Portage Biotech (PRTG) - 2024 Q3 - Quarterly Report

Condensed Consolidated Interim Financial Statements Condensed Consolidated Interim Statements of Financial Position As of December 31, 2023, Portage Biotech's total assets and equity significantly declined, primarily due to reduced cash and a substantial impairment of In-process R&D assets Condensed Consolidated Interim Statements of Financial Position (in thousands USD) | | December 31, 2023 (Unaudited) | March 31, 2023 (Audited) | | :--- | :--- | :--- | | Total current assets | $7,516 | $13,676 | | Total non-current assets | $41,519 | $85,453 | | Total assets | $49,035 | $99,129 | | Total current liabilities | $2,708 | $1,865 | | Total non-current liabilities | $14,997 | $21,869 | | Total liabilities | $17,705 | $23,734 | | Total equity | $31,330 | $75,395 | | Total liabilities and equity | $49,035 | $99,129 | - Cash and cash equivalents decreased from $10.5 million to $5.3 million between March 31, 2023, and December 31, 2023[5] - In-process research and development (IPR&D) assets decreased significantly from $81.7 million to $34.8 million, primarily due to an impairment loss[5] - A new warrant liability of $7.4 million was recorded as of December 31, 2023, which was not present at March 31, 2023[5] Condensed Consolidated Interim Statements of Operations and Other Comprehensive Income (Loss) For the nine months ended December 31, 2023, the company reported a significantly increased net loss of $50.5 million, primarily due to a substantial IPR&D impairment loss Statement of Operations Highlights (in thousands USD, except per share amounts) | | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Research and development | $10,636 | $5,976 | | General and administrative expenses | $4,316 | $6,523 | | Loss from operations | ($14,952) | ($12,499) | | Impairment loss - iOx IPR&D | ($46,922) | $– | | Net loss | ($50,469) | ($10,211) | | Total comprehensive loss | ($47,025) | ($14,228) | | Loss per share (Basic and diluted) | ($2.68) | ($0.65) | - A significant impairment loss of $46.9 million related to iOx In-Process R&D was recognized in the third quarter of 2023[6] - The company recorded a loss of $2.4 million and offering costs of $0.7 million related to a Registered Direct Offering in the third quarter of 2023[6] Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Shareholders' equity significantly decreased from $76.0 million to $32.0 million, primarily driven by the $50.5 million net loss for the period Changes in Equity Attributable to Owners (in thousands USD) | | Amount | | :--- | :--- | | Balance, April 1, 2023 | $76,045 | | Share-based compensation expense | $2,248 | | Shares issued under ATM (net) | $662 | | Net unrealized gain on investments | $3,444 | | Net loss for period | ($50,450) | | Balance, December 31, 2023 | $31,999 | Condensed Consolidated Interim Statements of Cash Flows Net cash used in operating activities increased to $11.2 million for the nine months ended December 31, 2023, leading to a $5.2 million decrease in cash and cash equivalents Cash Flow Summary (in thousands USD) | | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($11,176) | ($7,392) | | Net cash used in investing activities | $– | ($617) | | Net cash provided by (used in) financing activities | $5,972 | ($2,239) | | Decrease in cash and cash equivalents | ($5,204) | ($10,248) | | Cash and cash equivalents at beginning of period | $10,545 | $23,352 | | Cash and cash equivalents at end of period | $5,341 | $13,104 | - The net loss of $50.5 million was adjusted for significant non-cash items, including a $46.9 million impairment loss and a $10.6 million decrease in deferred tax liability[8] Notes to Condensed Consolidated Interim Financial Statements These notes detail accounting policies, a going concern warning, strategic shifts, significant IPR&D impairment, new warrant liabilities, and subsequent events including asset sales Note 1: Nature of Operations Portage Biotech, a clinical-stage immuno-oncology company, has strategically shifted focus to its adenosine platform, pausing the iNKT program to explore partnership options - The company is a clinical-stage immuno-oncology company focused on therapies targeting checkpoint resistance pathways[12] - Due to funding requirements, the company has shifted focus to its adenosine platform (ADPORT-601 trial) and paused the PORT-2 iNKT program[12] Note 2: Going Concern The company's ability to continue as a going concern is in significant doubt due to limited cash