What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-24 compared with 2021-03-29 · 259 added, 178 removed, 338 unchanged (56% of the section changed)

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Loss

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Milestone Pharmaceuticals Inc.

and its subsidiary (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of loss and comprehensive loss, shareholders’ equity and convertible preferred shares and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements).

and its subsidiary (together, the “Company”) as of December 31, 2021 and 2020, and the related consolidated Statements of Loss, and shareholders’ equity for each of the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

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/s/ PricewaterhouseCoopers LLP

Montréal, Québec, Canada

Montreal, Canada

March 24, 2022

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Cash and cash equivalents

Short-term investments (note 3)

Short-term investments

Research and development tax credits receivable

2 unchanged sentences

Total current assets

Operating lease right-of-use assets (note 4)

Property and equipment (note 5)

Operating lease assets

Property and equipment

Liabilities, and Shareholders' Equity

Current liabilities

Accounts payable and accrued liabilities (note 6)

Current portion of operating lease liabilities

Total current liabilities

Accounts payable and accrued liabilities

Operating lease liabilities

Total current liabilities

Operating lease liabilities (net of current portion)

Total liabilities

Shareholders’ Equity (note 1, note 7)

Share capital

Commitments and contingencies (Note 13)

Shareholders’ Equity

Common shares, no par value, unlimited shares authorized 29,897,559 shares issued and outstanding as of December 31, 2021, 29,827,997 shares issued and outstanding as of December 31, 2020

Pre-funded warrants - 11,417,034 issued and outstanding at December 31, 2020, nil at December 31, 2019

Pre-funded warrants - 12,327,780 issued and outstanding as of December 31, 2021 and 11,417,034 as of December 31, 2020

Additional paid-in capital

5 unchanged sentences

Milestone Pharmaceuticals Inc.

Consolidated Statements of Loss and Comprehensive Loss

Consolidated Statements of Loss

(in thousands of US dollars, except share and per share data)

1 unchanged sentence

Operating expenses

Research and development, net of tax credits (note 10)

Research and development, net of tax credits

General and administrative

Loss from operations

Interest income, net of bank charges

Interest income, net

Loss before income taxes

Income tax recovery (note 9)

Net loss and comprehensive loss for the year

Income tax benefit

Weighted average number of shares and pre-funded warrants outstanding, basic and diluted

Net loss per share, basic and diluted (note 8)

Net loss per share, basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

Milestone Pharmaceuticals Inc.

Consolidated Statements of Shareholders’ Equity and Convertible Preferred Shares

Consolidated Statements of Shareholders’ Equit y

(in thousands of US dollars, except share data)

Convertible Preferred Shares

Common Shares

1 unchanged sentence

Balance as of December 31, 2019

Transactions in 2019

Net loss and comprehensive loss

Exercise of stock options (note 7)

Share-based compensation (note 7)

Initial public offering (note 7)

Preferred share conversion (note 7)

Transactions during 2020

Exercise of stock options

Share-based compensation

Pre-funded warrants - Private Placement

Public Offering

Balance as of December 31, 2020

Transactions in 2020

Net loss and comprehensive loss

Exercise of stock options (note 7)

Share-based compensation (note 7)

Private Placement (note 7)

Public Offering

Transactions during 2021

Exercise of stock options

Private Placement

Share-based compensation

Balance as of December 31, 2021

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Year ended December 31,

Cash flows from

Operating activities

Net loss for the year

Cash flows used in operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of property and equipment (note 5)

Share-based compensation expense (note 7)

Depreciation of property and equipment

Share-based compensation expense

Changes in operating assets and liabilities:

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Prepaid expenses

Operating lease right of use asset, net

Operating lease assets and liabilities

Accounts payable and accrued liabilities

Income taxes payable (receivable)

Net cash used in operating activities

Investing Activities

Acquisition of property and equipment

Cash provided by (used in) investing activities

Acquisition of short-term investments

Maturity of short-term investments

Net cash used in investing activities

Financing activities

Net proceeds from issuance of common shares in Initial Public Offering

Issuance of common shares on exercise of share options (note 7)

Net proceeds from issuance of common shares in a public offering (note 7)

Net proceeds from issuance of pre-funded warrants in a public offering (note 7)

Net proceeds from issuance of pre-funded warrants in a private placement (note 7)

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents during the year

Redemption of short-term investments

Net cash provided by (used in) investing activities

Cash provided by financing activities

Proceeds from exercise of options

Net proceeds from issuance of common shares in a public offering, net of issuance cost

Net proceeds from issuance of pre-funded warrants in a public offering, net of issuance cost

Proceeds from issuance of pre-funded warrants, net of issuance cost

Cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents – Beginning of year

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The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc.

