What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-29 · 170 added, 134 removed, 511 unchanged (37% of the section changed)

11 unchanged sentences

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

and its subsidiary (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of loss, shareholders’ equity 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, 2023 and 2022, and the related consolidated statements of loss, shareholders’ equity and cash flows for 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, 2023 and 2022, 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.

6 unchanged sentences

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

18 unchanged sentences

Total current assets

Operating lease assets

Operating lease right-of-use assets

Property and equipment

5 unchanged sentences

Operating lease liabilities, net of current portion

Senior secured convertible notes

Total liabilities

14 unchanged sentences

Loss from operations

Interest income, net

Interest income

Interest expense

Net loss and comprehensive loss

10 unchanged sentences

Exercise of stock options

Private Placement

Exercise of prefunded warrants, net of issuance costs

( 3,809,523 )

Share-based compensation

4 unchanged sentences

Exercise of stock options

Exercise of prefunded warrants, net of issuance costs

( 3,809,523 )

Pre-funded warrants - Private Placement, net of issuance costs

Share-based compensation

Issuance of common shares, net of issuance costs

Exchange of common shares

( 1,059,000 )

Employee stock purchase plan purchases

Balance as of December 31, 2023

3 unchanged sentences

(in thousands of US dollars)

Year ended December 31,

Years ended December 31,

Cash flows used in operating activities

1 unchanged sentence

Depreciation of property and equipment

Accretion/Amortization of investment discount/premium

Amortization of debt costs

Accretion of investment discount

Non-cash interest expense related to debt

Share-based compensation expense

15 unchanged sentences

Proceeds from exercise of warrants

Proceeds from issuance of senior secured convertible debt

Issuance of common shares, net of issuance costs

Net Proceeds from issuance of pre-funded warrants in a private placement (note 6)

Pre-funded warrants issuance costs

Proceeds from employee stock purchase plan

Payment of debt issuance costs

Cash provided by financing activities

19 unchanged sentences

GAAP), including the applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding financial reporting.

The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the year.

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,

● 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.

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

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

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

53 unchanged sentences

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.

Cash and cash equivalents consist of cash and highly liquid investments that are readily convertible into cash with original maturities of 90 days or less at acquisition date.

f) Short-Term Investments

3 unchanged sentences

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

The Company maintains deposits in financial institutions.

Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

The Company maintains deposits at major financial institutions.

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

46 unchanged sentences

The Company determines the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services based on facts and circumstances known to the Company as of each consolidated balance sheet date.

The actual costs and timing of clinical trials are highly uncertain, subject of risks and may change depending upon a number of factors, including the Company’s clinical development plan.

The actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including the Company’s clinical development plan.

If the actual timing of the performance of services of the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

11 unchanged sentences

Non-monetary assets and liabilities and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions.

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

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

p) Share Based Compensation

9 unchanged sentences

The Company approved an employee share purchase plan in April 2019, which became effective on May 8, 2019 and is described in note 9.

The plan provides a means by which eligible employees of the Company and certain designated companies may be given an opportunity to purchase common shares.

The plan provides a means by which eligible employees of the Company may be given an opportunity to purchase common shares.

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

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.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is evaluating the effect of adopting this new accounting guidance on its financial statements, but does not intend to early adopt.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).

The amendments also require entities on an annual basis to disclose disaggregated amounts of income taxes paid.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The Company is evaluating the effect of adopting this new accounting guidance on its financial statements, but does not intend to early adopt.

r) Significant Risks and Uncertainties

6 unchanged sentences

and complying with applicable regulatory requirements.

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.

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

s) Sources of Liquidity and Funding Requirements

1 unchanged sentence

As of December 31, 2023, the Company had cash and cash equivalents and short-term investments of $ 66.0 million and an accumulated deficit of $ 326.0 million.

The Company believes that its cash and cash equivalents as of December 31, 2022, in addition to the financing agreement (see Note 16) signed on March 27, 2023, which provides $ 50 million of cash, 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.

Management has evaluated the Company’s operating plan against its existing cash and cash equivalents and determined that the Company expects to be able to support its operations for at least the next 12 months from the date of issuance of these consolidated financial statements.

The Company has historically financed its operations primarily through the sale of equity securities, convertible notes 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.

