards as traditional
drugs.
In a similar way, PureTech’s Wholly Owned Pipeline is rich with
programs that could have a substantial impact on patients’ needs.
LYT-100 (deupirfenidone) for idiopathic pulmonary fibrosis (IPF)
and LYT-300 (oral allopregnanolone) for anxiety and postpartum
depression are just two examples of unique innovations generated by
PureTech that could address the significant drawbacks of standard
of care treatments.
I am proud to have worked so closely with such a talented and
passionate team as I conclude my tenure as Board Chair. As PureTech
embarks on a new phase of clinical expansion, I look forward to the
multiple exciting milestones ahead in important areas of medical
need. The groundbreaking business model and seasoned management
team of PureTech remain standouts in the industry, and I believe
this will steer the enterprise through continued success in 2023
and beyond. On behalf of the Board, I thank our shareholders for
your continued support of our work to change the treatment paradigm
for patients.
Sincerely,
Christopher Viehbacher Chair April 27, 2023
Letter from the Chief Executive Officer
2022 was an exceptionally productive year that shaped the next
phase of PureTech’s development and furthered our mission of giving
life to new medicines for patients with devastating diseases.
We continue to have one of the most productive track records in
biopharma with a clinical trial success rate that is approximately
six times better than the industry average.1 Across our Wholly
Owned Pipeline and Founded Entities, we’ve developed the platforms
and programs resulting in 27 therapeutics and therapeutic
candidates. Two (Akili’s EndeavorRx® and Gelesis’ Plenity®) have
gone from inception at PureTech through FDA and EU regulatory
clearances, and a third (Karuna’s KarXT) is expected to be filed
soon for FDA approval. Within our Wholly Owned Pipeline alone, we
completed five clinical trials this year, and we expect at least
five more important milestones/catalysts over the next 12
months.
The key to our strong track record of advancing promising
therapeutics lies in our proven innovation and drug development
strategy. Our approach is underpinned by three key pillars. The
first pillar is our network of collaborators which enables us to
learn about advances before the rest of the world. Nearly 30 papers
related to our programs have been published in major journals such
as Science, Cell and Nature, and – thanks to the deep insights of
our advisors – almost all were published after we in-licensed the
technology or filed key patents. This brings us to the second
pillar: our innovative technologies and approaches. We are experts
in applying proprietary insights to medicines that have
demonstrated efficacy but that have been held back from reaching
their full potential by issues for which we now have innovative
solutions, and I’ll detail this further in the next section. Our
third pillar is centered on what we call “killer experiments” early
in the development process. We believe in disciplined and rigorous
R&D, and we are quite decisive in rapidly shutting down
programs that don’t reach our prespecified stringent thresholds for
advancement. This allows us to pivot resources towards the programs
with the highest probability of success. Consistent with this
strategy, we have decided to discontinue the Orasome technology
platform and Meningeal lymphatics platform, as these research
programs have not yielded promising candidates the way our Glyph™
technology platform has.
Our Strategy: Unlocking new classes of medicine with proven
efficacy A majority of our Wholly Owned Pipeline candidates are
based on a strategy of leveraging validated efficacy to rapidly
advance therapeutics with proven profiles. For decades, biopharma
has devoted time and resources to discovering new modalities and
drug candidates and proving they work in patients, but important
new medicines have been abandoned after running into issues that
seemed insurmountable at the time. At PureTech, we are applying new
technologies and proprietary insights to bring these medicines –
that weren’t otherwise able to reach their potential – to life by
enhancing on-target efficacy, improving tolerability or enabling
oral administration.
We have a proven track record of success pursuing this approach
as highlighted by the extraordinary clinical success of our Founded
Entity, Karuna. In August 2022, Karuna announced that it expects to
submit an NDA for KarXT in schizophrenia with the FDA in mid-2023.
If approved by the FDA, Karuna’s KarXT will become the first truly
novel therapy for schizophrenia in more than 50 years. KarXT was
built from our recognition of both the promise and the limitations
of a neuroactive compound, xanomeline. Xanomeline had demonstrated
robust clinical efficacy, but it could not be advanced into later
stage development due to its tolerability issues. At PureTech, we
found an elegant way to overcome these limitations and enable its
potential to meet the needs of the millions of people with
schizophrenia. Additional details surrounding Karuna and the KarXT
program can be found on page 12 of the Annual Report.
Our approach with KarXT extends to several of our other Founded
Entities and our Wholly Owned Pipeline: we identify key unmet
medical needs and relevant existing approaches with clearly defined
opportunities and challenges, and we pursue the innovations that
will unlock the greatest potential for the drug. We pursue rapid
proof-of-concept through experiments that rigorously assess our
hypotheses and then make the decisions that will maximize the value
of our pipeline. Our Wholly Owned Pipeline candidates such as
LYT-100, LYT-300 and LYT-310 exemplify this strategy.
Wholly Owned Pipeline: Late-stage development in IPF and key
proofs-of-principle In our busiest year in the clinic yet, we
achieved several notable milestones. We completed five clinical
studies including demonstrating compelling safety and tolerability
data for LYT-100 (deupirfenidone) and proof-of-principle, oral
bioavailability and tolerability for LYT-300 (oral
allopregnanolone). We also achieved robust dose escalation with a
strong safety profile from the monotherapy portion of our Phase 1
study LYT-200 (anti-galectin 9 mAb) in metastatic solid tumors.
LYT-200 has now advanced into combination cohorts for urothelial
and head and neck cancers, as well as a second trial as a
monotherapy in patients with acute myeloid leukemia (AML).
All of these results were important proof points for each
candidate. Notably, the results of our LYT-300 study were a
significant first clinical validation for our Glyph™ technology
platform, which has yielded two candidates to date (LYT-300 and
LYT-310) and has great potential utility for a range of other
compounds with proven efficacy but previously challenging oral
bioavailability, safety and tolerability profiles.
LYT-300 is another example of how we take an existing,
efficacious therapy, held back by factors that limit its commercial
use, and apply novel approaches to address those limitations. With
this candidate, we designed an oral treatment that preserves the
natural structure of allopregnanolone. Allopregnanolone is
FDA-approved as a 60-hour intravenous infusion to treat postpartum
depression but faces challenges due to the method of
administration. We applied our Glyph technology to create an oral
prodrug of allopregnanolone (LYT-300), and we have achieved oral
bioavailability in humans that is ninefold greater than what third
parties have published with orally administered allopregnanolone.2
LYT-300 has also demonstrated engagement of GABAA receptors, which
are known to regulate mood and other neurological conditions. We
believe offering the proven mechanism of natural allopregnanolone
via the innovative orally-administered approach of LYT-300
represents an advancement that could have a truly meaningful impact
for patients. LYT-300 may also unlock the class of medicines
targeting GABAA receptors, which has the potential to offer
advantages over current standards of care, such as rapid onset of
action, for a range of conditions including depression, anxiety and
others.
Another exemplar of our strategy, deuterated pirfenidone or
LYT-100, has progressed into a global registration-enabling Phase
2b study for IPF, a rare, progressive and fatal lung disease where
the median survival is two to five years.3 There are two
FDA-approved treatments for IPF, but each of them causes
significant side effects and is poorly tolerated, which means
patients cannot fully benefit from the drugs because they are
unable to stay on treatment long enough or at the right dose. One
of these treatments, pirfenidone, has been shown to extend life by
three years,3 but poor tolerability forces approximately 50% of
patients to discontinue, dose adjust or switch treatment.4 Because
of this, nearly three out of four patients in the US living with
IPF forego treatment with these otherwise efficacious
medicines.5
We hope to change this staggering statistic with LYT-100, and we
have demonstrated an approximately 50% reduction in GI-related
adverse events with LYT-100 in a head-to-head study compared to
pirfenidone. We believe this profile may offer improved patient
outcomes by both allowing patients to stay on treatment longer and
potentially enabling LYT-100 to be dosed at higher exposure levels
than the FDA-approved dose of pirfenidone. We look forward to
sharing the results of our Phase 2b trial in 2024.
Across our Wholly Owned Pipeline, we have generated compelling
clinical data this year that supported the progression of our
pipeline into more advanced studies. Over the next 12 months, we
anticipate multiple important catalysts that will further guide how
we prioritize our pipeline. These catalysts will help to inform our
decisions regarding which programs we will drive to commercial
launches ourselves and which programs could be most successfully
advanced through other avenues such as a partnership (for example,
LYT-503/IMB-150, which is being advanced by a partner), sale or
spinout into another entity. We have also advanced several
additional molecules into candidate selection, and we expect to
announce progress towards the clinic with these new candidates in
due course.
Founded Entities Highlights: KarXT headed for FDA submission,
commercial progress for EndeavorRx and Plenity, first AML data from
Vor We often describe our Founded Entities as akin to partnered
programs. Having launched the foundational technologies and
programs on which these companies were formed and driven them
through key points of validation, we have gained tremendous
know-how across R&D, regulatory and business development, and
we now gain continual value through equity, royalties, sublicense
revenue and/or milestone payments as the Founded Entities mature.
It is due to the success of our unique model that we have been able
to generate non-dilutive funding to support our innovation engine
and have not needed to raise money from the capital markets in over
five years.
One recent example was the approximately $115.4 million
generated from the sale of Karuna stock in August 2022. Another
example was realized in the March 2023 post-period. We announced
that Royalty Pharma acquired an interest in our royalty in Karuna’s
KarXT for up to $500 million, with $100 million in upfront cash and
up to $400 million in additional payments contingent on the
achievement of certain regulatory and commercial milestones. As
part of this transaction, we sold our right to receive a 3% royalty
from Karuna to Royalty Pharma on sales up to $2 billion annually,
after which threshold we will retain 67% of the royalty payments
and Royalty Pharma will receive 33%. We retain our 2.8% equity
ownership in Karuna as of March 27, 2023, as well as our right to
receive milestone payments from Karuna upon the achievement of
certain regulatory approvals and 20% of sublicense income. This
deal provides us with upfront non-dilutive capital and significant
upside based on Karuna’s future regulatory and commercial
successes. We’re tremendously proud of the way our model allows us
to continue to fund our Wholly Owned Pipeline and operations, and
we continue to manage our strong financial position proactively
while retaining financial upside.
I want to highlight just a few additional key milestones from
our Founded Entities in 2022. First, Karuna delivered strong Phase
3 clinical data for KarXT in August of 2022, and in the March 2023
post-period Karuna announced positive results from a second Phase 3
trial, reinforcing the safety and efficacy of KarXT. The
consistency in the data to date with KarXT give us confidence in
the drug’s potential to change the treatment paradigm for people
with schizophrenia, and we look forward to Karuna’s continued work
to validate the potential of KarXT in a range of dementias. The
company’s value increased by more than 60% over the course of
2022.
Gelesis and Akili also continued to advance the commercial
development of their first-in-class FDA-cleared products, Plenity
and EndeavorRx. Gelesis demonstrated the market potential for
Plenity as a highly differentiated weight management aid for people
with obesity or who are overweight. The company has generated $39.5
million in sales since launch, $25.5 million of which was in 2022,
representing a 129% increase year-over-year. Gelesis also applied
with the FDA to make Plenity available without a prescription,
which Gelesis has announced could be achieved as soon as the third
quarter of 2023 and should significantly expand access to millions
of patients not served by other treatment options due to label,
affordability or tolerability. Akili has also formed a foundational
partnership with global gaming giant Roblox to further expand its
growth opportunities for EndeavorRx.
Finally, Vor Bio delivered initial data in patients with AML for
trem-cell (formerly VOR33), supporting both the candidate’s
potential and providing support for the company’s unique approach
of combining targeted therapies and antigen-depleted hematopoietic
stem cell transplants.
Full details for each of our Founded Entities can be found on
pages 12-14 of the Annual Report.
Thanks to our global network for helping us give life to
science First and foremost, I would like to extend my deepest
gratitude to the patients, families and staff participating in and
supporting our clinical trials. The PureTech team is inspired by
you.
To the PureTech Team: thank you for your unwavering dedication
and commitment to making a transformational impact for patients. I
am so proud of what we have accomplished together, and I am
energized by your passion.
Finally, on behalf of the board and management team, I would
like to thank our ever-widening network of shareholders, advisors
and other stakeholders for your continued support and input. We are
grateful for your confidence in our team, our model and our vision,
and that you are with us on this journey to change the lives of
patients with devastating diseases.
PureTech is poised for another dynamic year, building on our
momentum from 2022. We are entering the next phase of our growth
with a promising Wholly Owned Pipeline, and we are in a position to
move these new medicines forward quickly and efficiently.
Importantly, we have many important catalysts on the horizon, and
we expect to achieve a number of development and regulatory
milestones over the course of 2023 and beyond.
Daphne Zohar Founder, Chief Executive Officer and Director April
27, 2023
Notes
- Industry average data measures the probability of clinical
trial success of therapeutics by calculating the number of programs
progressing to the next phase vs. the number progressing and
suspended (Phase 1=52%, Phase 2=29%, Phase 3=58%). BIO,
PharmaIntelligence, QLS (2021) Clinical Development Success Rates
2011 – 2020. This study did not include therapeutics regulated as
devices. PureTech’s aggregate percentages include all therapeutic
candidates advanced through at least Phase 1 by PureTech or its
Founded Entities from 2009 onward, calculated by multiplying the
individual phase percentages of the following, Phase 1 (n = 6/8;
75%), Phase 2 (n = 10/12; 83%), Phase 3 (n = 3/4; 75%), last
updated on August 8, 2022; Phase 2 and Phase 3 percentages include
some therapeutic candidates where Phase 1 trials were not conducted
by PureTech or its Founded Entities (i) due to the requirements of
the medical device regulatory pathway or (ii) because a prior Phase
1 trial was conducted by a third party, which Phase 1 trials were
not included in this analysis.
- Brexanolone NDA 211371 Multi-disciplinary Review and
Evaluation, FDA CDER, 2018.
- Fisher, M., Nathan, S. D., Hill, C., Marshall, J.,
Dejonckheere, F., Thuresson, P., & Maher, T. M. (2017).
Predicting Life Expectancy for Pirfenidone in Idiopathic Pulmonary
Fibrosis. Journal of Managed Care & Specialty Pharmacy, 23(3-b
Suppl), S17 -S24.
https://doi.org/10.18553/jmcp.2017.23.3-b.s17.
- Cottin, V., Koschel, D., Günther, A., Albera, C., Azuma, A.,
Sk�ld, C. M., Tomassetti, S., Hormel, P., Stauffer, J.,
Kirchgaessler, K., & Maher, T. M. (2018). Long-term safety of
pirfenidone: results of the prospective, observational PASSPORT
study. ERJ Open Research, 4(4), 00084–02018.
https://doi.org/10.1183/23120541.00084-2018
- Dempsey, T., Payne, S. C., Sangaralingham, L. R., Yao, X.,
Shah, N., & Limper, A. H. (2021). Adoption of the Antifibrotic
Medications Pirfenidone and Nintedanib for Patients with Idiopathic
Pulmonary Fibrosis. Annals of the American Thoracic Society, 18(7),
1121–1128. https://doi.org/10.1513/annalsats.202007-901oc
Components of Our Value Our components are comprised of:
(1) our Wholly Owned Programs, (2) Founded Entities, (3) our
available cash, cash equivalents and short-term investments at the
PureTech level and (4) our return of capital to shareholders.
We hold majority voting control of or otherwise retain
significant influence over our Controlled Founded Entities and
continue to play a role in the development of their therapeutic
candidates through representation on the board of directors. As of
December 31, 2022, our board designees represented a majority of
the members of the board of directors of Follica and Vedanta and a
minority of the members of the board of directors of Entrega. With
respect to our Non-Controlled Founded Entities, we do not hold
majority equity ownership and are not responsible for the
development or commercialization of their therapeutic candidates
and therapeutics. Our Non-Controlled Founded Entities have
independent management teams, and we do not control the day-to-day
development of their respective therapeutic candidates.
1. Our Wholly Owned Programs: We are focused on the
advancement of our Wholly Owned Programs and delivering value to
our shareholders by driving these programs to key clinical and
commercial milestones. We are prioritizing preclinical and clinical
advancement, while continuing to generate new wholly-owned
candidates through our technology platforms and our unique model
for R&D.
2. Our Founded Entities: We established these entities’
underlying programs and platforms and advanced them through key
validation points. In certain cases, our value from these entities
is solely derived from the potential appreciation of our equity
interest. In other cases, we also have the right to royalty
payments on product sales and/or sublicense revenues.
3. Cash, cash equivalents and short-term investments: We
had PureTech Level cash, cash equivalents and short-term
investments of $339.51 million as of December 31, 2022.
4. Our Return of Capital to Shareholders: In light of the
strong foundation we have built for PureTech’s future growth, the
board and senior leadership team are committed to various
approaches to drive additional value to our shareholders. As part
of this capital allocation strategy, in 2022 we implemented a share
buyback program of up to a maximum consideration of $50 million. We
maintain a capital allocation strategy that will see us prioritize
funding the continued development and expansion of our Wholly Owned
Pipeline and strategic investment in our Founded Entities in
accordance with our strategic plan while we will also look to
return certain proceeds we may receive in the future to
shareholders through various distribution mechanisms, including
continued share buybacks or special dividends.
Notes
- PureTech level cash, cash equivalents and short-term
investments is a non-IFRS measure. For more information in relation
to the PureTech level cash, cash equivalents and short-term
investments and Consolidated cash, cash equivalents and short-term
investments measures used in this Annual Report, including a
reconciliation between the two measures, please see pages 51-52 of
the Financial Review.
Risk management The execution of the Group’s strategy is
subject to a number of risks and uncertainties. As a clinical-stage
biotherapeutics company, the Group operates in an inherently
high-risk environment. The overall aim of the Group’s risk
management effort is to achieve an effective balancing of risk and
reward, although ultimately no strategy can provide an assurance
against loss.
Risks are formally identified by the Board and appropriate
processes are put in place to monitor and mitigate them on an
ongoing basis. If more than one event occurs, it is possible that
the overall effect of such events would compound the possible
effect on the Group. The principal risks that the Board has
identified as the key business risks facing the Group are set out
in the table below along with the consequences and mitigation of
each risk. These risks are only a high-level summary of the
principal risks affecting our business; any number of these or
other risks could have a material adverse effect on the Group or
its financial condition, development, results of operations,
subsidiary companies and/or future prospects. Further information
on the risks facing the Group can be found on pages 175 to 211
which also includes a description of circumstances under which
principal and other risks and uncertainties might arise in the
course of our business and their potential impact.
Risk
Impact*
Management Plans/Actions
1 Risks related to science and technology
failure
The science and technology being developed
or commercialized by some of our businesses may fail and/or our
businesses may not be able to develop their intellectual property
into commercially viable therapeutics or technologies. There is
also a risk that certain of the businesses may fail or not succeed
as anticipated, resulting in significant decline of our value.
The failure of any of our businesses could
decrease our value. A failure of one of the major businesses could
also impact the perception of PureTech as a developer of high value
technologies and possibly make additional fundraising at PureTech
or any Founded Entity more difficult.
Before making any decision to develop any
technology, extensive due diligence is carried out that covers all
the major business risks, including technological feasibility,
market size, strategy, adoption and intellectual property
protection.
A capital efficient approach is pursued
such that some level of proof of concept has to be achieved before
substantial capital is committed and thereafter allocated. Capital
deployment is generally tranched so as to fund programs only to
their next value milestone. Members of our Board or our management
team serve on the board of directors of several of the businesses
so as to continue to guide each business’s strategy and to oversee
proper execution thereof. We use our extensive network of advisors
to ensure that each business has appropriate domain expertise as it
develops and executes on its strategy and the R&D Committee of
our Board reviews each program at each stage of development and
advises our Board on further actions. Additionally, we have a
diversified model with numerous assets such that the failure of any
one of our businesses or therapeutic candidates would not result in
a failure of all of our businesses.
2 Risks related to clinical trial
failure
Clinical trials and other tests to assess
the commercial viability of a therapeutic candidate are typically
expensive, complex and time-consuming, and have uncertain
outcomes.
Conditions in which clinical trials are
conducted differ, and results achieved in one set of conditions
could be different from the results achieved in different
conditions or with different subject populations. If our
therapeutic candidates fail to achieve successful outcomes in their
respective clinical trials, the therapeutics will not receive
regulatory approval and in such event cannot be commercialized. In
addition, if we fail to complete or experience delays in completing
clinical tests for any of our therapeutic candidates, we may not be
able to obtain regulatory approval or commercialize our therapeutic
candidates on a timely basis, or at all.
A critical failure of a clinical trial may
result in termination of the program and a significant decrease in
our value. Significant delays in a clinical trial to support the
appropriate regulatory approvals could impact the amount of capital
required for the business to become fully sustainable on a cash
flow basis.
We have a diversified model such that any
one clinical trial outcome would not significantly impact our
ability to operate as a going concern. We have dedicated internal
resources to establish and monitor each of the clinical programs in
order to try to maximise successful outcomes. We also engage
outside experts to help design clinical programs to help provide
valuable information and mitigate the risk of failure. Significant
scientific due diligence and preclinical experiments are done prior
to a clinical trial to attempt to assess the odds of the success of
the trial. In the event of the outsourcing of these trials, care
and attention are given to assure the quality of the vendors used
to perform the work.
3 Risks related to regulatory
approval
The pharmaceutical industry is highly
regulated. Regulatory authorities across the world enforce a range
of laws and regulations which govern the testing, approval,
manufacturing, labelling and marketing of pharmaceutical
therapeutics. Stringent standards are imposed which relate to the
quality, safety and efficacy of these therapeutics. These
requirements are a major determinant of whether it is commercially
feasible to develop a drug substance or medical device given the
time, expertise and expense which must be invested.
We may not obtain regulatory approval for
our therapeutic candidates. Moreover, approval in one territory
offers no guarantee that regulatory approval will be obtained in
any other territory. Even if therapeutics are approved, subsequent
regulatory difficulties may arise, or the conditions relating to
the approval may be more onerous or restrictive than we expect.
The failure of one of our therapeutics to
obtain any required regulatory approval, or conditions imposed in
connection with any such approval, may result in a significant
decrease in our value.
We manage our regulatory risk by employing
highly experienced clinical managers and regulatory affairs
professionals who, where appropriate, will commission advice from
external advisors and consult with the regulatory authorities on
the design of our preclinical and clinical programs. These experts
ensure that high-quality protocols and other documentation are
submitted during the regulatory process, and that well-reputed
contract research organizations with global capabilities are
retained to manage the trials. We also engage with experts,
including on our R&D Committee, to help design clinical trials
to help provide valuable information and maximize the likelihood of
regulatory approval. Additionally, we have a diversified model with
numerous assets such that the failure to receive regulatory
approval or subsequent regulatory difficulties with respect to any
one therapeutic would not adversely impact all of our therapeutics
and businesses.
4 Risks related to therapeutic safety
There is a risk of adverse reactions with
all drugs and medical devices. If any of our therapeutics are found
to cause adverse reactions or unacceptable side effects, then
therapeutic development may be delayed, additional expenses may be
incurred if further studies are required, and, in extreme
circumstances, it may prove necessary to suspend or terminate
development. This may occur even after regulatory approval has been
obtained, in which case additional trials may be required, the
approval may be suspended or withdrawn or additional safety
warnings may have to be included on the label. Adverse events or
unforeseen side effects may also potentially lead to product
liability claims being raised against us as the developer of the
therapeutics and sponsor of the relevant clinical trials. These
risks are also applicable to our Founded Entities and any trials
they conduct or therapeutic candidates they develop.
Adverse reactions or unacceptable side
effects may result in a smaller market for our therapeutics, or
even cause the therapeutics to fail to meet regulatory requirements
necessary for sale of the therapeutic. This, as well as any claims
for injury or harm resulting from our therapeutics, may result in a
significant decrease in our value.
We design our therapeutics with safety as
a top priority and conduct extensive preclinical and clinical
trials which test for and identify any adverse side effects.
Despite these steps and precautions, we cannot fully avoid the
possibility of unforeseen side effects. To mitigate the risk
further we have insurance in place to cover product liability
claims which may arise during the conduct of clinical trials.
5 Risks related to therapeutic
profitability
We may not be able to sell our
therapeutics profitably if reimbursement from third-party payers
such as private health insurers and government health authorities
is restricted or not available because, for example, it proves
difficult to build a sufficiently strong economic case based on the
burden of illness and population impact.
Third-party payers are increasingly
attempting to curtail healthcare costs by challenging the prices
that are charged for pharmaceutical therapeutics and denying or
limiting coverage and the level of reimbursement. Moreover, even if
the therapeutics can be sold profitably, they may not be accepted
by patients and the medical community.
Alternatively, our competitors – many of
whom have considerably greater financial and human resources – may
develop safer or more effective therapeutics or be able to compete
more effectively in the markets targeted by us. New companies may
enter these markets and novel therapeutics and technologies may
become available which are more commercially successful than those
being developed by us. These risks are also applicable to our
Founded Entities and could result in a decrease in their value.
The failure to obtain reimbursement from
third party payers, as well as competition from other therapeutics,
could significantly decrease the amount of revenue we may receive
from therapeutic sales for certain therapeutics. This may result in
a significant decrease in our value.
We engage reimbursement experts to conduct
pricing and reimbursement studies for our therapeutics to ensure
that a viable path to reimbursement, or direct user payment, is
available. We also closely monitor the competitive landscape for
all of our therapeutics and adapt our business plans accordingly.
Not all therapeutics that we are developing will rely on
reimbursement. Also, while we cannot control outcomes, we try to
design studies to generate data that will help support potential
reimbursement.
6 Risks related to intellectual property
protection
We may not be able to obtain patent
protection for some of our therapeutics or maintain the secrecy of
their trade secrets and know-how. If we are unsuccessful in doing
so, others may market competitive therapeutics at significantly
lower prices. Alternatively, we may be sued for infringement of
third-party patent rights. If these actions are successful, then we
would have to pay substantial damages and potentially remove our
therapeutics from the market. We license certain intellectual
property rights from third parties. If we fail to comply with our
obligations under these agreements, it may enable the other party
to terminate the agreement. This could impair our freedom to
operate and potentially lead to third parties preventing us from
selling certain of our therapeutics.
The failure to obtain patent protection
and maintain the secrecy of key information may significantly
decrease the amount of revenue we may receive from therapeutic
sales. Any infringement litigation against us may result in the
payment of substantial damages by us and result in a significant
decrease in our value.
We spend significant resources in the
prosecution of our patent applications and maintenance of our
patents, and we have in-house patent counsel and patent group to
help with these activities. We also work with experienced external
attorneys and law firms to help with the protection, maintenance
and enforcement of our patents. Third party patent filings are
monitored to ensure the Group continues to have freedom to operate.
Confidential information (both our own and information belonging to
third parties) is protected through use of confidential disclosure
agreements with third parties, and suitable provisions relating to
confidentiality and intellectual property exist in our employment
and advisory contracts. Licenses are monitored for compliance with
their terms.
7 Risks related to enterprise
profitability
We expect to continue to incur substantial
expenditure in further research and development activities. There
is no guarantee that we will become operationally profitable, and,
even if we do so, we may be unable to sustain operational
profitability.
The strategic aim of the business is to
generate profits for our shareholders through the commercialization
of technologies through therapeutic sales, strategic partnerships
and sales of businesses or parts thereof. The timing and size of
these potential inflows are uncertain. Should revenues from our
activities not be achieved, or in the event that they are achieved
but at values significantly less than the amount of capital
invested, then it would be difficult to sustain our business.
We retain significant cash in order to
support funding of our Founded Entities and our Wholly Owned
Pipeline. We have close relationships with a wide group of
investors and strategic partners to ensure we can continue to
access the capital markets and additional monetization and funding
for our businesses. Additionally, our Founded Entities are able to
raise money directly from third party investors and strategic
partners.
8 Risks related to hiring and retaining qualified employees
We operate in complex and specialized
business domains and require highly qualified and experienced
management to implement our strategy successfully. We and many of
our businesses are located in the United States which is a highly
competitive employment market.
Moreover, the rapid development which is
envisaged by us may place unsupportable demands on our current
managers and employees, particularly if we cannot attract
sufficient new employees. There is also the risk that we may lose
key personnel.
The failure to attract highly effective
personnel or the loss of key personnel would have an adverse impact
on our ability to continue to grow and may negatively affect our
competitive advantage.
The Board regularly seeks external
expertise to assess the competitiveness of the compensation
packages of its senior management. Senior management continually
monitors and assesses compensation levels to ensure we remain
competitive in the employment market. We maintain an extensive
recruiting network through our Board members, advisors and
scientific community involvement. We also employ an executive as a
full-time in-house recruiter and retain outside recruiters when
necessary or advisable. Additionally, we are proactive in our
retention efforts and include incentive-based compensation in the
form of equity awards and annual bonuses, as well as a competitive
benefits package. We have a number of employee engagement efforts
to strengthen our PureTech community.
9 Risks related to business, economic or
public health disruptions
Business, economic, financial or
geopolitical disruptions or global health concerns could seriously
harm our development efforts and increase our costs and
expenses.
Broad-based business, economic , financial
or geopolitical disruptions could adversely affect our ongoing or
planned research and development activities. Global health
concerns, such as a further pandemic, or geopolitical events, like
the ongoing consequences of the invasion of Ukraine, could also
result in social, economic, and labor instability in the countries
in which we operate or the third parties with whom we engage. We
consider the risk to be increasing since the prior year and note
further risks associated with the banking system and global
financial stability. We cannot presently predict the scope and
severity of any potential business shutdowns or disruptions, but if
we or any of the third parties with whom we engage, including the
suppliers, clinical trial sites, regulators, providers of financial
services and other third parties with whom we conduct business,
were to experience shutdowns or other business disruptions, our
ability to conduct our business in the manner and on the timelines
presently planned could be materially and negatively impacted. It
is also possible that global health concerns or geopolitical events
such as these ones could disproportionately impact the hospitals
and clinical sites in which we conduct any of our current and/or
future clinical trials, which could have a material adverse effect
on our business and our results of operation and financial
impact.
We regularly review the business,
economic, financial and geopolitical environment in which we
operate. It is possible that we may see further impact as a result
of current geopolitical tensions. We monitor the position of our
suppliers, clinical trial sites, regulators, providers of financial
services and other third parties with whom we conduct business. We
develop and execute contingency plans to address risks where
appropriate.
Financial Review
Reporting Framework You should read the following
discussion and analysis together with our Consolidated Financial
Statements, including the notes thereto, set forth elsewhere in
this report. Some of the information contained in this discussion
and analysis or set forth elsewhere in this report, including
information with respect to our plans and strategy for our business
and financing our business, includes forward-looking statements
that involve risks and uncertainties. As a result of many factors,
including the risks set forth on pages 44 to 47 and in the
Additional Information section from pages 175 to 212, our actual
results could differ materially from the results described in or
implied by these forward-looking statements.
Our audited Consolidated Financial Statements as of December 31,
2022 and 2021, and for the years ended December 31, 2022, 2021 and
2020, have been prepared in accordance with UK-adopted
International Financial Reporting Standards (IFRS). The
Consolidated Financial Statements also comply fully with IFRSs as
issued by the International Accounting Standards Board (IASB).
The following discussion contains references to the Consolidated
Financial Statements of PureTech Health plc, or the Company, and
its consolidated subsidiaries, together the Group. These financial
statements consolidate the Company’s subsidiaries and include the
Company’s interest in associates and investments held at fair
value. Subsidiaries are those entities over which the Company
maintains control. Associates are those entities in which the
Company does not have control for financial accounting purposes but
maintains significant influence over financial and operating
policies. Where the Company has neither control nor significant
influence for financial accounting purposes, or when the Company
does not hold common shares (or shares similar to common shares) we
recognize our holding in such entity as an investment at fair
value. For purposes of our Consolidated Financial Statements, each
of our Founded Entities are considered to be either a “subsidiary",
an “associate” or an "investment held at fair value" depending on
whether PureTech Health plc controls or maintains significant
influence over the financial and operating policies of the
respective entity at the respective period end date. For additional
information regarding the accounting treatment of these entities,
see Note 1 to our Consolidated Financial Statements included in
this report. For additional information regarding our operating
structure, see “Basis of Presentation and Consolidation” below.
Fair value of Investments held at fair value does not take into
consideration contribution from milestones that occurred after
December 31, 2022, the value of our interests in our consolidated
Founded Entities (Vedanta, Follica, and Entrega), our Wholly Owned
Programs, or our cash.
Business Background and Results Overview The business
background is discussed above from pages 1 to 14, which describes
in detail the business development of our Wholly Owned Programs and
Founded Entities.
Our ability to generate product revenue sufficient to achieve
profitability will depend heavily on the successful development and
eventual commercialization of one or more of our wholly-owned or
Controlled Founded Entities’ therapeutic candidates, which may or
may not occur. Our Founded Entities, Gelesis, Inc. ("Gelesis"), and
Akili Interactive Labs, Inc. ("Akili"), which we have not
controlled since 2019 and 2018, respectively, have therapeutics
cleared for sale, but our Wholly Owned Programs and our Controlled
Founded Entities have not yet generated any meaningful revenue from
product sales, to date. However, we do generate significant cash
from the sale of shares of our public Founded Entities. See also
Recent Developments section below with regard to the Royalty Pharma
agreement signed after balance sheet date.
We deconsolidated a number of our Founded Entities, specifically
Sonde Health Inc. ("Sonde") in May 2022, Karuna Therapeutics, Inc.
("Karuna"), Vor Biopharma Inc. ("Vor"), and Gelesis in 2019, and
Akili in 2018. We expect this trend to continue into the
foreseeable future as our Controlled Founded Entities raise
additional funding that reduces our ownership interest. Any
deconsolidation affects our financials in the following manner:
- our ownership interest does not provide us with a controlling
financial interest;
- we no longer control the Founded Entity's assets and
liabilities and as a result we derecognize the assets, liabilities
and non-controlling interests related to the Founded Entity from
our Consolidated Statements of Financial Position;
- we record our non-controlling financial interest in the Founded
Entity at fair value; and
- the resulting amount of any gain or loss is recognized in our
Consolidated Statements of Comprehensive Income/(Loss).
We anticipate our expenses to continue to increase
proportionally in connection with our ongoing development
activities related mostly to the advancement into late-stage
studies of the clinical programs within our Wholly Owned Pipeline
and Controlled Founded Entities. We also expect that our expenses
and capital requirements will increase substantially in the near to
mid-term as we:
- continue our research and development efforts;
- seek regulatory approvals for any therapeutic candidates that
successfully complete clinical trials; and
- add clinical, scientific, operational financial and management
information systems and personnel, including personnel to support
our therapeutic development and potential future commercialization
claims.
In addition, our internal research and development spend will
increase in the foreseeable future as we may initiate additional
clinical studies for LYT-100, LYT-200 and LYT-300, and progress
additional therapeutic candidates into the clinic, such as LYT-310,
as well as advance our technology platforms.
In addition, with respect to our Founded Entities’ programs, we
anticipate that we will continue to fund a small portion of
development costs by strategically participating in such companies’
financings when we believe participation in such financings is in
the best interests of our shareholders. The form of any such
participation may include investment in public or private
financings, collaboration, partnership arrangements, and/or
licensing arrangements, among others. Our management and strategic
decision makers consider the future funding needs of our Founded
Entities and evaluate the needs and opportunities for returns with
respect to each of these Founded Entities routinely and on a
case-by-case basis.
As a result, we may need substantial additional funding in the
future, following the period described below in the Funding
Requirement section, to support our continuing operations and
pursue our growth strategy until such time as we can generate
sufficient revenue from product sales to support our operations, if
ever. Until such time we expect to finance our operations through a
combination of monetization of our interests in our Founded
Entities, collaborations with third parties, or other sources. We
may be unable to raise additional funds or enter into such other
agreements or arrangements when needed on favorable terms, or at
all. If we are unable to raise capital or enter into such
agreements, as and when needed, we may have to delay, scale back or
discontinue the development and commercialization of one or more of
our wholly-owned therapeutic candidates.
Measuring Performance The Financial Review discusses our
operating and financial performance, our cash flows and liquidity
as well as our financial position and our resources. The results
for each year are compared primarily with the results of the
preceding year.
Reported Performance Reported performance considers all factors
that have affected the results of our business, as reflected in our
Consolidated Financial Statements.