Milestone Pharmaceuticals USA, Inc.

began its operations on March 3, 2017.

All intercompany transactions and balances have been eliminated.

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The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources.

Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, progress of activities performed by the CROs and CMOs which are used to calculate the research and development expense incurred, and share-based compensation.

Accordingly, actual results may differ from those estimates and such differences may be material.

The COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines.

Government orders and restrictions in order to control the spread of the disease have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs.

Significant estimates and judgments include, but are not limited to,

● Estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs, CMOs and clinical trial sites which in turn impact the research & development expenses.

● Estimate of the grant date fair value share options granted to employees, consultants and direct, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The ongoing COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines.

The pandemic has resulted in many state, local and foreign governments implementing, and making adjustments to, various orders and restrictions in order to control the spread of the disease, which have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment.

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The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions while focusing on the development and commercialization of innovative cardiovascular medicines.

d) Revenue Recognition

Collaborative Arrangements

The Company considers the nature and contractual terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity.

If the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity, the Company accounts for such an arrangement as a collaborative arrangement under Accounting Standards Codification (ASC) 808, Collaborative Arrangements (ASC 808), which requires that certain transactions between the Company and collaborators be recorded in its consolidated statements of comprehensive loss on either a gross basis or net basis, depending on the characteristics of the collaborative relationship, and requires enhanced disclosure of collaborative relationships.

The Company evaluates its collaboration agreements for proper classification in its consolidated statements of comprehensive loss based on the nature of the underlying activity.

If payments to and from collaborative partners are not within the scope of other authoritative accounting literature, the consolidated statements of loss classification for the payments is based on a reasonable, rational analogy to authoritative accounting literature that is applied in a consistent manner.

If the Company concludes that it has a customer relationship with one of its collaborators, the Company follows the guidance in Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers (ASC 606).

Revenue from Contracts with Customers

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for these goods and services.

To achieve this core principle, the Company applies the following five steps:

1) identify the customer contract;

2) identify the contract’s performance obligations;

3) determine the transaction price;

4) allocate the transaction price to the performance obligations;

and 5) recognize revenue when or as a performance obligation is satisfied.

The Company evaluates all promised goods and services within a customer contract and determines which of such goods and services are separate performance obligations.

This evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract.

In assessing whether promised goods or services in licensing arrangements are distinct, the Company considers factors such as the stage of development of the underlying intellectual property and the capabilities of the customer to develop the intellectual property on their own or whether the required expertise is readily available.

Licensing arrangements are analyzed to determine whether the promised goods or services, which often include licenses, research and development services and governance committee services, are distinct or whether they must be accounted for as part of a combined performance obligation.

If the license is considered not to be distinct, the license would then be combined with other promised goods

Milestone Pharmaceuticals Inc.

1 unchanged sentence

(in thousands of US dollars, except share and per share data)

d) Cash and cash equivalents

or services as a combined performance obligation.

If the Company is involved in a governance committee, it assesses whether its involvement constitutes a separate performance obligation.

When governance committee services are determined to be separate performance obligations, the Company determines the fair value to be allocated to this promised service.

Certain contracts contain optional and additional items, which are considered marketing offers and are accounted for as separate contracts with the customer if such option is elected by the customer, unless the option provides a material right which would not be provided without entering into the contract.

An option that is considered a material right is accounted for as a separate performance obligation.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer.

A contract may contain variable consideration, including potential payments for both milestone and research and development services.

For certain potential milestone payments, the Company estimates the amount of variable consideration by using the most likely amount method.

In making this assessment, the Company evaluates factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone.

Each reporting period the Company re-evaluates the probability of achievement of such variable consideration and any related constraints.

Milestone will include variable consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

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 among the performance obligations on a relative standalone selling price basis unless a portion of the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation.

The Company allocates the transaction price based on the estimated standalone selling price of the underlying performance obligations or in the case of certain variable consideration to one or more performance obligations.

The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs to complete the respective performance obligation.

Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amount the Company would expect to receive for each performance obligation.

When a performance obligation is satisfied, revenue is recognized for the amount of the transaction price, excluding estimates of variable consideration that are constrained, that is allocated to that performance obligation on a relative standalone selling price basis.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.

For performance obligations consisting of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non- refundable, up-front fees.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company will recognize revenue from non-refundable, up-front fees allocated to the license at the point in time when the license is transferred to the customer and the customer is able to use and benefit from the license.

e) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments that are readily convertible into cash with original maturities of three months or less at acquisition date.

e) Short term investments

Short term investments are classified as held-to-maturity, are initially recognised at fair value and are subsequently accounted for at amortized cost.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

f) Short Term Investments

Short term investments are classified as held-to-maturity, are initially recognized at fair value and are subsequently accounted for at amortized cost.

They are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

f) Concentration of credit risk

g) Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and investment securities classified as held to maturity.

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Additionally, the Company has adopted an investment policy that includes guidelines relative to credit quality, diversification of maturities and liquidity.

g) Currency Risk

h) Currency Risk

The Company is exposed to currency risk due to financial instruments denominated in foreign currencies.

The Company is exposed to the Canadian dollar currency risk and does not enter into arrangements to hedge its currency risk exposure.

h) Property and equipment

i) Property and Equipment

Property and equipment is stated at historical cost less accumulated amortization.

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over the lease-term

Effective January 1, 2019, the Company adopted ASC 842, Leases (ASC 842), using the required modified retrospective approach and utilizing the effective date as its date of initial application.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement.

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Certain adjustments to the right-of-use asset may be required for items such as incentives received.

The interest rate implicit in lease contracts is typically not readily

The interest rate implicit in lease contracts is typically not readily determinable.

As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

Milestone Pharmaceuticals Inc.

1 unchanged sentence

(in thousands of US dollars, except share and per share data)

determinable.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet.

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Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

j) Pre-funded warrants

k) Pre-funded Warrants

Pre-funded warrants allow the holder to pay little or no consideration to receive the shares upon exercise of the warrant.

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As a result, the pre-funded warrants are accounted for as equity instruments.

k) Share issuance costs

l) Share Issuance Costs

Share issuance costs applicable to the issuance of equity instruments are recorded as a reduction of the financing equity proceeds.

l) Research and development and investment tax credits

m) Research and Development and Investment Tax Credits

Research and development costs are charged to expense as costs are incurred in performing research and development activities.

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The Company recognizes the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.

m) Income taxes

n) Income Taxes

The provision for income taxes is computed using the liability method.

1 unchanged sentence

Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

A valuation allowance is recorded to reduce the carrying amount of deferred income

A valuation allowance is recorded to reduce the carrying amount of deferred income tax assets until when it is more likely than not that these assets will be realized.

Tax benefits related to tax positions not deemed to meet the “more-likely-than-not” threshold are not permitted to be recognized in the consolidated financial statements.

o) Foreign Currency Translation and Transactions

The functional currency of the Company is the US dollar.

Accordingly, transactions denominated in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate in effect on the date of

Milestone Pharmaceuticals Inc.

1 unchanged sentence

(in thousands of US dollars, except share and per share data)

tax assets when it is more likely than not that these assets will not be realized.

Tax benefits related to tax positions not deemed to meet the “more-likely-than-not” threshold are not permitted to be recognized in the consolidated financial statements.

n) Foreign currency translation and transactions

The functional currency of the Company is the US dollar.

Accordingly, transactions denominated in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate in effect on the date of the transactions.

the transactions.

At each consolidated balance sheet date, monetary assets and liabilities denominated in currencies other than the functional currency are remeasured using the exchange rate in effect at that date.

1 unchanged sentence

Any gains or losses arising on remeasurement are included in the consolidated statement of operations.

o) Share based compensation

p) Share Based Compensation

The Company has a share based compensation plan which is described in detail in note 8 and records all share-based payments, including grants of employee share options, at their fair values.

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The plan permits the Company to grant a series of purchase rights to eligible employees under an employee stock purchase plan.

p) Recently adopted accounting pronouncements

New Accounting Policies - Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13).

ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments.

ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments.

The Company adopted ASU 2016-13 effective January 1, 2020 and the adoption did not have at the measurement of credit losses.

q) Significant Risks and Uncertainties

The COVID-19 pandemic has had an impact on our business, operations and clinical development timelines.