The Company currently plans to raise additional funding as required based on the status of its clinical trials, progress of New Drug Application, or NDA, filing, 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 generated revenue of $ 5.0 million and $ 15.0 million for the year ended December 31, 2022 and December 31, 2021, respectively.

This revenue is from the license agreement with Ji Xing and is comprised of upfront and milestone payments.

Failure to generate sufficient cash flows from operations, raise

Milestone Pharmaceuticals Inc.

1 unchanged sentence

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

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.

The Company recorded revenue of $ 1.0 million for the year ended December 31, 2023.

This revenue was the result of having reached a milestone pursuant to our License and Collaboration Agreement, dated May 15, 2021, with Ji Xing Pharmaceuticals Limited (such party “Ji Xing” and , such agreement, the “Ji Xing License Agreement”) due upon the successful initiation of a Phase 1 Clinical Trial of a pharmaceutical product that uses a device to deliver etripamil by nasal spray by or on behalf of Ji Xing for the treatment of PSVT in the People’s Republic of China (the “Territory”), including mainland China, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan.

The Company recorded revenue of $ 5.0 million for the year ended December 31, 2022.

This revenue was related to two milestones reached as a result of the first patient dosed in a Phase 3 Clinical Trial for the treatment of PSVT in the Territory pursuant to the Ji Xing License Agreement and the successful completion of a Phase 3 clinical trial for the treatment of PSVT in the United States.

Strategic Partnerships

On May 15, 2021, the Company entered into the License Agreement with Ji Xing, which is an entity affiliated with RTW Investments, LP, or RTW, a beneficial owner of approximately 9.7 % of the Company’s common shares, as of December 31, 2023.

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).

1 unchanged sentence

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.

The Company received $ 5 million in milestone payments during the year ended December 31, 2022.

These milestone payments were reached as a result of the successful completion of our Phase 3 clinical trial in the U.S.

for the treatment of PSVT and the initiation of a Phase 3 clinical trial for etripamil in mainland China.

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

4 unchanged sentences

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, 2022, the Company has recognized the $ 5 million of the $ 107.5 million in future milestone payments as 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.

4 Short-term Investments

As of December 31, 2023, short-term investments of $ 52.2 million were comprised of term deposits issued in US currency, earning interest between 5.53 % and 5.95 %, maturing between January 16, 2024 and June 19, 2024.

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

The short-term investments maturity is greater than

Milestone Pharmaceuticals Inc.

1 unchanged sentence

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

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.

4 Short-term Investments

For the year ended December 31, 2022, the short-term investments of $ 56.9 million were comprised of term deposits issued in US currency, earning interest between 3.14 % and 5.18 %, maturing between January 3, 2023 and May 2, 2023.

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.

Interest income earned on short-term investments is reported in interest income, net.

The Company had no short-term investments for the year ended December 31, 2021.

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.

Interest income earned on short-term investments is reported in interest income.

The Company had short-term investments of $ 56.9 million as of December 31, 2022.

On May 20, 2022, the Company entered into a new lease arrangement for a 62-month term for new office space located in Charlotte, NC.

8 unchanged sentences

The 5-year lease term is from December 1, 2020 expiring on November 30, 2025.

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 recorded 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 Canadian and U.S.

3 unchanged sentences

The Company is not reasonably certain of renewing the lease following the current renewal option and recognized the right-of-use asset and operating lease liabilities to November 30, 2025.

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

The Company recognized the operating lease right-of-use asset and operating lease liabilities at the lease commencement date on September 10, 2019.

The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt.

As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments.

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

markets for collateralized debt and used rates over the three-year period.

This resulted in an incremental borrowing rate of 8 %.

Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

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

recognized the right-of-use asset and operating lease liabilities over the three-year period ending September 30, 2022.

This lease was terminated as of September 30, 2022.

The Company's two operating office leases right-of-use assets as at December 31 were as follows:

The Company's operating office leases right-of-use assets as at December 31 were as follows:

Opening balance

2 unchanged sentences

Closing balance

Operating lease expenses of $ 490 and $ 314 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, 2022 and 2021, respectively and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at December 31, 2022:

January 1, 2023 to December 31, 2023

Operating lease expenses of $ 681 and $ 490 are included in general and administrative operating expenses in the consolidated statement of loss, and within operating activities in the statement of cash flows for the years ended December 31, 2023 and 2022, respectively and are comprised of two operating lease right-of-use assets and one operating lease of less than 12 months.