Core Performance Core performance measures are alternative
performance measures (APM) which are adjusted and non-IFRS
measures. These measures cannot be derived directly from our
Consolidated Financial Statements. We believe that these non-IFRS
performance measures, when provided in combination with reported
performance, will provide investors, analysts and other
stakeholders with helpful complementary information to better
understand our financial performance and our financial position
from period to period. The measures are also used by management for
planning and reporting purposes. The measures are not substitutable
for IFRS financial information and should not be considered
superior to financial information presented in accordance with
IFRS.
Cash flow and liquidity
PureTech Level Cash, cash equivalents and
short-term investments
Measure type: Core performance
Definition: Cash and cash
equivalents, and Short-term investments held at PureTech Health plc
and wholly-owned subsidiaries (PureTech LYT, PureTech LYT-100,
Alivio Therapeutics, Inc., PureTech Management, Inc., PureTech
Health LLC, PureTech Securities Corp, PureTech Securities II
Corp)
Why we use it: PureTech Level Cash,
cash equivalents and short-term investments is a measure that
provides valuable additional information with respect to cash, cash
equivalents and short-term investments available to fund the Wholly
Owned Programs and make certain investments in Founded Entities
Recent Developments (subsequent to December 31, 2022) The
Company has evaluated subsequent events after December 31, 2022 up
to the date of issuance of the Consolidated Financial Statements,
and has not identified any recordable or disclosable events, except
for the following:
On March 1, 2023 Vedanta issued convertible debt to a syndicate
of investors. The initial close of the debt was for proceeds of
approximately $88.5 million. The note carries an interest rate of 9
percent per annum. The debt has various conversion triggers and the
conversion price is established at the lower of 80% of the equity
price of the last financing round, or a certain pre-money valuation
cap established in the agreement. As part of the issuance of the
debt, the convertible debt holders were granted representation in
Vedanta's Board of Directors and PureTech lost control over
Vedanta. On April 24, 2023, Vedanta closed the second tranche of
the convertible debt for additional proceeds of $18.0 million, of
which $5.0 million were invested by the Company.
On March 22, 2023, the Company entered into an agreement with
Royalty Pharma according to which Royalty Pharma acquired an
interset in our royalty from Karuna's KarXT, with $100.0 million in
cash up-front, and up to $400.0 million in additional cash
consideration, contingent on the achievement of certain regulatory
and commercial milestones.
Gelesis On February 21, 2023, the Company entered into a Note
and Warrant Purchase agreement with Gelesis for $5.0 million cash
consideration. As part of the agreement, the Company received a
short term convertible senior secured note of $5.0 million and
warrants to purchase additional shares of Gelesis' common stock.
The note carries an interest rate of 12 percent per annum and holds
an initial maturity date of July 31, 2023 unless the note is
converted earlier or redeemed by the issuer.
Subsequent to balance sheet date, on April 10, 2023, the NYSE
commenced proceedings to delist the common stock of Gelesis from
the NYSE due to Gelesis ceasing to meet certain conditions to trade
on such stock exchange. Trading in Gelesis’s common stock was
suspended immediately, and it was subsequently delisted from the
NYSE. The common stock of Gelesis is currently available for
trading in the over-the-counter (“OTC”) market under the symbol
GLSH.
In addition, in April 2023 PureTech submitted a non-binding
proposal to acquire all of the outstanding equity of Gelesis.
Negotiations related to the proposal and any potential deal remain
ongoing and are subject to, among other things, approval of any
definitive transaction by independent committees of the boards of
both Gelesis and PureTech.
Financial Highlights
The following is the reconciliation of the amounts appearing in
our Statement of Financial Position to the Alternative Performance
Measure described above:
As of:
(in thousands)
March 31, 2023*
December 31, 2022
December 31, 2021
Cash and Cash Equivalents
280,594
149,866
465,708
Short-term investments
101,912
200,229
—
Consolidated Cash, cash equivalents and
short-term investments
391,506
350,095
465,708
Less: Cash and Cash Equivalents held at
non-wholly owned subsidiaries
(2,128)
(10,622)
(46,856)
PureTech Level Cash, cash equivalents
and short-term investments
$389,378
$339,473
$418,851
* Information as of March 31, 2023 is not
included in PureTech Health plc’s Annual Report and Accounts 2022
and is included here for quantitative reconciliation purposes
Basis of Presentation and Consolidation Our Consolidated
Financial Information consolidates the financial information of
PureTech Health plc, as well as its subsidiaries, and includes our
interest in associates and investments held at fair value, and is
reported in four operating segments as described below.
Basis for Segmentation Our Directors are our strategic
decision-makers. Our operating segments are based on the financial
information provided to our Directors periodically for the purposes
of allocating resources and assessing performance. We have
determined that each consolidated Founded Entity is representative
of a single operating segment as our Directors monitor the
financial results at this level. When identifying the reportable
segments, we have determined that it is appropriate to aggregate
multiple operating segments into a single reportable segment given
the high level of operational and financial similarities across the
entities. We have identified multiple reportable segments, as
presented below. Substantially all of our revenue and profit
generating activities are generated within the United States and,
accordingly, no geographical disclosures are provided.
There was no change to reportable segments in 2022, except for
the transfer of Sonde Health, Inc. to the Non-Controlled Founded
Entities segment due to the deconsolidation of Sonde Health, Inc on
May 25, 2022.
The Non-Controlled Founded Entities segment is comprised of the
entities in respect of which PureTech Health (i) no longer holds
majority voting control as a shareholder or (ii) no longer has the
right to elect a majority of the members of the subsidiaries’ Board
of Directors. Upon deconsolidation of an entity, the segment
disclosure is restated to reflect the change on a retrospective
basis, as this constitutes a change in the composition of
reportable segments.
As of December 31, 2022, the Non-Controlled Founded Entities
segment includes Sonde Health, Inc. which was deconsolidated on May
25, 2022. Segment results incorporate the operational results of
Sonde Health, Inc. to the date of deconsolidation. Following the
date of deconsolidation, the Company accounts for its investment in
Sonde Health, Inc. at the parent level, and therefore the results
associated with investment activity following the date of
deconsolidation is included in the Parent Company and Other
section.
The Company has revised in this report the prior year segment
financial information to conform to the presentation as of and for
the year ending December 31, 2022 to include Sonde in the
Non-Controlled Founded Entities segment. This change in segments
reflects how the Company’s Board of Directors reviews the Group’s
results, allocates resources and assesses performance of the Group
at this time.
Following is the description of our reportable segments:
Internal The Internal segment is advancing Wholly Owned
Programs, which is focused on improving the lives of patients with
devastating diseases. The Internal segment is comprised of the
technologies that are wholly owned and will be advanced through
either PureTech Health funding or non-dilutive sources of financing
in the near-term. The operational management of the Internal
segment is conducted by the PureTech Health team, which is
responsible for the strategy, business development, and research
and development. As of December 31, 2022, this segment included
PureTech LYT, Inc. (formerly Ariya Therapeutics Inc.), PureTech
LYT-100, Inc and Alivio Therapeutics, Inc.
Controlled Founded Entities The Controlled Founded
Entities segment is comprised of our subsidiaries that are
currently consolidated operational subsidiaries that either have,
or have plans to hire, independent management teams and have
previously raised, or are currently in the process of raising,
third-party dilutive capital. These subsidiaries have active
research and development programs and either have entered into or
plan to seek a strategic partnership with an equity or debt
investment partner, who will provide additional industry knowledge
and access to networks, as well as additional funding to continue
the pursued growth of the company. As of December 31, 2022, this
segment included Entrega, Inc., Follica, Inc., and Vedanta
Biosciences, Inc.
Non-Controlled Founded Entities The Non-Controlled
Founded Entities segment is comprised of the entities in respect of
which PureTech Health no longer has control over the entity. Upon
deconsolidation of an entity the segment disclosure is restated to
reflect the change on a retrospective basis, as this constitutes a
change in the composition of its reportable segments. The
Non-Controlled Founded Entities segment included Sonde Health,
Inc.
The Non-Controlled Founded Entities segment incorporates the
operational results of the aforementioned entities to the date of
deconsolidation. Following the date of deconsolidation, we account
for our investment in each entity at the parent level, and
therefore the results associated with investment activity
(including the share in the net loss of associates) following the
date of deconsolidation is included in the Parent Company and Other
segment (the “Parent Company and Other segment”).
Parent Company and Other Parent Company and Other
includes activities that are not directly attributable to the
operating segments, such as the activities of the Parent, corporate
support functions and certain research and development support
functions that are not directly attributable to a strategic
business segment as well as the elimination of intercompany
transactions. Parent Company and Other also captures the accounting
for our holdings in entities for which control has been lost, which
is inclusive of the following items: gain on deconsolidation, gain
or loss on investments held at fair value, realized loss on sale of
investments, the share of net income/ (loss) of associates
accounted for using the equity method, gain on dilution of
ownership interest in associate, impairment of investment in
associate. As of December 31, 2022, this segment included PureTech
Health plc, PureTech Health LLC, PureTech Management, Inc.,
PureTech Securities Corp., and PureTech Securities II Corp. as well
as certain other dormant, inactive and shell entities.
The table below summarizes the entities that comprised each of
our segments as of December 31, 2022:
Internal Segment
PureTech LYT
100.0%
PureTech LYT-100, Inc.
100.0%
Alivio Therapeutics, Inc.
100.0%
Controlled Founded Entities
Entrega, Inc.
77.3%
Follica, Incorporated
85.4%
Vedanta Biosciences, Inc.
47.0%
Non-Controlled Founded Entities
Sonde Health, Inc.
40.2%
Parent Segment1
Puretech Health plc
100.0%
PureTech Health LLC
100.0%
PureTech Securities Corporation
100.0%
PureTech Securities II Corporation
100.0%
PureTech Management, Inc.
100.0%
1 Includes dormant, inactive and shell
entities that are not listed here.
Components of Our Results of Operations
Revenue To date, we have not generated any meaningful revenue
from product sales and we do not expect to generate any meaningful
revenue from product sales for the near term future. We derive our
revenue from the following:
Contract revenue We generate revenue primarily from licenses,
services and collaboration agreements, including amounts that are
recognized related to upfront payments, milestone payments,
royalties and amounts due to us for research and development
services. In the future, revenue may include additional milestone
payments and royalties on any net product sales under our licensing
agreements. We expect that any revenue we generate will fluctuate
from period to period as a result of the timing and amount of
license, research and development services and milestone and other
payments.
Grant Revenue Grant revenue is derived from grant awards we
receive from governmental agencies and non-profit organizations for
certain qualified research and development expenses. We recognize
grants from governmental agencies as grant income in the
Consolidated Statement of Comprehensive Income/(Loss), gross of the
expenditures that were related to obtaining the grant, when there
is reasonable assurance that we will comply with the conditions
within the grant agreement and there is reasonable assurance that
payments under the grants will be received. We evaluate the
conditions of each grant as of each reporting date to ensure that
we have reasonable assurance of meeting the conditions of each
grant arrangement and it is expected that the grant payment will be
received as a result of meeting the necessary conditions.
For proceeds from sale of our investments held at fair value,
please see our Consolidated Cash flow Statements, Net cash provided
by investing activities.
Operating Expenses
Research and Development Expenses Research and development
expenses consist primarily of costs incurred for our research
activities, including our discovery efforts, and the development of
our wholly-owned and our Controlled Founded Entities’ therapeutic
candidates, which include:
- employee-related expenses, including salaries, related benefits
and equity-based compensation;
- expenses incurred in connection with the preclinical and
clinical development of our wholly-owned and our Founded Entities’
therapeutic candidates, including our agreements with contract
research organizations, or CROs;
- expenses incurred under agreements with consultants who
supplement our internal capabilities;
- the cost of lab supplies and acquiring, developing and
manufacturing preclinical study materials and clinical trial
materials;
- costs related to compliance with regulatory requirements;
and
- facilities, depreciation and other expenses, which include
direct and allocated expenses for rent and maintenance of
facilities, insurance and other operating costs.
We expense all research costs in the periods in which they are
incurred and development costs are capitalized only if certain
criteria are met. For the periods presented, we have not
capitalized any development costs since we have not met the
necessary criteria required for capitalization.
Research and development activities are central to our business
model. Therapeutic candidates in later stages of clinical
development generally have higher development costs than those in
earlier stages of clinical development, primarily due to the
increased size and duration of later-stage clinical trials. We
expect that our research and development expenses will continue to
increase for the foreseeable future in connection with our planned
preclinical and clinical development activities in the near term
and in the future. The successful development of our wholly-owned
and our Founded Entities’ therapeutic candidates is highly
uncertain. As such, at this time, we cannot reasonably estimate or
know the nature, timing and estimated costs of the efforts that
will be necessary to complete the remainder of the development of
these therapeutic candidates. We are also unable to predict when,
if ever, material net cash inflows will commence from our
wholly-owned or our Founded Entities’ therapeutic candidates. This
is due to the numerous risks and uncertainties associated with
developing therapeutics, including the uncertainty of:
- progressing research and development of our Wholly Owned
Pipeline, including LYT-100, LYT-200, LYT-300, LYT-310 and
continuing to progress our various technology platforms and other
potential therapeutic candidates based on previous human efficacy
and clinically validated biology within our Wholly Owned
Programs;
- establishing an appropriate safety profile with investigational
new drug application;
- the success of our Founded Entities and their need for
additional capital;
- identifying new therapeutic candidates to add to our Wholly
Owned Pipeline;
- successful enrollment in, and the initiation and completion of,
clinical trials;
- the timing, receipt and terms of any marketing approvals from
applicable regulatory authorities;
- commercializing our wholly-owned and our Founded Entities’
therapeutic candidates, if approved, whether alone or in
collaboration with others;
- establishing commercial manufacturing capabilities or making
arrangements with third-party manufacturers;
- addressing any competing technological and market developments,
as well as any changes in governmental regulations;
- negotiating favorable terms in any collaboration, licensing or
other arrangements into which we may enter and performing our
obligations under such arrangements;
- maintaining, protecting and expanding our portfolio of
intellectual property rights, including patents, trade secrets and
know-how, as well as obtaining and maintaining regulatory
exclusivity for our wholly-owned and our Founded Entities’
therapeutic candidates;
- continued acceptable safety profile of our therapeutics, if
any, following approval; and
- attracting, hiring and retaining qualified personnel.
A change in the outcome of any of these variables with respect
to the development of a therapeutic candidate could mean a
significant change in the costs and timing associated with the
development of that therapeutic candidate. For example, the FDA,
the EMA, or another comparable foreign regulatory authority may
require us to conduct clinical trials beyond those that we
anticipate will be required for the completion of clinical
development of a therapeutic candidate, or we may experience
significant trial delays due to patient enrollment or other
reasons, in which case we would be required to expend significant
additional financial resources and time on the completion of
clinical development. In addition, we may obtain unexpected results
from our clinical trials and we may elect to discontinue, delay or
modify clinical trials of some therapeutic candidates or focus on
others. Identifying potential therapeutic candidates and conducting
preclinical testing and clinical trials is a time-consuming,
expensive and uncertain process that takes years to complete, and
we may never generate the necessary data or results required to
obtain marketing approval and achieve product sales. In addition,
our wholly-owned and our Founded Entities’ therapeutic candidates,
if approved, may not achieve commercial success.
General and Administrative Expenses General and
administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in
our executive, finance, corporate and business development and
administrative functions. General and administrative expenses also
include professional fees for legal, patent, accounting, auditing,
tax and consulting services, travel expenses and facility-related
expenses, which include direct depreciation costs and allocated
expenses for rent and maintenance of facilities and other operating
costs.
We expect that our general and administrative expenses will
increase in the future as we increase our general and
administrative headcount to support our continued research and
development and potential commercialization of our portfolio of
therapeutic candidates.
Total Other Income/(Loss)
Gain on Deconsolidation of Subsidiary Upon losing control over a
subsidiary, the assets and liabilities are derecognized along with
any related non-controlling interest (“NCI”). Any interest retained
in the former subsidiary is measured at fair value when control is
lost. Any resulting gain or loss is recognized as profit or loss in
the Consolidated Statements of Comprehensive Income/(Loss).
Gain/(Loss) on Investments Held at Fair Value Investments held
at fair value include both unlisted and listed securities held by
us, which include investments in Akili, Gelesis, Karuna, Vor and
Sonde and certain insignificant investments. We account for
investments in preferred shares of our associates in accordance
with IFRS 9 as Investments Held at Fair Value when the preferred
shares do not provide access to returns underlying ownership
interests.
Our ownership in Akili was in preferred shares until August 2022
at which time the preferred shares were exchanged into common
shares as part of Akili SPAC merger (See Note 5 in the Consolidated
financial statements). Our ownership in Vor was in preferred shares
until February 2021 at which time the preferred shares were
converted into common shares as part of Vor Initial Public
Offering. Preferred shares formed part of our ownership in Gelesis
and such preferred shares were accounted for as Investments Held at
Fair value while the common stock investment is accounted for under
the equity method. When the investment in common stock was reduced
to zero by equity method losses, subsequent equity method losses
were applied to the preferred share investment, which was
considered to be a Long-term Interest. In January 2022, as part of
the Gelesis SPAC merger with Capstar, the Gelesis preferred shares
were exchanged for common shares in the new Gelesis entity and were
treated as an additional investment in Gelesis equity interest
accounted for under the equity method (for further details see Note
6 in the consolidated financial statements). Our common stock
investment in Karuna is accounted for under IFRS 9 as an investment
held at fair value. Our A-2 and B preferred share investments in
Sonde are accounted for as investments held at fair value
Realized loss on sale of Investments Realized loss on sale of
investments held at fair value relates to realized differences in
the per share disposal price of a listed security as compared to
the per share exchange quoted price at the time of disposal. The
difference in 2020 and 2021 is attributable to a block sale
discount, due to a variety of market factors, primarily the number
of shares being transacted was significantly larger than the daily
trading volume of the security. The difference in 2022 is
attributed to the settlement of call options written by the Company
on Karuna stock.
Other Income (Expense) Other income (expense) consists primarily
of gains and losses on financial instruments and in 2022 relates
primarily to the backstop agreement with Gelesis (see Note 6 in the
consolidated financial statements). In prior years includes also
sub-lease income.
Finance Costs/Income Finance costs consist of loan interest
expense and the changes in the fair value of certain liabilities
associated with financing transactions, mainly preferred share
liabilities in respect of preferred shares issued by our non wholly
owned subsidiaries to third parties. Finance income consists of
interest income on funds invested in money market funds and U.S.
treasuries.
Share of Net Gain (Loss) of Associates Accounted for Using the
Equity Method, Gain on Dilution of Ownership Interest and
Impairment of Investment in Associate Associates are accounted for
using the equity method (equity accounted investees) and are
initially recognized at cost, or if recognized upon deconsolidation
they are initially recorded at fair value at the date of
deconsolidation. The consolidated financial statements include our
share of the total comprehensive income and equity movements of
equity accounted investees, from the date that significant
influence commences until the date that significant influence
ceases. When the share of losses exceeds the net investment in the
investee, including the investment in preferred shares that are
considered Long-term Interests, the carrying amount is reduced to
nil and recognition of further losses is discontinued except to the
extent that we have incurred legal or constructive obligations or
made payments on behalf of an investee.
We compare the recoverable amount of the investment to its
carrying amount on a go-forward basis and determine the need for
impairment. We recorded an impairment in the common stock
investment in Gelesis in the year ended December 31, 2022.
When our share in the equity of the investee changes as a result
of equity transactions in the investee (related to financing events
of the investee), we calculate a gain or loss on such change in
ownership and related share in the investee's equity. During the
year ended December 31, 2022 we recorded a gain on dilution of our
ownership interest in Gelesis.
Income Tax The amount of taxes currently payable or refundable
is accrued, and deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Deferred tax assets are also recognized for realizable loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using substantively enacted tax rates in effect for the
year in which those temporary differences are expected to be
recovered or settled. Net deferred tax assets are not recorded if
we do not assess their realization as probable. The effect on
deferred tax assets and liabilities of a change in income tax rates
is recognized in our financial statements in the period that
includes the substantive enactment date or the change in tax
status.
Results of Operations The following table, which has been
derived from our audited financial statements for the years ended
December 31, 2022, 2021 and 2020, included herein, summarizes our
results of operations for the periods indicated, together with the
changes in those items in dollars:
Year ended December 31,
(in thousands)
2022
2021
2020
Change
(2021 to 2022)
Change
(2020 to 2021)
Contract revenue
$
2,090
$
9,979
$
8,341
$
(7,889
)
$
1,638
Grant revenue
13,528
7,409
3,427
6,119
3,982
Total revenue
15,618
17,388
11,768
(1,770
)
5,621
Operating expenses:
General and administrative expenses
(60,991
)
(57,199
)
(49,440
)
(3,792
)
(7,760
)
Research and development expenses
(152,433
)
(110,471
)
(81,859
)
(41,962
)
(28,612
)
Operating income/(loss)
(197,807
)
(150,282
)
(119,531
)
(47,524
)
(30,751
)
Other income/(expense):
Gain on deconsolidation of subsidiary
27,251
—
—
27,251
—
Gain/(loss) on investment held at fair
value
(32,060
)
179,316
232,674
(211,377
)
(53,358
)
Realized loss on sale of investment
(29,303
)
(20,925
)
(54,976
)
(8,378
)
34,051
Other income/(expenses)
8,131
1,592
1,035
6,539
557
Other income/(loss)
(25,981
)
159,983
178,732
(185,965
)
(18,749
)
Net finance income/(costs)
138,924
5,050
(6,115
)
133,875
11,164
Share of net income/(loss) of associates
accounted for using the equity method
(27,749
)
(73,703
)
(34,117
)
45,954
(39,587
)
Gain on dilution of ownership interest in
associate
28,220
—
—
28,220
—
Impairment of investment in associate
(8,390
)
—
—
(8,390
)
—
Income/(loss) before income
taxes
(92,783
)
(58,953
)
18,969
(33,830
)
(77,922
)
Taxation
55,719
(3,756
)
(14,401
)
59,475
10,645
Net income/(loss) including
non-controlling interest
(37,065
)
(62,709
)
4,568
25,644
(67,277
)
Net income/(loss) for the year
attributable to the Owners of the Company
$
(50,354
)
$
(60,558
)
$
5,985
$
10,204
$
(66,543
)
Comparison of the Years Ended December 31, 2022 and
2021
Total Revenue
Year ended December 31,
(in thousands)
2022
2021
Change
Contract Revenue:
Internal Segment
$
—
$
8,129
$
(8,129
)
Controlled Founded Entities
1,500
1,500
—
Non-Controlled Founded Entities
81
115
(34
)
Parent Company and other
509
235
274
Total Contract Revenue
$
2,090
$
9,979
$
(7,889
)
Grant Revenue:
Internal Segment
$
2,826
$
1,253
$
1,573
Controlled Founded Entities
10,702
6,156
4,546
Total Grant Revenue
$
13,528
$
7,409
$
6,119
Total Revenue
$
15,618
$
17,388
$
(1,770
)
Our total revenue was $15.6 million for the year ended December
31, 2022, a decrease of $1.8 million, or 10.2 percent compared to
the year ended December 31, 2021. The decrease was primarily
attributable to a decrease of $8.1 million in Contract Revenue in
our Internal Segment due to the conclusion of certain collaboration
activities, partially offset by an increase in Grant Revenue of
$4.5 million in the Controlled Founded Entities segment, driven by
an increase in grants received in our controlled founded entity, as
well as an increase of $1.6 million in Grant Revenue within the
Internal segment as a result of increased grant-related activities
in such segment.
Research and Development Expenses
Year ended December 31,
(in thousands)
2022
2021
Change
Research and Development Expenses:
Internal Segment
$
(116,054
)
$
(65,444
)
$
50,610
Controlled Founded Entities
(34,668
)
(40,667
)
(5,999
)
Non-Controlled Founded Entities
(826
)
(3,116
)
(2,290
)
Parent Company and other
(885
)
(1,244
)
(359
)
Total Research and Development
Expenses:
$
(152,433
)
$
(110,471
)
$
41,962
Our research and development expenses were $152.4 million for
the year ended December 31, 2022, an increase of $42.0 million, or
38.0 percent compared to the year ended December 31, 2021. The
change was primarily attributable to an increase of $50.6 million
in research and development expenses incurred by the Internal
segment due to the advancement of programs in clinical testing
partially offset by decreases in the research and development
expenses of $6.0 million and $2.3 million by the Controlled Founded
Entities and the Non-Controlled Founded Entities, respectively. We
progressed our ongoing clinical trials of LYT-100, LYT-200 and of
LYT 300 in multiple indications, as well as advanced our research
activities. The increase in the Internal Segment was primarily
driven by an increase in clinical trial and clinical research
organization expenditures of $32.7 million, an increase in research
and development related employee compensation expense of $10.5
million (including an increase of $2.0 million in non cash stock
based compensation expense), an increase in analytical and contract
manufacturing testing costs of $4.8 million, and an increase in
consulting and professional fees of $3.3 million. The decrease in
the Controlled Founded Entities was driven by a $3.5 million
reimbursement of expenses related to a settlement reached with a
prior collaboration partner as well as additional decreases of
approximately $3 million in clinical study costs. The decrease in
Non-Controlled Founded Entities was due to the fact that in 2022
the results of operations of Sonde are included only through the
date of deconsolidation while in 2021 such results are included for
a full year.
General and Administrative Expenses
Year ended December 31,
(in thousands)
2022
2021
Change
General and Administrative Expenses:
Internal Segment
$
(8,301
)
$
(8,673
)
$
(373
)
Controlled Founded Entities
(16,462
)
(17,504
)
(1,042
)
Non-Controlled Founded Entities
(1,296
)
(3,225
)
(1,929
)
Parent Company and other
(34,933
)
(27,797
)
7,136
Total General and Administrative
Expenses
$
(60,991
)
$
(57,199
)
$
3,792
Our general and administrative expenses were $61.0 million for
the year ended December 31, 2022, an increase of $3.8 million, or
6.6 percent compared to the year ended December 31, 2021. The
change was attributable to an increase of $7.1 million in the
Parent Company and other segment, offset by a decreases of $1.9
million in the Non-Controlled Founded Entities segment, $1.0
million in the Controlled Founded Entities, and $0.4 million in the
Internal Segment. The increase in the Parent Company and other
segment was driven by a $2.5 million increase in employee
compensation expense due to increase in headcount and adjustments
to compensation due to inflation, as well as a $4.5 million
increase in other taxes, while the decrease in Non-Controlled
Founded Entities was driven by the fact that in 2022 the results of
operations of Sonde are included only through the date of
deconsolidation while in 2021 such results are included for a full
year. The decrease in Controlled Founded Entities results from a
decrease in employee compensation expenses.
Total Other Income (Loss) Total Other loss was $26.0 million for
the year ended December 31, 2022 compared to Other income of $160.0
million for the year ended December 31, 2021, reflecting a change
of $186.0 million. The increase in losses was primarily
attributable to a loss from investments held at fair value of $32.1
million for the year ended December 31, 2022, compared to a gain of
$179.3 million for the year ended December 31, 2021 and to a much
lesser extent an increase in realized loss from the sale of an
investment of $8.4 million. The loss from investments held at fair
value for the year ended December 31, 2022 was primarily attributed
to our holdings in Akili, Vor and Gelesis earn-out shares,
partially offset by a gain on Karuna holdings (see Note 5 in our
consolidated financial statements for further details). The
aforementioned increase in losses was partially offset by a
one-time gain of $27.3 million as a result of the deconsolidation
of Sonde and a gain of $7.6 million in respect of the Gelesis
back-stop agreement (See Note 5 to the Consolidated Financial
Statements for more details) during the year ended December 31,
2022.
Net Finance Income (Costs) Net finance Income was $138.9 million
for the year ended December 31, 2022, compared to net finance
income of $5.0 million for the year ended December 31, 2021,
reflecting a change of $133.9 million in Net finance Income
(costs). The change was primarily attributable to the fact that
during the year ended December 31, 2022 net change in fair value of
subsidiaries' preferred shares, warrant and convertible note
liabilities was income of $137.1 million, primarily related to
change in fair value of Vedanta preferred share liabilities, while
for the year ended December 31, 2021 such change was a gain of $9.6
million, leading to increased income of $127.5 million. To a much
lesser extent, the increase in finance income was also derived from
a $0.8 million decrease in contractual interest expense on
subsidiary convertible notes, and a $5.6 million increase in
interest income from financial assets during the year ended
December 31, 2022, as compared to the year ended December 31,
2021.
Share of Net Income/(loss) of Associates accounted for using the
equity method, Gain on Dilution of Interest in Associate and
Impairment of Investment in Associate For the year ended December
31, 2022, the share in net loss of associates reported under the
equity method was $27.7 million as compared to the share in net
loss of $73.7 million for the year ended December 31, 2021. The
change was primarily attributable to a decrease in our equity
interest in Gelesis following the SPAC exchange (see Note 6 to our
Consolidated Financial Statements), as well as a decrease in
Gelesis losses reported under IFRS for the year ended December 31,
2022, as compared to the losses reported for the year ended
December 31, 2021. In addition, during the year ended December 31,
2022, PureTech recorded a gain on dilution of its equity ownership
interest in Gelesis of $28.2 million as a result of the completion
of the merger with CapStar on January 13, 2022 - See Note 6 to the
Consolidated Financial Statements for more details. Also, during
the year ended December 31, 2022, the Company recorded an
impairment in its investment in Gelesis of $8.4 million.
Taxation Income tax expense was a benefit of $55.7 million for
the year ended December 31, 2022, as compared to an expense of $3.8
million for the year ended December 31, 2021. The increase in the
income tax benefit was primarily attributable to the increase in
gains that are non taxable for the year ended December 31, 2022 as
compared to the year ended December 31, 2021 and to a lesser extent
to a 2022 change in state apportionment. For a full reconciliation
from the statutory tax rate to the effective tax rate, see Note 25
to our Consolidated Financial Statements.
Comparison of the Years Ended December 31, 2021 and
2020
Total Revenue
Year Ended December 31,
(in thousands)
2021
2020
Change
Contract Revenue:
Internal Segment
$
8,129
$
5,297
$
2,833
Controlled Founded Entities
1,500
896
604
Non-Controlled Founded Entities
115
93
22
Parent Company and other
235
2,054
(1,819
)
Total Contract Revenue
$
9,979
$
8,341
$
1,638
Grant Revenue:
Internal Segment
$
1,253
$
1,563
$
(310
)
Controlled Founded Entities
6,156
1,864
4,292
Total Grant Revenue
$
7,409
$
3,427
$
3,982
Total Revenue
$
17,388
$
11,768
$
5,621
Our total revenue was $17.4 million for the year ended December
31, 2021, an increase of $5.6 million, or 47.8 percent compared to
the year ended December 31, 2020. The increase was primarily
attributable to an increase of $2.8 million in contract revenue in
the Internal segment, which was primarily driven by a $6.5 million
increase in revenue due to payment from Imbrium Therapeutics, Inc.
following the exercise of the option to acquire an exclusive
license for the Initial Product Candidate. The increase was
partially offset by a decrease in contract revenue of $3.7 million
recognized under IFRS 15 due to the completion of development
activities related to revenues associated with multiple
collaborations in the year ended December 31, 2021. The increase
was also driven by an increase of $4.3 million in grant revenue in
the Controlled Founded Entities segment for the year ended December
31, 2021, which was driven primarily by Vedanta's grant revenue
earned pursuant to its CARB-X and BARDA agreements. The
aforementioned increases were partially offset by a non-recurrent
milestone payment of $2.0 million received from Karuna (and
included in Parent Company and Other) in the year ended December
31, 2020.
Research and Development Expenses
Year Ended December 31,
(in thousands)
2021
2020
Change
Research and Development Expenses:
Internal Segment
$
(65,444
)
$
(45,346
)
$
20,098
Controlled Founded Entities
(40,667
)
(33,152
)
7,515
Non-Controlled Founded Entities
(3,116
)
(3,128
)
(12
)
Parent Company and other
(1,244
)
(234
)
1,010
Total Research and Development
Expenses:
$
(110,471
)
$
(81,859
)
$
28,612
Our research and development expenses were $110.5 million for
the year ended December 31, 2021, an increase of $28.6 million, or
35.0 percent compared to the year ended December 31, 2020. The
change was primarily attributable to an increase of $20.1 million
in research and development expenses incurred by the Internal
segment due to the advancement of programs in clinical testing.
This was primarily driven by an increase in clinical trial and
clinical research organization expenditures of $14.0 million, an
increase in research and development related consulting and
professional fees of $2.5 million and an increase in research and
development related salaries and stock compensation of $2.6
million. We progressed our ongoing clinical trials of LYT-100 and
LYT- 200 in multiple indications and initiated a clinical trial
with respect to LYT 300, as well as advanced pre-clinical studies
and research related to multiple candidates and research platforms.
The increase was further attributable to an increase of $7.5
million in research and development expenses incurred by the
Controlled Founded Entities segment, primarily attributable to
Vedanta as they progressed their therapeutic candidates VE202,
VE303, VE416 and VE800 towards meaningful milestones.
General and Administrative Expenses
Year Ended December 31,
(in thousands)
2021
2020
Change
General and Administrative Expenses:
Internal Segment
$
(8,673
)
$
(3,482
)
$
5,191
Controlled Founded Entities
(17,504
)
(10,752
)
6,752
Non-Controlled Founded Entities
(3,225
)
(2,939
)
286
Parent Company and other
(27,797
)
(32,267
)
(4,470
)
Total General and Administrative
Expenses
$
(57,199
)
$
(49,440
)
$
7,760
Our general and administrative expenses were $57.2 million for
the year ended December 31, 2021, an increase of $7.8 million, or
15.7 percent compared to the year ended December 31, 2020. The
increase was primarily attributable to an increase of $7.0 million
in the Controlled Founded Entities segment, which was primarily
driven by non-cash increases of $2.9 million in stock based
compensation expense, $1.4 million increase in payroll-related
costs due to increased personnel, an increase in professional fees
of $1.1 million, and an increase in legal fees of $0.9 million. The
increase was further attributable to an increase of $5.2 million in
the Internal segment, which was primarily driven by an increase in
the management fee charged by the Parent company of $6.2 million
which was partially offset by a decrease in depreciation expense of
$0.5 million for the year ended December 31, 2021. The decrease in
the Parent Company and other of $4.5 million was primarily
attributable to the allocation of management fee charged to other
segments of $7.0 million which was partially offset by an increase
in professional and recruiting fees of $0.9 million and an increase
in business insurance of $1.7 million for the year ended December
31, 2021.
Total Other Income (Loss) Total other income was $160.0 million
for the year ended December 31, 2021 a decrease of $18.7 million,
compared to the year ended December 31, 2020. The decline in other
income was primarily attributable to a decrease in gains from
investments held at fair value of $53.4 million, primarily driven
by the change in the fair value of the investment in Karuna. These
gains from investments held at fair value were partially offset by
losses realized on sale of certain investments held at fair value,
as a result of the block sale discount included in the sale. The
losses realized on sale of certain investments held at fair value
for the year ended December 31, 2021 decreased $34.1 million
compared to the year ended December 31, 2020.
Net Finance Income (Costs) Net finance costs were $5.0 million
for the year ended December 31, 2021, a change of $11.2 million,
compared to net finance costs of $6.1 million for the year ended
December 31, 2020. The change was primarily attributable to a $14.0
million change leading to increased income in respect of the change
in the fair value of our preferred shares, warrant and convertible
note liabilities held by third parties, partially offset by a $1.8
million increase in contractual finance costs, mainly in our
controlled founded entity, Vedanta, and a $1.0 million decline in
interest income from financial assets for the year ended December
31, 2021.
Share of Net Gain (Loss) in Associates Accounted for Using the
Equity Method, and Impairment of Investment in Associate For the
year ended December 31, 2021, the share in net loss of associates
reported under the equity method was $73.7 million as compared to
the share of net loss of $34.1 million for the year ended December
31, 2020. The change was primarily attributable to an increase in
Gelesis losses reported under IFRS for the year ended December 31,
2021 as compared to the losses reported for the year ended December
31, 2020, due to an increase in the fair value of Gelesis financial
instrument liabilities that are accounted for at Fair Value Through
Profit and Loss (FVTPL).