Government orders and restrictions in order to control the spread of the disease have impacted patient recruitment, enrollment and follow-up visits at clinical sites With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business.

q) Recently Adopted Accounting Pronouncements

The Company has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the consolidated financial statements as a result of future adoption.

r) Significant Risks and Uncertainties

The ongoing COVID-19 pandemic has had an impact on our business, operations and clinical development timelines.

The pandemic has resulted in many state, local and foreign governments implementing various orders and restrictions in order to control the spread of the disease which has impacted patient recruitment, enrollment and follow-up visits at clinical sites In light of the ongoing pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business.

The Company anticipates that the COVID-19 pandemic will continue to have an impact on the development timelines for its clinical programs.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.

The extent to which the COVID-19 pandemic continues to impact its business, its clinical development and regulatory efforts, its corporate development objectives and the value of and market for its common shares will depend on future developments that remain highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, business closure requirements in the U.S., Europe and other countries, the timing and unpredictability of achieving widespread vaccination rates, the effectiveness of any vaccines against new variants, and the timing of the return of the global economy to pre-pandemic levels.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

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and complying with applicable regulatory requirements.

r) Sources of Liquidity and Funding Requirements

Since inception, the Company incurred significant operating losses.

Prior to May 2019, the Company financed its operations primarily through sales of convertible preferred shares to accredited investors generating net proceeds of $138.8 million.

In May 2019, the Company received net proceeds of $85.4 million from its Initial Public Offering (IPO).

In July 2020, the Company received $24.8 million of net proceeds from the private placement of pre-funded warrants to existing shareholders (note 7).

In October 2020, the Company concluded an offering of common shares and pre-funded warrants for net proceeds of $48.2 million (note 7).

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Further, the Company may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation and Russian hostilities in Ukraine and overall fluctuations in the financial markets in the U.S.

s) Sources of Liquidity and Funding Requirements

The Company has incurred operating losses and experienced negative operating cash flows since its inception and anticipates to continue to incur losses for at least the next several years.

As of December 31, 2020, the Company had cash, cash equivalents and short-term investments of $142.3 million and an accumulated deficit of $163.5 million.

As of December 31, 2021, the Company had cash and cash equivalents of $ 114.1 million and an accumulated deficit of $ 206.3 million.

The Company believes that its cash and cash equivalents as of December 31, 2021 are sufficient for the Company to fund planned operations for at least one year from the issuance date of these consolidated financial statements.

The Company has historically financed its operations primarily through the sale of equity securities and, to a lesser extent from cash received pursuant to its license agreement.

To date, the Company has not generated any revenue from product sales.

Management expects operating losses and negative cash flows from operations to continue for the foreseeable future.

The Company currently plans to raise additional funding as required based on the status of its clinical trials and projected cash flows.

There can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company, if at all.

Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending should additional capital not become available could have a material adverse effect on the Company’s ability to achieve its business objectives.

To date, the Company has not generated revenue from product sales.

During the year ended December 31, 2021, the Company recognized revenue of $ 15 million, in the form of a non-refundable upfront cash payment in connection with the License Agreement.

On May 15, 2021, the Company entered into the License Agreement with Ji Xing, which is an entity affiliated with RTW Investments, LP, (RTW) a beneficial owner of approximately 14 % of the Company’s common shares.

Under the License Agreement, the Company granted Ji Xing exclusive development and commercialization rights to any pharmaceutical product that uses a device to deliver the Company’s proprietary calcium channel blocker known as etripamil by nasal spray for all prophylactic and therapeutic uses in humans in the following territories:

People’s Republic of China, including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan (the Territory).

Ji Xing will be responsible for development and regulatory activities in the Territory, and the Company will remain responsible for certain manufacturing activities in the Territory, subject to the supply agreement subsequently entered into by the Company and Ji Xing as contemplated by the License Agreement (the Supply Agreement).

The Company received a non-refundable upfront cash payment of $ 15 million (see note 3) and the right to future payments of up to $ 107.5 million in total development and sales milestone payments.

In addition, the Company is entitled to receive tiered royalty payments ranging from a percentage in the low double digits to the high double digits of Net Sales (as defined in the License Agreement) of all products sold in the Territory.