The following table summarizes the future minimum lease payments of right-of-use assets operating leases as at December 31, 2023:

January 1, 2024 to December 31, 2024

3 unchanged sentences

Less interest

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

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

6 Property and equipment

5 unchanged sentences

Property and equipment, net

During the year ended December 31, 2022, the Company recorded a disposal of $ 348 , which resulted in a loss of $ 141 .

No disposal was recorded for the year ended December 31, 2023.

For the year ended December 31, 2022 and 2021, depreciation expense was $ 89 and $ 93 , respectively 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)

During the year ended December 31, 2022, the Company recorded a disposal of $ 348 , which resulted in a loss of $ 141 .

For the years ended December 31, 2023 and 2022, depreciation expense was $ 92 and $ 89 , respectively.

7 Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprised the following as of December 31:

December 31, 2022

December 31, 2021

Trade accounts payable

1 unchanged sentence

Accrued research and development liabilities

Accrued commercial liabilities

Other accrued liabilities

2 unchanged sentences

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 33,483,111 shares were issued and outstanding as of December 31, 2023.

As of December 31, 2022, there were 1,121,076 common shares available for issuance under the Employee Stock Purchase Plans and no common shares have been issued under such plan.

In August 2022, the Company issued and sold 361,236 common shares under the Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, for proceeds of $ 2.6 million (net of issuance costs of $ 0.1 million).

As of December 31, 2023, there were 1,463,936 common shares available for issuance under the Employee Stock Purchase Plan, or the “ESPP”.

The Company has issued 142,006 shares of common stock pursuant to the ESPP as of December 31, 2023.

In August 2022, the Company issued and sold 361,236 common shares under the Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, for proceeds of $ 2.6 million (net of issuance costs of $ 0.1 million).

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.

Open Market Sale Agreement

On July 29, 2020, the Company entered into an Open Market Sale Agreement℠ with respect to an at-the-market offering program (ATM Program) under which the Company may issue and sell its common shares having an aggregate offering price of up to $ 50 million.

The Company has not sold shares under the ATM program as of the date of this filing.

Pre-funded Warrants and Common Shares – Public Offering

On October 22, 2020, the Company issued (i) 5,095,897 common shares, without par value, at a price to the public of $ 5.25 per share, and (ii) pre-funded warrants to purchase 4,761,903 common shares at an exercise price equal to $ 0.01 per share, at a price to the public of $ 5.24 per common share underlying the pre-funded warrants (the Offering).

The net proceeds to the Company from the Offering were $ 48.2 million.

In October 2022, 3,809,523 common shares of the pre-funded warrants were exercised at $ 0.01 per share.

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

Milestone Pharmaceuticals Inc.

1 unchanged sentence

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

Additional Paid-in Capital

Opening balance

Share-based compensation expense

Exercise of stock options

Closing balance

Pre-funded Warrants – Exchange Agreement

On March 22, 2023, the Company entered into an exchange agreement, or the “Exchange Agreement”, with entities affiliated with RTW, or the “Exchanging Stockholders”, pursuant to which the Company exchanged an aggregate of 1,059,000 shares of the Company’s common shares owned by the Exchanging Stockholders for pre-funded warrants, or the Exchange Warrants, to purchase an aggregate of 1,059,000 common shares, with an exercise price of $ 0.001 per share and no expiration date.

The Exchange Warrants are exercisable immediately and no additional cash consideration was rendered in exchange for the warrants.

A holder of the Exchange Warrants (together with its affiliates and other attribution parties) may not exercise any portion of an Exchange Warrant to the extent that immediately prior to or after giving effect to such exercise the holder, together with its affiliates, would beneficially own more than 9.99 % of the Company’s outstanding common shares immediately after exercise, which percentage may be increased or decreased to any other percentage specified not in excess of 9.99 % at the holder's election upon 61 days ' notice to the Company subject to the terms of the Exchange Warrants.