Taxation Income tax expense was $3.8 million for the year ended
December 31, 2021,as compared to income tax expense of $14.4
million for the year ended December 31, 2020. The decrease in
income tax expense was primarily attributable to the decrease in
profit before tax in entities in the U.S. Federal and Massachusetts
consolidated return groups of the Company. For information on the
change in the tax rate, see Note 25 in the consolidated financial
statements.
Critical Accounting Policies and Significant Judgments and
Estimates Our management’s discussion and analysis of our financial
condition and results of operations is based on our financial
statements, which we have prepared in accordance with UK-adopted
International Financial Reporting Standards (IFRS). The
Consolidated Financial Statements also comply fully with IFRSs as
issued by the International Accounting Standards Board (IASB). In
the preparation of these financial statements, we are required to
make judgments, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates under different assumptions or conditions.
Our estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in
which the estimate is revised if the revision affects only that
period or in the period of the revisions and future periods if the
revision affects both current and future periods.
While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements
appearing at the end of this report, we believe the following
accounting policies to be most critical to the judgments and
estimates used in the preparation of our financial statements. See
Note 1 to our consolidated financial statements for a further
detailed description of our significant accounting policies.
Financial instruments We account for our financial instruments
according to IFRS 9. As such, when issuing preferred shares in our
subsidiaries we determine the classification of financial
instruments in terms of liability or equity. Such determination
involves significant judgement. These judgements include an
assessment of whether the financial instruments include any
embedded derivative features, whether they include contractual
obligations upon us to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with another
party at any point in the future prior to liquidation, and whether
that obligation will be settled by exchanging a fixed amount of
cash or other financial assets for a fixed number of the Group's
equity instruments.
In accordance with IFRS 9 we carry certain investments in equity
securities at fair value as well as our subsidiary preferred share,
convertible notes and warrant liabilities, all through profit and
loss (FVTPL). Valuation of the aforementioned financial instruments
(assets and liabilities) includes making significant estimates,
specifically determining the appropriate valuation methodology and
making certain estimates such as the future expected returns on the
financial instrument in different scenarios, earnings potential of
the subsidiary businesses, appropriate discount rate, appropriate
volatility, appropriate term to exit and other industry and company
specific risk factors.
Consolidation: The consolidated financial statements include the
financial statements of the Company and the entities it controls.
Based on the applicable accounting rules, the Company controls an
investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Therefore
an assessment is required to determine whether the Company has (i)
power over the investee; (ii) exposure, or rights, to variable
returns from its involvement with the investee; and (iii) the
ability to use its power over the investee to affect the amount of
the investor’s returns. Judgement is required to perform such
assessment and it requires that the Company considers, among
others, activities that most significantly affect the returns of
the investee, its voting shares, representation on the board,
rights to appoint board members and management, shareholders
agreements, de facto power and other contributing factors.
Investment in Associates When we do not control an investee but
maintain significant influence over the financial and operating
policies of the investee the investee is an associate. Significant
influence is presumed to exist when we hold 20 percent or more of
the voting power of an entity, unless it can be clearly
demonstrated that this is not the case. We evaluate if we maintain
significant influence over associates by assessing if we have the
power to participate in the financial and operating policy
decisions of the associate.
Associates are accounted for using the equity method (equity
accounted investees) and are initially recognized at cost, or if
recognized upon deconsolidation they are initially recorded at fair
value at the date of deconsolidation. The consolidated financial
statements include our share of the total comprehensive income and
equity movements of equity accounted investees, from the date that
significant influence commences until the date that significant
influence ceases. When our share of losses exceeds the net
investment in an equity accounted investee, including preferred
share investments that are considered to be Long-Term Interests,
the carrying amount is reduced to zero and recognition of further
losses is discontinued except to the extent that we have incurred
legal or constructive obligations or made payments on behalf of an
investee. To the extent we hold interests in associates that are
not providing access to returns underlying ownership interests, the
instrument held by PureTech is accounted for in accordance with
IFRS 9.
Judgement is required in order to determine whether we have
significant influence over financial and operating policies of
investees. This judgement includes, among others, an assessment
whether we have representation on the Board of Directors of the
investee, whether we participate in the policy making processes of
the investee, whether there is any interchange of managerial
personnel, whether there is any essential technical information
provided to the investee and if there are any transactions between
us and the investee.
Judgement is also required to determine which instruments we
hold in the investee form part of the investment in the associate,
which is accounted for under IAS 28 and scoped out of IFRS 9, and
which instruments are separate financial instruments that fall
under the scope of IFRS 9. This judgement includes an assessment of
the characteristics of the financial instrument of the investee
held by us and whether such financial instrument provides access to
returns underlying an ownership interest.
Where the company has other investments in an equity accounted
investee that are not accounted for under IAS 28, judgement is
required in determining if such investments constitute Long-Term
Interests for the purposes of IAS 28 (please refer to Notes 5 and
6). This determination is based on the individual facts and
circumstances and characteristics of each investment, but is
driven, among other factors, by the intention and likelihood to
settle the instrument through redemption or repayment in the
foreseeable future, and whether or not the investment is likely to
be converted to common stock or other equity instruments
Recent Accounting Pronouncements For information on recent
accounting pronouncements, see our consolidated financial
statements and the related notes found elsewhere in this
report.
Cash Flow and Liquidity
Our cash flows may fluctuate and are difficult to forecast and
will depend on many factors, including:
- the expenses incurred in the development of wholly-owned and
Controlled Founded Entity therapeutic candidates;
- the revenue, if any, generated by wholly-owned and
Controlled-Founded Entity therapeutic candidates;
- the revenue, if any, generated from licensing and royalty
agreements with Founded Entities;
- the financing requirements of the Internal segment,
Controlled-Founded Entities segment and Parent segment; and
- the investing activities related to the Internal,
Controlled-Founded Entities, Non-Controlled Founded Entities and
Parent segments, including the monetization, through sale, of
shares held in our public Founded Entities.
As of December 31, 2022, we had consolidated cash and cash
equivalents of $149.9 million and consolidated cash, cash
equivalents and short term investments of $350.1 million. As of
December 31, 2022, we had PureTech Level cash, cash equivalents and
short-term investments of $339.5 million. PureTech Level cash, cash
equivalents and short-term investments is a non-IFRS measure (for a
definition of PureTech Level cash, cash equivalents and short-term
investments and a reconciliation to the IFRS number, see the
section Measuring Performance earlier in this Financial
review).
Cash Flows The following table summarizes our cash flows for
each of the periods presented:
Year ended December 31,
(in thousands)
2022
2021
2020
Net cash used in operating activities
$
(178,792
)
$
(158,274
)
$
(131,827
)
Net cash provided by (used in) investing
activities
(107,223
)
197,375
364,478
Net cash provided by (used in) financing
activities
(29,827
)
22,727
38,869
Net increase (decrease) in cash and
cash equivalents
$
(315,842
)
$
61,827
$
271,520
Operating Activities Net cash used in operating activities was
$178.8 million for the year ended December 31, 2022, as compared to
$158.3 million for the year ended December 31, 2021, resulting in
an increase of $20.5 million in net cash used in operating
activities. The increase in outflows is primarily attributable to
our higher operating loss mainly due to an increase in research and
development activities in the Internal Segment, partially offset by
the timing of receipts and payments in the normal course of
business.
Net cash used in operating activities was $158.3 million for the
year ended December 31, 2021, as compared to $131.8 million for the
year ended December 31, 2020. The increase in outflows is primarily
attributable to our higher operating loss and higher income taxes
paid of $7.0 million, and to a lesser extent the timing of receipts
and payments in the normal course of business.
Investing Activities Net cash used in investing activities was
$107.2 million for the year ended December 31, 2022, as compared to
inflows of $197.4 million for the year ended December 31, 2021,
resulting in a decrease of $304.6 million in net cash resulting
from investing activities. The decrease in the net cash resulting
from investing activities was primarily attributed to a decrease in
proceeds from the sale of investments held at fair value of $99.4
million and to the purchase of short term investments, that net of
redemptions amounted to $198.7 million for the year ended December
31, 2022.
Net cash provided by investing activities was $197.4 million for
the year ended December 31, 2021, as compared to inflows of $364.5
million for the year ended December 31, 2020, resulting in a
decrease of $167.1 million in net cash provided by investing
activities. The decrease in the net cash provided by investing
activities was primarily attributed to the decrease in proceeds
from the sale of investments held at fair value of $132.5 million
(proceeds from such sales were $218.1 million for the year ended
December 31, 2021 vs. $350.6 million for the year ended December
31, 2020) and the fact that for the year ended December 31, 2020
the Company had proceeds of $30.1 million from maturity of short
term investments while for the year ended December 31, 2021, there
were no such cash inflows.
Financing Activities Net cash used in financing activities was
$29.8 million for the year ended December 31, 2022, as compared to
net cash provided by financing activities of $22.7 million for the
year ended December 31, 2021, resulting in a decrease of $52.6
million in the net cash resulting from financing activities. The
decrease in the net cash resulting from financing activities was
primarily attributable to the fact that in the year ended December
31, 2021 there was an issuance of subsidiary preferred shares of
$37.6 million while for the year ended December 31, 2022 there was
no such issuance, and due to the treasury share purchases of $26.5
million for the year ended December 31, 2022 while there were no
such purchases for the year ended December 31, 2021. This decrease
was partially offset by the fact that during year ended December
31, 2021 there were payments to settle equity settled stock based
awards of $13.3 million, while for the year ended December 31, 2022
there were no such payments made.
Net cash provided by financing activities was $22.7 million for
the year ended December 31, 2021, as compared to $38.9 million for
the year ended December 31, 2020, resulting in a decrease of $16.1
million in the net cash provided by financing activities. The
decrease in the net cash provided by financing activities was
primarily attributable to the decrease in proceeds from issuance of
convertible notes in subsidiaries of $22.8 million and the fact
that for the year ended December 31, 2020 the Company had proceeds
from the issuance of a long term loan of $14.7 million, while for
the year ended December 31, 2021, there was no such cash inflow.
Such decreases were partially offset by an increase in proceeds
from issuance of preferred shares in subsidiaries of $23.9
million.
Funding Requirements We have incurred operating losses since
inception. Based on our current plans, we believe our existing
financial assets at December 31, 2022, will be sufficient to fund
our operations and capital expenditure requirements into the first
quarter of 2026. We expect to incur substantial additional
expenditures in the near term to support our ongoing activities. We
anticipate to continue to incur net operating losses for the
foreseeable future as is typical for pre-revenue biotechnology
companies. Our ability to fund our therapeutic development and
clinical operations as well as commercialization of our
wholly-owned therapeutic candidates, will depend on the amount and
timing of cash received from planned financings, monetization of
shares of public Founded Entities and potential business
development activities. Our future capital requirements will depend
on many factors, including:
- the costs, timing and outcomes of clinical trials and
regulatory reviews associated with our wholly-owned therapeutic
candidates;
- the costs of commercialization activities, including product
marketing, sales and distribution;
- the costs of preparing, filing and prosecuting patent
applications and maintaining, enforcing and defending intellectual
property-related claims;
- the emergence of competing technologies and products and other
adverse marketing developments;
- the effect on our therapeutic and product development
activities of actions taken by the U.S. Food and Drug
Administration (“FDA”), the European Medicines Agency (“EMA”) or
other regulatory authorities;
- our degree of success in commercializing our wholly-owned
therapeutic candidates, if and when approved; and
- the number and types of future therapeutics we develop and
commercialize.
A change in the outcome of any of these or other variables with
respect to the development of any of our wholly-owned therapeutic
candidates could significantly change the costs and timing
associated with the development of that therapeutic candidate.
Further, our operating plans may change, and we may need
additional funds to meet operational needs and capital requirements
for clinical trials and other research and development activities.
We currently have no credit facility or other committed sources of
capital beyond our existing financial assets. Because of the
numerous risks and uncertainties associated with the development
and commercialization of our wholly-owned therapeutic candidates,
we have only a general estimate of the amounts of increased capital
outlays and operating expenditures associated with our current and
anticipated therapeutic development programs and these may change
in the future.
Financial Position
Summary Financial Position
As of December 31,
(in thousands)
2022
2021
Change
Investments held at fair value
$
251,892
$
397,179
$
(145,286
)
Other non-current assets
64,562
47,018
17,544
Non-current assets
316,454
444,197
(127,743
)
Cash and cash equivalents, and short term
investments
350,095
465,708
(115,613
)
Other current assets
36,097
36,101
(4
)
Current assets
386,192
501,809
(115,617
)
Total assets
702,647
946,006
(243,359
)
Lease Liability
24,155
29,040
(4,884
)
Deferred tax liability
19,645
89,765
(70,120
)
Other non-current liabilities
14,372
16,921
(2,549
)
Non-current liabilities
58,172
135,725
(77,553
)
Trade and other payables
54,783
35,760
19,023
Notes payable
2,345
4,641
(2,297
)
Warrant liability
47
6,787
(6,740
)
Preferred shares
27,339
174,017
(146,678
)
Other current liabilities
12,371
4,929
7,442
Current liabilities
96,885
226,135
(129,249
)
Total liabilities
155,057
361,859
(206,802
)
Net assets
547,589
584,147
(36,557
)
Total equity
$
547,589
$
584,147
$
(36,557
)
Investments Held at Fair Value Investments held at fair value
decreased by $145.3 million to $251.9 million as of December 31,
2022. As of December 31, 2022, Investments held at fair value
consist primarily of our common share investment in Karuna, Vor and
Akili (Akili was in the form of preferred shares until August 2022)
and our preferred share investment in Sonde (from May 2022). See
Note 5 to our consolidated financial statements included elsewhere
in this annual report for details regarding the change in
investments held at fair value.
Cash, Cash Equivalents, and Short-Term Investments Consolidated
cash, cash equivalents and short-term investments decreased by
$115.6 million to $350.1 million as of December 31, 2022. The
decrease reflects spend attributed to our operating loss of $197.8
million, partially offset by proceeds from sale of Karuna and Vor
shares of $118.7 million during the year ended December 31,
2022.
Non-Current Liabilities Non-current liabilities decreased $77.6
million to $58.2 million as of December 31, 2022. The decrease was
primarily driven by declines of $4.9 million and $70.1 million in
our long-term lease liability and deferred tax liabilities,
respectively as of December 31, 2022.
Trade and Other Payables Trade and other payables increased
$19.0 million to $54.8 million as of December 31, 2022. The
increase reflected primarily the timing of payments as of December
31, 2022. Notes Payable
Notes payable decreased by $2.3 million to $2.3 million as of
December 31, 2022. The decrease reflects the deconsolidation of
Sonde in May 2022.
Preferred Shares and warrant liabilities Preferred share
liability in subsidiaries in the Controlled founded entity segment
decreased by $146.7 million to $27.3 million and warrant liability
(also in Controlled founded entity segment) decreased by $6.7
million to a negligible amount as of December 31, 2022. The
decrease in the preferred share liability reflects a decrease in
fair value of the preferred share liability of $130.8 million and
to a much lesser extent a decrease of $15.9 million due to the
deconsolidation of Sonde during the year ended December 31, 2022.
The decrease in the warrant liability reflects a decrease in the
fair value of such warrant liability of $6.7 million.
Quantitative and Qualitative Disclosures about Financial
Risks
Interest Rate Sensitivity As of December 31, 2022, we had
consolidated cash and cash equivalents of $149.9 million and short
term investments of $200.2 million, while we had PureTech Level
cash, cash equivalents and short-term investments of $339.5
million. PureTech Level cash, cash equivalents and short-term
investments is a non-IFRS measure (for a definition of PureTech
Level cash, cash equivalents and short-term investments and a
reconciliation to the IFRS number, see the section Measuring
Performance earlier in this Financial review). Our exposure to
interest rate sensitivity is impacted by changes in the underlying
U.K. and U.S. bank interest rates. We have not entered into
investments for trading or speculative purposes. Due to the
conservative nature of our investment portfolio, which is
predicated on capital preservation and investments in short
duration, high-quality U.S. Treasury Bills and related money market
accounts we do not believe change in interest rates would have a
material effect on the fair market value of our portfolio, and
therefore we do not expect our operating results or cash flows to
be significantly affected by changes in market interest rates.
Foreign Currency Exchange Risk We maintain our consolidated
financial statements in our functional currency, which is the U.S.
dollar. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the
functional currency at rates of exchange prevailing at the balance
sheet dates. Non-monetary assets and liabilities denominated in
foreign currencies are translated into the functional currency at
the exchange rates prevailing at the date of the transaction.
Exchange gains or losses arising from foreign currency transactions
are included in the determination of net income (loss) for the
respective periods. Such foreign currency gains or losses were not
material for all reported periods.
Controlled Founded Entity Investments We maintain investments in
certain Controlled Founded Entities. Our investments in Controlled
Founded Entities are eliminated as intercompany transactions upon
financial consolidation. We are however exposed to a preferred
share liability owing to the terms of existing preferred shares and
the ownership of Controlled Founded Entities preferred shares by
third parties. The liability of preferred shares is maintained at
fair value through the profit and loss. Our strong cash position,
budgeting and forecasting processes, as well as decision making and
risk mitigation framework enable us to robustly monitor and support
the business activities of the Controlled Founded Entities to
ensure no exposure to credit losses and ultimately dissolution or
liquidation. Accordingly, we view exposure to third party preferred
share liability as low. Please refer to Note 16 to our consolidated
financial statements for further information regarding our exposure
to Controlled Founded Entity Investments.
Non-Controlled Founded Entity Investments We maintain certain
investments in Non-Controlled Founded Entities which are deemed
either as investments and accounted for as investments held at fair
value or associates and accounted for under the equity method
(please refer to Note 1 to our consolidated financial statements).
Our exposure to investments held at fair value was $251.9 million
as of December 31, 2022, and we may or may not be able to realize
the value in the future. Accordingly, we view the risk as high. Our
exposure to investments in associates in limited to the carrying
amount of the investment. We are not exposed to further contractual
obligations or contingent liabilities beyond the value of initial
investment. As of December 31, 2022, Gelesis and Sonde were the
only associates. The carrying amount of the investments in Gelesis
and Sonde accounted for under the equity method was $9.1 million.
Accordingly, we do not view this risk as high. Please refer to
Notes 5, 6 and 16 to our consolidated financial statements for
further information regarding our exposure to Non-Controlled
Founded Entity Investments.
Equity Price Risk As of December 31, 2022, we held 1,054,464
common shares of Karuna, 2,671,800 common shares of Vor, and
12,527,477 common shares of Akili. The fair value of our
investments in the common shares of Karuna was $207.2 million, in
the common shares of Vor $17.8 million, and in the common shares of
Akili $14.1 million.
The investments in Karuna Vor and Akili are exposed to
fluctuations in the market price of these common shares. The effect
of a 10.0 percent adverse change in the market price of Karuna
common shares, Vor common shares and Akili common shares as of
December 31, 2022, would have been a loss of approximately $20.7
million, $1.8 million, and $1.4 million, respectively, that would
have been recognized as a component of Other income (expense) in
our Consolidated Statements of Comprehensive Income/(Loss).
Liquidity Risk We do not believe we will encounter difficulty in
meeting the obligations associated with our financial liabilities
that are settled by delivering cash or another financial asset.
While we believe our cash and cash equivalents and short-term
investments do not contain excessive risk, we cannot provide
absolute assurance that in the future our investments will not be
subject to adverse changes or decline in value based on market
conditions.
Credit Risk We maintain an investment portfolio in accordance
with our investment policy. The primary objectives of our
investment policy are to preserve principal, maintain proper
liquidity and to meet operating needs. Although our investments are
subject to credit risk, our investment policy specifies credit
quality standards for our investments and limits the amount of
credit exposure from any single issue, issuer or type of
investment. We do not own derivative financial instruments.
Accordingly, we do not believe that there is any material market
risk exposure with respect to derivative or other financial
instruments.
Credit risk is also the risk of financial loss if a customer or
counterparty to a financial instrument fails to meet its
contractual obligations. We are potentially subject to
concentrations of credit risk in accounts receivable.
Concentrations of credit risk with respect to receivables is owed
to the limited number of companies comprising our receivable base.
However, our exposure to credit losses is currently low due to the
credit quality of our receivables, which are primarily from the US
government, large corporations and large funds with respect to
grants.
Foreign Private Issuer Status Owing to our U.S. listing, we
report under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, as a non-U.S. company with foreign private issuer
status. As long as we qualify as a foreign private issuer under the
Exchange Act, we will be exempt from certain provisions of the
Exchange Act that are applicable to U.S. domestic public companies,
including:
- the sections of the Exchange Act regulating the solicitation of
proxies, consents or authorizations in respect of a security
registered under the Exchange Act;
- sections of the Exchange Act requiring insiders to file public
reports of their stock ownership and trading activities and
liability for insiders who profit from trades made in a short
period of time;
- the rules under the Exchange Act requiring the filing with the
SEC of quarterly reports on Form 10-Q containing unaudited
financial and other specified information, or current reports on
Form 8-K, upon the occurrence of specified significant events;
and
- Regulation FD, which regulates selective disclosures of
material information by issuers.
Consolidated Statements of Comprehensive Income/(Loss)
For the years ended December 31
Note
2022
$000s
2021
$000s
2020
$000s
Contract revenue
3
2,090
9,979
8,341
Grant revenue
3
13,528
7,409
3,427
Total revenue
15,618
17,388
11,768
Operating expenses:
General and administrative expenses
7
(60,991
)
(57,199
)
(49,440
)
Research and development expenses
7
(152,433
)
(110,471
)
(81,859
)
Operating income/(loss)
(197,807
)
(150,282
)
(119,531
)
Other income/(expense):
Gain on deconsolidation of subsidiary
5
27,251
—
—
Gain/(loss) on investment held at fair
value
5
(32,060
)
179,316
232,674
Realized loss on sale of investments
5
(29,303
)
(20,925
)
(54,976
)
Other income/(expense)
6, 16
8,131
1,592
1,035
Other income/(expense)
(25,981
)
159,983
178,732
Finance income/(costs):
Finance income
9
5,799
214
1,183
Finance costs – contractual
9
(3,939
)
(4,771
)
(2,946
)
Finance income/(costs) – fair value
accounting
9
137,063
9,606
(4,351
)
Net finance income/(costs)
138,924
5,050
(6,115
)
Share of net loss of associates accounted
for using the equity method
6
(27,749
)
(73,703
)
(34,117
)
Gain on dilution of ownership interest in
associate
6
28,220
—
—
Impairment of investment in associate
6
(8,390
)
—
—
Income/(loss) before taxes
(92,783
)
(58,953
)
18,969
Taxation
25
55,719
(3,756
)
(14,401
)
Income/(Loss) for the year
(37,065
)
(62,709
)
4,568
Other comprehensive
income/(loss):
Items that are or may be reclassified as
profit or loss
Equity-accounted associate – share of
other comprehensive income (loss)
(166
)
—
469
Reclassification of foreign currency
differences on dilution of interest
(213
)
—
—
Total other comprehensive
income/(loss)
(379
)
—
469
Total comprehensive income/(loss) for
the year
(37,444
)
(62,709
)
5,037
Income/(loss) attributable to:
Owners of the Company
(50,354
)
(60,558
)
5,985
Non-controlling interests
18
13,290
(2,151
)
(1,417
)
(37,065
)
(62,709
)
4,568
Comprehensive income/(loss)
attributable to:
Owners of the Company
(50,733
)
(60,558
)
6,454
Non-controlling interests
18
13,290
(2,151
)
(1,417
)
(37,444
)
(62,709
)
5,037
$
$
$
Earnings/(loss) per share:
Basic earnings/(loss) per share
10
(0.18
)
(0.21
)
0.02
Diluted earnings/(loss) per share
10
(0.18
)
(0.21
)
0.02
The accompanying notes are an integral
part of these financial statements.
Consolidated Statements of Financial Position As of
December 31,
Note
2022
$000s
2021
$000s
Assets
Non-current assets
Property and equipment, net
11
22,957
26,771
Right of use asset, net
21
14,281
17,166
Intangible assets, net
12
831
987
Investments held at fair value
5, 16
251,892
397,179
Investment in associates - equity
method
6
9,147
—
Note from associate
16
16,501
—
Lease receivable – long-term
21
835
1,285
Other non-current assets
10
810
Total non-current assets
316,454
444,197
Current assets
Trade and other receivables
22
11,867
3,174
Income tax receivable
25
10,040
4,514
Prepaid expenses
11,617
10,755
Lease receivable – short-term
21
450
415
Other financial assets
13, 22
2,124
2,124
Short-term note from associate
—
15,120
Short-term investments
22
200,229
—
Cash and cash equivalents
22
149,866
465,708
Total current assets
386,192
501,809
Total assets
702,647
946,006
Equity and liabilities
Equity
Share capital
5,455
5,444
Share premium
289,624
289,303
Treasury stock
(26,492
)
—
Merger reserve
138,506
138,506
Translation reserve
89
469
Other reserve
(14,478
)
(40,077
)
Retained earnings/(accumulated
deficit)
149,516
199,871
Equity attributable to the owners of
the Company
14
542,220
593,515
Non-controlling interests
18
5,369
(9,368
)
Total equity
547,589
584,147
Non-current liabilities
Deferred tax liability
25
19,645
89,765
Lease liability, non-current
21
24,155
29,040
Long-term loan
20
10,244
14,261
Liability for share based awards
8
4,128
2,659
Total non-current liabilities
58,172
135,725
Current liabilities
Deferred revenue
3
2,185
65
Lease liability, current
21
4,972
3,950
Trade and other payables
19
54,840
35,817
Subsidiary:
Notes payable
16, 17
2,345
4,641
Warrant liability
16
47
6,787
Preferred shares
15, 16
27,339
174,017
Current portion of long-term loan
20
5,156
857
Total current liabilities
96,885
226,135
Total liabilities
155,057
361,859
Total equity and liabilities
702,647
946,006
Please refer to the accompanying Notes to the consolidated
financial information. Registered number: 09582467. The
Consolidated Financial Statements were approved by the Board of
Directors and authorized for issuance on April 27, 2023 and signed
on its behalf by:
Daphne Zohar Chief Executive Officer April 27, 2023
The accompanying notes are an integral part of these financial
statements.
Consolidated Statements of Changes in Equity For the
years ended December 31
Share Capital
Treasury Shares
Shares
Amount
$000s
Share premium
$000s
Shares
Amount
$000s
Merger reserve $000s
Translation reserve
$000s
Other reserve
$000s
Retained earnings/ (accumulated
deficit)
$000s
Total Parent equity
$000s
Non-controlling interests
$000s
Total
Equity
$000s
Balance January 1, 2020
285,370,619
5,408
287,962
—
—
138,506
—
(18,282)
254,444
668,037
(17,639)
650,398
Net income/(loss)
—
—
—
—
—
—
—
—
5,985
5,985
(1,417)
4,568
Other comprehensive income/(loss), net
—
—
—
—
—
—
469
—
—
469
—
469
Total comprehensive income/(loss) for
the year
—
—
—
—
—
—
469
—
5,985
6,454
(1,417)
5,037
Exercise of share-based awards
514,406
9
1,016
—
—
—
—
—
—
1,025
11
1,036
Revaluation of deferred tax assets related
to share-based awards
—
—
—
—
—
—
—
(684)
—
(684)
—
(684)
Equity settled share-based awards
—
—
—
—
—
—
—
7,805
—
7,805
2,822
10,627
Settlement of restricted stock units
(RSU)
—
—
—
—
—
—
—
(12,888)
—
(12,888)
—
(12,888)
Other
—
—
—
—
—
—
—
—
—
—
13
13
Balance December 31, 2020
285,885,025
5,417
288,978
—
—
138,506
469
(24,050)
260,429
669,748
(16,209)
653,539
Net income/(loss)
—
—
—
—
—
—
—
—
(60,558)
(60,558)
(2,151)
(62,709)
Total comprehensive income/(loss) for
the year
—
—
—
—
—
—
—
—
(60,558)
(60,558)
(2,151)
(62,709)
Exercise of share-based awards
1,911,560
27
326
—
—
—
—
—
—
352
—
352
Revaluation of deferred tax assets related
to share-based awards
—
—
—
—
—
—
—
615
—
615
—
615
Equity settled share-based awards
—
—
—
—
—
—
—
7,109
—
7,109
6,252
13,361
Settlement of restricted stock units
—
—
—
—
—
—
—
(10,749)
—
(10,749)
—
(10,749)
Reclassification of equity settled awards
to liability awards
—
—
—
—
—
—
—
(6,773)
—
(6,773)
—
(6,773)
Vesting of share-based awards and net
share exercise
—
—
—
—
—
—
—
(2,582)
—
(2,582)
—
(2,582)
Acquisition of subsidiary non-controlling
interest
—
—
—
—
—
—
—
(9,636)
—
(9,636)
8,668
(968)
NCI exercise of share options in
subsidiaries
—
—
—
—
—
—
—
5,988
—
5,988
(5,922)
66
Distributions
—
—
—
—
—
—
—
—
—
—
(6)
(6)
Balance December 31, 2021
287,796,585
5,444
289,303
—
—
138,506
469
(40,077)
199,871
593,515
(9,368)
584,147
Net income/(loss)
—
—
—
—
—
—
—
—
(50,354)
(50,354)
13,290
(37,065)
Other comprehensive income/(loss), net
—
—
—
—
—
—
(379)
—
—
(379)
—
(379)
Total comprehensive income/(loss) for
the year
—
—
—
—
—
—
(379)
—
(50,354)
(50,733)
13,290
(37,444)
Deconsolidation of Subsidiary
—
—
—
—
—
—
—
—
—
—
11,904
11,904
Exercise of share-based awards
577,022
11
321
—
—
—
—
—
—
332
—
332
Revaluation of deferred tax assets related
to share-based awards
—
—
—
—
—
—
—
45
—
45
—
45
Purchase of Treasury stock
—
—
—
(10,595,347)
(26,492)
—
—
—
—
(26,492)
—
(26,492)
Equity settled share-based awards
—
—
—
—
—
—
—
8,856
—
8,856
4,711
13,567
Partial settlement of share based
liability awards and settlement of equity based RSUs
788,046
—
—
—
—
—
—
1,528
—
1,528
—
1,528
NCI exercise of share options in
subsidiaries
—
—
—
—
—
—
—
15,171
—
15,171
(15,164)
7
Other
—
—
—
—
—
—
—
—
—
—
(4)
(4)
Balance December 31, 2022
289,161,653
5,455
289,624
(10,595,347)
(26,492)
138,506
89
(14,478)
149,516
542,220
5,369
547,589
The accompanying notes are an integral part of these financial
statements.
Consolidated Statements of Cash Flows For the years
ended December 31
Note
2022
$000s
2021
$000s
2020
$000s
Cash flows from operating activities
Income/(loss)
(37,065)
(62,709)
4,568
Adjustments to reconcile net income/(loss)
to net cash used in operating activities:
Non-cash items:
Depreciation and amortization
11, 21
8,893
7,287
6,645
Share-based compensation expense
8
14,698
13,950
10,718
(Gain)/loss on investment held at fair
value
5
32,060
(179,316)
(232,674)
Realized loss on sale of investments
5
29,303
20,925
54,976
Gain on dilution of ownership interest in
associate
6
(28,220)
—
—
Impairment of investment in associate
6
8,390
—
—
Gain on deconsolidation of subsidiary
5
(27,251)
—
—
Share of net loss of associates accounted
for using the equity method
6
27,749
73,703
34,117
Fair value gain on other financial
instruments
6, 16
(8,163)
(800)
—
Loss on disposal of assets
11
138
53
66
Income taxes, net
25
(55,719)
3,756
14,402
Finance (income)/costs, net
9
(138,924)
(5,050)
6,114
Changes in operating assets and
liabilities:
Trade and other receivables
(7,734)
(617)
(529)
Prepaid expenses
(862)
(5,350)
(3,371)
Deferred revenue
3
2,123
(1,407)
(5,223)
Trade and other payables
19
22,033
8,338
605
Other
359
(103)
(7)
Income taxes paid
(20,696)
(27,766)
(20,737)
Interest received
3,460
214
1,155
Interest paid
20, 21
(3,366)
(3,382)
(2,651)
Net cash used in operating
activities
(178,792)
(158,274)
(131,827)
Cash flows from investing activities:
Purchase of property and equipment
11
(2,176)
(5,571)
(5,170)
Proceeds from sale of property and
equipment
—
30
—
Purchases of intangible assets
12
—
(90)
(254)
Investment in associates
6
(19,961)
—
—
Purchase of associate preferred shares
held at fair value
5
—
—
(10,000)
Purchase of investments held at fair
value
5
(5,000)
(500)
(1,150)
Sale of investments held at fair value
5
118,710
218,125
350,586
Purchase of short-term note from
associate
16
—
(15,000)
—
Repayment of short-term Note from
associate
16
15,000
—
—
Purchase of Convertible Note from
associate
16
(15,000)
—
—
Cash derecognized upon loss of control
over subsidiary (see table below)
(479)
—
—
Purchases of short-term investments
22
(248,733)
—
—
Proceeds from maturity of short-term
investments
22
50,000
—
30,116
Receipt of payment of sublease
21
415
381
350
Net cash provided by (used in)
investing activities
(107,223)
197,375
364,478
Cash flows from financing activities:
Receipt of PPP loan
—
—
68
Issuance of long term loan
20
—
—
14,720
Issuance of subsidiary preferred
Shares
15
—
37,610
13,750
Issuance of Subsidiary Convertible
Note
17
393
2,215
25,000
Payment of lease liability
21
(4,025)
(3,375)
(2,908)
Exercise of stock options
332
352
1,036
Settlement of restricted stock unit equity
awards
—
(10,749)
(12,888)
Vesting of restricted stock units and net
share exercise
—
(2,582)
—
NCI exercise of stock options in
subsidiary
15
7
66
—
Issuance of warrants in subsidiary
—
—
92
Purchase of treasury stock
14
(26,492)
—
—
Acquisition of a non-controlling Interest
of a subsidiary
—
(806)
—
Other
(41)
(5)
—
Net cash provided by (used in)
financing activities
(29,827)
22,727
38,869
Net increase (decrease) in cash and cash
equivalents
(315,842)
61,827
271,520
Cash and cash equivalents at beginning of
year
465,708
403,881
132,360
Cash and cash equivalents at end of
year
149,866
465,708
403,881
Supplemental disclosure of non-cash
investment and financing activities:
Partial settlement of share based
liability award through issuance of equity
1,528
—
—
Purchase of property, plant and equipment
against trade and other payables
11
—
1,841
—
Leasehold improvements purchased through
lease incentives (deducted from Right of Use Asset)
11
—
1,010
—
Conversion of subsidiary convertible note
into preferred share liabilities
17
—
25,797
—
Assets, Liabilities and non controlling interests other than
cash in deconsolidated subsidiary
2022
$000s
Trade and other payables
1,407
Subsidiary notes payable
3,403
Subsidiary preferred shares
15,853
Other assets and liabilities, net
123
Non-controlling interest
(11,904)
8,882
Investment retained in deconsolidated
subsidiary
18,848
Gain on deconsolidation
(27,251)
Cash in deconsolidated
subsidiary
479
The accompanying notes are an integral part of these financial
statements.
Notes to the Consolidated Financial Statements
1. Accounting policies
Description of Business PureTech Health plc (“PureTech,” the
“Parent” or the “Company”) is a public company incorporated,
domiciled and registered in the United Kingdom (“UK”). The
registered number is 09582467 and the registered address is 8th
Floor, 20 Farringdon Street, London EC4A 4AB, United Kingdom.
PureTech’s group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the “Group”).
The Parent company financial statements present financial
information about the Company as a separate entity and not about
its Group.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
group financial statements.
Basis of Presentation The consolidated financial statements of
the Group are presented as of December 31, 2022 and 2021, and for
the years ended December 31, 2022, 2021 and 2020. The Group
financial statements have been approved by the Directors on April
27, 2023, and are prepared in accordance with UK-adopted
International Financial Reporting Standards (IFRSs). The
Consolidated Financial Statements also comply fully with IFRSs as
issued by the International Accounting Standards Board (IASB).
UK-adopted IFRSs differs in certain respects from IFRS as issued by
the IASB. However, the differences have no impact for the periods
presented.