Strategic Partnerships

Pursuant to the License Agreement, the Company granted Ji Xing exclusive development and commercialization rights to any pharmaceutical product that uses a device to deliver the Company’s proprietary calcium channel blocker known as etripamil by nasal spray for all prophylactic and therapeutic uses in humans in the Territory.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company received a non-refundable upfront cash payment consisting of $ 15 million, and the right to receive up to $ 107.5 million in future milestone payments and royalties on any sales of etripamil in the Territory.

Management evaluated all of the promised goods or services within the contract and determined that such goods and services were separate performance obligations.

The Company determined that the license granted was a separate performance obligation as Ji Xing can benefit from the license granted on its own after the transfer of the license, as it does not require any significant development, regulatory or commercialization activities from Milestone.

Ji Xing is responsible for all development, regulatory and commercialization activities in the Territory, including the performance of clinical trials necessary for regulatory approval, and is responsible for all such related costs.

Supply of the product can be provided by another entity, as the Company currently uses a CMO for the production of etripamil without subsequent significant modification or customization by the Company, therefore the Company determined the obligation to supply product is a separate and distinct obligation.

The Company concluded that the obligation for participation on the various governance committees was distinct as the services could be performed by an outside party, however it was determined to be immaterial after estimating the stand alone cost compared to the License Agreement as a whole.

As a result, the Company concluded there were two material and distinct performance obligations to account for under ASC 606 at the inception of the License Agreement.

The Company determined that the transaction price consists of the $ 15 million non-refundable upfront cash payment and the constrained variable consideration of the development milestone payments.

As the development milestones are contingent on occurrences out of the direct control of the Company, the estimate of the variable consideration is $ 0 .

Variable constraint does not apply to sales- or usage-based royalties derived from the licensing of Intellectual property;

rather, consideration from such royalties is only recognized as revenue at the later of when the performance obligation is satisfied or when the uncertainty is resolved (e.g., when subsequent sales or usage occurs), therefore the sales and royalty milestones are not included in the transaction price.

The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved, or other changes in circumstances occur, adjust its estimate of the transaction price if necessary.

For the year ended December 31, 2021, the Company has recognized the non-refundable upfront payment as collaboration revenue, for the reasons described in the preceding paragraph.

Concurrent with the License Agreement, Ji Xing acquired $ 5 million of pre-funded warrants (see note 8).

The Company considered whether this equity investment should be evaluated as part of the transaction price, and concluded that as the fair value of the company’s common shares on a per share basis was equal to the fair value of the pre-funded warrants at the date of the investment, there was no premium or discount on the shares that should be allocated and included in the transaction price.

The Company accounted for the issuance of pre-funded warrants as equity and included in basic and diluted loss per share in the accompanying financial statements.

See note 8 for additional details.

For any future subsequent purchases of product pursuant to the Supply Agreement, each order will be accounted for as a separate purchase and the order price will be allocated to the products based on the standalone selling price of the products.

Under this methodology, the order price will be allocated to the single performance obligation to supply the products.

As the Company has not previously licensed a product for a territory, the residual approach was used by deducting the estimated stand-alone selling price of the other obligations from the total transaction price to determine the stand-alone selling price of the remaining goods and services, which consisted of the transfer of intellectual property pursuant to the license.

Therefore, the remaining transaction price of $ 15 million was allocated to the technology transfer and recognized at a point in time when the technology has been transferred.

The technology transfer was completed on June 22, 2021, and the $ 15 million was recognized at that point in time as revenue in the related statement of comprehensive loss.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

4 Short-term Investments

Short-term investments are comprised of term deposits issued in US currency, earning interest between 0.30% and 0.86%, maturing between January 29, 2021 and August 16, 2021.

These short-term investments are in scope of ASC 320, Investments - Debt Securities.

The short-term investments maturity is greater than 90 days but less than one year, and they are classified as held to maturity, recorded as current assets and are accounted for at amortized cost.

The Company had no short-term investments as at December 31, 2021.

For the year ended December 31, 2020, the short-term investments were comprised of term deposits issued in US currency, earning interest between 0.30 % and 0.86 %, maturing between January 29, 2021 and August 16, 2021.

These short-term investments were in scope of ASC 320, Investments - Debt Securities.

The short-term investments maturity is greater than 90 days but less than one year, and they were classified as held to maturity, recorded as current assets and were accounted for at amortized cost.