Open Market Sale Agreement

The Company has sold 361,236 shares under the ATM program as of the date of this filing.

9 Share Based Compensation

1 unchanged sentence

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

On November 10, 2021, the Company established a 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 523,000 granted and 20,000 options cancelled for the year ended December 31, 2022.

As of December 31, 2023, there were 1,000,000 shares available for issuance under the 2021 Inducement Plan, of which 375,000 shares were available for future grants.

On January 1, 2022 and on July 5, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,195,902 and 1,000,000 common shares, respectively.

In addition, 125,323 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, 2022, there were 6,811,506 shares available for issuance under the 2019 Plan, of which 1,433,105 shares were available for future grants.

On January 1, 2023 and on January 1, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,371,440 and 1,195,902 common shares, respectively.

Further, on July 5, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,000,000 common shares.

In addition, 125,323 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan.

As of December 31, 2023, 561,000 of previously issued options had been cancelled under the 2019 Plan and were available for future grants.

As of December 31, 2023, there were 8,182,946 common shares available for issuance under the 2019 Plan, of which 1,704,960 common shares were available for future grants.

On July 15, 2022, the Company offered an Employee Share Purchase Plan, or ESPP, in which participation is available to substantially all of our employees in the United States and Canada who meet certain service eligibility requirements.

As of December 31, 2022, the Company has 1,121,076 common shares available under the ESPP with no common shares issued under this plan.

As of December 31, 2023, the Company has 1,463,936 common shares available under the ESPP.

As of December 31, 2023, the Company has issued 142,006 shares of common stock pursuant to the ESPP.

Milestone Pharmaceuticals Inc.

5 unchanged sentences

Outstanding at beginning of year - 2019 Plan

Outstanding at beginning of year - Inducement Plan

Granted - 2019 Plan

2 unchanged sentences

Exercised - 2011 Plan

Forfeited - Inducement Plan

Forfeited - 2019 Plan

Forfeited - 2011 Plan

Expired - 2019 Plan

Expired - 2011 Plan

Cancelled - 2019 Plan

Outstanding at end of period

6 unchanged sentences

Granted - 2019 Plan

Granted - Inducement Plan

Exercised - 2019 Plan

Exercised - 2011 Plan

Forfeited - Inducement Plan

Forfeited - 2019 Plan

9 unchanged sentences

The share options are expected to be recognized over a remaining weighted average vesting period of 2.27 years and 2.36 years as of December 31, 2023 and 2022, respectively.

For the year ending December 31, 2023, there were 561,000 shares cancelled under the 2019 plan, which resulted in additional share-based compensation expense of $ 0.6 million.

Milestone Pharmaceuticals Inc.

1 unchanged sentence

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

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

2 unchanged sentences

Non-vested share options at beginning of year - 2019 Plan

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

Granted - 2019 Plan

4 unchanged sentences

( 1,504,329 )

Forfeited - 2011 Plan

Expired - 2019

Forfeited - Inducement Plan

Vested, outstanding Inducement Plan

Forfeited - 2019 Plan

5 unchanged sentences

Granted - 2019 Plan

Granted - Inducement Plan

Vested, outstanding 2011 Plan

Forfeited - 2011 Plan

Forfeited - Inducement Plan

Forfeited - 2019 Plan

Vested, outstanding 2019 Plan

( 1,376,791 )

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, 2023:

13 unchanged sentences

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

The intrinsic value of all outstanding options as of December 31, 2022 was $ 3.8 million, based on the fair value of our common shares of $ 3.96 per share at December 31, 2022.

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

The fair value of options 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:

Year ended December 31,

Exercise price

7 unchanged sentences

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

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

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

Administration

1 unchanged sentence

Commercial activities

On March 27, 2023, we entered into a note purchase agreement, or the “Note Purchase Agreement”, with RTW Investments LP and certain of its affiliates, or collectively, RTW .

On March 29, 2023, we closed the transactions contemplated by the Note Purchase Agreement, and issued and sold $ 50.0 million principal amount of 6.0 % Convertible Senior Notes due 2029, or the “2029 Convertible Notes”, to the holders.

The 2029 Convertible Notes are senior secured obligations and are guaranteed on a senior secured basis by our wholly owned subsidiary, Milestone Pharmaceuticals USA, Inc.