For presentation of the Consolidated Statements of Comprehensive
Income/(Loss), the Company uses a classification based on the
function of expenses, rather than based on their nature, as it is
more representative of the format used for internal reporting and
management purposes and is consistent with international
practice.
Certain amounts in the Consolidated Financial Statements and
accompanying notes may not add due to rounding. All percentages
have been calculated using unrounded amounts.
Basis of Measurement The consolidated financial statements are
prepared on the historical cost basis except that the following
assets and liabilities are stated at their fair value: investments
held at fair value, short-term and convertible note from associate
and liabilities classified as fair value through the profit or
loss.
Use of Judgments and Estimates In preparing these consolidated
financial statements, management has made judgements, estimates and
assumptions that affect the application of the Group’s accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going
basis.
Significant estimation is applied in determining the
following:
- Financial instruments valuations (Note 16): when estimating the
fair value of subsidiary preferred shares, subsidiary warrants, and
subsidiary convertible notes carried at fair value through profit
and loss (FVTPL) as well as investments held at fair value, at
initial recognition and upon subsequent measurement. Valuation of
the aforementioned financial instruments (assets and liabilities)
includes making significant estimates, specifically determining the
appropriate valuation methodology and making certain estimates such
as the future expected returns on the financial instrument in
different scenarios, earnings potential of the subsidiary
businesses, appropriate discount rate, appropriate volatility,
appropriate term to exit and other industry and company specific
risk factors.
Significant judgement is also applied in determining the
following:
- Subsidiary preferred shares liability classification (Note 15):
when determining the classification of financial instruments in
terms of liability or equity. These judgements include an
assessment of whether the financial instruments include any
embedded derivative features, whether they include contractual
obligations of the Group to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with
another party, and whether that obligation will be settled by the
Company exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments. Further
information about these critical judgements and estimates is
included below under Financial Instruments.
- When the power to control the subsidiaries exists (please refer
to Notes 5 and 6 and accounting policy below Subsidiaries). This
judgement includes an assessment of whether the Company has (i)
power over the investee; (ii) exposure, or rights, to variable
returns from its involvement with the investee; and (iii) the
ability to use its power over the investee to affect the amount of
the investor’s returns. The Company considers among others its
voting shares, shareholder agreements, ability to appoint board
members, representation on the board, rights to appoint management,
de facto control, investee dependence on the Company etc. If the
power to control investees exists we consolidate the financial
statements of such investee in the consolidated financial
statements of the Group. Upon issuance of new shares in a
subsidiary and/or a change in any shareholders or governance
agreements, the Group reassesses its ability to control the
investee based on the revised voting interest and board composition
and revised subsidiary governance and management structure. When
such new circumstances result in the Group losing its power to
control the investee, the investee is deconsolidated.
- Whether the Company has significant influence over financial
and operating policies of investees in order to determine if the
Company should account for its investment as an associate based on
IAS 28 or based on IFRS 9, Financial Instruments (please refer to
Note 5). This judgement includes, among others, an assessment
whether the Company has representation on the Board of Directors of
the investee, whether the Company participates in the policy making
processes of the investee, whether there is any interchange of
managerial personnel, whether there is any essential technical
information provided to the investee and if there are any
transactions between the Company and the investee.
- Upon determining that the Company does have significant
influence over the financial and operating policies of an investee,
if the Company holds more than a single instrument issued by its
equity-accounted investee, judgement is required to determine
whether the additional instrument forms part of the investment in
the associate, which is accounted for under IAS 28 and scoped out
of IFRS 9, or it is a separate financial instrument that falls in
the scope of IFRS 9 (please refer to Notes 5 and 6). This judgement
includes an assessment of the characteristics of the financial
instrument of the investee held by the Company and whether such
financial instrument provides access to returns underlying an
ownership interest.
- Where the company has other investments in an equity accounted
investee that are not accounted for under IAS 28, judgement is
required in determining if such investments constitute Long-Term
Interests for the purposes of IAS 28 (please refer to Notes 5 and
6). This determination is based on the individual facts and
circumstances and characteristics of each investment, but is
driven, among other factors, by the intention and likelihood to
settle the instrument through redemption or repayment in the
foreseeable future, and whether or not the investment is likely to
be converted to common stock or other equity instruments (please
also refer to accounting policy with regard to Investments in
Associates below). When the Group considered the individual facts
and circumstances of the Group’s investment in its associate's
preferred stock in the manner described above, including the
long-term nature of such investment, the ability of the Group to
convert its preferred stock investment to an investment in common
shares and the likelihood of such conversion, we concluded that
such investment was considered a Long Term Interest.
As of December 31, 2022, the Group had cash and cash equivalents
of $149.9 million and short-term investments of $200.2 million.
Considering the Group’s and the Company's financial position as of
December 31, 2022, and its principal risks and opportunities, a
going concern analysis has been prepared for at least the
twelve-month period from the date of signing the Consolidated
Financial Statements ("the going concern period") utilizing
realistic scenarios and applying a severe but plausible downside
scenario. Even under the downside scenario, the analysis
demonstrates the Group and the Company continue to maintain
sufficient liquidity headroom and continue to comply with all
financial obligations. The Directors believe the Group and the
Company is adequately resourced to continue in operational
existence for at least the twelve-month period from the date of
signing the Consolidated Financial Statements. Accordingly, the
Directors considered it appropriate to adopt the going concern
basis of accounting in preparing the Consolidated Financial
Statements and the PureTech Health plc Financial Statements.
Basis of consolidation The consolidated financial information as
of December 31, 2022 and 2021, and for each of the years ended
December 31, 2022, 2021 and 2020, comprises an aggregation of
financial information of the Company and the consolidated financial
information of PureTech Health LLC (“PureTech LLC”). Intra-group
balances and transactions, and any unrealized income and expenses
arising from intra-group transactions, are eliminated.
Subsidiaries As used in these financial statements, the term
subsidiaries refers to entities that are controlled by the Group.
Financial results of subsidiaries of the Group as of December 31,
2022, are reported within the Internal segment, Controlled Founded
Entities segment or the Parent Company and Other section (please
refer to Note 4). Under applicable accounting rules, the Group
controls an entity when it is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights, board representation, shareholders' agreements,
ability to appoint Directors and management, de facto control and
other related factors. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences until the date that control ceases. Losses
applicable to the non-controlling interests in a subsidiary are
allocated to the non-controlling interests even if doing so causes
the non-controlling interests to have a deficit balance.
A list of all current and former subsidiaries organized with
respect to classification as of December 31, 2022, and the Group’s
total voting percentage, based on outstanding voting common and
preferred shares as of December 31, 2022, 2021 and 2020, is
outlined below. All current subsidiaries are domiciled within the
United States and conduct business activities solely within the
United States.
Voting percentage at December 31,
through the holdings in
2022
2021
2020
Subsidiary
Common
Preferred
Common
Preferred
Common
Preferred
Subsidiary operating companies
Alivio Therapeutics, Inc.1,2
—
100.0
—
100.0
—
91.9
Entrega, Inc. (indirectly held through
Enlight)1,2
—
77.3
—
77.3
—
83.1
Follica, Incorporated1,2
28.7
56.7
28.7
56.7
28.7
56.7
PureTech LYT (formerly Ariya Therapeutics,
Inc.)
—
100.0
—
100.0
—
100.0
PureTech LYT-100
—
100.0
—
100.0
—
100.0
PureTech Management, Inc.3
100.0
—
100.0
—
100.0
—
PureTech Health LLC3
100.0
—
100.0
—
100.0
—
Vedanta Biosciences, Inc.1,2
—
47.0
—
48.6
—
59.3
Vedanta Biosciences Securities Corp.
(indirectly held through Vedanta)1,2
—
47.0
—
48.6
—
59.3
Deconsolidated former subsidiary
operating companies
Sonde Health, Inc.1,2,5
—
40.2
—
51.8
—
51.8
Akili Interactive Labs, Inc.6
14.7
—
—
26.7
—
41.9
Gelesis, Inc.1,2,6
22.8
—
4.8
19.7
4.9
20.2
Karuna Therapeutics, Inc.1,2
3.1
—
5.6
—
12.6
—
Vor Biopharma Inc.1,2
4.1
—
8.6
—
—
16.4
Nontrading holding companies
Endra Holdings, LLC (held indirectly
through Enlight)2
86.0
—
86.0
—
86.0
—
Ensof Holdings, LLC (held indirectly
through Enlight)2
86.0
—
86.0
—
86.0
—
PureTech Securities Corp.2
100.0
—
100.0
—
100.0
—
PureTech Securities II Corp.2
100.0
—
100.0
—
100.0
—
Inactive subsidiaries
Appeering, Inc.2
—
100.0
—
100.0
—
100.0
Commense Inc.2
—
99.1
—
99.1
—
99.1
Enlight Biosciences, LLC2
86.0
—
86.0
—
86.0
—
Ensof Biosystems, Inc. (held indirectly
through Enlight)1,2
57.7
28.3
57.7
28.3
57.7
28.3
Knode Inc. (indirectly held through
Enlight)2
—
86.0
—
86.0
—
86.0
Libra Biosciences, Inc.2
—
100.0
—
100.0
—
100.0
Mandara Sciences, LLC2
98.3
—
98.3
—
98.3
—
Tal Medical, Inc.1,2
—
100.0
—
100.0
—
100.0
- The voting percentage is impacted by preferred shares that are
classified as liabilities, which results in the ownership
percentage not being the same as the ownership percentage used in
allocations to non-controlling interests disclosed in Note 18. The
allocation of losses/profits to the noncontrolling interest is
based on the holdings of subordinated stock that provide ownership
rights in the subsidiaries. The ownership of liability classified
preferred shares are quantified in Note 15.
- Registered address is Corporation Trust Center, 1209 Orange
St., Wilmington, DE 19801, USA.
- Registered address is 2711 Centerville Rd., Suite 400,
Wilmington, DE 19808, USA.
- The Company’s interests in its subsidiaries are predominantly
in the form of preferred shares, which have a liquidation
preference over the common stock, are convertible into common stock
at the holder’s discretion or upon certain liquidity events, are
entitled to one vote per share on all matters submitted to
shareholders for a vote and entitled to receive dividends when and
if declared. In the case of Enlight, Mandara and PureTech Health
LLC, the holdings are membership interests in an LLC. The holders
of common stock are entitled to one vote per share on all matters
submitted to shareholders for a vote and entitled to receive
dividends when and if declared.
- On May 25, 2022 PureTech lost control over Sonde and Sonde was
deconsolidated from the Group’s financial statements, resulting in
only the profits and losses generated by Sonde through the
deconsolidation date being included in the Group’s Consolidated
Statement of Comprehensive Income/(Loss). See Notes 5 and 6 for
further details about the accounting for the investments in Sonde
subsequent to deconsolidation.
- See Notes 5 and 6 for the Gelesis and Akili SPAC merger and for
the exchange of the Group's preferred stock investments for common
stock of those entities.
Change in subsidiary ownership and loss of control Changes in
the Group’s interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and
liabilities are derecognized along with any related non-controlling
interest (“NCI”). Any interest retained in the former subsidiary is
measured at fair value when control is lost. Any resulting gain or
loss is recognized as profit or loss in the Consolidated Statements
of Comprehensive Income/(Loss).
Associates As used in these financial statements, the term
associates are those entities in which the Group has no control but
maintains significant influence over the financial and operating
policies. Significant influence is presumed to exist when the Group
holds between 20 and 50 percent of the voting power of an entity,
unless it can be clearly demonstrated that this is not the case.
The Group evaluates if it maintains significant influence over
associates by assessing if the Group has lost the power to
participate in the financial and operating policy decisions of the
associate.
Application of the equity method to associates Associates are
accounted for using the equity method (equity accounted investees)
and are initially recognized at cost, or if recognized upon
deconsolidation they are initially recorded at fair value at the
date of deconsolidation. The consolidated financial statements
include the Group’s share of the total comprehensive income and
equity movements of equity accounted investees, from the date that
significant influence commences until the date that significant
influence ceases.
To the extent the Group holds interests in associates that are
not providing access to returns underlying ownership interests, the
instrument held by PureTech is accounted for in accordance with
IFRS 9 as investments held at fair value.
When the Group’s share of losses exceeds its equity method
investment in the investee, losses are applied against Long-Term
Interests, which are investments accounted for under IFRS 9.
Investments are determined to be Long-Term Interests when they are
long-term in nature and in substance they form part of the Group's
net investment in that associate. This determination is impacted by
many factors, among others, whether settlement by the investee
through redemption or repayment is planned or likely in the
foreseeable future, whether the investment can be converted and/or
is likely to be converted to common stock or other equity
instrument and other factors regarding the nature of the
investment. Whilst this assessment is dependent on many specific
facts and circumstances of each investment, typically conversion
features whereby the investment is likely to convert to common
stock or other equity instruments would point to the investment
being a Long-Term Interest. Similarly, where the investment is not
planned or likely to be settled through redemption or repayment in
the foreseeable future, this would indicate that the investment is
a Long-Term Interest. When the net investment in the associate,
which includes the Group’s investments in other long-term
interests, is reduced to nil, recognition of further losses is
discontinued except to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of an
investee.
The Group has also adopted the amendments to IAS 28 Investments
in Associates that addresses the dual application of IAS 28 and
IFRS 9 (see below) when equity method losses are applied against
Long-Term Interests (LTI). The amendments provide the annual
sequence in which both standards are to be applied in such a case.
The Group has applied the equity method losses to the LTIs
presented as part of Investments held at fair value subsequent to
remeasuring such investments to their fair value at balance sheet
date.
Financial Instruments Classification
The Group classifies its financial assets in the following
measurement categories:
- Those to be measured subsequently at fair value (either through
other comprehensive income, or through profit or loss), and
- Those to be measured at amortized cost.
The classification depends on the Group’s business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses are recorded
in profit or loss. For investments in equity instruments that are
not held for trading, this will depend on whether the Group has
made an irrevocable election at the time of initial recognition to
account for the equity investment at FVOCI. As of balance sheet
dates, none of the Company's financial assets are accounted for as
FVOCI.
Measurement At initial recognition, the Group measures a
financial asset at its fair value plus, in the case of a financial
asset not at FVTPL, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets that are carried at FVTPL are
expensed.
Impairment The Group assesses on a forward-looking basis the
expected credit losses associated with its debt instruments carried
at amortized cost. For trade receivables, the Group applies the
simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognized from initial recognition of the
receivables.
Financial Assets The Group’s financial assets consist of cash
and cash equivalents, investments in debt securities, trade and
other receivables, notes, restricted cash deposits and investments
in equity securities. The Group’s financial assets are virtually
all classified into the following categories: investments held at
fair value, notes, trade and other receivables, short-term
investments and cash and cash equivalents. The Group determines the
classification of financial assets at initial recognition depending
on the purpose for which the financial assets were acquired.
Investments held at fair value are investments in equity
instruments that are not held for trading. Such investments consist
of the Group's minority interest holdings where the Group has no
significant influence or preferred share investments in the Group's
associates that are not providing access to returns underlying
ownership interests. These financial assets are initially measured
at fair value and subsequently re-measured at fair value at each
reporting date. The Company elects if the gain or loss will be
recognized in Other Comprehensive Income/(Loss) or through profit
and loss on an instrument by instrument basis. The Company has
elected to record the changes in fair values for the financial
assets falling under this category through profit and loss. Please
refer to Note 5.
Changes in the fair value of financial assets at FVTPL are
recognized in other income/(expense) in the Consolidated Statements
of Comprehensive Income/(Loss) as applicable.
The notes from an associate, since their contractual terms do
not consist solely of cash flow payments of principal and interest
on the principal amount outstanding, such notes are initially and
subsequently measured at fair value, with changes in fair value
recognized through profit and loss.
Short term investments consist of short-term US treasury bills
that are held to maturity. The contractual terms consist solely of
payment of the principal and the Group's business model is to hold
the treasury bills to maturity. As such, such short term
investments are recorded at amortized cost. As of balance sheet
date amortized cost approximated the fair value of such short-term
investments.
Trade and other receivables are non-derivative financial assets
with fixed and determinable payments that are not quoted on active
markets. These financial assets are carried at the amounts expected
to be received less any expected lifetime losses. Such losses are
determined taking into account previous experience, credit rating
and economic stability of counterparty and economic conditions.
When a trade receivable is determined to be uncollectible, it is
written off against the available provision. As of balance sheet
date, The Group did not incur or record any such expected lifetime
losses. Trade and other receivables are included in current assets,
unless maturities are greater than 12 months after the end of the
reporting period.
Financial Liabilities The Group’s financial liabilities consist
of trade and other payables, subsidiary notes payable, long-term
loan, preferred shares, and warrant liability.
Warrant liabilities are initially recognized at fair value.
After initial recognition, these financial liabilities are
re-measured at FVTPL using an appropriate valuation technique.
Subsidiary notes payable without embedded derivatives and the
long-term loan are accounted for at amortized cost.
The majority of the Group’s subsidiaries have preferred shares
and certain notes payable with embedded derivatives, which are
classified as current liabilities. When the Group has preferred
shares and notes with embedded derivatives that qualify for
bifurcation, the Group has elected to account for the entire
instrument as FVTPL after determining under IFRS 9 that the
instrument qualifies to be accounted for under such FVTPL
method.
The Group derecognizes a financial liability when its
contractual obligations are discharged, cancelled or expire.
Equity Instruments Issued by the Group Financial instruments
issued by the Group are treated as equity only to the extent that
they meet the following two conditions, in accordance with IAS
32:
- They include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavorable to the Group; and
- Where the instrument will or may be settled in the Group’s own
equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Group’s own equity
instruments or is a derivative that will be settled by the Group
exchanging a fixed amount of cash or other financial assets for a
fixed number of its own equity instruments.
To the extent that this definition is not met, the financial
instrument is classified as a financial liability. Where the
instrument so classified takes the legal form of the Group’s own
shares, the amounts presented in the Group's shareholders' equity
exclude amounts in relation to those shares.
Changes in the fair value of liabilities at FVTPL are recognized
in Net finance income (costs) in the Consolidated Statements of
Comprehensive Income/(Loss) as applicable.
IFRS 15, Revenue from Contracts with Customers The standard
establishes a five-step principle-based approach for revenue
recognition and is based on the concept of recognizing an amount
that reflects the consideration for performance obligations only
when they are satisfied and the control of goods or services is
transferred.
The majority of the Group’s contract revenue is generated from
licenses and services, some of which are part of collaboration
arrangements.
Management reviewed contracts where the Group received
consideration in order to determine whether or not they should be
accounted for in accordance with IFRS 15. To date, PureTech has
entered into transactions that generate revenue and meet the scope
of either IFRS 15 or IAS 20 Accounting for Government Grants.
Contract revenue is recognized at either a point-in-time or over
time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of
IFRS 15 by applying the following five step model:
- Identify the contract(s) with a customer – A contract with a
customer exists when (i) the Group enters into an enforceable
contract with a customer that defines each party’s rights regarding
the goods or services to be transferred and identifies the payment
terms related to those goods or services, (ii) the contract has
commercial substance and, (iii) the Group determines that
collection of substantially all consideration for goods or services
that are transferred is probable based on the customer’s intent and
ability to pay the promised consideration.
- Identify the performance obligations in the contract –
Performance obligations promised in a contract are identified based
on the goods or services that will be transferred to the customer
that are both capable of being distinct, whereby the customer can
benefit from the good or service either on its own or together with
other resources that are readily available from third parties or
from the Group, and are distinct in the context of the contract,
whereby the transfer of the goods or services is separately
identifiable from other promises in the contract.
- Determine the transaction price – The transaction price is
determined based on the consideration to which the Group will be
entitled in exchange for transferring goods or services to the
customer. To the extent the transaction price includes variable
consideration, the Group estimates the amount of variable
consideration that should be included in the transaction price
utilizing either the expected value method or the most likely
amount method depending on the nature of the variable
consideration. Variable consideration is included in the
transaction price if, in the Group’s judgement, it is probable that
a significant future reversal of cumulative revenue under the
contract will not occur.
- Allocate the transaction price to the performance obligations
in the contract – If the contract contains a single performance
obligation, the entire transaction price is allocated to the single
performance obligation. Contracts that contain multiple performance
obligations require an allocation of the transaction price to each
performance obligation based on a relative standalone selling price
basis.
- Recognize revenue when (or as) the Group satisfies a
performance obligation – The Group satisfies performance
obligations either over time or at a point in time as discussed in
further detail below. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised good
or service to a customer.
Revenue generated from services agreements (typically where
licenses and related services were combined into one performance
obligation) is determined to be recognized over time when it can be
determined that the services meet one of the following: (a) the
customer simultaneously receives and consumes the benefits provided
by the entity’s performance as the entity performs; (b) the
entity’s performance creates or enhances an asset that the customer
controls as the asset is created or enhanced; or (c) the entity’s
performance does not create an asset with an alternative use to the
entity and the entity has an enforceable right to payment for
performance completed to date.
It was determined that the Group has contracts that meet
criteria (a), since the customer simultaneously receives and
consumes the benefits provided by the Company’s performance as the
Company performs. Therefore revenue is recognized over time using
the input method based on costs incurred to date as compared to
total contract costs. The Company believes that in research and
development service type agreements using costs incurred to date
represents the most faithful depiction of the entity’s performance
towards complete satisfaction of a performance obligation.
Revenue from licenses that are not part of a combined
performance obligation are recognized at a point in time due to the
licenses relating to intellectual property that has significant
stand-alone functionality and as such represent a right to use the
entity's intellectual property as it exists at the point in time at
which the license is granted.
Royalty income received in respect of licensing agreements is
recognized as the related third party sales in the licensee
occur.
Amounts that are receivable or have been received per
contractual terms but have not been recognized as revenue since
performance has not yet occurred or has not yet been completed are
recorded as deferred revenue. The Company classifies as non-current
deferred revenue amounts received for which performance is expected
to occur beyond one year or one operating cycle.
Grant Income The Company recognizes grants from governmental
agencies as grant income in the Consolidated Statement of
Comprehensive Income/(Loss), gross of the expenditures that were
related to obtaining the grant, when there is reasonable assurance
that the Company will comply with the conditions within the grant
agreement and there is reasonable assurance that payments under the
grants will be received. The Company evaluates the conditions of
each grant as of each reporting date to ensure that the Company has
reasonable assurance of meeting the conditions of each grant
arrangement and that it is expected that the grant payment will be
received as a result of meeting the necessary conditions.
The Company submits qualifying expenses for reimbursement after
the Company has incurred the research and development expense. The
Company records an unbilled receivable upon incurring such
expenses. In cases were grant income is received prior to the
expenses being incurred or recognized, the amounts received are
deferred until the related expense is incurred and/or recognized.
Grant income is recognized in the Consolidated Statements of
Comprehensive Income/(Loss) at the time in which the Company
recognizes the related reimbursable expense for which the grant is
intended to compensate.
Functional and Presentation Currency These consolidated
financial statements are presented in United States dollars (“US
dollars”). The functional currency of all members of the Group is
the U.S. dollar. The Group's share in foreign exchange differences
in associates were reported in Other Comprehensive
Income/(Loss).
Foreign Currency Transactions in foreign currencies are
translated to the respective functional currencies of Group
entities at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are retranslated to the
functional currency at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on remeasurement are
recognized in the Consolidated Statement of Comprehensive
Income/(Loss). Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the
transaction.
Cash and Cash Equivalents Cash and cash equivalents include all
highly liquid instruments with original maturities of three months
or less.
Share Capital Ordinary shares are classified as equity. The
Group's equity is comprised of share capital, share premium, merger
reserve, other reserve, translation reserve, and retained
earnings/accumulated deficit.
Treasury Shares Treasury shares are recognized at cost and are
deducted from shareholders' equity. No gain or loss is recognized
in profit and loss for the purchase, sale, re-issue or cancellation
of the Company's own equity shares
Property and Equipment Property and equipment is stated at cost
less accumulated depreciation and any accumulated impairment
losses. Cost includes expenditures that are directly attributable
to the acquisition of the asset. Assets under construction
represent leasehold improvements and machinery and equipment to be
used in operations or research and development activities. When
parts of an item of property and equipment have different useful
lives, they are accounted for as separate items (major components)
of property and equipment. Depreciation is calculated using the
straight-line method over the estimated useful life of the related
asset:
Laboratory and manufacturing equipment
2-8 years
Furniture and fixtures
7 years
Computer equipment and software
1-5 years
Leasehold improvements
5-10 years, or the remaining term of the
lease, if shorter
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Intangible Assets Intangible assets, which include purchased
patents and licenses with finite useful lives, are carried at
historical cost less accumulated amortization, if amortization has
commenced. Intangible assets with finite lives are amortized from
the time they are available for their intended use. Amortization is
calculated using the straight-line method to allocate the costs of
patents and licenses over their estimated useful lives.
Research and development intangible assets, which are still
under development and have accordingly not yet obtained marketing
approval, are presented as In-Process Research and Development
(IPR&D). IPR&D is not amortized since it is not yet
available for its intended use, but it is evaluated for potential
impairment on an annual basis or more frequently when facts and
circumstances warrant.
Impairment Impairment of Non-Financial Assets The Group
reviews the carrying amounts of its property and equipment and
intangible assets at each reporting date to determine whether there
are indicators of impairment. If any such indicators of impairment
exist, then an asset’s recoverable amount is estimated. The
recoverable amount is the higher of an asset’s fair value less cost
of disposal and value in use.
The Company’s IPR&D intangible assets are not yet available
for their intended use. As such, they are tested for impairment at
least annually.
An impairment loss is recognized when an asset’s carrying amount
exceeds its recoverable amount. For the purposes of impairment
testing, assets are grouped at the lowest levels for which there
are largely independent cash flows. If a non- financial asset
instrument is impaired, an impairment loss is recognized in the
Consolidated Statements of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only
if, objective evidence indicates that one or more events, which
occurred after the initial recognition, have had an impact on the
future cash flows from the net investment and that impact can be
reliably estimated. If an impairment exists the Company measures an
impairment by comparing the carrying value of the net investment in
the associate to its recoverable amount and recording any excess as
an impairment loss. See Note 6 for impairment recorded in respect
of an investment in associate during the year ended December 31,
2022.
Employee Benefits Short-Term Employee Benefits Short-term
employee benefit obligations are measured on an undiscounted basis
and expensed as the related service is provided. A liability is
recognized for the amount expected to be paid if the Group has a
present legal or constructive obligation due to past service
provided by the employee, and the obligation can be estimated
reliably.
Defined Contribution Plans A defined contribution plan is a
post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and has no legal or
constructive obligation to pay further amounts. Obligations for
contributions to defined contribution plans are recognized as an
employee benefit expense in the periods during which related
services are rendered by employees. Prepaid contributions are
recognized as an asset to the extent that a cash refund or a
reduction in future payments is available.
Share-based Payments Share-based payment arrangements, in which
the Group receives goods or services as consideration for its own
equity instruments, are accounted for as equity-settled share-based
payment transactions (except certain restricted stock units - see
below) in accordance with IFRS 2, regardless of how the equity
instruments are obtained by the Group. The grant date fair value of
employee share-based payment awards is recognized as an expense
with a corresponding increase in equity over the requisite service
period related to the awards. The amount recognized as an expense
is adjusted to reflect the actual number of awards for which the
related service and non-market performance conditions are expected
to be met, such that the amount ultimately recognized as an expense
is based on the number of awards that do meet the related service
and non-market performance conditions at the vesting date. For
share-based payment awards with market conditions, the grant date
fair value is measured to reflect such conditions and there is no
true-up for differences between expected and actual outcomes.
Certain restricted stock units are treated as liability settled
awards starting in 2021. Such awards are remeasured at every
reporting date until settlement date and are recognized as
compensation expense over the requisite service period. Differences
in remeasurement are recognized in profit and loss. The cumulative
cost that will ultimately be recognized in respect of these awards
will equal to the amount at settlement.
The fair value of the awards is measured using option pricing
models and other appropriate models, which take into account the
terms and conditions of the awards granted. See further details in
Note 8.
Development Costs Expenditures on research activities are
recognized as incurred in the Consolidated Statements of
Comprehensive Income/(Loss). In accordance with IAS 38 development
costs are capitalized only if the expenditure can be measured
reliably, the product or process is technically and commercially
feasible, future economic benefits are probable, the Group can
demonstrate its ability to use or sell the intangible asset, the
Group intends to and has sufficient resources to complete
development and to use or sell the asset, and it is able to measure
reliably the expenditure attributable to the intangible asset
during its development. The point at which technical feasibility is
determined to have been reached is, generally, when regulatory
approval has been received where applicable. Management determines
that commercial viability has been reached when a clear market and
pricing point have been identified, which may coincide with
achieving meaningful recurring sales. Otherwise, the development
expenditure is recognized as incurred in the Consolidated
Statements of Comprehensive Income/(Loss). As of balance sheet date
the Group has not capitalized any development costs.
Provisions A provision is recognized in the Consolidated
Statements of Financial Position when the Group has a present legal
or constructive obligation due to a past event that can be reliably
measured, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects risks specific to the liability.
Leases The Group leases real estate (and some minor equipment)
for use in operations. These leases generally have lease terms of 1
to 10 years. The Group includes options that are reasonably certain
to be exercised as part of the determination of the lease term. The
group determines if an arrangement is a lease at inception of the
contract in accordance with guidance detailed in IFRS 16. ROU
assets represent the Group’s right to use an underlying asset for
the lease term and lease liabilities represent the Group's
obligation to make lease payments arising from the lease. Operating
lease ROU assets and lease liabilities are recognized at
commencement date based on the present value of the lease payments
over the lease term. As most of the Group's leases do not provide
an implicit rate, The Group used its estimated incremental
borrowing rate, based on information available at commencement
date, in determining the present value of future payments.
The Group’s leases are virtually all leases of real estate.
- The Group has elected to account for lease payments as an
expense on a straight-line basis over the life of the lease
for:
- Leases with a term of 12 months or less and containing no
purchase options; and
- Leases where the underlying asset has a value of less than
$5,000.
The right-of-use asset is depreciated on a straight-line basis
and the lease liability gives rise to an interest charge.
Further information regarding the subleases, right of use asset
and lease liability can be found in Note 21.
Finance Income and Finance Costs Finance income is comprised of
income on funds invested in U.S. treasuries, income on money market
funds and income on a finance lease. Financing income is recognized
as it is earned. Finance costs comprise mainly of loan, notes and
lease liability interest expenses and the changes in the fair value
of financial liabilities carried at FVTPL (such changes can consist
of finance income when the fair value of such financial liabilities
decreases).
Taxation Tax on the profit or loss for the year comprises
current and deferred income tax. In accordance with IAS 12, tax is
recognized in the Consolidated Statements of Comprehensive
Income/(Loss) except to the extent that it relates to items
recognized directly in equity.
Current income tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is recognized due to temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax assets are recognized for unused tax losses, unused
tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets with respect to
investments in associates are recognized only to the extent that it
is probable the temporary difference will reverse in the
foreseeable future and taxable profit will be available against
which the temporary difference can be utilised. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be
realized.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Fair Value Measurements The Group’s accounting policies require
that certain financial assets and certain financial liabilities be
measured at their fair value.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs. Fair values
are categorized into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
The carrying amount of cash and cash equivalents, accounts
receivable, restricted cash, deposits, accounts payable, accrued
expenses and other current liabilities in the Group’s Consolidated
Statements of Financial Position approximates their fair value
because of the short maturities of these instruments.
Operating Segments Operating segments are reported in a manner
that is consistent with the internal reporting provided to the
chief operating decision maker (“CODM”). The CODM reviews discrete
financial information for the operating segments in order to assess
their performance and is responsible for making decisions about
resources allocated to the segments. The CODM has been identified
as the Group’s Directors.
2. New Standards and Interpretations Not Yet Adopted
A number of new standards, interpretations, and amendments to
existing standards are effective for annual periods commencing on
or after January 1, 2023 and have not been applied in preparing the
consolidated financial information. The Company’s assessment of the
impact of these new standards and interpretations is set out
below.
Effective January 1, 2023, the definition of accounting
estimates has been amended as an amendment to IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors. The
amendments clarify how companies should distinguish changes in
accounting policies from changes in accounting estimates. The
distinction is important because changes in accounting estimates
are applied prospectively only to future transactions and future
events, but changes in accounting policies are generally also
applied retrospectively to past transactions and other past events.
This amendment is not expected to have an impact on the Group's
financial statements.
Effective January 1, 2023, IAS 1 has been amended to clarify
that liabilities are classified as either current or non-current,
depending on the rights that exist at the end of the reporting
period. Classification is unaffected by the expectations of the
entity or events after the reporting date. The Company does not
expect this amendment will have a material impact on its financial
statements.
Effective January 1, 2023, IAS 12 is amended to narrow the scope
of the initial recognition exemption (IRE) so that it does not
apply to transactions that give rise to equal and offsetting
temporary differences. As a result, companies will need to
recognise a deferred tax asset and a deferred tax liability for
temporary differences arising on initial recognition of a lease and
a decommissioning provision. The amendment is not expected to have
an impact on the Group's financial statements as the Group has
already recognized a deferred tax asset and deferred tax liability
that arose on initial recognition of its leases (the Group does not
have decommissioning provisions).
None of the other new standards, interpretations, and amendments
are applicable to the Company’s financial statements and therefore
will not have an impact on the Company.
3. Revenue
Revenue recorded in the Consolidated Statement of Comprehensive
Income/(Loss) consists of the following:
For the years ended December 31,
2022
$000s
2021
$000s
2020
$000s
Contract revenue
2,090
9,979
8,341
Grant income
13,528
7,409
3,427
Total revenue
15,618
17,388
11,768
All amounts recorded in contract revenue were generated in the
United States. For the years ended December 31, 2022, 2021 and 2020
contract revenue includes royalties received from an associate in
the amount of $509 thousand, $231 thousand, and $54 thousand,
respectively.
Primarily all of the Company’s other contracts for the years
ended December 31, 2022, 2021 and 2020 were determined to have a
single performance obligation which consists of a combined
deliverable of license to intellectual property and research and
development services (not including the license acquired by Imbrium
upon option exercise – see below). Therefore, for such contracts,
revenue is recognized over time based on the input method which the
Company believes is a faithful depiction of the transfer of goods
and services. Progress is measured based on costs incurred to date
as compared to total projected costs. Payments for such contracts
are primarily made up front on a periodic basis.
During the year ended December 31, 2021, the company received a
$6.5 million payment from Imbrium Therapeutics, Inc. following the
exercise of the option to acquire an exclusive license for the
Initial Product Candidate, as defined in the agreement. Since the
license transferred was a functional license, revenue from the
option exercise was recognized at a point in time upon transfer of
the license, which occurred during the year ended December 31,
2021.
During the year ended December 31, 2020, the Company received a
$2.0 million milestone payment from Karuna Therapeutics, Inc.
following initiation of its KarXT Phase 3 clinical study pursuant
to the Exclusive Patent License Agreement between PureTech and
Karuna. This milestone was recognized as revenue during the year
ended December 31, 2020.
Disaggregated Revenue The Group disaggregates contract revenue
in a manner that depicts how the nature, amount, timing, and
uncertainty of revenue and cash flows are affected by economic
factors. The Group disaggregates revenue based on contract revenue
or grant revenue, and further disaggregates contract revenue based
on the transfer of control of the underlying performance
obligations.
Timing of contract revenue recognition
For the years ended December 31,
2022
$000s
2021
$000s
2020
$000s
Transferred at a point in time – Licensing
Income1
527
6,809
2,054
Transferred over time2
1,563
3,171
6,286
2,090
9,979
8,341
- 2022 – Attributed to Non-Controlled Founded Entities segment (
$19 thousand) and to Parent Company and Other ($509 thousand); 2021
– Attributed to the Internal segment ($6,500 thousand),
Non-Controlled Founded Entities segment ($74 thousand), and to
Parent Company and Other ($235 thousand); 2020 – Attributed to
Parent Company and Other. See note 4, Segment information.