On June 3, 2019, the Company entered into a new lease arrangement for a three-year term for its office located in Charlotte, NC.

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The Company revalued the operating lease right-of-use asset and operating lease liabilities at the effective lease arrangement date of July 1, 2020.

The Company’s examined credit ratings for similar companies, assumed equivalency between the

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Canadian and U.S.

The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S.

markets for collateralized debt and used rates for the remaining lease term of 65 months .

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Opening balance

New operating lease right-of-use asset

Right-of-use adjustment renewal on July 1, 2020

1 unchanged sentence

Closing balance

Operating lease expenses of $318 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the year ended December 31, 2020 [2019 - $277], and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

Operating lease expenses of $ 314 and $ 318 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the year ended December 31, 2021 and 2020, respectively and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at December 31, 2021:

2 unchanged sentences

January 1, 2024 to December 31, 2024

January 1, 2025 to November 30, 2025

5 unchanged sentences

Leasehold improvements

Less accumulated depreciation and amortization

Less accumulated depreciation

Property and equipment, net

During the year ended December 31, 2021 and December 31, 2020, the Company did not record any write off.

For the year ended December 31, 2020, amortization expense was $97 [2019-$38] and was included in research and development expense.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

For the year ended December 31, 2021 and 2020, amortization expense was $ 93 and $ 97 , respectively and was included in research and development expense.

7 Accounts payable and accrued liabilities

1 unchanged sentence

Trade accounts payable

Accrued compensation and benefits payable

Accrued research and development liabilities

Other accrued liabilities

Accrued compensation and benefits payable

8 Shareholders’ Equity

Authorized Share Capital

An unlimited number of common shares, voting and participating, without par value.

In May 2019, the Company completed its initial public offering (IPO).

Upon the closing of the IPO, all outstanding redeemable convertible preferred shares of Class A1, A2, B, C, D1 and D2 (collectively known as Convertible Preferred Shares) converted into 17,550,802 common shares.

As of December 31, 2020, 523,821 common shares were available under the Employee Stock Purchase Plans (ESPP) and no common shares have been issued.

During the year ended December 31, 2020, the Company issued a total of 226,352 common shares [2019 - 33,162] for a total cash consideration of $300 [2019 - $44] pursuant to the exercise of stock options at an average exercise price of $1.33 per share [2019 - $1.33].

As a result, an amount of $220 [2019 - $41] previously included in additional paid-in capital related to the exercised options has been credited to share capital and deducted from additional paid-in capital.

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 29,897,559 shares were issued and outstanding as of December 31, 2021.

As of December 31, 2021, there were 827,187 common shares available for issuance under the Employee Stock Purchase Plans and no common shares have been issued under such plan.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Shelf Registration

On November 12, 2021, the company entered into an agreement and the company may sell any combination of the securities described in this prospectus in one or more offerings up to a total aggregate offering price of $ 250,000,000 .

Pre-funded Warrants – Private Placement

On May 15, 2021, the Company entered into a securities purchase agreement to sell and issue in a private placement pre-funded warrants to purchase up to 910,746 of the Company’s common shares, at a purchase price of $ 5.48 per pre-funded warrant pursuant to the License Agreement for aggregate net proceeds of $ 5.0 million (the Private Placement).

The Private Placement closed on May 21, 2021.

Each pre-funded warrant is exercisable for one of the Company’s common shares at an exercise price of $ 0.01 per share, has no expiration date, and is immediately exercisable, subject to certain beneficial ownership limitations.

The pre-funded warrants are classified and accounted for as equity.

On July 23, 2020, the Company entered into a securities purchase agreement to sell and issue in a private placement pre-funded warrants of 6,655,131 of the Company’s common shares, at a purchase price of $ 3.7465 per pre-funded warrant for aggregate net proceeds of $ 24.8 million (the Private Placement).

9 unchanged sentences

The pre-funded warrants are classified and accounted for as equity.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Additional Paid-in Capital

3 unchanged sentences

Closing balance

Share-based compensation

The Company's board of directors adopted and its shareholders approved the 2019 Equity Incentive Plan (the 2019 Plan) in April 2019, which became effective on May 8, 2019 in connection with the IPO.