Interest at the annual rate of 6.0 % is payable quarterly in cash or, at our option, payable in kind for the first three years .

The maturity date for the 2029 Convertible Notes is March 31, 2029, the “Maturity Date”.

The obligations under the 2029 Convertible Notes are secured by substantially all of our and our subsidiary guarantor’s assets.

Each $ 1,000 of principal of the 2029 Convertible Notes (including any interest added thereto as payment in kind) is convertible into 191.0548 shares of our common shares, equivalent to an initial conversion price of approximately $ 5.23 per share, subject to customary anti-dilution and other adjustments.

In addition, following a notice of redemption or certain corporate events that occur prior to the Maturity Date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2029 Convertible Notes in connection with such notice of redemption or corporate event.

On or after March 27, 2027, the 2029 Convertible Notes are redeemable by us, subject to certain conditions, if the closing sale price of the common shares exceeds 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on

Milestone Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

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

which we provide notice of redemption, at a redemption price equal to 100 % of the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the Convertible Notes, the Company determined there were no embedded features, which require bifurcation between debt and equity components.

As a result, the Convertible Notes are accounted for as a liability.

As of December 31, 2023, the estimated fair value of the Convertible Notes was approximately $ 44.3 million based on level 2 inputs.

The net carrying amount of the Convertible Note were as follows:

As of December 31,

Original principal

Paid in kind (PIK) interest

Unamortized debt discount

Unamortized debt issuance costs

The following table presents the total amount of interest cost recognized relating to the 2029 Convertible Notes:

Year ended December 31,

Contractual interest expense

Amortization of debt discount

Amortization of debt issuance costs

Total interest expense

11 Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period.

Share-based compensation shares have been excluded from the calculation because their effects would be anti-dilutive.

Therefore, the weighted average number of shares used to calculate both basic and diluted loss per share are the same.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of December 31, 2022 and 2021, as they would be anti-dilutive:

In addition to the conversion feature on the 2029 Convertible Notes described above, which the Company reviewed and concluded that if-converted would be anti-dilutive due to the facts surrounding the feature, the following potentially dilutive securities have also been excluded from the computation of diluted weighted average shares outstanding as of December 31, as they would be anti-dilutive:

Share options

15 unchanged sentences

Valuation allowance for prior year adjustment

Income tax expense recovery reported in the consolidated statements of loss and comprehensive loss

Income tax expense (recovery) reported in the consolidated statements of loss

The Company has incurred Canadian federal and provincial net operating losses (NOLs) from inception.

15 unchanged sentences

Tax basis of property and equipment in excess of carrying values

Tax basis of right of use assets

Tax basis of lease liability

Tax basis of reserves

Federal SR&ED investment tax credits

2 unchanged sentences

Financing costs

Stock based compensation

Change in tax rates

Total gross deferred tax assets

Valuation allowance

Total Net deferred tax assets

Less Valuation allowance

Net deferred tax assets

2 unchanged sentences

13 Government assistance

The Company incurred research and development expenditures that are eligible for investment tax credits.

The Company incurs research and development expenditures that are eligible for investment tax credits.

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 the year ended December 31, 2022 and 2021 for an amount of $ 456 and $ 458 , respectively.

These amounts have been recorded as a reduction of research and development expenditures the years ended December 31, 2023 and 2022 for an amount of $ 312 and $ 456 , respectively.

14 Commitments

25 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.

For the years ending December 31, 2022 and December 31, 2021, the Company’s fair value hierarchy for all its financial assets was $ 0 , as there were no financial instruments measured at fair value on a recurring basis as of that date.

For the years ending December 31, 2023 and December 31, 2022, there were no financial instruments measured at fair value on a recurring or non-recurring basis.

17 Royalty Purchase Agreement

On March 27, 2023, we entered into a purchase and sale agreement, or the “Royalty Purchase Agreement”, with RTW and certain of its affiliates.

Pursuant to the Royalty Purchase Agreement, RTW agreed to purchase, following the U.S.