- 2022 – Attributed to Controlled Founded Entities segment
($1,500 thousand) and to Non-Controlled Founded Entities segment
($63 thousand ); 2021 – Attributed to Internal segment ($1,629
thousand), Non-Controlled Founded Entities segment ($41 thousand),
and to Controlled Founded Entities segment ($1,500 thousand). 2020
– Attributed to Internal segment ($5,297 thousand), Controlled
Founded Entities segment ($896 thousand), and to Non-Controlled
Founded Entities segment ($93 thousand). See Note 4, Segment
Information.
Customers over 10% of revenue
2022
$000s
2021
$000s
2020
$000s
Customer A
—
—
1,518
Customer B
1,500
1,500
896
Customer C
—
—
2,043
Customer D
—
7,250
1,736
Customer E
—
—
2,000
Customer F
509
—
—
2,009
8,750
8,193
Accounts receivables represent rights to consideration in
exchange for products or services that have been transferred by the
Group, when payment is unconditional and only the passage of time
is required before payment is due. Accounts receivables do not bear
interest and are recorded at the invoiced amount. Accounts
receivable are included within Trade and other receivables on the
Consolidated Statement of Financial Position.
Contract liabilities represent the Group’s obligation to
transfer products or services to a customer for which consideration
has been received, or for which an amount of consideration is due
from the customer. Contract liabilities are included within
deferred revenue on the Consolidated Statement of Financial
Position.
Contract Balances
2022
$000s
2021
$000s
Accounts receivable
606
704
Deferred revenue – short term
—
65
During the year ended December 31, 2022, $65 thousand of revenue
was recognized from deferred revenue outstanding at December 31,
2021.
Remaining performance obligations represent the transaction
price of unsatisfied or partially satisfied performance obligations
within contracts with an original expected contract term that is
greater than one year and for which fulfillment of the contract has
started as of the end of the reporting period. The aggregate amount
of transaction consideration allocated to remaining performance
obligations as of December 31, 2022, was nil.
As of December 31, 2022 the deferred revenue balance related
entirely to deferred grant income.
4. Segment Information
Basis for Segmentation The Directors are the Group’s strategic
decision-makers. The Group’s operating segments are reported based
on the financial information provided to the Directors periodically
for the purposes of allocating resources and assessing performance.
The Group has determined that each entity is representative of a
single operating segment as the Directors monitor the financial
results at this level. When identifying the reportable segments the
Group has determined that it is appropriate to aggregate multiple
operating segments into a single reportable segment given the high
level of operational and financial similarities across the
entities.
The Group has identified multiple reportable segments as
presented below. There was no change to reportable segments in
2022, except for the transfer of Sonde Health, Inc. to the
Non-Controlled Founded Entities segment due to the deconsolidation
of Sonde Health, Inc (Sonde) on May 25, 2022.
The Non-Controlled Founded Entities segment includes Sonde
Health, Inc. which was deconsolidated on May 25, 2022. Segment
results incorporate the operational results of Sonde Health, Inc.
to the date of deconsolidation. Following the date of
deconsolidation, the Company accounts for its investment in Sonde
Health, Inc. at the parent level, and therefore the results
associated with investment activity following the date of
deconsolidation (including the Group's share in Sonde losses) is
included in the Parent Company and Other section.
The Company has revised in these financial statements the prior
year financial information to conform to the presentation as of and
for the year ending December 31, 2022 to include Sonde in the
Non-Controlled Founded Entities segment. The change in segments
reflects how the Company’s Board of Directors reviews the Group’s
results, allocates resources and assesses performance of the Group
at this time.
Virtually all of the revenue and profit generating activities of
the Group are generated within the United States and accordingly,
no geographical disclosures are provided.
Internal The Internal segment (the “Internal segment”), is
advancing Wholly Owned Programs which are focused on treatments for
patients with devastating diseases. The Internal segment is
comprised of the technologies that are wholly owned and will be
advanced through either PureTech Health funding or non-dilutive
sources of financing in the near-term. The operational management
of the Internal segment is conducted by the PureTech Health team,
which is responsible for the strategy, business development, and
research and development. As of December 31, 2022, this segment
included PureTech LYT, PureTech LYT-100 and Alivio Therapeutics,
Inc.
Controlled Founded Entities The Controlled Founded Entity
segment (the “Controlled Founded Entity segment”) is comprised of
the Group’s subsidiaries that are currently consolidated
operational subsidiaries that either have, or have plans to hire,
independent management teams and currently have already raised
third-party dilutive capital. These subsidiaries have active
research and development programs and either have entered into or
plan to seek an equity or debt investment partner, who will provide
additional industry knowledge and access to networks, as well as
additional funding to continue the pursued growth of the company.
As of December 31, 2022, this segment included Entrega Inc.,
Follica Incorporated, and Vedanta Biosciences, Inc.
Non-Controlled Founded Entities The Non-Controlled Founded
Entities segment (the “Non-Controlled Founded Entities segment”) is
comprised of the entities in respect of which PureTech Health no
longer has control over the entity. Upon deconsolidation of an
entity the segment disclosure is restated to reflect the change on
a retrospective basis, as this constitutes a change in the
composition of its reportable segments. The Non-Controlled Founded
Entities segment includes Sonde Health Inc. which was
deconsolidated on May 25, 2022.
The Non-Controlled Founded Entities segment incorporates the
operational results of the aforementioned entity to the date of
deconsolidation. Following the date of deconsolidation, the Company
accounts for its investment in each entity at the parent level, and
therefore the results associated with investment activity
(including the recognition of equity method income/ (losses))
following the date of deconsolidation is included in the Parent
Company and Other section.
Parent Company and Other Parent Company and Other includes
activities that are not directly attributable to the operating
segments, such as the activities of the Parent, corporate support
functions and certain research and development support functions
that are not directly attributable to a strategic business segment
as well as the elimination of intercompany transactions.
Intercompany transactions between segments consist primarily of
management fees charged from the Parent Company to the other
segments. This section also captures the accounting for the
Company’s holdings in entities for which control has been lost,
which is inclusive of the following items: gain on deconsolidation,
gain or loss on investments held at fair value, realized loss on
sale of investments, the share of net income/ (loss) of associates
accounted for using the equity method, gain on dilution of
ownership interest in associate, impairment of investment in
associate. As of December 31, 2022, this segment included PureTech
Health plc, PureTech Health LLC, PureTech Management, Inc.,
PureTech Securities Corp. and PureTech Securities II Corp., as well
as certain other dormant, inactive and shell entities.
Information About Reportable Segments:
2022
Internal
$000s
Controlled Founded
Entities
$000s
Non-Controlled Founded
Entities
$000s
Parent Company &
Other
$000s
Consolidated
$000s
Consolidated Statements of
Comprehensive Income/(Loss)
Contract revenue
—
1,500
81
509
2,090
Grant revenue
2,826
10,702
—
—
13,528
Total revenue
2,826
12,202
81
509
15,618
General and administrative expenses
(8,301)
(16,462)
(1,296)
(34,933)
(60,991)
Research and development expenses
(116,054)
(34,668)
(826)
(885)
(152,433)
Total operating expense
(124,355)
(51,130)
(2,122)
(35,817)
(213,425)
Other income/(expense):
Gain on deconsolidation of subsidiary
—
—
—
27,251
27,251
Gain/(loss) on investment held at fair
value
—
—
—
(32,060)
(32,060)
Realized loss on sale of investments
—
—
—
(29,303)
(29,303)
Other income/(expense)
(204)
(3)
—
8,338
8,131
Total other income/(expense)
(204)
(3)
—
(25,775)
(25,981)
Net finance income/(costs)
615
138,006
(3,045)
3,348
138,924
Share of net income/(loss) of associates
accounted for using the equity method
—
—
—
(27,749)
(27,749)
Gain on dilution of ownership interest in
associate
—
—
—
28,220
28,220
Impairment of investment in associate
—
—
—
(8,390)
(8,390)
Income/(loss) before taxes
(121,118)
99,075
(5,085)
(65,655)
(92,783)
Income/(loss) before taxes pre IFRS 9
fair value accounting, share-based payment expense, depreciation of
tangible assets and amortization of intangible assets
(114,255)
(32,468)
(2,079)
(57,452)
(206,254)
Finance income/(costs) – IFRS 9 fair value
accounting
—
140,056
(2,993)
—
137,063
Share-based payment expense
(5,136)
(4,703)
(8)
(4,852)
(14,699)
Depreciation of tangible assets
(1,727)
(2,526)
(4)
(1,588)
(5,845)
Amortization of ROU assets
—
(1,283)
—
(1,764)
(3,047)
Amortization of intangible assets
—
—
(1)
—
(1)
Taxation
—
—
—
55,719
55,719
Income/(loss) for the year
(121,118)
99,075
(5,085)
(9,936)
(37,065)
Other comprehensive income/(loss)
—
—
—
(379)
(379)
Total comprehensive income/(loss) for
the year
(121,118)
99,075
(5,085)
(10,316)
(37,444)
Total comprehensive income/(loss)
attributable to:
Owners of the Company
(121,118)
85,471
(4,755)
(10,331)
(50,733)
Non-controlling interests
—
13,604
(330)
15
13,290
December 31, 2022
$000s
Consolidated Statements of Financial
Position:
Total assets
51,599
35,341
—
615,707
702,647
Total liabilities1
271,186
76,635
—
(192,763)
155,057
Net assets/(liabilities)
(219,587)
(41,294)
—
808,470
547,589
- Parent Company and Other Includes eliminations of intercompany
liabilities between the Parent Company and the reportable segments
in the amount of $255.5 million.
2021
Internal
$000s
Controlled Founded Entities
$000s
Non-Controlled Founded
Entities
$000s
Parent Company &
Other
$000s
Consolidated
$000s
Consolidated Statements of Comprehensive
Income/(Loss)
Contract revenue
8,129
1,500
115
235
9,979
Grant revenue
1,253
6,156
—
—
7,409
Total revenue
9,382
7,656
115
235
17,388
General and administrative expenses
(8,673)
(17,504)
(3,225)
(27,797)
(57,199)
Research and development expenses
(65,444)
(40,667)
(3,116)
(1,244)
(110,471)
Total Operating expenses
(74,118)
(58,171)
(6,341)
(29,041)
(167,671)
Other income/(expense):
Gain/(loss) on investment held at fair
value
—
—
—
179,316
179,316
Realized loss on sale of investments
—
—
—
(20,925)
(20,925)
Other income/(expense)
—
70
—
1,523
1,593
Total other income/(expense)
(1)
70
—
159,914
159,983
Net finance income/(costs)
(16)
7,528
(784)
(1,679)
5,050
Share of net income/(loss) of associate
accounted for using the equity method
—
—
—
(73,703)
(73,703)
Income/(loss) before taxes
(64,753)
(42,917)
(7,010)
55,727
(58,953)
(Loss)/income before taxes pre IFRS 9 fair
value accounting, finance costs – subsidiary preferred shares,
share-based payment expense, depreciation of tangible assets and
amortization of intangible assets
(60,368)
(44,335)
(6,248)
63,628
(47,323)
Finance income/(costs) – IFRS 9 fair value
accounting
—
10,322
(716)
—
9,606
Share-based payment expense
(3,066)
(6,224)
(32)
(4,628)
(13,950)
Depreciation of tangible assets
(1,319)
(1,506)
(12)
(1,510)
(4,347)
Amortization of ROU assets
—
(1,174)
—
(1,764)
(2,938)
Amortization of intangible assets
—
—
(2)
—
(2)
Taxation
—
—
—
(3,756)
(3,756)
Income/(loss) for the year
(64,753)
(42,917)
(7,010)
51,971
(62,709)
Other comprehensive income/(loss)
—
—
—
—
—
Total comprehensive income/(loss) for the
year
(64,753)
(42,917)
(7,010)
51,971
(62,709)
Total comprehensive income/(loss)
attributable to:
Owners of the Company
(64,657)
(41,283)
(6,574)
51,956
(60,558)
Non-controlling interests
(96)
(1,634)
(436)
15
(2,151)
December 31, 2021 $000s
Consolidated Statements of Financial
Position:
Total assets
125,726
64,508
1,765
754,007
946,006
Total liabilities1
228,789
209,212
19,645
(95,787)
361,859
Net (liabilities)/assets
(103,063)
(144,704)
(17,880)
849,794
584,147
1 Parent Company and Other Includes eliminations of intercompany
liabilities between the Parent Company and the reportable segments
in the amount of $233.3 million.
The proportion of net assets shown above that is attributable to
non-controlling interest is disclosed in Note 18.
2020
Internal
$000s
Controlled Founded Entities
$000s
Non-Controlled Founded
Entities
$000s
Parent Company &
Other
$000s
Consolidated
$000s
Consolidated Statements of Comprehensive
Loss
Contract revenue
5,297
896
93
2,054
8,341
Grant revenue
1,563
1,864
—
—
3,427
Total revenue
6,860
2,760
93
2,054
11,768
General and administrative expenses
(3,482)
(10,752)
(2,939)
(32,267)
(49,440)
Research and development expenses
(45,346)
(33,152)
(3,128)
(234)
(81,859)
Total operating expense
(48,828)
(43,904)
(6,067)
(32,500)
(131,299)
Other income/(expense):
Gain/(loss) on investment held at fair
value
—
—
—
232,674
232,674
Realized loss on sale of investments
—
—
—
(54,976)
(54,976)
Gain/(loss) on disposal of assets
(15)
(15)
—
—
(30)
Other income/(expense)
—
100
—
965
1,065
Other income/(expense)
(15)
85
—
178,662
178,732
Net finance income/(costs)
19
(4,352)
(852)
(930)
(6,115)
Share of net income/(loss) of associate
accounted for using the equity method
—
—
—
(34,117)
(34,117)
Income/(loss) before taxes
(41,964)
(45,410)
(6,826)
113,170
18,969
(Loss)/income before taxes pre IAS 39 fair
value accounting, finance costs – subsidiary preferred shares,
share-based payment expense, depreciation of tangible assets and
amortization of intangible assets
(38,349)
(36,736)
(5,866)
121,644
40,694
Finance income/(costs) – IFRS 9 fair value
accounting
—
(3,492)
(859)
—
(4,351)
Share-based payment expense
(2,762)
(2,469)
(83)
(5,405)
(10,718)
Depreciation of tangible assets
(854)
(1,528)
(17)
(1,547)
(3,945)
Amortization of ROU assets
—
(1,186)
—
(1,523)
(2,709)
Amortization of intangible assets
—
—
(1)
—
(1)
Taxation
—
(1)
—
(14,400)
(14,401)
Income/(loss) for the year
(41,964)
(45,411)
(6,826)
98,769
4,568
Other comprehensive income/(loss)
—
—
—
469
469
Total comprehensive income/(loss) for the
year
(41,964)
(45,411)
(6,826)
99,238
5,037
Total comprehensive income/(loss)
attributable to:
Owners of the Company
(41,773)
(44,506)
(6,519)
99,253
6,454
Non-controlling interests
(191)
(905)
(306)
(15)
(1,417)
5. Investments held at fair value
Investments held at fair value include both unlisted and listed
securities held by PureTech. These investments, which include
interests in Akili, Vor, Karuna, Gelesis (preferred shares until
exchanged for common stock, accounted for under the equity method,
and Earn-out shares following exchange), Sonde and other
insignificant investments, are initially measured at fair value and
are subsequently re-measured at fair value at each reporting date
with changes in the fair value recorded through profit and loss.
Interests in these investments were accounted for as shown
below:
Investments held at fair value
$000's
Balance as of January 1, 2021
553,167
Sale of Karuna shares
(218,125)
Loss realised on sale of investments
(20,925)
Cash purchase of Vor preferred shares
500
Gain – change in fair value through profit
and loss
179,271
Balance as of December 31, 2021 and
January 1, 2022 before allocation of share in associate loss to
long-term interest (*)
493,888
Investment in Sonde Preferred shares –
Sonde deconsolidation
11,168
Sale of Karuna and Vor shares
(118,710)
Loss realised on sale of investments as a
result of written call option
(29,303)
Cash Investment (Akili)
5,000
Gelesis Earn out shares received in SPAC
exchange
14,214
Exchange of Gelesis preferred shares to
Gelesis common shares
(92,303)
Loss – change in fair value through profit
and loss
(32,060)
Balance as of December 31, 2022
251,892
(*) Share in associate losses allocated to
long-term interest amounted to $96.7 million as of December 31,
2021 and January 1, 2022
Vor Vor was deconsolidated in February 2019. As PureTech
did not hold common shares in Vor upon deconsolidation and the
preferred shares it held did not have equity-like features,
PureTech had no basis to account for its investment in Vor under
IAS 28. The preferred shares held by PureTech fell under the
guidance of IFRS 9 and were treated as a financial asset held at
fair value with changes in fair value recorded in the Consolidated
Statement of Comprehensive Income/(Loss).
2020 On February 12, 2020, PureTech participated in the second
closing of Vor’s Series A-2 Preferred Share financing. For
consideration of $0.7 million, PureTech received 1,625,000 A-2
shares. On June 30, 2020, PureTech participated in the first
closing of Vor’s Series B Preferred Share financing. For
consideration of $0.5 million, PureTech received 961,538 shares.
Upon the conclusion of such Vor financings PureTech no longer had
significant influence over Vor.
2021 On January 8, 2021, PureTech participated in the second
closing of Vor’s Series B Preferred Share financing. For
consideration of $0.5 million, PureTech received an additional
961,538 B Preferred shares.
On February 9, 2021, Vor closed its initial public offering
(IPO) of 9,828,017 shares of its common stock at a price to the
public of $18.00 per share. Subsequent to the closing, PureTech
held 3,207,200 shares of Vor common stock, representing 8.6 percent
of Vor common stock. Following its IPO, the valuation of Vor common
stock is based on level 1 inputs in the fair value hierarchy. See
Note 16.
2022 In August and December 2022, PureTech sold an aggregate of
535,400 shares of Vor common shares for aggregate proceeds of $3.3
million .
During the years ended December 31, 2022, 2021 and 2020, the
Company recognized a loss of $16.2 million, a gain of $3.9 million,
and a gain of $19.1 million, respectively for the changes in the
fair value of the investment that were recorded in the line item
Gain/(loss) on investments held at fair value within the
Consolidated Statement of Comprehensive Income/(Loss). Please refer
to Note 16 for information regarding the valuation of these
instruments.
Gelesis Gelesis was deconsolidated in July 2019. The
common stock held in Gelesis is accounted for under the equity
method, while the preferred shares and warrants held by PureTech
fell under the guidance of IFRS 9 and were treated as financial
assets held at fair value, where changes to the fair value of the
preferred shares and warrant were recorded through the Consolidated
Statement of Income/(Loss). Please refer to Note 6 for information
regarding the Company's investment in Gelesis as an associate.
2020 On April 1, 2020, PureTech participated in the 2nd closing
of Gelesis’s Series 3 Growth Preferred Share financing. For
consideration of $10.0 million, PureTech received 579,038 Series 3
Growth shares.
2020 and 2021 During the years ended December 31, 2021 and 2020,
due to the equity method based investment in Gelesis being reduced
to zero, the Group allocated a portion of its share in the net loss
in Gelesis in the years ended December 31, 2021 and 2020, totaling
$73.7 million, and $23.0 million, respectively, to its preferred
share and warrant investments in Gelesis, which were considered to
be long-term interests in Gelesis.
2022 On January 13, 2022, Gelesis completed its business
combination with Capstar Special Purpose Acquisition Corp
("Capstar"). As part of the business combination, all shares in
Gelesis, common and preferred, including the shares held by
PureTech, were exchanged for common shares of the merged entity and
unvested common shares that will vest upon the stock price of the
new combined entity reaching certain target prices (hereinafter
"Earn-out shares"). In addition, PureTech invested $15.0 million in
the class A common shares of Capstar as part of the Private
Investment in Public Equity ("PIPE") transaction that took place
immediately prior to the closing of the business combination and an
additional approximately $5.0 million, as part of the Backstop
agreement signed with Capstar on December 30, 2021 (See Note 6).
Pursuant to the business combination, Gelesis became a wholly-owned
subsidiary of Capstar and Capstar changed its name to Gelesis
Holdings, Inc., which began trading on the New York Stock Exchange
under the ticker symbol "GLS" on January 14, 2022. The exchange of
the preferred stock (including warrants) for common stock
(including common stock warrants) represents an additional
investment in Gelesis equity investment. The Group recorded the
changes in fair value of the preferred stock (including warrant)
through the date of the exchange upon which the preferred stock
were derecognized and recorded as an additional investment in
Gelesis equity interest – See Note 6 for the net gain on the
dilution of the equity interest in Gelesis, resulting from the
exchange of all preferred stock in Gelesis to common stock of
Gelesis Holdings Inc, the PIPE transaction and the closing of the
merger. All equity method losses allocated in prior periods against
the investment in Gelesis held at fair value are now included
within the equity method investment in Gelesis and were offset
against the gain on dilution of interest – see Note 6.
As part of the aforementioned exchange PureTech received
4,526,622 Earn-out shares, which were valued on the date of the
exchange at $14.2 million. The Group accounts for such Earn-out
shares under IFRS 9 as investments held at fair value with changes
in fair value recorded through profit and loss.
During the years ended December 31, 2022, 2021 and 2020, the
Company recognized a loss of $4.4 million, a gain of $34.6 million,
and a gain of $7.1 million, respectively related to the change in
the fair value of the preferred shares and warrants that was
recorded in the line item Gain/(loss) on investments held at fair
value within the Consolidated Statement of Comprehensive
Income/(Loss).
In addition, the Company recognized a loss of $14.1 million
during the year ended December 31, 2022 in respect of the Earn-out
shares, for the change in the fair value related to such investment
during the period. As of December 31, 2022 the value of such
earn-out shares amounted to $0.1 million.
Karuna Karuna was deconsolidated in March 2019. During
2019 Karuna completed its IPO and PureTech lost its significant
influence in Karuna. The shares held in Karuna are accounted for as
an investment held at fair value.
2020 On January 22, 2020, PureTech sold 2,100,000 shares of
Karuna common shares for aggregate proceeds of $200.9 million. On
May 26, 2020, PureTech sold an additional 555,500 Karuna common
shares for aggregate proceeds of $45.0 million. On August 26, 2020,
PureTech sold 1,333,333 common shares of Karuna for aggregate
proceeds of $101.6 million. As a result of the sales, Puretech
recorded a loss of $54.8 million attributable to blockage discount
included in the sales price, to the line item Loss Realized on Sale
of Investment within the Consolidated Statement of Comprehensive
Income/(Loss). See below for gain recorded in respect of the change
in fair value of the Karuna investment.
2021 On February 9, 2021, the Group sold 1,000,000 common shares
of Karuna for $118.0 million. Following the sale the Group held
2,406,564 common shares of Karuna, which represented 8.2 percent of
Karuna common stock at the time of sale. On November 9, 2021, the
group sold an additional 750,000 common shares of Karuna for $100.1
million. Following the sale the group holds 1,656,564 common shares
of Karuna, which represented 5.6 percent at time of sale. As a
result of the aforementioned sales, the Company recorded a loss of
$20.9 million, attributable to blockage discount included in the
sales price, to the line item Loss Realised on Sale of Investment
within the Consolidated Statement of Comprehensive Income/ (Loss).
See below for gain recorded in respect of the change in fair value
of the Karuna investment.
2022 On August 8, 2022, the Company sold 125,000 shares of
Karuna common stock. In addition, the Company wrote a series of
call options entitling the holders thereof to purchase up to
477,100 Karuna common stock at a set price, which were exercised in
full in August and September 2022. Aggregate proceeds to the
Company from all aforementioned transactions amounted to $115.5
million, net of transaction fees. As a result of the aforementioned
sales, the Company recorded a loss of $29.3 million, attributable
to the exercise of the aforementioned call options, to the line
item Realized Loss on Sale of Investment within the Consolidated
Statement of Comprehensive Income/ (Loss).See below for gain
recorded in respect of the change in fair value of the Karuna
investment.
During the years ended December 31, 2022, 2021, and 2020 the
Company recognized gains of $135.0 million, $110.0 million and
$191.2 million, respectively for the changes in the fair value of
the Karuna investment that were recorded in the line item
Gain/(loss) on investments held at fair value within the
Consolidated Statement of Comprehensive Income/(Loss). As of
December 31, 2022, PureTech continued to hold Karuna common shares
or 3.1 percent of total outstanding Karuna common shares. Please
refer to Note 16 for information regarding the valuation of these
instruments.
Akili Akili was deconsolidated in 2018. As PureTech did
not hold common shares in Akili and the preferred shares it held
did not have equity-like features, PureTech had no basis to account
for its investment in Akili under IAS 28. The preferred shares held
by PureTech Health fell under the guidance of IFRS 9 and were
treated as a financial asset held at fair value and all movements
to the value of the preferred shares were recorded through the
Consolidated Statements of Comprehensive Income/(Loss), in
accordance with IFRS 9.
2021 On May 25, 2021, Akili completed its Series D financing for
gross proceeds of $110.0 million in which Akili issued 13,053,508
Series D preferred shares. The Group did not participate in this
round of financing and as a result, the Group's interest in Akili
was reduced from 41.9 percent to 27.5 percent.
2022 On January 26, 2022, Akili Interactive and Social Capital
Suvretta Holdings Corp. I, a special purpose acquisition company,
announced they had entered into a definitive business combination
agreement. The transaction closed on August 19, 2022 and the
combined company's securities began trading on August 22, 2022 on
the Nasdaq Stock Market under the ticker symbol "AKLI". As part of
this transaction the Akili Interactive shares held by the Company
were exchanged for the common stock of the combined company's
securities as well as unvested common stock ("Akili Earnout
Shares") that will vest when the share price exceeds certain
thresholds. In addition, as part of a PIPE transaction that took
place concurrently with the closing of the transaction, the Company
purchased 500,000 shares in consideration for $5.0 million.
Following the closing of the aforementioned transactions, the
Company holds 12,527,477 shares of the combined entity (excluding
the Akili Earnout Shares), which represents 14.7 percent of its
outstanding common stock. The Company also holds 1,433,914 Akili
Earn-out Shares, which fair value amounted to $1.0 million as of
December 31, 2022.
During the years ended December 31, 2022, 2021 and 2020, the
Company recognized a loss of $131.4 million, a gain of $32.2
million, and a gain of $14.4 million, respectively for the changes
in the fair value of the investment in Akili that was recorded on
the line item Gain/(loss) on investments held at fair value within
the Consolidated Statement of Comprehensive Income/(Loss). Please
refer to Note 16 for information regarding the valuation of these
instruments.
resTORbio On April 30, 2020, PureTech sold its remaining
2,119,696 resTORbio common shares, for aggregate proceeds of $3.0
million. As a result of the sale, the Company recorded a loss of
$0.2 million attributable to blockage discount included in the
sales price, to the line item Loss realized on sale of investments
within the Consolidated Statement of Comprehensive Income/(Loss).
Additionally, during the year ended December 31, 2020, the Company
recognized a gain of $0.1 million that was recorded on the line
item Gain/(loss) on investments held at fair value within the
Consolidated Statement of Comprehensive Income/(Loss).
Sonde – Investment and gain on deconsolidation On May 25,
2022, Sonde completed a Series B Preferred Share financing. As part
of the financing a new investor invested $3.5 million in cash in
exchange for 1,125,401 shares and all convertible notes, including
the convertible notes held by PureTech, converted into Preferred B
shares at the price per share paid by the investor minus a 20%
discount. As a result of the aforementioned financing, the Group's
voting interest was reduced below 50% and the Group no longer
controls Sonde's Board of Directors, which is the governance body
that has the power to direct the relevant activities of Sonde.
Consequently, the Group concluded it lost control over Sonde and as
such it should cease to consolidate Sonde on the date the round of
financing was completed. Therefore, the results of operations of
Sonde are included in the consolidated financial statements through
the date of deconsolidation.
Following deconsolidation, the Group still has significant
influence in Sonde through its voting interest in Sonde and its
remaining representation on Sonde's Board of Directors. The Group
holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in
substance, have the same terms as common stock and as such provide
their shareholders with access to returns associated with a
residual equity ownership in Sonde. Consequently, the investment in
Preferred A-1 shares is accounted for under the equity method. The
Preferred A-2 and B shares, however, do not provide their
shareholders with access to returns associated with a residual
equity interest and as such are accounted for under IFRS 9, as
investments held at fair value with changes in fair value recorded
in profit and loss.
Upon deconsolidation, the Group derecognized its assets and
liabilities and non controlling interest in respect of Sonde and
recorded its aforementioned investments in Sonde at fair value. The
deconsolidation resulted in a gain of $27.3 million. As of the date
of deconsolidation, the investment in Sonde preferred shares held
at fair value amounted to $11.2 million.
During the year ended December 31, 2022, the Company recognized
a gain of $0.2 million for the changes in the fair value of the
investment in Sonde that was recorded on the line item Gain/(loss)
on investments held at fair value within the Consolidated Statement
of Comprehensive Income/(Loss). Please refer to Note 16 for
information regarding the valuation of these instruments.
6. Investments in Associates
Gelesis Gelesis was founded by PureTech and raised
funding through preferred shares financings as well as issuances of
warrants and loans. As of July 1, 2019, Gelesis was deconsolidated
from the Group’s financial statements. While the Group no longer
controls Gelesis, it was concluded that PureTech still has
significant influence over Gelesis and as such Gelesis is accounted
for as an associate under IAS 28 in the consolidated financial
statements.
Upon the date of deconsolidation, PureTech held preferred shares
and common shares of Gelesis and warrants issued by Gelesis to
PureTech. PureTech’s investment in common shares of Gelesis is
subject to equity method accounting. See table below for the
Group's share in the profits and losses of Gelesis for the periods
presented.
The preferred shares and warrants held by PureTech fell under
the guidance of IFRS 9 and were treated as financial assets held at
fair value, where changes to the fair value of the preferred shares
and warrants were recorded through the Consolidated Statement of
Comprehensive Income/(Loss). See Note 5 above.
Years ended December 31, 2020 and 2021 During the years ended
December 31, 2021 and 2020, the Group recorded its share in the
losses of Gelesis. In 2020 the Group's investment in associates
accounted for under the equity method was reduced to zero. Since
the Group had investments in Gelesis warrants and preferred shares
that were deemed to be Long-term interests, the Company continued
recognizing its share in Gelesis losses while applying such losses
to its preferred share and warrant investment in Gelesis accounted
for as an investment held at fair value. In 2021, the total
investment in Gelesis, including the Long-term interests, was
reduced to zero. Since the Group did not incur legal or
constructive obligations or made payments on behalf of Gelesis, the
Group discontinued recognizing equity method losses in 2021. As of
December 31, 2021, unrecognized equity method losses amounted to
$38.1 million, which included $0.7 million of unrecognized other
comprehensive loss.
During 2021, due to exercise of stock options into common shares
in Gelesis the Group's equity interest in Gelesis was reduced from
47.9 percent at December 31, 2020 to 42.0 percent as of December
31, 2021. The gain resulting from the issuance of shares to third
parties and the resulting reduction in the Group's share in the
accumulated deficit of Gelesis under the equity method was fully
offset by the unrecognized equity method losses.
Backstop agreement – 2022 and 2021 On December 30, 2021,
PureTech signed a Backstop agreement with Capstar according to
which PureTech had committed to acquire Capstar class A common
shares immediately prior to the closing of the business combination
between Gelesis and Capstar, in case subsequent to the redemptions
of Capstar shares being completed, the Available Funds, as defined
in the agreement, were less than$15.0 million. PureTech had
committed to acquire two thirds of the necessary shares at $10 per
share so that the Available Funds increase to $15.0 million.
According to the Backstop agreement, in case PureTech were required
to acquire any shares under the agreement, PureTech would receive
an additional 1,322,500 class A common shares of Capstar
(immediately prior to the closing of the business combination) at
no additional consideration.
The Company determined that such agreement meets the definition
of a derivative under IFRS 9 and as such should be recorded at fair
value with changes in fair value recorded through profit and loss.
The derivative was initially recorded at fair value adjusted to
defer the day 1 gain equal to the difference between the fair value
of $11.2 million and transaction price of zero on the effective
date and as such was initially recorded at zero. The deferred gain
was amortized to Other income (expense) in the Consolidated
Statement of Income (loss) over the period from the effective date
until settlement date, January 13, 2022. During the years ended
December 31, 2022 and 2021, the Group recognized income of $10.4
million and $0.8 million, respectively for the amortization of the
deferred gain. During the year ended December 31, 2022 the Group
recognized a loss of $2.8 million in respect of the decrease in the
fair value of the derivative until date of settlement, resulting in
a net gain of $7.6 million recorded during the year ended December
31, 2022 in respect of the Backstop agreement. The gain was
recorded in the line item Other Income/(expense) in the
Consolidated Statements of Comprehensive Income/(Loss). The fair
value of the derivative on the date of settlement in the amount of
$8.4 million represents an additional investment in Gelesis as part
of the SPAC transaction described below.
On January 13, 2022, as part of the conclusion of the
aforementioned Backstop agreement, the Group acquired 496,145 class
A common shares of Capstar for $5.0 million and received an
additional 1,322,500 common A shares of Capstar for no additional
consideration.
2022 Share exchange – Capstar On January 13, 2022,
Gelesis completed its business combination with Capstar Special
Purpose Acquisition Corp ("Capstar"). As part of the business
combination, all shares in Gelesis, common and preferred, including
the shares held by PureTech, were exchanged for common shares of
the merged entity and unvested common shares that will vest upon
the stock price of the new combined entity reaching certain target
prices (hereinafter "Earn-out shares"). In addition, PureTech
invested $15.0 million in the class A common shares of Capstar as
part of the PIPE transaction that took place immediately prior to
the closing of the business combination and an additional $5.0
million, as part of the Backstop agreement described above.
Pursuant to the business combination, Gelesis became a wholly-owned
subsidiary of Capstar and Capstar changed its name to Gelesis
Holdings, Inc., which began trading on the New York Stock Exchange
under the ticker symbol "GLS" on January 14, 2022. Following the
closing of the business combination, the PIPE transaction, the
settlement of the aforementioned Backstop agreement with Capstar,
and the exchange of all preferred shares in Gelesis to common
shares in the new combined entity, PureTech holds 16,727,582 common
shares of Gelesis Holdings Inc., which was equal to approximately
23.2% of Gelesis Holdings Inc's outstanding common shares at the
time of the exchange. Due to PureTech's significant equity holding
and voting interest in Gelesis, PureTech continues to maintain
significant influence in Gelesis and as such continues to account
for its Gelesis equity investment under the equity method.
Gelesis was deemed to be the acquirer in Gelesis Holdings Inc.
and the financial assets and financial liabilities in Capstar were
deemed to be acquired by Gelesis in consideration for the shares
held by Capstar legacy shareholders. As such, the Group did not
revalue the retained investment in Gelesis but rather treated the
exchange as a dilution of its equity interest in Gelesis from 42.0
percent as of December 31, 2021 to 22.8 percent as of January 13,
2022 (including warrants that provide its holders access to returns
associated with equity holders). After considering the
aforementioned additional investments, the exchange of the
preferred stock, previously accounted for as an investment held at
fair value, to common stock (and representing an additional equity
investment in Gelesis – See Note 5), the Earn-out shares received
in Gelesis (see Note 5) and the offset of previously unrecognized
equity method losses, the net gain recorded on the dilution of
interest amounted to $28.3 million.
Impairment Following Gelesis’s decline in its market price in
2022 and its lack of liquidity, the Group recorded an impairment
loss of $8.4 million as of December 31, 2022 in respect of its
investment in Gelesis. The recoverable amount of the investment in
Gelesis was $4.9 million as of December 31, 2022, which was
determined based on fair value less costs to sell (costs to sell
were estimated to be insignificant). Fair value was determined
based on level 1 of the fair value hierarchy as Gelesis shares were
traded on an active market as of December 31, 2022.
The impairment loss was presented separately in the Consolidated
Statement of Comprehensive Income/ (loss) for the year ended
December 31, 2022 in the line item Impairment of investment in
associate.
Sonde On May 25, 2022, Sonde completed a Series B
Preferred Share financing. As a result of the aforementioned
financing, the Group's voting interest was reduced below 50% and
the Group lost its control over Sonde and as such ceased to
consolidate Sonde on the date the round of financing was completed.
See Note 5 above for further details.