Initially, the maximum number of the Company's common shares that may be issued under the 2019 Plan was 4,710,564 shares, which is the sum of (1) 1,923,501 new shares, plus (2) the number of shares (not to exceed 2,787,063 shares) (i) that remained available for the issuance of awards under the Company's Stock Option Plan (the "2011 Plan") at the time the 2019 Plan became effective, and (ii) any shares subject to outstanding options or other share awards that were granted under the 2011 Plan that terminate, expire or are otherwise forfeited, reacquired or withheld.

In addition, the number of the Company's common shares reserved for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2020 through January 1, 2029, in an amount equal to 4% of the total number of the Company's capital shares outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company's board of directors.

As of May 8, 2019, the Company's 2011 Plan was terminated and no further option grants will be made under the 2011 Plan.

Under the 2019 Plan and 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows:

25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36 th ) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on the four-year anniversary of the grant date.

During the year ended December 31, 2020, the Company granted stock options under the 2019 Plan that also vest and are exercisable in equal monthly installments over periods of 12 months to 48 months.

On January 1, 2020, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 980,229 common shares.

In addition, 72,186 options forfeited under the 2011 Plan after adoption of the 2019 Plan and became available for issuance under the 2019 Plan.

As of December 31, 2020, there were 3,369,348 shares available for issuance under the 2019 Plan, of which 1,663,158 shares were available for future grants.

Milestone Pharmaceuticals Inc.

1 unchanged sentence

(in thousands of US dollars, except share and per share data)

The total outstanding and exercisable options from the 2011 Plan and 2019 Plan as at December 31 were as follows:

9 Share Based Compensation

Under the Company’s 2019 Equity Incentive Plan (the 2019 Plan) and the Company’s Stock Option Plan (the 2011 Plan), unless otherwise decided by the Board of Directors, options vest and are exercisable as follows:

25 % vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36 th ) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on four-year anniversary of the grant date.

On November 10th, 2021, the Company established an 2021 Inducement Plan under Nasdaq Marketplace Rules through the granting of awards.

This 2021 Inducement Plan is intended to help the Company provide an inducement material for certain individuals to enter into employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which employees may benefit from increases in value of the common shares.

There were no options granted under the 2021 Inducement Plan for the year ended December 31 2021.

On January 1, 2021, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,193,119 common shares.

In addition, 72,186 options have been forfeited under the 2011 Plan after adoption of the 2019 Plan and became available for issuance under the 2019 Plan.

As of December 31, 2021, there were 4,596,021 shares available for issuance under the 2019 Plan, of which 827,187 shares were available for future grants.

The total outstanding and exercisable options from the 2011 Plan and 2019 Plan as of December 31 were as follows:

Outstanding at beginning of year - 2011 Plan

1 unchanged sentence

Granted - 2019 Plan

Exercised - 2011 Plan

Exercised - 2019 Plan

Forfeited - 2011 Plan

1 unchanged sentence

Cancelled - 2011 Plan

Outstanding at end of year

Outstanding at end of year - Weighted average exercise price

Exercisable at end of year

Exercisable at end of year - Weighted average exercise price

As of December 31, 2020, the weighted average remaining contractual life was 7.86 years [2019 - 7.8 years] for outstanding options.

The weighted average remaining contractual life was 6.91 years for vested options [2019 - 7.0 years].

There were 103,500 options forfeited in 2020 [2019 - 81,097] and there were 2,997 options cancelled in 2020 [2019 - nil]

Options granted are valued using the Black-Scholes option pricing model.

Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ deficit.

The weighted average fair values of options granted in 2020 was $8.98 per share [2019 - $11.81].

Share-based compensation expense recognized for the year ended December 31, 2020 was $4,945 [2019 - $1,191].

As of December 31, 2020, there was $13,012 [2019 - $6,464] of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 2.67 years [2019 - 2.60 years].

Cancelled - 2019 Plan

Expired - 2011 Plan

Outstanding at end of period

Outstanding at end of period - Weighted average exercise price

Exercisable at end of period

Exercisable at end of period - Weighted average exercise price

The weighted average remaining contractual life was 7.81 and 7.86 years for outstanding options as of December 31, 2021 and 2020, respectively.

The weighted average remaining contractual life was 6.80 and 6.91 years for vested options, as of December 31, 2021 and 2020, respectively.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

There was $ 15,324 and $ 13,012 total unrecognized compensation cost related to non-vested share options as of December 31, 2021 and 2020, respectively.