Food and Drug Administration approval of etripamil (subject to certain conditions), in exchange for a purchase price of $ 75.0 million, the right to receive a tiered quarterly royalty payments, or the “Royalty Interest”, on the annual net product sales of etripamil in the United States in an amount equal to:

(i) 7 %, or the “Initial Tier Royalty”, of annual net sales up to $ 500 million, (ii) 4 % of annual net sales greater than $ 500 million and less than or equal to $ 800 million, and (iii) 1 % of annual net sales greater than $ 800 million.

If certain revenue thresholds for aggregate annual net sales are not met, the Initial Tier Royalty will increase to 9.5 % beginning on January 1 of the following calendar year until a subsequent sales threshold is attained, at which time the Initial Tier Royalty would revert back to 7 %.

Based on the Company’s assessment of the terms and conditions under the Royalty Purchase Agreement, there is no accounting recognition required in these financial statements.

18 Other receivables

Other receivables comprised the following as of December 31:

Interest receivable

Sales tax receivable

Clinical receivable

Other current receivable

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, 2023, the Company recognized a clinical receivable of $ 2.4 million for clinical upfront payments made to the CRO that completed the NODE-303 trial.

The Company recognized no clinical receivables for the year ended December 31, 2022.

19 Subsequent Events

On March 22, 2023, we entered into an exchange agreement, or the Exchange Agreement, with entities affiliated with RTW, or the Exchanging Stockholders, pursuant to which the Company exchanged an aggregate of 1,059,000 shares of the Company’s common shares owned by the Exchanging Stockholders for pre-funded warrants, or the Exchange Warrants, to purchase an aggregate of 1,059,000 common shares, with an exercise price of $ 0.001 per share and no expiration date.

The Exchange Warrants are exercisable immediately.

A holder of the Exchange Warrants (together with its affiliates and other attribution parties) may not exercise any portion of an Exchange Warrant to the extent that immediately prior to or after giving effect to such exercise the holder would beneficially own more than 9.99 % of the Company’s outstanding common shares immediately after exercise, which percentage may be increased or decreased to any other percentage specified not in excess of 9.99 % at the holder's election upon 61 days ’ notice to the Company subject to the terms of the Exchange Warrants.

On March 27, 2023, the Company entered into certain strategic financing agreements (the “Strategic Financing Agreements”) with affiliates of RTW, an existing shareholder, and certain of its affiliates, which will provide up to $ 125 million in funding to support the development and potential commercial launch of etripamil.

Pursuant to the Strategic Financing Agreements, the Company will receive $ 50 million in exchange for Senior Secured Convertible Notes carrying a 6.0 % coupon and having a six-year maturity.

Additionally, upon satisfactory FDA approval of etripamil to treat PSVT in adults with expected contradictions, and subject to other customary closing conditions, we will sell our right to receive certain payments on the net sales of products containing etripamil and any forms or formulations of etripamil in the United States of America in exchange for $ 75 million.

Under the Strategic Financing Agreements, RTW will be entitled to receive tiered future payments, based on annual aggregate net sales, as follows:

7 % up to $ 500 million;

4 % greater than $ 500 million and up to $ 800 million;

and 1 % above $ 800 million.

RTW is eligible to receive an additional 2.5 % for annual aggregate net sales up to $ 500 million if etripamil does not meet certain annual sales thresholds.

Financing Transaction

On February 28, 2024, we entered into an underwriting agreement, or the Underwriting Agreement, related to an underwritten public offering, or the Offering, of 16,666,667 of our common shares, without par value, at a public offering price of $ 1.50 per share and, in lieu of common shares to certain investors, pre-funded warrants to purchase 3,333,333 Shares at a public offering price of $ 1.499 per pre-funded warrant.

Under the terms of the Underwriting Agreement, we granted the Underwriters an option to purchase up to an additional 3,000,000 common shares at the same price per share as the other common shares sold in the Offering, which was exercised by the Underwriters in full on February 29, 2024.

Each pre-funded warrant has an exercise price of $ 0.001 per share.

The pre-funded warrants were exercisable immediately upon issuance, subject to certain beneficial ownership limitations.

The net proceeds to the Company from the Offering, including the proceeds from the exercise by the Underwriters of their option to purchase the additional 3,000,000 common shares in full, was approximately $ 32.4 million after deducting underwriting commissions and offering expenses payable by the Company.

The Offering closed on March 4, 2024.

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