Following deconsolidation, the Group has significant influence
in Sonde through its voting interest in Sonde and its remaining
representation on Sonde's Board of Directors. The Group's voting
interest at date of deconsolidation and as of December 31, 2022 was
48.2% and 40.17%, respectively. The Group holds Preferred A-1, A-2
and B shares. The Preferred A-1 shares, in substance, have the same
terms as common stock and as such provide their shareholders with
access to returns associated with a residual equity ownership in
Sonde. Consequently, the investment in Preferred A-1 shares is
accounted for under the equity method. The Preferred A-2 and B
shares, however, do not provide their shareholders with access to
returns associated with a residual equity interest and as such are
accounted for under IFRS 9, as investments held at fair value. See
Note 5.
The fair value of the Preferred A-1 shares on the date of
deconsolidation amounted to $7.7 million, which is the initial
value of the equity method investment in Sonde. When applying the
equity method, the Group records its share of the losses in Sonde
based on its equity interest in Sonde. Since only the common shares
and Preferred A-1 shares in Sonde represent a residual equity
interest and PureTech is the sole holder of the Preferred A-1
shares, the Group's share in Sonde's equity is 93.6%.
During the year ended December 31, 2022 the Company recorded
$3.4 million of equity method losses in respect of Sonde.
The following table summarizes the activity related to the
investment in associates balance for the years ended December 31,
2022 and 2021.
Investment in Associates
$000's
As of January 1, 2021
—
Share of net loss in Gelesis - limited to
net investment amount
(73,703)
Share of losses recorded against Long Term
Interests (LTIs)
73,703
As of December 31, 2021 and January 1,
2022
—
Cash investment in associate
19,961
Additional investment as a result of
backstop settlement (see above)
8,424
Gain on dilution of interest in associate
(*)
13,793
Investment in Sonde - deconsolidation
7,680
Share in net loss of associates
(27,749)
Reversal of equity method losses recorded
against LTIs (due to decrease in LTI fair value)
(4,406)
Share in other comprehensive loss of
associates
(166)
Impairment
(8,390)
As of December 31, 2022
9,147
* Gain on dilution of interest was further
increased due to the receipt of Gelesis earn out shares accounted
for as investments held at fair value (see above).
Summarized financial information The following table summarizes
the financial information of Gelesis as included in its own
financial statements, adjusted for fair value adjustments at
deconsolidation and differences in accounting policies. The table
also reconciles the summarized financial information to the
carrying amount of the Company’s interest in Gelesis.
2022
$000s
2021
$000s
As of and for the year ended December
31,
Percentage ownership interest
22.5%
42.0%
Non-current assets
333,040
357,508
Current assets
23,495
66,092
Non-current liabilities
(99,053)
(120,786)
Current liabilities
(80,010)
(537,432)
Non controlling interests and options
issued to third parties
(46,204)
(14,216)
Net assets (deficit) attributable to
shareholders of Gelesis Inc.
131,268
(248,834)
Group's share of net assets (net
deficit)
29,504
(104,527)
Goodwill
3,858
7,211
Impairment
(28,452)
(37,495)
Equity method losses recorded against
Long-term Interests
—
96,709
Unrecognized equity method losses (*)
—
38,101
Investment in associate
4,910
—
2022
$000s
2021
$000s
2020
$000s
Revenue
25,767
11,185
21,442
Loss from continuing operations (100%)
(111,567)
(271,430)
(71,157)
Total comprehensive loss (100%)
(112,285)
(273,005)
(70,178)
Group's share in net losses - limited
to net investment amount (**)
(24,306)
(73,703)
(34,117)
Group's share of total comprehensive
loss - limited to net investment amount
(24,472)
(73,703)
(33,648)
* Unrecognized equity method losses
includes unrecognized other comprehensive loss of $0.7 million for
the year ended December 31, 2021.
** For the year ended December 31, 2022
includes $4.4 million reversal of equity method losses recorded
against Long-Term Interest (LTI) due to the decrease in fair value
of such LTI.
Subsequent to balance sheet date, on April 10, 2023, the NYSE
commenced proceedings to delist the common stock of Gelesis from
the NYSE due to Gelesis ceasing to meet certain conditions to trade
on such stock exchange. Trading in Gelesis’s common stock was
suspended immediately, and it was subsequently delisted from the
NYSE. The common stock of Gelesis is currently available for
trading in the over-the-counter (“OTC”) market under the symbol
GLSH.
In addition, in April 2023 (subsequent to balance sheet date)
PureTech submitted a non-binding proposal to acquire all of the
outstanding equity of Gelesis. Negotiations related to the proposal
and any potential deal remain ongoing and are subject to, among
other things, approval of any definitive transaction by independent
committees of the boards of both Gelesis and PureTech.
See note 16 for the note issued to the Group by Gelesis and see
Note 26 for additional details, including information related to an
additional note issued by Gelesis to the Group subsequent to
balance sheet date.
7. Operating Expenses
Total operating expenses were as follows:
For the years ending December 31,
2022
$000s
2021
$000s
2020
$000s
General and administrative
60,991
57,199
49,440
Research and development
152,433
110,471
81,859
Total operating expenses
213,425
167,671
131,299
The average number of persons employed by the Group during the
year, analyzed by category, was as follows:
For the years ending December 31,
2022
2021
2020
General and administrative
57
52
43
Research and development
144
119
95
Total
201
171
138
The aggregate payroll costs of these persons were as
follows:
2022
$000s
2021
$000s
2020
$000s
For the years ending December 31,
General and administrative
25,322
26,438
22,943
Research and development
36,321
28,950
20,674
Total
61,643
55,388
43,616
Detailed operating expenses were as follows:
2022
$000s
2021
$000s
2020
$000s
For the years ending December 31,
Salaries and wages
41,750
36,792
29,403
Healthcare benefits
2,908
2,563
1,866
Payroll taxes
2,286
2,084
1,629
Share-based payments
14,699
13,950
10,718
Total payroll costs
61,643
55,388
43,616
Other general and administrative
expenses
35,669
30,761
26,497
Other research and development
expenses
116,113
81,521
61,186
Total other operating expenses
151,782
112,282
87,683
Total operating expenses
213,425
167,671
131,299
Auditor's remuneration:
For the years ending December 31,
2022
$000s
2021
$000s
2020
$000s
Audit of these financial statements
1,716
1,183
1,145
Audit of the financial statements of
subsidiaries
132
312
291
Audit of the financial statements of
associate**
814
571
350
Audit-related assurance services*
1,157
1,868
490
Non-audit related services
—
—
173
Total
3,819
3,934
2,449
* 2021 – $468.2 thousand represents
prepaid expenses related to an expected initial public offering of
a subsidiary.
** Audit fees of $720.0 thousand, $500.0
thousand and $350.0 thousand in respect of financial statements of
associates for the years ended December 31, 2022, 2021, and 2020
respectively, are not included within the consolidated financial
statements. Fees related to the audit of the financial statements
of associates have been disclosed in respect of 2022, 2021, and
2020 as these fees went towards supporting the audit opinion on the
Group accounts. Such amounts were not previously disclosed in the
2020 financial statements.
Please refer to Note 8 for further disclosures related to
share-based payments and Note 24 for management’s remuneration
disclosures.
8. Share-based Payments
Share-based payments includes stock options, restricted stock
units (“RSUs”) and performance-based RSUs in which the expense is
recognized based on the grant date fair value of these awards,
except for performance based RSUs to executives that are treated as
liability awards where expense is recognized based on reporting
date fair value up until settlement date.
Share-based Payment Expense
The Group share-based payment expense for the years ended
December 31, 2022, 2021 and 2020, were comprised of charges related
to the PureTech Health plc incentive stock and stock option
issuances and subsidiary stock plans.
The following table provides the classification of the Group’s
consolidated share-based payment expense as reflected in the
Consolidated Statement of Income/(Loss):
Year ended December 31,
2022
$000s
2021
$000s
2020
$000s
General and administrative
8,862
9,310
7,650
Research and development
5,837
4,640
3,068
Total
14,699
13,950
10,718
The Performance Share PlanIn June 2015, the Group adopted the
Performance Stock Plan (“PSP”). Under the PSP and subsequent
amendments, awards of ordinary shares may be made to the Directors,
senior managers and employees of, and other individuals providing
services to the Company and its subsidiaries up to a maximum
authorized amount of 10.0 percent of the total ordinary shares
outstanding. The shares have various vesting terms over a period of
service between two and four years, provided the recipient remains
continuously engaged as a service provider.
The share-based awards granted under the PSP are generally
equity settled (see cash settlements below) and expire 10 years
from the grant date. As of December 31, 2022, the Company had
issued share-based awards to purchase an aggregate of 24,889,462
shares under this plan.
RSUs RSU activity for the years ended December 31, 2022, 2021
and 2020 is detailed as follows:
Number of Shares/Units
Wtd Avg Grant Date Fair Value
(GBP) (*)
Outstanding (Non-vested) at January 1,
2020
4,636,347
2.08
RSUs Granted in Period
1,759,011
1.80
Vested
(2,781,687)
1.54
Forfeited
(191,089)
2.37
Outstanding (Non-vested) at December
31, 2020 and January 1, 2021
3,422,582
2.46
RSUs Granted in Period
2,195,133
2.15
Vested
(1,176,695)
2.93
Forfeited
(808,305)
2.25
Outstanding (Non-vested) at December
31, 2021 and January 1, 2022
3,632,715
1.91
RSUs Granted in Period
4,309,883
1.76
Vested
(696,398)
2.80
Forfeited
(1,155,420)
2.67
Outstanding (Non-vested) at December
31, 2022
6,090,780
1.74
* 2021 – for liability awards based on fair value at reporting
date.
Each RSU entitles the holder to one ordinary share on vesting
and the RSU awards are generally based on a cliff vesting schedule
over a one to three-year requisite service period in which the
Company recognizes compensation expense for the RSUs. Following
vesting, each recipient will be required to make a payment of one
pence per ordinary share on settlement of the RSUs. Vesting of the
majority of the RSUs is subject to the satisfaction of performance
and market conditions. The grant date fair value of market
condition awards that were treated as equity settled awards were
measured to reflect such conditions and there was no true-up for
differences between expected and actual outcomes. For liability
settled awards, see below.
The Company recognizes the estimated fair value of
performance-based awards as share-based compensation expense over
the performance period based upon its determination of whether it
is probable that the performance targets will be achieved. The
Company assesses the probability of achieving the performance
targets at each reporting period. Cumulative adjustments, if any,
are recorded to reflect subsequent changes in the estimated outcome
of performance-related conditions.
The fair value of the market and performance-based awards is
based on the Monte Carlo simulation analysis utilizing a Geometric
Brownian Motion process with 100,000 simulations to value those
shares. The model considers share price volatility, risk-free rate
and other covariance of comparable public companies and other
market data to predict distribution of relative share
performance.
The performance and market conditions attached to the RSU awards
are based on the achievement of total shareholder return (“TSR”),
based on the achievement of absolute TSR targets, and to a lesser
extent based on TSR as compared to the FTSE 250 Index, and the MSCI
Europe Health Care Index. The remaining portion is based on the
achievement of strategic targets. The RSU award performance
criteria have changed over time as the criteria is continually
evaluated by the Group’s Remuneration Committee.
In 2017, the Company granted certain executives RSUs that vested
based on the service, market and performance conditions, as
described above. The vesting of all RSUs was achieved by December
31, 2019 where all service, market and performance conditions were
met. The remuneration committee of PureTech's Board of Directors
approved the achievement of the vesting conditions as of December
31, 2019 and reached the decision during the year ended December
31, 2020 to cash settle the 2017 RSUs. The settlement value was
determined based on the 3 day average closing price of the shares.
The settlement value was $12.5 million (which after deducting tax
withheld on behalf of recipients amounted to $7.2 million). The
settlement value did not exceed the fair value at settlement date
and as such the cash settlement was treated as an equity
transaction in the financial statements for the year ended December
31, 2020, whereby the full repurchase cash settlement amount was
charged to equity in Other reserves.
Similarly in 2018, the Company granted certain executives RSUs
that vested based on service, market and performance conditions, as
described above. The vesting of all RSUs was achieved by December
31, 2020 where all service, market and performance conditions were
met. In February 2021 the remuneration committee of PureTech's
board of directors approved the achievement of the vesting
conditions as of December 31, 2020 and on May 28, 2021 reached the
decision to cash settle RSUs to certain employees while others were
issued shares. The settlement value was determined based on the
three day average closing price of the shares. The settlement value
was $10.7 million (which after deducting tax withheld on behalf of
recipients amounted to $6.4 million). The settlement value did not
exceed the fair value at settlement date and as such the cash
settlement was treated as an equity transaction, whereby the full
repurchase cash settlement amount was charged to equity in Other
reserves in the financial statements as of and for the year ended
December 31, 2021.
Following the different cash settlements, the Company concluded
that although the remaining RSUs are to be settled by shares
according to their respective agreements, and any cash settlement
is at the Company's discretion, due to past practice of cash
settlement to multiple employees, some for multiple years, these
RSUs to the company executives should be treated as liability
awards and as such adjusted to fair value at every reporting date
with changes in fair value recorded in earnings as stock based
compensation expense.
Consequently, the Company reclassified during the year ended
December 31, 2021 $1.9 million from equity to other non-current
liabilities and $4.8 million from equity to other payables equal to
the fair value of the awards at the date of reclassification. The
Company treated the excess of the fair value at the
reclassification date over the grant date fair value of the RSUs
(for the portion of the vesting period that has already elapsed) in
the amount of $2.9 million as an equity transaction. Therefore the
full amount of the liability at reclassification was recorded as a
charge to equity. The changes in fair value of the liability from
reclassification date to balance sheet date or settlement date are
recorded as stock-based compensation expense in the Consolidated
Statement of Comprehensive Income (loss).
The Company incurred share-based payment expenses for
performance, market and service based RSUs of $1.6 million
(including $1.1 million expense in respect of RSU liability
awards), $1.5 million (including $0.6 million expense in respect of
RSU liability awards), and $5.7 million for the years ended
December 31, 2022, 2021 and 2020, respectively. The decrease in the
share based compensation expense in respect of the RSUs for the
year ended December 31, 2021, as compared to the year ended
December 31, 2020 is due to reduction in the fair value of the
liability awards as compared to their value at the date the awards
were reclassified from equity awards to liability awards, as well
as forfeitures of certain awards due to unexpected terminations of
RSU holders.
As of December 31, 2022, the carrying amount of the RSU
liability awards was $5.9 million, $1.8 million current; $4.1
million non current, out of which $1.8 million related to awards
that have met all their performance and market conditions.
Stock Options Stock option activity for the years ended December
31, 2022, 2021 and 2020, is detailed as follows:
Number of Options
Wtd Average Exercise Price
(GBP)
Wtd Average of
remaining contractual
term (in years)
Wtd Average Stock Price at
Exercise (GBP)
Outstanding at January 1, 2020
8,472,827
1.16
8.55
Granted
4,076,982
3.14
Exercised
(514,410)
1.52
2.88
Forfeited and expired
(1,119,313)
1.88
Options Exercisable at December 31,
2020 and January 1, 2021
5,447,405
0.98
7.46
Outstanding at December 31, 2020 and
January 1, 2021
10,916,086
1.81
8.38
Granted
5,424,000
3.34
Exercised
(2,238,187)
0.70
3.63
Forfeited and expired
(687,781)
2.53
Options Exercisable at December 31,
2021 and January 1, 2022
4,773,873
1.42
6.50
Outstanding at December 31, 2021 and
January 1, 2022
13,414,118
2.58
8.29
Granted
8,881,000
2.04
Exercised
(577,022)
0.50
2.43
Forfeited and expired
(3,924,215)
2.89
Options Exercisable at December 31,
2022
6,185,216
2.03
6.21
Outstanding at December 31,
2022
17,793,881
2.31
8.03
The fair value of the stock options awarded by the Company was
estimated at the grant date using the Black-Scholes option
valuation model, considering the terms and conditions upon which
options were granted, with the following weighted-average
assumptions:
At December 31,
2022
2021
2020
Expected volatility
41.70%
41.05%
41.25%
Expected terms (in years)
6.11
6.16
6.11
Risk-free interest rate
2.13%
1.06%
0.53%
Expected dividend yield
—
—
—
Grant date fair value
$1.15
$1.87
$1.72
The Company incurred share-based payment expense for the stock
options of $8.4 million, $6.2 million and $2.1 million for the
years ended December 31, 2022, 2021 and 2020, respectively. The
increase in expense for the year ended December 31, 2022, as
compared to the year ended December 31, 2021, is due to the new
grants granted in 2022. The increase in expense for the year ended
December 31, 2021, as compared to the year ended December 31, 2020,
is due to new grants granted in 2021.
For shares outstanding as of December 31, 2022, the range of
exercise prices is detailed as follow:
Range of Exercise Prices (GBP)
Options
Outstanding
Wtd
Average
Exercise
Price (GBP)
Wtd Average of
remaining contractual
term (in years)
0.01
439,490
—
6.76
1.00 to 2.00
6,276,391
1.58
7.00
2.00 to 3.00
5,375,750
2.26
8.92
3.00 to 4.00
5,702,250
3.34
8.40
Total
17,793,881
2.31
8.03
Subsidiary Plans Certain subsidiaries of the Group have adopted
stock option plans. A summary of stock option activity by number of
shares in these subsidiaries is presented in the following
table:
Outstanding as of January 1,
2022
Granted During the
Year
Exercised During the
Year
Expired During the
Year
Forfeited During the
Year
Deconsolidation During the
Year
Outstanding as of December 31,
2022
Entrega
349,500
45,000
—
(50,000)
—
—
344,500
Follica
2,686,120
90,000
—
—
—
—
2,776,120
Sonde
2,049,004
—
—
—
—
(2,049,004)
—
Vedanta
1,991,637
490,506
(400,000)
(65,235)
(192,332)
—
1,824,576
Outstanding as of January 1,
2021
Granted During the Year
Exercised During the Year
Expired During the Year
Forfeited During the Year
Deconsolidation During the
Year
Outstanding as of December 31,
2021
Alivio
3,888,168
197,398
(2,373,750)
(506,260)
(1,205,556)
—
—
Entrega
962,000
—
(525,000)
(87,500)
—
—
349,500
Follica
1,309,040
1,383,080
—
(6,000)
—
—
2,686,120
Sonde
2,192,834
—
—
(51,507)
(92,323)
—
2,049,004
Vedanta
1,741,888
451,532
(52,938)
(76,491)
(72,354)
—
1,991,637
Outstanding as of January 1,
2020
Granted During the Year
Exercised During the Year
Expired During the Year
Forfeited During the Year
Deconsolidation During the
Year
Outstanding as of December 31,
2020
Alivio
3,698,244
189,924
—
—
—
—
3,888,168
Entrega
972,000
—
—
—
(10,000)
—
962,000
Follica
1,309,040
—
—
—
—
—
1,309,040
Sonde
1,829,004
363,830
—
—
—
—
2,192,834
Vedanta
1,450,100
493,951
(813)
—
(201,350)
—
1,741,888
The weighted-average exercise prices and remaining contractual
life for the options outstanding as of December 31, 2022, were as
follows:
Outstanding at December 31, 2022
Number of options
Weighted-average exercise
price
$
Weighted-average contractual
life outstanding
Entrega
344,500
1.91
4.92
Follica
2,776,120
1.41
6.38
Vedanta
1,824,576
15.89
6.88
The weighted average exercise prices for the options granted for
the years ended December 31, 2022, 2021 and 2020, were as
follows:
For the years ended December 31,
2022
$
2021
$
2020
$
Alivio
—
—
0.47
Entrega
0.02
—
—
Follica
1.86
1.86
—
Sonde
—
—
0.18
Vedanta
14.94
19.69
19.59
The weighted average exercise prices for options forfeited
during the year ended December 31, 2022, were as follows:
Forfeited during the year ended December
31, 2022
Number of options
Weighted-average exercise
price
$
Vedanta
192,332
19.64
The weighted average exercise prices for options exercised
during the year ended December 31, 2022, were as follows:
Exercised during the year ended December
31, 2022
Number of options
Weighted-average exercise
price
$
Vedanta
400,000
0.02
The weighted average exercise prices for options exercisable as
of December 31, 2022, were as follows:
Exercisable at December 31, 2022
Number of Options
Weighted-average exercise
price
$
Exercise Price Range
$
Entrega
344,500
1.91
0.02-2.36
Follica
2,776,120
1.41
0.03-1.86
Vedanta
1,824,576
15.89
0.02-21.35
Significant Subsidiary Plans Vedanta 2020 Stock Incentive
Plan On June 2, 2020, the Company’s Board of Directors approved the
2020 Stock Incentive Plan, or 2020 Plan, which replaced the 2010
Stock Incentive Plan, or 2010 Plan, which was set to expire in
December 2020. All authorized and issued shares under the 2010 Plan
were transferred to the 2020 Plan. The 2020 Plan provides for the
grant of incentive stock options, nonqualified stock options, and
restricted stock to employees, directors, and nonemployees of the
Company up to an aggregate of 2,145,867 shares of the Company's
common stock. In March 2021, the Company’s Board of Directors
approved an increase in the authorized shares of 151,188 for a
total of 2,297,055. In July 2021, the Company’s Board of Directors
approved an increase in the authorized shares of 500,000 for a
total of 2,797,055. Under the 2020 Plan, 914,331 shares remained
available for issuance as of December 31, 2022.
The options granted under the 2020 Plan are equity settled and
expire 10 years from the grant date. Typically, the awards vest in
four years but vesting conditions can vary based on the discretion
of Vedanta’s Board of Directors.
Options granted under the 2020 Plan are exercisable at a price
per share not less than the fair market value of the underlying
ordinary shares on the date of grant. The estimated fair value of
options, including the effect of estimated forfeitures, is
recognized over the options’ vesting period.
The fair value of the stock option grants has been estimated at
the date of grant using the Black-Scholes option pricing model with
the following range of assumptions:
Assumption/Input
2022
2021
2020
Expected award life (in years)
6.00-8.33
6.00-7.11
6.00-10.00
Expected award price volatility
88.22%-89.68%
88.05%-88.59%
89.24%-95.46%
Risk free interest rate
1.67%-3.13%
0.96%-1.32%
0.32%-0.87%
Expected dividend yield
—
—
—
Grant date fair value
$10.51-$15.14
$13.84-$16.23
$13.09-$16.54
Share price at grant date
$14.00-$18.84
$19.00-$21.35
$19.59
Vedanta incurred share-based compensation expense of $4.3
million, $5.4 million and $2.4 million for the years ended December
31, 2022, 2021 and 2020, respectively.
Other PlansThe stock compensation expense under plans at other
subsidiaries of the Group not including Vedanta amounted to $0.4
million, $0.8 million and $0.4 million for the years ended December
31, 2022, 2021 and 2020, respectively.
9. Finance Cost, net
The following table shows the breakdown of finance income and
costs:
2022
$000s
2021
$000s
2020
$000s
For the years ended December 31,
Finance income
Interest income from financial assets
5,799
214
1,183
Total finance income
5,799
214
1,183
Finance costs
Contractual interest expense on notes
payable
(212)
(1,031)
(96)
Interest expense on other borrowings
(1,759)
(1,502)
(496)
Interest expense on lease liability
(1,982)
(2,181)
(2,354)
Gain/(loss) on foreign currency
exchange
14
(56)
—
Total finance cost –
contractual
(3,939)
(4,771)
(2,946)
Gain/(loss) from change in fair value of
warrant liability
6,740
1,419
(117)
Gain/(loss) from change in fair value of
preferred shares
130,825
8,362
(4,234)
Gain/(loss) from change in fair value of
convertible debt
(502)
(175)
—
Total finance income/(costs) – fair
value accounting
137,063
9,606
(4,351)
Finance income/(costs), net
138,924
5,050
(6,115)
10. Earnings/(Loss) per Share
The basic and diluted income/(loss) per share has been
calculated by dividing the income/(loss) for the year attributable
to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the years ended December 31, 2022, 2021
and 2020, respectively. During the years ended December 31, 2022
and 2021 the Company incurred a net loss and therefore all
outstanding potential securities were considered anti-dilutive. The
amount of potential securities that were excluded from the
calculation amounted to 3,134,131 and 6,553,905 shares,
respectively.
Earnings/(Loss) Attributable to Owners of the Company:
2022
2021
2020
Basic
$000s
Diluted
$000s
Basic
$000s
Diluted
$000s
Basic
$000s
Diluted
$000s
Income/(loss) for the year, attributable
to the owners of the Company
(50,354)
(50,354)
(60,558)
(60,558)
5,985
5,985
Income/(loss) attributable to ordinary
shareholders
(50,354)
(50,354)
(60,558)
(60,558)
5,985
5,985
Weighted-Average Number of Ordinary Shares:
2022
2021
2020
Basic
Diluted
Basic
Diluted
Basic
Diluted
Issued ordinary shares at January 1,
287,796,585
287,796,585
285,885,025
285,885,025
285,370,619
285,370,619
Effect of shares issued
690,772
690,772
705,958
705,958
233,048
233,048
Effect of dilutive shares (please refer to
Note 8)
—
—
—
—
—
7,252,246
Effect of treasury shares purchased
(3,727,922)
(3,727,922)
—
—
—
—
Weighted average number of ordinary shares
at December 31,
284,759,435
284,759,435
286,590,983
286,590,983
285,603,667
292,855,913
Earnings/(Loss) per Share:
2022
2021
2020
Basic
$
Diluted
$
Basic
$
Diluted
$
Basic
$
Diluted
$
Basic and diluted earnings/(loss) per
share
(0.18)
(0.18)
(0.21)
(0.21)
0.02
0.02
11. Property and Equipment
Cost
Laboratory and Manufacturing
Equipment
$000s
Furniture and
Fixtures
$000s
Computer Equipment and
Software
$000s
Leasehold Improvements
$000s
Construction in
process
$000s
Total
$000s
Balance as of January 1, 2021
8,420
1,452
1,519
18,054
3,852
33,297
Additions, net of transfers
1,424
—
92
183
6,723
8,422
Disposals
(323)
—
(282)
—
—
(605)
Reclassifications
2,211
—
—
248
(2,459)
—
Balance as of December 31, 2021
11,733
1,452
1,329
18,485
8,116
41,115
Additions, net of transfers
390
—
11
412
1,362
2,176
Disposals
(118)
—
—
—
(77)
(195)
Deconsolidation of subsidiaries
—
—
(58)
—
—
(58)
Reclassifications
1,336
58
137
5,067
(6,598)
—
Balance as of December 31, 2022
13,341
1,510
1,419
23,964
2,803
43,037
Accumulated depreciation and impairment
loss
Laboratory and Manufacturing
Equipment
$000s
Furniture and
Fixtures
$000s
Computer Equipment and
Software
$000s
Leasehold Improvements
$000s
Construction in
process
$000s
Total
$000s
Balance as of January 1, 2021
(3,965)
(454)
(1,287)
(4,815)
—
(10,520)
Depreciation
(1,973)
(208)
(174)
(1,991)
—
(4,346)
Disposals
251
—
271
—
—
522
Balance as of December 31, 2021
(5,686)
(663)
(1,190)
(6,806)
—
(14,344)
Depreciation
(2,082)
(212)
(107)
(3,444)
—
(5,845)
Disposals
57
—
—
—
—
57
Deconsolidation of subsidiaries
—
—
53
—
—
53
Balance as of December 31, 2022
(7,711)
(875)
(1,244)
(10,250)
—
(20,080)
Property and Equipment, net
Laboratory and Manufacturing
Equipment
$000s
Furniture and
Fixtures
$000s
Computer Equipment and
Software
$000s
Leasehold Improvements
$000s
Construction in
process
$000s
Total
$000s
Balance as of December 31, 2021
6,047
790
139
11,679
8,116
26,771
Balance as of December 31, 2022
5,630
635
174
13,714
2,803
22,957
Depreciation of property and equipment is included in the
General and administrative expenses and Research and development
expenses line items in the Consolidated Statements of Comprehensive
Income/(Loss). The Company recorded depreciation expense of $5.8
million, $4.3 million and $3.9 million for the years ended December
31, 2022, 2021 and 2020, respectively.
12. Intangible Assets
Intangible assets consist of licenses of intellectual property
acquired by the Group through various agreements with third parties
and are recorded at the value of the consideration transferred.
Information regarding the cost and accumulated amortization of
intangible assets is as follows:
Cost
Licenses
$000s
Balance as of January 1, 2021
900
Additions
90
Balance as of December 31, 2021
990
Additions
25
Write-off
(163)
Deconsolidation of subsidiaries
(21)
Balance as of December 31, 2022
831
Accumulated amortization
Licenses
$000s
Balance as of January 1, 2021
(1)
Amortization
(2)
Balance as of December 31, 2021
(3)
Amortization
(1)
Deconsolidation of subsidiary
4
Balance as of December 31, 2022
—
Intangible assets, net
Licenses
$000s
Balance as of December 31, 2021
987
Balance as of December 31, 2022
831
Substantially all the intangible asset licenses represent
in-process-research-and-development assets since they are still
being developed and are not ready for their intended use. As such,
these assets are not yet amortized but tested for impairment
annually.
During 2022, the company wrote off one of its research
intangible assets for which research was ceased in the amount of
$162.5 thousand.
The Company tested all other such intangible assets for
impairment as of balance sheet date and concluded that none of such
assets were impaired.
During the year ended December 31, 2022, Sonde Health, Inc. was
deconsolidated and as such $17.5 thousand in net assets were
derecognised.
The company had negligible Amortization expense for the years
ended December 31, 2022 2021 and 2020.
13. Other Financial Assets
Other financial assets consist of restricted cash held, which
represents amounts that are reserved as collateral against letters
of credit with a bank that are issued for the benefit of a landlord
in lieu of a security deposit for office space leased by the Group.
Information regarding restricted cash was as follows:
2022
$000s
2021
$000s
As of December 31,
Restricted cash
2,124
2,124
Total other financial assets
2,124
2,124
14. Equity
Total equity for PureTech as of December 31, 2022, and 2021, was
as follows:
December 31, 2022
$000s
December 31, 2021
$000s
Equity
Share capital, £0.01 par value, issued and
paid 278,566,306 and 287,796,585 as of December 31, 2022 and 2021,
respectively
5,455
5,444
Merger Reserve
138,506
138,506
Share premium
289,624
289,303
Treasury shares, 10,595,347 and zero as of
December 31, 2022 and 2021, respectively
(26,492)
—
Translation reserve
89
469
Other reserves
(14,478)
(40,077)
Retained earnings/(accumulated
deficit)
149,516
199,871
Equity attributable to owners of the
Group
542,220
593,515
Non-controlling interests
5,369
(9,368)
Total equity
547,589
584,147
Changes in share capital and share premium relate primarily to
incentive options exercises during the period.
Shareholders are entitled to vote on all matters submitted to
shareholders for a vote. Each ordinary share is entitled to one
vote. Each ordinary share is entitled to receive dividends when and
if declared by the Company’s Directors. The Company has not
declared any dividends in the past.
On June 18, 2015, the Company acquired the entire issued share
capital of PureTech LLC in return for 159,648,387 Ordinary Shares.
This was accounted for as a common control transaction at cost. It
was deemed that the share capital was issued in line with movements
in share capital as shown prior to the transaction taking place. In
addition, the merger reserve records amounts previously recorded as
share premium.
Other reserves comprise the cumulative credit to share-based
payment reserves corresponding to share-based payment expenses
recognized through Consolidated Statements of Comprehensive
Income/(Loss), settlements of vested share based payment awards as
well as other additions that flow directly through equity such as
the excess or deficit from changes in ownership of subsidiaries
while control is maintained by the Group.
On May 9, 2022, the Company announced the commencement of a
$50.0 million share repurchase program the ("Program") of its
ordinary shares of one pence each (“Ordinary Shares”). The Company
is executing the Program in two equal tranches. In respect of the
two tranches, PureTech entered into an irrevocable (see below)
non-discretionary instruction with Jefferies International Limited
(“Jefferies”) in relation to the purchase by Jefferies of Ordinary
Shares for an aggregate consideration (excluding expenses) of no
greater than $25.0 million for each tranche and the simultaneous
on-sale of such Ordinary Shares by Jefferies to PureTech, subject
to certain volume and price restrictions. Jefferies makes its
trading decisions in relation to the Ordinary Shares independently
of, and uninfluenced by, the Company. Purchases may continue during
any close period to which the Company is subject. The instruction
to Jeffries may be amended or withdrawn so long as the Company is
not in a close period or otherwise in possession of inside
information.
Any purchases of Ordinary Shares under the Program were carried
out on the London Stock Exchange and could be carried out on any
other UK recognized investment exchange which may be agreed, in
accordance with pre-set parameters and in accordance with, and
subject to limits, including those limits related to daily volume
and price, prescribed by the Company’s general authority to
repurchase Ordinary Shares granted by its shareholders at its
annual general meeting on May 27, 2021, and relevant Rules and
Regulations. All Ordinary Shares repurchased under the Program are
held in treasury.
As of December 31, 2022, the Company’s issued share capital was
278,566,306 shares, including 10,595,347 shares, which had been
repurchased under the Program and were held by the Company in
treasury.
15. Subsidiary Preferred Shares
Preferred shares issued by subsidiaries often contain redemption
and conversion features that are assessed under IFRS 9 in
conjunction with the host preferred share instrument. This balance
represents subsidiary preferred shares issued to third parties.
The subsidiary preferred shares are redeemable upon the
occurrence of a contingent event, other than full liquidation of
the Company, that is not considered to be within the control of the
Company. Therefore these subsidiary preferred shares are classified
as liabilities. These liabilities are measured at fair value
through profit and loss. The preferred shares are convertible into
ordinary shares of the subsidiaries at the option of the holder and
mandatorily convertible into ordinary shares upon a subsidiary
listing in a public market at a price above that specified in the
subsidiary’s charter or upon the vote of the holders of subsidiary
preferred shares specified in the charter. Under certain scenarios
the number of ordinary shares receivable on conversion will change
and therefore, the number of shares that will be issued is not
fixed. As such the conversion feature is considered to be an
embedded derivative that normally would require bifurcation.
However, since the preferred share liabilities are measured at fair
value through profit and loss, as mentioned above, no bifurcation
is required.
The preferred shares are entitled to vote with holders of common
shares on an as converted basis.
The Group recognized the preferred share balance upon the
receipt of cash financing or upon the conversion of notes into
preferred shares at the amount received or carrying balance of any
notes converted into preferred shares.
The balance as of December 31, 2022 and December 31, 2021,
represents the fair value of the instruments for all subsidiary
preferred shares. The following summarizes the subsidiary preferred
share balance:
2022
$000s
2021
$000s
As of December 31,
Entrega
169
669
Follica
350
11,191
Sonde
—
13,362
Vedanta Biosciences
26,820
148,796
Total subsidiary preferred share
balance
27,339
174,017
As is customary, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of a subsidiary, the holders
of subsidiary preferred shares which are outstanding shall be
entitled to be paid out of the assets of the subsidiary available
for distribution to shareholders and before any payment shall be
made to holders of ordinary shares. A merger, acquisition, sale of
voting control or other transaction of a subsidiary in which the
shareholders of the subsidiary immediately before the transaction
do not own a majority of the outstanding shares of the surviving
company shall be deemed to be a liquidation event. Additionally, a
sale, lease, transfer or other disposition of all or substantially
all of the assets of the subsidiary shall also be deemed a
liquidation event.
As of December 31, 2022 and December 31, 2021, the minimum
liquidation preference reflects the amounts that would be payable
to the subsidiary preferred holders upon a liquidation event of the
subsidiaries, which is as follows:
2022
$000s
2021
$000s
As of December 31,
Entrega
2,216
2,216
Follica
6,405
6,405
Sonde
—
12,000
Vedanta Biosciences
149,568
149,568
Total minimum liquidation
preference
158,189
170,189
For the years ended December 31, 2022 and 2021, the Group
recognized the following changes in the value of subsidiary
preferred shares:
$000s
Balance as of January 1, 2021
118,972
Issuance of new preferred shares –
financing cash flow
37,610
Conversion of convertible notes
25,797
Decrease in value of preferred shares
measured at fair value – finance costs (income)
(8,362)
Balance as of January 1, 2022
174,017
Decrease in value of preferred shares
measured at fair value – finance costs (income)
(130,825)
Deconsolidation of subsidiary –
(Sonde)
(15,853)
Balance as of December 31, 2022
27,339
2022 During the year ended December 31, 2022 there were no
issuances of new preferred shares.