The share options are expected to be recognized over a remaining weighted average vesting period of 2.42 years and 2.67 years as of December 31, 2021 and 2020, respectively.

The non-vested options as of December 31 were as follows:

Non-vested share options at beginning of year - 2011 Plan

1 unchanged sentence

Granted - 2019 Plan

Vested, outstanding 2011 Plan

2 unchanged sentences

Forfeited - 2019 Plan

Non-vested share options at end of year

Non-vested share options at end of year - Weighted average fair value

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

Non-vested share options at end of period

Non-vested share options at end of period - Weighted average fair value

Options granted are valued using the Black-Scholes option pricing model.

Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity.

The following table summarizes information with respect to share options outstanding as of December 31, 2021:

4 unchanged sentences

$ 1.01 -$ 2.00

$ 2.01 -$ 4.00

$ 4.01 -$ 10.00

$ 15.01 -$ 20.00

$ 20.01 -$ 22.45

The intrinsic value of all outstanding options as of December 31, 2021 was $ 11.7 million, based on the fair value of our common shares of $ 6.55 per share at December 31, 2021, of which $ 9.8 million related to vested options and $ 1.9 million related to unvested options.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The fair value of share-based payment transaction is measured using Black-Scholes valuation model.

This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values:

The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted for the years ended December 31, 2020 and 2019:

Exercise price

2 unchanged sentences

Expected volatility is determined using comparable companies for which the information is publicly available.

The risk-free interest rate is determined based on the US sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option.

The risk-free interest rate is determined based on the U.S.

sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option.

Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

1 unchanged sentence

Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

No compensation expense is recorded related to an award for which the transfer to the employee is contingent on the attainment of a performance target until it becomes probable that the performance target will be met.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company recognized share-based compensation expense as follows at December 31, 2020 and 2019:

The Company recognized share-based compensation expense as follows for the year ended December 31:

Administration

8 unchanged sentences

Amounts in the table above reflect the common share equivalents of the noted instruments.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

11 Income taxes

15 unchanged sentences

Research and development tax credits and expenditures are subject to verification by the tax authorities, and, accordingly, these amounts may vary.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company has incurred NOLs for U.S.

4 unchanged sentences

The net deferred tax assets have not been recognized in these financial statements because the criteria for recognition of these assets were not met.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

The Company’s deferred tax assets consist of the following for the years ended December 31, 2021 and 2020:

14 unchanged sentences

The investment tax credits recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities.

These amounts (expressed in thousands of US dollars) have been recorded as a reduction of research and development expenditures for an amount of $373 for the year ended December 31, 2020 [2019 - $392].

These amounts (expressed in thousands of US dollars) have been recorded as a reduction of research and development expenditures the year ended December 31, 2021 and 2020 for an amount of $ 458 and $ 373 , respectively.

13 Commitments

1 unchanged sentence

These contracts generally provide for termination on notice, and therefore are cancellable contracts.

Therefore, as at December 31, 2020 there are no contractual commitments, except for office leases (note 4).

Therefore, as at December 31, 2021 there are no contractual commitments, except for office leases (see note 5).

14 Currency risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates.

The foreign currency risk is limited to the portion of the Company’s business transactions

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

denominated in currency other than US dollars.

The foreign currency risk is limited to the portion of the Company’s business transactions denominated in currency other than US dollars.

The following table provides an indication of the Company’s exposure to the Canadian dollar, which is expressed in US dollars as of December 31:

Other receivables

Operating lease assets

Accounts payable and accrued liabilities

Operating lease liabilities

Net financial position exposure

The Company does not enter into arrangements to hedge its currency risk exposure.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

(in thousands of US dollars, except share and per share data)

15 Fair value of financial instruments

8 unchanged sentences

Valuations based on unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company’s fair value hierarchy for all its financial assets (by major security type measured at fair value on a recurring basis) for the year ended December 31, 2020, the Company held a Guaranteed investment certificate at Level 1 with a fair value of $70.

For the year ended December 31, 2019 is nil, as there was no financial instruments measured at fair value on a recurring basis as of that date.

The Company’s fair value hierarchy for all its financial assets (by major security type measured at fair value on a recurring basis) for the year ended December 31, 2021 is nil , as there was no financial instruments measured at fair value on a recurring basis as of that date.

For the year ended December 31, 2020, the Company held a Guaranteed investment certificate at Level 1 with a fair value of $ 70 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data