2021 On July 21, 2021 Vedanta closed a Series D financing in
which Vedanta issued 2,387,675 Preferred D shares for consideration
of $68.4 million. From such consideration of $68.4 million, $25.8
million was received from Pfizer through conversion of its
convertible note (see Note 17) and $5.0 million was received from
PureTech in exchange for 174,520 Preferred D shares. The amount
received from PureTech was eliminated in the consolidated financial
statements.
16. Financial Instruments
The Group’s financial instruments consist of financial
liabilities, including preferred shares, convertible notes,
warrants and loans payable, as well as financial assets. Many of
these financial instruments are presented at fair value with fair
value changes recorded through profit and loss.
Fair Value Process For financial instruments measured at fair
value under IFRS 9, the change in the fair value is reflected
through profit and loss. Using the guidance in IFRS 13, the total
business enterprise value and allocable equity of each entity being
valued was determined using a market backsolve approach through a
recent arm’s length financing round (or a future probable arm's
length transaction), market PWERM approach, discounted cash flow
income approach, or hybrid approaches. The approaches, in order of
strongest fair value evidence, are detailed as follows:
Valuation Method
Description
Market – Backsolve
The market backsolve approach benchmarks
the original issue price (OIP) of the company’s latest funding
transaction as current value.
Market/Asset – PWERM
Under a PWERM, the company value is based
upon the probability-weighted present value of expected future
investment returns, considering each of the possible future
outcomes available to the enterprise. An asset approach may be
included as an expected future outcome within the PWERM method.
Possible future outcomes can include IPO scenarios, potential SPAC
transactions, merger and acquisition transactions as well as other
similar exit transactions of the investee.
Income Based – DCF
The income approach is used to estimate
fair value based on the income streams, such as cash flows or
earnings, that an asset or business can be expected to
generate.
As of December 31, 2022 and 2021, at each measurement date, the
fair value of preferred shares and warrant liabilities, including
embedded conversion rights that are not bifurcated, as well as
investments held at fair value (that are not publicly traded), were
determined using the following allocation methods: option pricing
model (“OPM”), Probability-Weighted Expected Return Method
("PWERM"), or Hybrid allocation framework. The methods are detailed
as follows:
Allocation Method
Description
OPM
The OPM model treats preferred stock as
call options on the enterprise’s equity value, with exercise prices
based on the liquidation preferences of the preferred stock.
PWERM
Under a PWERM, share value is based upon
the probability-weighted present value of expected future
investment returns, considering each of the possible future
outcomes available to the enterprise, as well as the rights of each
share class.
Hybrid
The hybrid method (“HM”) is a combination
of the PWERM and OPM. Under the hybrid method, multiple liquidity
scenarios are weighted based on the probability of the scenarios
occurrence, similar to the PWERM, while also utilizing the OPM to
estimate the allocation of value in one or more of the
scenarios.
Valuation policies and procedures are regularly monitored by the
Company’s finance group. Fair value measurements, including those
categorized within Level 3, are prepared and reviewed on their
issuance date and then on an annual basis for reasonableness and
compliance with the fair value measurements guidance under IFRS.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
Fair Value
Hierarchy Level
Description
Level 1
Inputs that are quoted market prices
(unadjusted) in active markets for identical instruments.
Level 2
Inputs other than quoted prices included
within Level 1 that are observable either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3
Inputs that are unobservable. This
category includes all instruments for which the valuation technique
includes inputs not based on observable data and the unobservable
inputs have a significant effect on the instrument’s valuation.
Whilst the Group considers the methodologies and assumptions
adopted in fair value measurements as supportable, reasonable and
robust, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that
would have been used had a ready market for the investment
existed.
Subsidiary Preferred Shares Liability and Subsidiary Convertible
Notes The following table summarizes the changes in the Group’s
subsidiary preferred shares and convertible note liabilities
measured at fair value, which were categorized as Level 3 in the
fair value hierarchy:
Subsidiary Preferred Shares
$000s
Subsidiary Convertible
Notes
$000s
Balance at January 1, 2020
100,989
—
Value at issuance
13,750
25,000
Change in fair value
4,233
—
Balance at December 31, 2020 and January
1, 2021
118,972
25,000
Value at issuance
37,610
2,215
Conversion to subsidiary preferred
shares
25,797
(25,797)
Accrued interest - contractual
—
867
Change in fair value
(8,362)
175
Balance at December 31, 2021 and January
1, 2022
174,017
2,461
Value at issuance
—
393
Accrued interest – contractual
—
48
Change in fair value
(130,825)
502
Deconsolidation - Sonde
(15,853)
(3,403)
Balance at December 31, 2022
27,339
—
The change in fair value of preferred shares and convertible
notes are recorded in Finance income/(costs) – fair value
accounting in the Consolidated Statements of Comprehensive
Income/(Loss).
The table below sets out information about the significant
unobservable inputs used at December 31, 2022, in the fair value
measurement of the Group’s material subsidiary preferred shares
liabilities categorized as Level 3 in the fair value hierarchy:
Fair Value at December 31, 2022
Valuation Technique
Unobservable Inputs
Weighted Average
Sensitivity to Decrease in
Input
26,820
PWERM based on pro forma
backsolve approach that leverages a Monte Carlo simulation
Estimated Time to Exit
2.14
Fair value decrease
Equity Discount Rate
30%
Fair value increase
Debt Discount Rate
15%
Fair value decrease
Volatility
95%
Fair value decrease
Subsidiary Preferred Shares Sensitivity The following summarizes
the sensitivity from the assumptions made by the Company with
respect to the significant unobservable inputs which are
categorized as Level 3 in the fair value hierarchy and used in the
fair value measurement of the Group’s subsidiary preferred shares
liabilities (Please refer to Note 15):
Input
Subsidiary Preferred Share
Liability
As of December 31, 2022
Sensitivity Range
Financial Liability
Increase/(Decrease)
$000s
Time to Liquidity
- 6 Months
(1,322)
+ 6 Months
856
Volatility
(10)%
(1,133)
+10%
1,200
Discount Rate
(5)%
(2,035)
+5%
1,922
Financial Assets Held at Fair Value Karuna, Vor and Akili
Valuation Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq:
AKLI) and additional immaterial investments are listed entities on
an active exchange and as such the fair value as of December 31,
2022, was calculated utilizing the quoted common share price.
Please refer to Note 5 for further details.
Akili, Gelesis and Sonde In accordance with IFRS 9, the Company
accounted for its preferred share investments in Akili (until the
exchange of such shares to common stock traded on Nasdaq) and
Gelesis (until the exchange of such shares to common stock) and
accounts for its investment in Sonde (investment in Preferred A-2
and B shares, subsequent to the date of deconsolidation) as
financial assets held at fair value through the profit and loss. In
addition, the Company accounts for its investment in Gelesis
Earn-out shares and Akili Earn-out shares (see Note 5) as
investments held at fair value. All the valuations of the
aforementioned investments are categorized as Level 3 in the fair
value hierarchy due to the use of significant unobservable inputs
to value such assets. During the year ended December 31, 2022, the
Company recorded such investments at fair value and recognized the
change in fair value of the investments as a loss of $30.0 million
that was recorded to the Consolidated Statements of Comprehensive
Income/(Loss) in the line item Gain/(loss) on investments held at
fair value.
The following table summarizes the changes in all the Group’s
investments held at fair value, which were categorized as Level 3
in the fair value hierarchy:
$'000s
Balance at January 1, 2020
154,445
Cash purchase of Gelesis preferred shares
(please refer to Note 6)
10,000
Cash purchase of Vor preferred shares
1,150
Gain/(Loss) on changes in fair value
41,297
Balance at December 31, 2020 and January
1, 2021
206,892
Cash purchase of Vor preferred shares
500
Reclassification of Vor from level 3 to
level 1
(33,365)
Gain/(Loss) on changes in fair value
65,505
Balance at January 1, 2022 before
allocation of associate loss to long-term interest
239,533
Deconsolidation of Sonde
11,168
Gelesis – New Investment – Earn out
Shares
14,214
Exchange of Gelesis preferred shares to
Gelesis common shares
(92,303)
Reclassification of Akili to level 1
investment
(128,764)
Change in fair value
(31,253)
Balance as of December 31, 2022
12,593
The change in fair value of investments held at fair value are
recorded in Gain/(loss) on investments held at fair value in the
Consolidated Statements of Comprehensive Income/(Loss).
The table below sets out information about the significant
unobservable inputs used at December 31, 2022, in the fair value
measurement of the Group’s material preferred share investments
held at fair value categorized as Level 3 in the fair value
hierarchy:
Fair Value at December 31, 2022
Valuation Technique
Unobservable Inputs
Weighted Average
Sensitivity to Decrease in
Input
11,403
Market Backsolve & OPM
Estimated time to exit
2.00
Fair value decrease
Volatility
55%
Fair value decrease
As the material investments held at fair value categorized as
level 3 in the fair value hierarchy are based on a market backsolve
approach using a recent arm's length transaction the change in
unobservable inputs in reasonably possible scenarios has an
immaterial impact on the financial statements.
Warrants Warrants issued by subsidiaries within the Group are
classified as liabilities, as they will be settled in a variable
number of preferred shares. The following table summarizes the
changes in the Group’s subsidiary warrant liabilities, which were
categorized as Level 3 in the fair value hierarchy:
Subsidiary Warrant Liability
$000s
Balance at January 1, 2020
7,997
Warrant Issuance
92
Change in fair value - finance costs
(income)
117
Balance at December 31, 2020 and January
1, 2021
8,206
Change in fair value - finance costs
(income)
(1,419)
Balance at December 31, 2021 and January
1, 2022
6,787
Change in fair value - finance costs
(income)
(6,740)
Balance at December 31, 2022
47
The change in fair value of warrants are recorded in Finance
income/(costs) – fair value accounting in the Consolidated
Statements of Comprehensive Income/(Loss).
In connection with various amendments to its 2010 Loan and
Security Agreement, Follica issued Series A-1 preferred share
warrants at various dates in 2013 and 2014. In 2017, in conjunction
with the issuance of convertible notes, the exercise price of the
warrants was adjusted to $0.07 per share.
In connection with the September 2, 2021 Oxford Finance LLC loan
issuance, Vedanta also issued Oxford Finance LLC 12,886 Series C-2
preferred share warrants with an exercise price of $23.28 per
share, expiring September 2030.
The fair value of the warrant liabilities was immaterial as of
December 31, 2022 due to the decline in the fair value of the
underlying preferred shares in the Follica warrant. See also Note
15 for the fair value of Follica preferred share liabilities.
Short-term Note from Associate On December 7, 2021, Gelesis
issued PureTech a $15.0 million note to be repaid the earlier of
three business days after the closing of the business combination
of Gelesis with Capstar Special Acquisition Corp ("Capstar"), or 30
days following the termination of such business combination. In the
event of the business combination termination, the Company, who
represented the majority of the note holders, could have elected to
convert the note at the next equity financing at a discount of 25%
from the financing price. The note bore interest at a rate of 10%
per annum.
The note was repaid by Gelesis in January 2022 due to the
closing of the business combination between Gelesis and Capstar on
January 13, 2022.
Note from Associate On July 27, 2022, PureTech, as a lender,
entered into an unsecured Short Term Promissory Note ("Note") with
Gelesis (GLS), as a borrower, in the amount of $15.0 million. The
Note bears an annual interest rate of 15% per annum and accrues
until the note is repaid. The term of the Note is the earlier of
December 31, 2023 or five business days following the consummation
of a qualified financing by Gelesis.
In case of default, PureTech will be issued a warrant which
shall entitle PureTech to purchase at an exercise price per share
of $0.01 a number of shares of Gelesis common Stock equal to (i)
(A) 0.2 multiplied by (B) the amount of outstanding principal and
accrued interest under the Note as of the date of conversion
described below, divided by (ii) the volume weighted average price
of each share of Common Stock, as reported by the New York Stock
Exchange, for the last five (5) trading days ("the “Common Stock
VWAP”) occurring immediately prior to the date of exercise. In
addition, PureTech will have the option to convert the amount of
outstanding principal and accrued interest under the Note into a
number of shares of Gelesis Common Stock (the “Conversion
Securities”) equal to (i) the amount of outstanding principal and
accrued interest under the Note as of the date of such conversion,
divided by (ii) the lesser of the price per share of (A) the
Gelesis common Stock, as reported by the New York Stock Exchange,
as of 4:00 P.M. Eastern Time on the date of the conversion notice
or (B) the Common Stock VWAP as of the day prior to the date of the
conversion notice.
Based on the terms of the note, the note is required to be
measured at fair value with changes in fair value recorded through
profit and loss. The fair value of the note as of December 31, 2022
was $16.5 million. During the year ended December 31, 2022 the
Group recorded $963 thousand of interest income and a gain of $539
thousand for the change in the fair value of the note. The change
in the fair value of the note was recorded in the line item Other
Income/(expense) in the Consolidated Statements of Comprehensive
Income/(Loss).
The note was valued using a discounted cash flow approach of the
probability weighted future returns on the note, using a discount
rate of 28.9%. Increasing or decreasing the discount rate by 5.0%
will decrease or increase the value, respectively, by approximately
$0.4 million. Also, increasing the estimated term to a qualified
financing by 6 months (estimated as 3 months from December 31,
2022) will decrease the fair value by approximately $0.9
million.
Subsequent to balance sheet date, on April 10, 2023, the NYSE
commenced proceedings to delist the common stock of Gelesis from
the NYSE due to Gelesis ceasing to meet certain conditions to trade
on such stock exchange. Trading in Gelesis’s common stock was
suspended immediately, and it was subsequently delisted from the
NYSE. The common stock of Gelesis is currently available for
trading in the over-the-counter (“OTC”) market under the symbol
GLSH. See Note 26 for additional details, including information
related to an additional note issued by Gelesis to the Group after
balance sheet date.
Fair Value Measurement and Classification The fair value of
financial instruments by category at December 31, 2022 and
2021:
2022
Carrying Amount
Fair Value
Financial Assets
$000s
Financial Liabilities
$000s
Level 1
$000s
Level 2
$000s
Level 3
$000s
Total
$000s
Financial assets:
Money Markets1,2
95,249
—
95,249
—
—
95,249
Short-term investments1
200,229
—
200,229
—
—
200,229
Note from associate
16,501
—
—
—
16,501
16,501
Investments held at fair value
251,892
—
239,299
—
12,593
251,892
Trade and other receivables3
11,867
—
—
11,867
—
11,867
Total financial assets
575,738
—
534,777
11,867
29,094
575,738
Financial liabilities:
Subsidiary warrant liability
—
47
—
—
47
47
Subsidiary preferred shares
—
27,339
—
—
27,339
27,339
Subsidiary notes payable
—
2,345
—
2,097
248
2,345
Share based liability awards
—
5,932
4,396
—
1,537
5,932
Total financial liabilities
—
35,664
4,396
2,097
29,171
35,664
- Issued by a diverse group of corporations, largely consisting
of financial institutions, virtually all of which are investment
grade.
- Included within Cash and cash equivalents
- Outstanding receivables are owed primarily by government
agencies and large corporations, virtually all of which are
investment grade.
As of balance sheet date the long term loan book value (see Note
20) approximated its fair value due to its variable rate.
2021
Carrying Amount
Fair Value
Financial Assets
$000s
Financial Liabilities
$000s
Level 1
$000s
Level 2
$000s
Level 3
$000s
Total
$000s
Financial assets:
Money Markets1
432,649
—
432,649
—
—
432,649
Short-term note from associate
15,120
—
—
—
15,120
15,120
Investments held at fair value2
493,888
—
254,355
—
239,533
493,888
Trade and other receivables3
3,174
—
—
3,174
—
3,174
Total financial assets
944,832
—
687,005
3,174
254,653
944,832
Financial liabilities:
Subsidiary warrant liability
—
6,787
—
—
6,787
6,787
Subsidiary preferred shares
—
174,017
—
—
174,017
174,017
Subsidiary notes payable
—
4,641
—
1,945
2,696
4,641
Share based liability awards
—
7,362
6,081
—
1,281
7,362
Total financial liabilities
—
192,808
6,081
1,945
184,781
192,808
- Issued by a diverse group of
corporations, largely consisting of financial institutions,
virtually all of which are investment grade. Included within Cash
and cash equivalents
- Balance prior to share of associate loss allocated to long-term
interest (please refer to Note 5).
- Outstanding receivables are owed primarily by government
agencies, virtually all of which are investment grade.
17.
Subsidiary Notes Payable
The subsidiary notes payable are comprised of loans and
convertible notes. As of December 31, 2022 and December 31, 2021,
the loan in Follica and the financial instruments for Knode and
Appeering did not contain embedded derivatives and therefore these
instruments continue to be held at amortized cost. The notes
payable consist of the following:
2022
$000s
2021
$000s
As of December 31,
Loans
2,097
1,945
Convertible notes
248
2,696
Total subsidiary notes payable
2,345
4,641
Loans In October 2010, Follica entered into a loan and security
agreement with Lighthouse Capital Partners VI, L.P. The loan is
secured by Follica’s assets, including Follica’s intellectual
property and bears interest at a rate of 12.0 percent. The
outstanding loan balance totaled approximately $2.0 million and
$1.9 million as of December 31, 2022 and December 31, 2021,
respectively. The increase in 2022 is attributed to interest
expense for the year ended December 31, 2022.
Convertible Notes Convertible Notes outstanding were as
follows:
Vedanta
$000s
Knode
$000s
Appeering
$000s
Sonde
$000s
Total
$000s
January 1, 2021
25,000
89
134
—
25,223
Gross principal - issuance of notes -
financing activity
—
—
—
2,215
2,215
Accrued interest on convertible notes -
finance costs
797
5
8
70
880
Conversion to subsidiary preferred
shares
(25,797)
—
—
—
(25,797)
Change in fair value - finance costs
—
—
—
175
175
December 31, 2021 and January 1,
2022
—
94
141
2,461
2,696
Gross principal - issuance of notes -
financing activity
—
—
—
393
393
Accrued interest on convertible notes -
finance costs
—
5
8
48
60
Change in fair value - finance costs
—
—
—
502
502
Deconsolidation
—
—
—
(3,403)
(3,403)
December 31, 2022
—
99
149
—
248
On December 30, 2020, Vedanta issued a $25.0 million
convertible promissory note to an investor. The note bore interest
at an annual rate of 6.0 percent and its maturity date was the
first anniversary of the note. Prepayment of the note was not
allowed and there was no conversion discount feature on the note.
The note was mandatorily convertible in a Qualified equity
financing and a Qualified Public Offering at the current price of
the financing or offering, all as defined in the note purchase
agreement. In addition, the note allowed for optional conversion
immediately prior to a Non Qualified public offering, Non Qualified
Equity financing, or a Corporate transaction and for a pay-out in
the case of a change of control transaction. On July 19, 2021, upon
the occurrence of Vedanta's Series D preferred share issuance that
was considered to be a Qualified Equity Financing, the entire
outstanding amount of the note, principal and interest, was
converted into Series D preferred shares of Vedanta at the current
price of the financing. For further details, please see Note
15.
On April 6, 2021, and on November 24, 2021, Sonde issued
unsecured convertible promissory notes to its existing shareholders
for a combined total of $4.3 million, of which $2.2 million were
issued to third party shareholders (and $2.1 million were issued to
the Company and eliminated in consolidation). In addition, in March
2022 Sonde issued an additional amount of $0.9 million, of which
$0.4 million were issued to third parties (and $0.5 million issued
to PureTech and eliminated in consolidation). The notes bore
interest at an annual rate of 6.0 percent and were to mature on the
second anniversary of the issuance. The notes were to mandatorily
convert in a Qualified Financing, as defined in the note purchase
agreement, at a discount of 20.0 percent from the price per share
in the Qualified Financing. In addition, the notes allowed for
optional conversion concurrently with a discount of 20.0 percent
from the price per share in the Non Qualified Equity Financing.
Upon the completion of the Preferred B round of financing in Sonde
on May 25, 2022, the Group lost control in Sonde and all
convertible notes were derecognized as part of the deconsolidation
- See Note 5.
For the Vedanta and Sonde convertible notes, since these Notes
contained embedded derivatives, the Notes were assessed under IFRS
9 and the entire financial instruments were elected to be accounted
for as FVTPL. The Vedanta convertible note was settled through its
conversion in July 2021 and the Sonde notes were deconsolidated in
May 2022. See above.
18.
Non-Controlling Interest
During the year ended December 31, 2022, Sonde Health, Inc was
deconsolidated and therefore transferred retroactively to the
Non-Controlled Founded Entity segment. See Note 5. Investments Held
at Fair Value.
The Company has revised in the 2022 financial statements the
prior period financial information related to the segmentation of
NCI, to conform to the presentation as of and for the year ending
December 31, 2022. Please refer to Note 4 “Segment Information” for
further details regarding reportable segments.
The following table summarizes the changes in the equity
classified non-controlling ownership interest in subsidiaries by
reportable segment:
Internal
$000s
Controlled Founded Entities
$000s
Non-Controlled Founded
Entities
$000s
Parent Company & Other
$000s
Total
$000s
Balance at January 1, 2020 *
(8,682)
1,465
(11,016)
593
(17,639)
Share of comprehensive loss
(191)
(905)
(306)
(15)
(1,417)
Equity settled share-based payments
305
2,395
122
—
2,822
Other
—
11
19
(6)
24
Balance at December 31, 2020 and January
1, 2021 *
(8,567)
2,966
(11,181)
574
(16,209)
Share of comprehensive loss
(96)
(1,634)
(436)
15
(2,151)
NCI exercise of share-based awards in
subsidiaries - change in NCI interest
—
(5,922)
—
—
(5,922)
Equity settled share-based payments
(4)
6,224
32
—
6,252
Acquisition of a subsidiary non
controlling interest
8,668
—
—
—
8,668
Other
—
—
—
(6)
(6)
Balance at December 31, 2021 and January
1, 2022
—
1,634
(11,585)
583
(9,368)
Share of comprehensive income (loss)
—
13,604
(330)
15
13,290
NCI exercise of share-based awards
—
(15,164)
—
—
(15,164)
Deconsolidation of subsidiaries
—
—
11,904
—
11,904
Equity settled share-based payments
—
4,703
8
—
4,711
Other
—
—
2
(6)
(4)
Balance as of December 31, 2022
—
4,778
—
592
5,369
* Revised to reclassify
Sonde to the Non-controlled Founded Entities segment to comply with
current period classification. See Note 4.
The following tables summarize the financial information related
to the Group’s subsidiaries with material non-controlling
interests, aggregated for interests in similar entities, and before
and after intra group eliminations.
2022
For the year ended December 31
Internal $000s
Controlled Founded
Entities
$000s
Intra-group eliminations
$000s
Total $000s
Statement of Comprehensive Loss
Total revenue
—
12,202
—
12,202
Income/(loss) for the year
—
98,633
1,003
99,636
Other comprehensive income/(loss)
—
—
—
—
Total comprehensive income/(loss) for the
year
—
98,633
1,003
99,636
Statement of Financial Position
Total assets
—
35,341
(100)
35,241
Total liabilities
—
76,635
(11,057)
65,578
Net assets/(liabilities)
—
(41,294)
10,957
(30,336)
As of December 31, 2022, Controlled Founded Entities with
non-controlling interests primarily include Follica Incorporated,
Entrega Inc., and Vedanta Biosciences, Inc. Ownership interests of
the non-controlling interests in Follica Incorporated, Entrega
Inc., and Vedanta Biosciences, Inc are 19.9 percent, 11.7 percent,
and 12.2 percent, respectively. In addition, Non-controlling
interests include the amounts recorded for subsidiary stock
options, with the vast majority comprising of Vedanta stock
options.
2021
For the year ended December 31
Internal $000s
Controlled Founded Entities
$000s
Intra-group eliminations
$000s
Total
$000s
Statement of Comprehensive Loss
Total revenue
—
7,771
—
7,771
Income/(loss) for the year
—
(50,436)
792
(49,644)
Other comprehensive income/(loss)
—
—
—
—
Total comprehensive income/(loss) for the
year
—
(50,436)
792
(49,644)
Statement of Financial Position
Total assets
—
66,279
(161)
66,118
Total liabilities
—
228,856
(10,755)
218,101
Net assets/(liabilities)
—
(162,576)
10,594
(151,982)
As of December 31, 2021, Controlled Founded Entities with
non-controlling interests primarily include, Follica Incorporated,
Sonde Health Inc., Entrega Inc. and Vedanta Biosciences, Inc.
Ownership interests of the non-controlling interests in Follica
Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc are
19.9 percent, 11.7 percent, 6.2 percent and 3.7 percent,
respectively. In addition, Non-controlling interests include the
amounts recorded for subsidiary stock options, with the vast
majority comprising of Vedanta stock options.
2020
For the year ended December 31
Internal
$000s
Controlled Founded Entities
$000s
Intra-group eliminations
Total
Statement of Comprehensive Loss
Total revenue
3,267
1,957
—
5,224
Income/(loss) for the year
(2,407)
(53,535)
1,073
(54,869)
Total comprehensive income/(loss) for the
year
(2,407)
(53,535)
1,073
(54,869)
As of December 31, 2020, Internal segment with non-controlling
interests includes Alivio, Controlled Founded Entities with
non-controlling interests primarily include, Follica Incorporated,
Sonde Health Inc., and Vedanta Biosciences, Inc. Ownership
interests of the non-controlling interests in Alivio Therapeutics,
Inc., Follica Incorporated, Sonde Health Inc., and Vedanta
Biosciences, Inc are 8.1 percent, 19.9 percent, 4.5 percent and 0.4
percent, respectively. In addition, Non-controlling interests
include the amounts recorded for subsidiary stock options, with the
vast majority comprising of Vedanta stock options.
On June 11, 2021, PureTech acquired the remaining 17.1 percent
of the minority non-controlling interests of Alivio (after exercise
of all in the money stock options) increasing its ownership to
100.0 percent of Alivio. The consideration for such non controlling
interests amounted to $1.2 million, to be paid in three equal
installments, with the first installment of $0.4 million paid at
the effective date of the transaction and two additional
installment to be paid upon the occurrence of certain contingent
events. The Group recorded a contingent consideration liability of
$0.6 million at fair value for the two additional installments,
resulting in a total acquisition cost of $1.0 million. The excess
of the consideration paid over the book value of the
non-controlling interest of approximately $9.6 million was recorded
directly as a charge to shareholders’ equity. The second
installment of $0.4 million was paid in July 2021, upon the
occurrence of the contingent event specified in the agreement. The
contingent consideration liability is adjusted to fair value at the
end of each reporting period with changes in fair value recorded in
earnings. Changes in fair value of the aforementioned contingent
consideration liability were not material. As of December 31, 2022,
the remaining contingent liability was reduced to zero as the
second contingent event did not occur.
On December 1, 2021, options holders in Entrega exercised
options into shares of common stock, increasing the NCI interest
held from 0.2 percent to 11.7 percent. During 2021 option holders
in Vedanta exercised options and increased the NCI interest to 3.7
percent. The exercise of the options resulted in an increase in the
NCI share in Entrega's and Vedanta's shareholder's deficit of $5.9
million. The consideration paid by NCI ($0.1 million) together
with the increase in NCI share in Entrega's and Vedanta's
shareholder deficit ( $5.9 million) amounted to $6.0 million and
was recorded as a gain directly in shareholders' equity.
On February 15, 2022, option holders in Vedanta exercised
options into shares of common stock, increasing the NCI interest
held from 3.7 percent to 12.2 percent. The exercise of the options
resulted in an increase in the NCI share in Vedanta's shareholder's
deficit of $15.2 million. The consideration paid by NCI ($7.2
thousand) together with the increase in NCI share in Vedanta's
shareholder deficit ($15.2 million) amounted to $15.2 million and
was recorded as a gain directly in shareholders' equity.
19. Trade
and Other Payables
Information regarding Trade and other payables was as
follows:
As of December 31,
2022
$000s
2021
$000s
Trade payables
26,504
11,346
Accrued expenses
24,518
17,309
Income tax payable
57
57
Liability settled share based awards
1,805
4,703
Other
1,957
2,403
Total trade and other payables
54,840
35,817
20.
Long-term loan
In September 2020, Vedanta entered into a $15.0 million
loan and security agreement with Oxford Finance LLC. The loan is
secured by Vedanta's assets, including equipment, inventory and
intellectual property. The loan bears a floating interest rate of
7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR
reported in the Wall Street Journal or (ii) 0.17 percent. The loan
matures September 2025 and requires interest only payments prior to
2023. The loan also carries a final fee upon full repayment of 7.0
percent of the original principal, or $1.1 million. As part of
the loan agreement, Vedanta also issued Oxford Finance LLC 12,886
Series C-2 preferred share warrants with an exercise price of
$23.28 per share, expiring September 2030. The outstanding loan
balance totaled approximately $15.4 million as of December 31,
2022.
The following table summarizes long-term loan activity for the
years ended December 31, 2022 and 2021:
Long-term loan
2022
$000s
2021
$000s
Balance at January 1,
15,118
14,818
Accrued interest
1,755
1,502
Interest paid
(1,436)
(1,201)
Other
(38)
—
Balance at December 31,
15,400
15,118
The following table summarizes Vedanta's future principal
payments for the long-term loan as of December 31, 2022:
Balance Type
2023
2024
2025
Total
Principal
5,156
5,625
4,219
15,000
Balance of accreted premium net of
unamortized issuance costs
400
Total
15,400
The long-term loan is presented as follows in the Statement of
Financial Position as of December 31, 2022 and 2021
Long-term loan
2022
$000s
2021
$000s
Current portion of Long-term loan
5,156
857
Long-term loan
10,244
14,261
Total Long-term loan
15,400
15,118
21.
Leases
The activity related to the Group’s right of use asset and lease
liability for the years ended December 31, 2022 and 2021 is as
follows:
Right of use asset, net
2022
$000s
2021
$000s
Balance at January 1,
17,166
20,098
Additions
163
739
Tenant improvement - lease incentive
—
(733)
Depreciation
(3,047)
(2,938)
Balance at December 31,
14,281
17,166
Total lease liability
2022
$000s
2021
$000s
Balance at January 1,
32,990
35,348
Additions
163
1,016
Cash paid for rent - principal - financing
cash flow
(4,025)
(3,375)
Cash paid for rent - interest
(1,982)
(2,181)
Interest expense
1,982
2,181
Balance at December 31,
29,128
32,990
Depreciation of the right-of-use assets, which virtually all
consist of leased real estate, is included in the General and
administrative expenses and Research and development expenses line
items in the Consolidated Statements of Comprehensive
Income/(Loss). The Company recorded depreciation expense of $3.0
million, $2.9 million and $2.7 million for the years ended December
31, 2022, 2021 and 2020 respectively.
The following details the short term and long-term portion of
the lease liability as of December 31, 2022 and 2021:
Total lease liability
2022
$000s
2021
$000s
Short-term Portion of Lease Liability
4,972
3,950
Long-term Portion of Lease Liability
24,155
29,040
Total Lease Liability
29,128
32,990
The following table details the future maturities of the lease
liability, showing the undiscounted lease payments to be paid after
the reporting date:
2022
$000s
Less than one year
6,673
One to two years
6,763
Two to three years
5,168
Three to four years
4,419
Four to five years
4,551
More than five years
7,483
Total undiscounted lease
maturities
35,056
Interest
5,928
Total lease liability
29,128
During the year ended December 31, 2019, PureTech entered into a
lease agreement for certain premises consisting of approximately
50,858 rentable square feet of space located at 6 Tide Street. The
lease commenced on April 26, 2019 (“Commencement Date”) for an
initial term consisting of ten years and three months and there is
an option to extend for two consecutive periods of five years each.
The Company assessed at lease commencement date whether it is
reasonably certain to exercise the extension options and deemed
such options not reasonably certain to be exercised. The Company
will reassess whether it is reasonably certain to exercise the
options only if there is a significant event or significant changes
in circumstances within its control.
On June 26, 2019, PureTech executed a sublease agreement with
Gelesis. The lease is for the approximately 9,446 rentable square
feet located on the sixth floor of the Company’s former offices at
the 501 Boylston Street building. The sublessee obtained possession
of the premises on June 1, 2019 and the rent period term began on
June 1, 2019 and expires on August 31, 2025. The sublease was
determined to be a finance lease. As of December 31, 2022, the
balances related to the sublease were as follows:
Total lease receivable
$000s
Short-term Portion of Lease Receivable
450
Long-term Portion of Lease Receivable
835
Total Lease Receivable
1,285
The following table details the future maturities of the lease
receivable, showing the undiscounted lease payments to be received
after the reporting date:
2022
$000s
Less than one year
513
One to two years
523
Two to three years
353
Total undiscounted lease
receivable
1,389
Unearned Finance income
103
Net investment in the lease
1,285
On August 6, 2019, PureTech executed a sublease agreement with
Dewpoint Therapeutics, Inc. (“Dewpoint”). The sublease was for
approximately 11,852 rentable square feet located on the third
floor of the 6 Tide Street building, where the Company’s offices
are currently located. Dewpoint obtained possession of the premises
on September 1, 2019 with a rent period term that began on
September 1, 2019, and expired on August 31, 2021. The sublease was
determined to be an operating lease.
Rental income recognized by the Company during the years ended
December 31, 2021 and 2020 was $0.6 million and $1.1 million,
respectively and is included in the Other income/(expense) line
item in the Consolidated Statements of Comprehensive
Income/(Loss).
22. Capital
and Financial Risk Management
Capital Risk Management The Group's capital and financial risk
management policy is to maintain a strong capital base so as to
support its strategic priorities, maintain investor, creditor and
market confidence as well as sustain the future development of the
business. The Group’s objectives when managing capital are to
safeguard its ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. To maintain or adjust the capital structure,
the Group may issue new shares or incur new debt. The Group has
some external debt and no material externally imposed capital
requirements. The Group’s share capital is clearly set out in Note
14.
Management continuously monitors the level of capital deployed
and available for deployment in the Internal segment and at the
corporate level as well as at Controlled Founded Entities. The
Directors seek to maintain a balance between the higher returns
that might be possible with higher levels of deployed capital and
the advantages and security afforded by a sound capital
position.
The Group’s Directors have overall responsibility for
establishment and oversight of the Group's capital and risk
management framework. The Group is exposed to certain risks through
its normal course of operations. The Group’s main objective in
using financial instruments is to promote the development and
commercialization of intellectual property through the raising and
investing of funds for this purpose. The Group’s policies in
calculating the nature, amount and timing of investments are
determined by planned future investment activity. Due to the nature
of activities and with the aim to maintain the investors’ funds as
secure and protected, the Group’s policy is to hold any excess
funds in highly liquid and readily available financial instruments
and maintain insignificant exposure to other financial risks.
The Group has exposure to the following risks arising from
financial instruments:
Credit Risk Credit risk is the risk of financial loss to the
Group if a customer or counterparty to a financial instrument fails
to meet its contractual obligations. Financial instruments that
potentially subject the Group to concentrations of credit risk
consist principally of cash and cash equivalents, short term
investments, and trade and other receivables. The Group held the
following balances (not including the income tax receivable
resulting from overpayment of income taxes, see Note 25):
2022
$000s
2021
$000s
As of December 31
Cash and cash equivalents
149,866
465,708
Short-term investments
200,229
—
Trade and other receivables
11,867
3,174
Total
361,961
468,882
The Group invests its excess cash in U.S. Treasury Bills
(presented as short-term investments), and money market accounts,
which the Group believes are of high credit quality. Further the
Group's cash and cash equivalents and short-term investments are
held at diverse, investment-grade financial institutions.
The Group assesses the credit quality of customers on an ongoing
basis. The credit quality of financial assets is assessed by
historical and recent payment history, counterparty financial
position, reference to credit ratings (if available) or to
historical information about counterparty default rates. The Group
does not have expected credit losses owing largely to a small
number of counterparties and the high credit quality of most
counterparties (primarily the US government and large funds with
respect to grant income and large high credit quality
corporations).
The aging of trade and other receivables that were not impaired
at December 31 is as follows:
As of December 31
2022
$000s
2021
$000s
Not impaired
11,867
3,174
Total
11,867
3,174
With regard to the Note from associate, such note is presented
at fair value which incorporates, among other factors, the credit
risk of the counterparty. See Note 16 for details.
Liquidity Risk Liquidity risk is the risk that the Group will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or
another financial asset. The Group actively manages its risk of a
funds shortage by closely monitoring the maturity of its financial
assets and liabilities and projected cash flows from operations,
under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
Due to the nature of these financial liabilities, the funds are
available on demand to provide optimal financial flexibility.
The table below summarizes the maturity profile of the Group’s
financial liabilities, including subsidiary preferred shares that
have customary liquidation preferences, as of December 31, 2022 and
2021, based on contractual undiscounted payments:
As of December 31
2022
Carrying Amount
$000s
Within Three Months
$000s
Three to Twelve Months
$000s
One to Five Years
$000s
Total
$000s (*)
Long-term loan (non-current + current)
15,400
1,838
5,281
11,413
18,531
Subsidiary notes payable
2,345
2,345
—
—
2,345
Trade and other payables
54,840
54,840
—
—
54,840
Warrants2
47
47
—
—
47
Subsidiary preferred shares (Note 15)1
27,339
27,339
—
—
27,339
Total
99,971
86,409
5,281
11,413
103,103
As of December 31
2021
Carrying Amount
$000s
Within Three Months
$000s
Three to Twelve Months
$000s
One to Five Years
$000s
Total
$000s (*)
Long-term loan
15,118
296
2,182
16,274
18,752
Subsidiary notes payable
4,641
4,641
—
—
4,641
Trade and other payables
35,817
35,817
—
—
35,817
Warrants2
6,787
6,787
—
—
6,787
Subsidiary preferred shares (Note 15)1
174,017
174,017
—
—
174,017
Total
236,381
221,559
2,182
16,274
240,015
- Redeemable only upon a liquidation or Deemed liquidation event,
as defined in the applicable shareholder documents.
- Warrants issued by subsidiaries to third parties to purchase
preferred shares.
* Does not include payments in respect of lease
obligations. For the contractual future payments related to lease
obligations, see Note 21.
Interest Rate Sensitivity As of December 31, 2022, the Group had
cash and cash equivalents of $149.9 million, and short term
investments of $200.2 million. The Group's exposure to
interest rate sensitivity is impacted by changes in the underlying
U.K. and U.S. bank interest rates. The Group has not entered into
investments for trading or speculative purposes. Due to the
conservative nature of the Group's investment portfolio, which is
predicated on capital preservation and investments in short
duration, high-quality U.S. Treasury Bills and related money market
accounts, a change in interest rates would not have a material
effect on the fair market value of the Group's portfolio, and
therefore the Group does not expect operating results or cash flows
to be significantly affected by changes in market interest
rates.
Controlled Founded Entity Investments The Group maintains
investments in certain Controlled Founded Entities. The Group’s
investments in Controlled Founded Entities are eliminated as
intercompany transactions upon financial consolidation. The Group
is however exposed to a preferred share liability owing to the
terms of existing preferred shares and the ownership of Controlled
Founded Entities preferred shares by third parties. As discussed in
Note 15, certain of the Group’s subsidiaries have issued preferred
shares that include the right to receive a payment in the event of
any voluntary or involuntary liquidation, dissolution or winding up
of a subsidiary, including in the event of "deemed liquidation" as
defined in the incorporation documents of the entities, which shall
be paid out of the assets of the subsidiary available for
distribution to shareholders and before any payment shall be made
to holders of ordinary shares. The liability of preferred shares is
maintained at fair value through the profit and loss. The Group’s
strong cash position, budgeting and forecasting processes, as well
as decision making and risk mitigation framework enable the Group
to robustly monitor and support the business activities of the
Controlled Founded Entities to ensure no exposure to dissolution or
liquidation. Accordingly, the Group views exposure to 3rd party
preferred share liability as low.
Non-Controlled Founded Entity Investments The Group maintains
certain investments in Non-Controlled Founded Entities which are
deemed either as investments and accounted for as investments held
at fair value or associates and accounted for under the equity
method (please refer to Note 1). The Group's exposure to
investments held at fair value is $251.9 million as of
December 31, 2022, and the Group may or may not be able to realize
the value in the future. Accordingly, the Group views the risk as
high. The Group’s exposure to investments in associates is limited
to the carrying amount of the investment in an Associate. The Group
is not exposed to further contractual obligations or contingent
liabilities beyond the value of the investments. Accordingly, the
Group does not view this as a high risk. As of December 31, 2022,
Gelesis and Sonde are the only associates. The carrying amount of
the investment in Gelesis and Sonde as associates was $9.1 million.
Please refer to Notes 5, 6 and 16 for further information regarding
the Group's exposure to Non-Controlled Founded Entity
Investments.
Equity Price Risk As of December 31, 2022, the Group held
1,054,464 common shares of Karuna, 2,671,800 common shares of Vor
and 12,527,477 common shares of Akili. The fair value of these
investments in Karuna, Vor and Akili was $239.0 million.
The investments in Karuna, Vor and Akili are exposed to
fluctuations in the market price of these common shares. The effect
of a 10.0 percent adverse change in the market price of Karuna, Vor
and Akili common shares as of December 31, 2022, would have been a
loss of approximately $23.9 million, that would have been
recognized as a component of Other income (expense) in the
Consolidated Statements of Comprehensive Income/(Loss).
Foreign Exchange Risk The Group maintains consolidated financial
statements in the Group's functional currency, which is the U.S.
dollar. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the
functional currency at rates of exchange prevailing at the balance
sheet dates. Non-monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency at the exchange rates prevailing at the date of
the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net
income (loss) for the respective periods. Such foreign currency
gains or losses were not material for all reported periods. See
Note 9.
The Group does not currently engage in currency hedging
activities since its foreign currency risk is limited, but the
Group may begin to do so in the future if and when its foreign
currency risk exposure changes.
23.
Commitments and Contingencies
The Group is party to certain licensing agreements where the
Group is licensing IP from third parties. In consideration for such
licenses the Group has made upfront payments and may be required to
make additional contingent payments based on developmental and
sales milestones and/or royalty on future sales. As of December 31,
2022, these milestone events have not yet occurred and therefore
the Group does not have a present obligation to make the related
payments in respect of the licenses. Such milestones are dependent
on events that are outside of the control of the Group and many of
these milestone events are remote of occurring. As of December 31,
2022, payments in respect of developmental milestones that are
dependent on events that are outside the control of the Group but
are reasonably possible to occur amounted to approximately
$8.7 million. These milestone amounts represent an aggregate
of multiple milestone payments depending on different milestone
events in multiple agreements. The probability that all such
milestone events will occur in the aggregate is remote. Payments
made to license IP represent the acquisition cost of intangible
assets. See Note 12.
The Group is party to certain sponsored research arrangements as
well as arrangements with contract manufacturing and contract
research organizations, whereby the counterparty provides the
Company with research and/or manufacturing services. As of December
31, 2022, the noncancellable commitments in respect of such
contracts amounted to approximately $11.3 million.
24. Related
Parties Transactions
Related Party Subleases and royalties During 2019, PureTech
executed a sublease agreement with a related party, Gelesis. Please
refer to Note 21 for further details regarding the sublease.
The Group receives royalties from Gelesis on its product sales.
Such royalties amounted to $509 thousand and
$231 thousand for the years ended December 31, 2022 and 2021,
respectively and are presented in Contract revenue in the
Consolidated Statements of Comprehensive Income/(Loss).
Key Management Personnel Compensation Key management includes
executive directors and members of the executive management team of
the Group (not including compensation provided to non-executive
directors). The key management personnel compensation of the Group
was as follows for the years ended December 31:
2022
$000s
2021
$000s
2020
$000s
As of December 31
Short-term employee benefits
4,369
4,666
4,833
Share-based payment expense
2,741
4,045
5,822
Total
7,109
8,711
10,656
Short-term employee benefits include salaries, health care and
other non-cash benefits. Share-based payments are generally subject
to vesting terms over future periods.
For cash settlements of share based awards – see Note 8.
In addition the Company paid remuneration to non-executive
directors in the amounts of $655 thousand, $605 thousand
and $690 thousand for the years ended December 31, 2022, 2021,
and 2020, respectively. Also, the Company incurred $365 thousand
and $161 thousand of stock based compensation expense for such
non-executive directors for the years ended December 31, 2022 and
2021, respectively. There is no stock based compensation expense
for such non-executive directors for the year ended December 31,
2020.
During the years ended December 31, 2022 and 2021, the Company
incurred $51 thousand, and $181 thousand, respectively of
expenses paid to related parties.
Convertible Notes Issued to Directors Certain related parties of
the Group have invested in convertible notes issued by the Group’s
subsidiaries. As of December 31, 2022 and 2021, the outstanding
related party notes payable totaled $99 thousand and
$94 thousand respectively, including principal and
interest.
The notes issued to related parties bear interest rates,
maturity dates, discounts and other contractual terms that are the
same as those issued to outside investors during the same
issuances, as described in Note 17.
Directors’ and Senior Managers’ Shareholdings and Share
Incentive Awards
The Directors and senior managers hold beneficial interests in
shares in the following businesses and sourcing companies as at
December 31, 2022:
Business Name (Share Class)
Number of shares held as of
December 31, 2022
Number of options held as of
December 31, 2022
Number of RSUs held as of
December 31, 2022
Ownership
Interest¹
Directors:
Ms Daphne Zohar²
Gelesis (Common)
465,121
3,303,306
1,349,697
4.45%
Dr Robert Langer
Entrega (Common)
250,000
82,500
—
4.09%
Dr Raju Kucherlapati
Enlight (Class B Common)
—
30,000
—
3.00%
Gelesis (Common)
139,625
—
50,639
0.12%
Dr John LaMattina3
Akili (Common)
56,554
—
—
0.07%
Gelesis (Common)3
395,035
37,129
—
0.38%
Vedanta Biosciences (Common)
25,000
—
—
0.17%
Senior Managers:
Dr Bharatt Chowrira
Karuna (Common)
5,000
—
—
0.01%
Dr Joseph Bolen
Vor (Common)
—
9,191
—
0.01%
- Ownership interests as of December 31, 2022 are calculated on a
diluted basis, including issued and outstanding shares, warrants
and options (and written commitments to issue options) but
excluding unallocated shares authorized to be issued pursuant to
equity incentive plans and any shares issuable upon conversion of
outstanding convertible promissory notes.
- Common shares, RSUs and options held by Yishai Zohar, who is
the husband of Ms. Zohar. Ms. Zohar does not have any direct
interest in the share capital of Gelesis. Ms. Zohar recuses herself
from any and all material decisions with regard to Gelesis.
- Dr John and Ms Mary LaMattina hold 345,035 shares of common
shares in Gelesis. Individually, Dr LaMattina holds 50,000 shares
of Gelesis and convertible notes issued by Appeering in the
aggregate principal amount o $50,000.
Directors and senior managers hold 25,371,839 ordinary shares
and 9.1 percent voting rights of the Company as of December 31,
2022. This amount excludes options to purchase 2,350,000 ordinary
shares. This amount also excludes 6,448,899 shares, which are
issuable based on the terms of performance based RSU awards granted
to certain senior managers covering the financial years 2022, 2021
and 2020, and 172,056 shares, which are issuable to directors
immediately prior to the Company's 2023 Annual General Meeting of
Stockholders based on the terms of the RSU awards granted to
non-executive directors in 2022. Such shares will be issued to such
senior managers and non executive directors in future periods
provided that performance and/or service conditions are met and
certain of the shares will be withheld for payment of customary
withholding taxes.
Note from Associate See Note 16 for details on the notes issued
by Gelesis to the Company. The Company recognized finance income of
1.6 million with respect to interest and changes in fair value
related to the notes.
As of December 31, 2022 the Group has a receivable from an
associate in the amount of 1.1 million.
25.
Taxation
Tax on the profit or loss for the year comprises current and
deferred income tax. Tax is recognized in the Consolidated
Statements of Comprehensive Income/(Loss) except to the extent that
it relates to items recognized directly in equity.
For the years ended December 31, 2022, 2021 and 2020, the Group
filed a consolidated U.S. federal income tax return which included
all subsidiaries in which the Company owned greater than 80 percent
of the vote and value. For the years ended December 31, 2022, 2021
and 2020, the Group filed certain consolidated state income tax
returns which included all subsidiaries in which the Company owned
greater than 50 percent of the vote and value. The remaining
subsidiaries file separate U.S. tax returns.
Amounts recognized in Consolidated Statements of Comprehensive
Income/(Loss):
2022
$000s
2021
$000s
2020
$000s
As of December 31
Income/(loss) for the year
(37,065)
(62,709)
4,568
Income tax expense/(benefit)
(55,719)
3,756
14,401
Income/(loss) before taxes
(92,783)
(58,953)
18,969
Recognized income tax expense/(benefit):
2022
$000s
2021
$000s
2020
$000s
As of December 31
Federal
13,065
22,138
21,796
Foreign
—
—
—
State
1,336
109
—
Total current income tax
expense/(benefit)
14,401
22,247
21,796
Federal
(48,240)
(15,416)
(7,349)
Foreign
—
—
—
State
(21,880)
(3,075)
(46)
Total deferred income tax
expense/(benefit)
(70,120)
(18,491)
(7,395)
Total income tax expense/(benefit),
recognized
(55,719)
3,756
14,401
The tax expense/(benefit) was $(55.7) million, $3.8 million and
$14.4 million in 2022, 2021 and 2020 respectively. The increase in
tax benefit for the year ended December 31, 2022 is primarily the
result of the loss before taxes in entities in the U.S. Federal and
Massachusetts consolidated return groups of the Company.
Reconciliation of Effective Tax Rate The Group is primarily
subject to taxation in the U.S. A reconciliation of the U.S.
federal statutory tax rate to the effective tax rate is as
follows:
2022
2021
2020
As of December 31
$000s
%
$000s
%
$000s
%
US federal statutory rate
(19,486)
21.00
(12,380)
21.00
3,984
21.00
Effects of state tax rate in U.S.
(8,043)
8.67
(4,484)
7.61
1,844
9.72
R&D and orphan drug tax credits
(6,876)
7.41
(5,056)
8.58
(5,642)
(29.74)
Non deductible share based payment
expenses
788
(0.85)
555
(0.94)
327
1.73
Finance income/(costs) – fair value
accounting
(28,783)
31.02
(2,017)
3.42
919
4.84
Loss with respect to associate for which
no deferred tax asset is recognized
1,413
(1.52)
11,542
(19.58)
—
—
Change in blended state rate impact due to
state apportionment change
(8,856)
9.54
—
—
—
—
Transaction Costs
—
—
309
(0.52)
361
1.91
Interest Expense
69
(0.07)
217
(0.37)
(2,258)
(11.91)
Executive Compensation
300
(0.32)
746
(1.27)
827
4.36
Recognition of deferred tax assets and tax
benefits not previously recognized
(184)
0.20
(414)
0.70
—
—
Current year losses for which no deferred
tax asset is recognized
17,287
(18.63)
14,375
(24.38)
13,948
73.53
Sonde Deconsolidation
(3,572)
3.85
—
—
—
—
Other
224
(0.25)
363
(0.62)
91
0.48
(55,719)
60.05
3,756
(6.37)
14,401
75.92
The Company is also subject to taxation in the UK but to date no
taxable income has been generated in the UK. Changes in corporate
tax rates can change both the current tax expense (benefit) as well
as the deferred tax expense (benefit).
Deferred Tax Assets and Liabilities Deferred tax assets have
been recognized in the U.S. jurisdiction in respect of the
following items:
2022
$000s
2021
$000s
As of December 31
Operating tax losses
48,317
46,982
Tax credits
11,101
10,673
Share-based payments
8,423
7,265
Capitalized Research & Experimental
Expenditures
36,084
—
Investment in Associates
13,036
11,542
Lease Liability
7,143
8,969
Other temporary differences
2,957
2,665
Deferred tax assets
127,061
88,096
Investments held at fair value
(47,877)
(96,804)
ROU asset
(3,519)
(4,667)
Fixed assets
(2,348)
(3,547)
Deferred tax liabilities
(53,744)
(105,018)
Deferred tax assets (liabilities), net
73,317
(16,922)
Deferred tax liabilities, net,
recognized
(19,645)
(89,765)
Deferred tax assets (liabilities), net,
not recognized
92,962
72,843
We have recognized deferred tax assets related to entities in
the U.S. Federal and Massachusetts consolidated return groups due
to future reversals of existing taxable temporary differences that
will be sufficient to recover the net deferred tax assets. Our
unrecognized deferred tax assets of $93.0 million are primarily
related to tax credit, loss carryforwards and deductible temporary
differences in subsidiaries outside the U.S. Federal and
Massachusetts consolidated return groups. Such deferred tax assets
have not been recognized because it is not probable that future
taxable profits will be available to support their realizability.
The unrecognized deferred tax assets, to a lesser extent, also
relate to unrecognized deferred tax assets with respect to a
portion of Section 174 capitalized research & experimental
expenditures which became effective in 2022 under the Tax Cuts and
Jobs Act and an investment in an associate since the Group does not
believe it is probable that such tax benefits will be realized in
the foreseeable future.
There was movement in deferred tax recognized, which impacted
income tax expense by approximately $70.1 million benefit,
primarily related to changes in the value of investments and
Section 174 capitalized research & experimental expenditures.
The Company sold a portion of its stock in Karuna and VOR during
2022 resulting in net taxable income and current tax expense of
$14.4 million.
Unrecognized Deferred Tax Assets Deferred tax assets have not
been recognized in respect of the following carryforward losses,
credits and temporary differences, because it is not probable that
future taxable profit will be available against which the Group can
use the benefits therefrom.
2022
$000s
2021
$000s
As of December 31
Gross Amount
Tax Effected
Gross Amount
Tax Effected
Deductible Temporary Difference
132,145
33,544
59,925
16,224
Tax Losses
219,466
48,317
215,425
46,982
Tax Credits
11,101
11,101
9,636
9,636
Total
362,712
92,962
284,986
72,843
Tax Losses and tax credits carryforwards Tax losses and tax
credits for which no deferred tax asset was recognized
As of December 31
2022
$000s
2021
$000s
Gross Amount
Tax Effected
Gross Amount
Tax Effected
Tax losses expiring:
Within 10 years
23,930
5,387
19,735
4,343
More than 10 years
42,822
10,509
47,937
11,611
Available Indefinitely
152,714
32,421
147,753
31,028
Total
219,466
48,317
215,425
46,982
Tax credits expiring:
Within 10 years
43
43
4
4
More than 10 years
11,058
11,058
9,632
9,632
Available indefinitely
—
—
—
—
Total
11,101
11,101
9,636
9,636
The Group had U.S. federal net operating losses carry forwards
(“NOLs”) of approximately $219.5 million, $215.4 million and $169.7
million as of December 31, 2022, 2021 and 2020, respectively, which
are available to offset future taxable income. These NOLs expire
through 2037 with the exception of $152.7 million which is not
subject to expiration. The Group had U.S. Federal research and
development tax credits of approximately $4.5 million, $3.9 million
and $3.9 million as of December 31, 2022, 2021 and 2020,
respectively, which are available to offset future taxes that
expire at various dates through 2042. The Group also had Federal
Orphan Drug credits of approximately $6.1 million and $5.7 million
as of December 31, 2022, and 2021, which are available to offset
future taxes that expire at various dates through 2042. A portion
of these Federal NOLs and credits can only be used to offset the
profits from the Company’s subsidiaries who file separate Federal
tax returns. These NOLs and credits are subject to review and
possible adjustment by the Internal Revenue Service.
The Group had state net operating losses carry forwards (“NOLs”)
of approximately $71.7 million, $27.9 million and $67.4 million for
the years ended December 31, 2022, 2021 and 2020, respectively,
which are available to offset future taxable income. These NOLs
expire at various dates beginning in 2030. The Group had
Massachusetts research and development tax credits of approximately
$0.6 million, $1.3 million and $2.1 million for the years ended
December 31, 2022, 2021 and 2020, respectively, which are available
to offset future taxes and expire at various dates through 2037.
These NOLs and credits are subject to review and possible
adjustment by the Massachusetts Department of Revenue.
Utilization of the NOLs and research and development credit
carryforwards may be subject to a substantial annual limitation
under Section 382 of the Internal Revenue Code of 1986 due to
ownership change limitations that have occurred previously or that
could occur in the future. These ownership changes may limit the
amount of NOL and research and development credit carryforwards
that can be utilized annually to offset future taxable income and
tax, respectively. The Company notes that a 382 analysis was
performed through December 31, 2022. The results of this analysis
concluded that certain net operating losses were subject to
limitation under Section 382 of the Internal Revenue Code. None of
the Company’s tax attributes which are subject to a restrictive
Section 382 limitation have been recognized in the financial
statements.
Tax Balances The current tax related balances are presented in
the Statement of Financial Position as follows:
As of December 31
2022
$000s
2021
$000s
Income tax receivable – current
10,040
4,514
Trade and Other Payables
(57)
(57)
Uncertain Tax Positions The Company has no uncertain tax
positions as of December 31, 2022. U.S. corporations are routinely
subject to audit by federal and state tax authorities in the normal
course of business.
26.
Subsequent Events
The Company has evaluated subsequent events after December 31,
2022, the date of issuance of the Consolidated Financial
Statements, and has not identified any recordable or disclosable
events not otherwise reported in these Consolidated Financial
Statements or notes thereto, except for the following:
On March 1, 2023 Vedanta issued convertible debt to a syndicate
of investors. The initial close of the debt was for proceeds of
approximately $88.5 million. The note carries an interest rate of 9
percent per annum. The debt has various conversion triggers and the
conversion price is established at the lower of 80% of the equity
price of the last financing round, or a certain pre-money valuation
cap established in the agreement. As part of the issuance of the
debt, the convertible debt holders were granted representation in
Vedanta's Board of Directors and PureTech lost control over
Vedanta. On April 24, 2023, Vedanta closed the second tranche of
the convertible debt for additional proceeds of $18.0 million, of
which $5.0 million were invested by the Company.
On March 22, 2023, the Company entered into an agreement with
Royalty Pharma according to which Royalty Pharma acquired an
interset in the Group's royalty from Karuna's KarXT, with $100.0
million in cash up-front, and up to $400.0 million in additional
cash consideration, contingent on the achievement of certain
regulatory and commercial milestones.
Gelesis
On February 21, 2023, the Company entered into a Note and
Warrant Purchase agreement with Gelesis for $5.0 million cash
consideration. As part of the agreement, the Company received a
short term convertible senior secured note of $5.0 million and
warrants to purchase additional shares of Gelesis' common stock.
The note carries an interest rate of 12 percent per annum and holds
an initial maturity date of July 31, 2023 unless the note is
earlier converted or redeemed by the issuer.
On April 10, 2023, the NYSE commenced proceedings to delist the
common stock of Gelesis from the NYSE due to Gelesis ceasing to
meet certain conditions to trade on such stock exchange. Trading in
the Gelesis’s common stock was suspended immediately, and it was
subsequently delisted from the NYSE. The common stock of Gelesis is
currently available for trading in the over-the-counter (“OTC”)
market under the symbol GLSH.
In addition, in April 2023 PureTech submitted a non-binding
proposal to acquire all of the outstanding equity of Gelesis.
Negotiations related to the proposal and any potential deal remain
ongoing and are subject to, among other things, approval of any
definitive transaction by independent committees of the boards of
both Gelesis and PureTech.
PureTech Health plc Statement of Financial Position
For the years ended December 31
2022
$000s
2021
$000s
Note
Assets
Non-current assets
Investment in subsidiary
2
452,374
148,086
Intercompany long-term receivable
3
—
297,909
Total non-current assets
452,374
445,995
Current assets
Other receivables
57
—
Cash and cash equivalents
38,503
—
Total current assets
38,560
—
Total assets
490,934
445,995
Equity and liabilities
Equity
Share capital
4
5,455
5,444
Share premium
4
289,624
289,304
Treasury stock
(26,492)
—
Merger reserve
4
138,506
138,506
Other reserve
4
18,114
7,730
Retained Earnings/ (Accumulated deficit) -
(Income for the year $59,198)
4
45,175
(14,022)
Total equity
470,382
426,961
Current liabilities
Trade and other payables
2,475
1,856
Intercompany payables
5
18,078
17,179
Total current liabilities
20,553
19,034
Total equity and liabilities
490,934
445,995
Please refer to the accompanying Notes to the PureTech Health
plc financial information. Registered number: 09582467.
The PureTech Health plc financial statements were approved by
the Board of Directors and authorized for issuance on
April 27, 2023 and signed on its behalf by:
Daphne Zohar Chief Executive Officer April 27,
2023
The accompanying Notes are an integral part of these financial
statements.
PureTech Health plc Statements of Cash Flows
For the years ended December 31
2022
$000s
2021
$000s
Cash flows from operating
activities
Net income (loss)
59,198
(3,401)
Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating
activities:
Non-cash items:
Changes in operating assets and
liabilities:
Other receivables
(57)
—
Intercompany payable
5,236
2,167
Accounts payable and accrued expenses
619
1,235
Net cash provided by (used in)
operating activities
64,995
—
Cash flows from investing
activities:
Net cash provided by (used in)
investing activities
—
—
Cash flows from financing
activities:
Purchase of treasury stocks
(26,492)
—
Net cash provided by (used in)
financing activities
(26,492)
—
Net increase in cash and cash
equivalents
38,503
—
Cash and cash equivalents at beginning of
year
—
—
Cash and cash equivalents at end of
year
38,503
—
Supplemental disclosure of non-cash
investing and financing activities:
Increase (Decrease) in investment against
share-based awards
10,384
(12,995)
Conversion of intercompany receivable (net
of a portion of intercompany payable) into investment
293,904
—
Exercise of share-based awards against
intercompany receivable
332
352
The accompanying Notes are an integral part of these financial
statements.
PureTech Health plc Statements of Changes in Equity
For the years ended December 31
Share Capital
Treasury Shares
Shares
Amount
$000s
Share
Premium
$000s
Shares
Amount
$000s
Merger Reserve
$000s
Other Reserve
$000s
Retained earnings/
(Accumulated
deficit)
$000s
Total equity
$000s
Balance January 1, 2021
285,885,025
5,417
288,978
—
—
138,506
20,725
(10,620)
443,005
Total comprehensive loss for the
year
—
—
—
—
—
—
—
—
—
Exercise of share-based awards
1,911,560
27
326
—
—
—
—
—
352
Equity settled share-based payments
—
—
—
—
—
—
7,109
—
7,109
Settlement of restricted stock units
—
—
—
—
—
—
(10,749)
—
(10,749)
Vesting of share-based awards and net
share exercise
—
—
—
—
—
—
(2,582)
—
(2,582)
Reclassification of equity settled awards
to liability awards in subsidiary
—
—
—
—
—
—
(6,773)
—
(6,773)
Net loss
—
—
—
—
—
—
—
(3,401)
(3,401)
Balance December 31, 2021
287,796,585
5,444
289,303
—
—
138,506
7,730
(14,022)
426,961
Total comprehensive loss for the
year
—
—
—
—
—
—
—
—
—
Exercise of share-based awards
577,022
11
321
—
—
—
—
—
332
Equity settled share-based payments
—
—
—
—
—
—
8,856
—
8,856
Settlement of restricted stock units
788,046
—
—
—
—
—
1,528
—
1,528
Purchase of Treasury stock
—
—
—
(10,595,347)
(26,492)
—
—
—
(26,492)
Net income
—
—
—
—
—
—
—
59,198
59,198
Balance December 31, 2022
289,161,653
5,455
289,624
(10,595,347)
(26,492)
138,506
18,114
45,176
470,382
The accompanying Notes are an integral part of these financial
statements.
Notes to the Financial Statements
1.
Accounting policies
Basis of Preparation and Measurement The financial statements of
PureTech Health plc (the “Parent”) are presented as of December 31,
2022 and 2021, and for the years ended December 31, 2022 and 2021,
and have been prepared under the historical cost convention in
accordance with international accounting standards in conformity
with the requirements of UK-adopted International Financial
Reporting Standards (IFRSs). The financial statements of PureTech
Health plc also comply fully with IFRSs as issued by the
International Accounting Standards Board (IASB). A summary of the
significant accounting policies that have been applied consistently
throughout the year are set out below.
Functional and Presentation Currency The functional currency of
the Parent is United States (“U.S.”) Dollars and the financial
statements are presented in U.S. Dollars.
Investments Investments are stated at historic cost less any
provision for impairment in value and are held for long-term
investment purposes. Provisions are based upon an assessment of
events or changes in circumstances that indicate that an impairment
has occurred such as the performance and/or prospects (including
the financial prospects) of the investee company being
significantly below the expectations on which the investment was
based, a significant adverse change in the markets in which the
investee company operates or a deterioration in general market
conditions.
Impairment If there is an indication that an asset might be
impaired, the Parent would perform an impairment review. An asset
is impaired if the recoverable amount, being the higher of net
realizable value and value in use, is less than its carrying
amount. Value in use is measured based on future discounted cash
flows attributable to the asset. In such cases, the carrying value
of the asset is reduced to recoverable amount with a corresponding
charge recognized in the profit and loss account.
Dividend Income Dividend received from the Parent's subsidiary
is recorded as dividend income in the profit and loss
statement.
Financial Instruments Currently the Parent does not enter into
derivative financial instruments. Financial assets and financial
liabilities are recognized and cease to be recognized on the basis
of when the related titles pass to or from the Parent Company.
Equity Settled Share Based Payments Share based payment awards
granted in subsidiaries to employees and consultants to be settled
in Parent's equity instruments are accounted for as equity-settled
share-based payment transactions in accordance with IFRS 2. The
grant date fair value of employee share-based payment awards
granted in subsidiaries is recognized as an increase to the
investment with a corresponding increase in equity over the
requisite service period related to the awards. The fair value is
measured using an option pricing model, which takes into account
the terms and conditions of the options granted. When the
subsidiary settles the equity awards other than by the Parent's
equity the settlement is recorded as a decrease in equity against a
corresponding decrease to the investment account.
2.
Investment in subsidiary
$000s
Balance at May 8, 2015
—
Investment in PureTech LLC as a result of
the reverse acquisition
141,348
Increase due to equity settled share based
payments granted to employees and service providers in
subsidiaries
19,734
Balance at December 31, 2020
161,082
Decrease due to equity settled share based
payments granted to employees and service providers in
subsidiaries
(12,996)
Balance at December 31, 2021
148,086
Increase due to equity settled share based
payments granted to employees and service providers in
subsidiaries
10,384
Conversion of intercompany receivable (net
of a portion of intercompany payable) into investment
293,904
Balance at December 31, 2022
452,374
PureTech consists of the Parent and its subsidiaries (together,
the “Group”). Investment in subsidiary represents the Parent’s
investment in PureTech LLC as a result of the reverse acquisition
of the Group’s financial statements immediately prior to the
Parent’s initial public offering (“IPO”) on the London Stock
Exchange in June 2015. PureTech LLC operates in the U.S. as a
US-focused scientifically driven research and development company
that conceptualizes, sources, validates and commercializes
different approaches to advance the needs of human health. For a
summary of the Parent’s indirect subsidiaries please refer to Note
1 of the Consolidated Financial Statements of PureTech Health
plc.
In 2020, the Parent recognized a $19.7 million increase in its
investment in its operating subsidiary PureTech LLC due to equity
settled share based payments granted to employees and service
providers in subsidiaries. $24.8 million out of such amount related
to amounts which should have been recognized at December 31, 2019.
The prior year balance sheet has not been adjusted since the
Directors do not believe this item is qualitatively material to
users of the financial statements, it has no impact on
distributable reserves of the Parent and no impact on the Group
consolidated financial statements. The disclosure relating to such
share based payment awards is detailed in Note 8 of the
accompanying Consolidated Financial Statements. The decrease in
2021 and increase in 2022 due to such share based payments results
from the expense related to the grant of equity settled share based
awards, as well as settlements and payments of these equity awards
by the subsidiaries, or settlement of share based payments through
equity by the Company.
3.
Share capital and reserves
PureTech plc was incorporated with the Companies House under the
Companies Act 2006 as a public company on May 8, 2015.
On March 12, 2018, the Company raised approximately $100.0
million, before issuance costs and other expenses, by way of a
Placing of 45,000,000 placing shares.
On June 24, 2015, the Company authorized 227,248,008 of ordinary
share capital at one pence apiece. These ordinary shares were
admitted to the premium listing segment of the United Kingdom’s
Listing Authority and traded on the Main Market of the London Stock
Exchange for listed securities. In conjunction with the
authorization of the ordinary shares, the Parent completed an IPO
on the London Stock Exchange, in which it issued 67,599,621
ordinary shares at a public offering price of 160 pence per
ordinary share, in consideration for $159.3 million, net of
issuance costs of $11.8 million.
Additionally, the IPO included an over-allotment option
equivalent to 15 percent of the total number of new ordinary
shares. The stabilization manager provided notice to exercise in
full its over-allotment option on July 2, 2015. As a result, the
Parent issued 10,139,943 ordinary shares at the offer price of 160
pence per ordinary share, which resulted in net proceeds of $24.2
million, net of issuance costs of $0.8 million.
During the years ended December 31, 2022 and 2021, Other
reserves increased (decreased) by $10.4 million and $(13.0)
million, respectively due to equity settled share based payments
granted to employees and service providers in subsidiaries. See
Note 2 above.
Treasury stock On May 9, 2022, PureTech Health plc (the
“Company”) announced the commencement of a $50.0 million share
repurchase program of its ordinary shares of one pence each
(“Ordinary Shares”). The Company plans to execute the Program in
two equal tranches. In respect of the two tranches, PureTech
entered into an irrevocable (see below) non-discretionary
instruction with Jefferies International Limited (“Jefferies”) in
relation to the purchase by Jefferies of Ordinary Shares for an
aggregate consideration (excluding expenses) of no greater than
$25.0 million for each tranche, and the simultaneous on-sale of
such Ordinary Shares by Jefferies to PureTech. Jefferies makes its
trading decisions in relation to the Ordinary Shares independently
of, and uninfluenced by, the Company. Purchases may continue during
any close period to which the Company is subject. The instruction
to Jeffries may be amended or withdrawn so long as the Company is
not in a close period or otherwise in possession of inside
information.
Any purchases of Ordinary Shares under the Program were carried
out on the London Stock Exchange and could be carried out on any
other UK recognized investment exchange which may be agreed, in
accordance with pre-set parameters and in accordance with, and
subject to limits, including those limits related to daily volume
and price, prescribed by the Company’s general authority to
repurchase Ordinary Shares granted by its shareholders at its
annual general meeting on May 27, 2021, and relevant Rules and
Regulations. All Ordinary Shares repurchased under the Program are
held in treasury.
As of December 31, 2022, the Company repurchased an aggregate of
10,595,347 Ordinary Shares under the share repurchase program.
4.
Intercompany payables
The Parent has a balance due to its operating subsidiary
PureTech LLC of $18.1 million as of December 31, 2022, which is
related to IPO costs and operating expenses. These intercompany
payables do not bear any interest and are repayable upon
demand.
5.
Profit and loss account
As permitted by Section 408 of the Companies Act 2006, the
Parent’s profit and loss account has not been included in these
financial statements. The Parent’s income for the year was $59.2
million.
During the year ended December 31, 2022 the Parent recorded
income of $65.0 million in respect of dividend received from its
subsidiary.
6.
Directors’ remuneration, employee information and share-based
payments
The remuneration of the executive Directors of the Parent
Company is disclosed in Note 24, Related Parties Transactions, of
the accompanying Consolidated Financial Statements. Full details
for Directors’ remuneration can be found in the Directors’
Remuneration Report. Full detail of the share-based payment charge
and the related disclosures can be found in Note 8, Share-based
Payments, of the accompanying Consolidated Financial
Statements.
The Parent had no employees during 2022 or 2021.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230427006063/en/
PureTech Public Relations
publicrelations@puretechhealth.com Investor Relations
IR@puretechhealth.com
EU media Ben Atwell, Rob Winder +44 (0) 20 3727 1000
ben.atwell@FTIconsulting.com
U.S. media Nichole Sarkis +1 774 278 8273
nichole@tenbridgecommunications.com
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