reserves and capital raising constraints from the 'Baby Shelf Rule' - As of December 31, 2023, the company had cash of $5.3 million and reported a net loss of $50.5 million for the nine-month period[15] - Current cash is anticipated to be sufficient only through the end of September 2024, raising significant doubt about the company's ability to continue as a going concern[17] - The ability to raise capital is constrained by the 'Baby Shelf Rule' (General Instruction I.B.5 to Form F-3) because the company's non-affiliate public float is below $75 million[17] Note 9: Acquisition of Tarus The company acquired Tarus Therapeutics in July 2022 for $17.2 million in shares and potential $32 million in milestones, adding $28.2 million in IPR&D assets Tarus Purchase Price Allocation (in thousands USD) | Assets: | | (In thousands) | | :--- | :--- | :--- | | Identifiable intangible assets | $ | 28,200 | | Goodwill | | 538 | | Total assets | $ | 28,738 | | Consideration: | | | | Fair value of shares issued | $ | 17,200 | | Liabilities assumed | | 3,000 | | Deferred purchase consideration at fair value | | 8,538 | | Total liabilities | $ | 28,738 | - The acquisition includes potential milestone payments of up to $32 million in cash or shares, with $15 million due upon enrolling the first patient in a Phase 2 trial[63][65] Note 10: In-Process Research and Development and Deferred Tax Liability IPR&D assets significantly decreased to $34.8 million due to a $46.9 million impairment charge on iOx programs, following a decision to pause their development - The company recognized a $46.9 million impairment loss on its iOx IPR&D (PORT-2 and PORT-3) for the three and nine months ended December 31, 2023[69] - The impairment was triggered by the decision to pause development of the iNKT programs (PORT-2 and PORT-3) and an assessment of capital market conditions and partnership likelihood[69] IPR&D Breakdown (in thousands USD) | Project | Description | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | :--- | | iOx (PORT-2 & PORT-3) | Melanoma, Lung, Ovarian/Prostate Cancers | $10,968 | $57,890 | | Tarus (PORT-6 to 9) | Adenosine Receptors | $23,615 | $23,615 | | Oncomer/Saugatuck | DNA Aptamers | $178 | $178 | | Total IPR&D | | $34,761 | $81,683 | Note 11: Warrant Liability A new $7.4 million warrant liability was recorded as of December 31, 2023, due to a cash redemption feature in warrants issued from an October 2023 offering - Series B, Series C, and Placement Agent Warrants are accounted for as financial liabilities due to a potential cash redemption feature upon a 'Fundamental Transaction'[39][74] Warrant Liability Roll-Forward (in thousands USD) | | Warrants | Fair Value | | :--- | :--- | :--- | | Balance, April 1, 2023 | – | $– | | Fair value at issuance (Oct 3, 2023) | 6,473,685 | $8,432 | | Change in fair value of warrant liability | – | ($989) | | Balance, December 31, 2023 | 6,473,685 | $7,443 | - The company allocated the net proceeds of $5.3 million from the offering to the warrant liability and recognized an excess fair value of $3.1 million, recorded as a $2.4 million loss on the offering and $0.7 million in offering expenses[74] Note 13: Capital Stock The company raised approximately $0.7 million from ATM sales and $5.3 million from a Registered Direct Offering, while a $30 million committed purchase agreement remains limited by regulatory constraints - Sold 186,604 ordinary shares under the ATM program, generating net proceeds of approximately $0.7 million in the nine months to Dec 31, 2023[104] - Closed a Registered Direct Offering and Private Placement in October 2023, raising approximately $5.3 million in net proceeds[108] - The company has a $30 million Committed Purchase Agreement with Lincoln Park Capital, but its use is limited by trading volume and the 'Baby Shelf Rule'[101][102] Note 16: Commitments and Contingent Liabilities Significant commitments include a $12.1 million clinical service agreement with Fortrea, while a $11.5 million Parexel agreement was terminated, and contingent liabilities exist for acquisition earnouts - The company has a clinical service agreement with Fortrea Inc. with budgeted costs of approximately $12.1 million[134] - A Master Services Agreement with Parexel for a Phase 2 trial was terminated after the company paused the iNKT program; a settlement is under negotiation[133] - Contingent liabilities exist for potential earnout payments related to the Tarus acquisition and the iOx Share Exchange Agreement[142] Note 17: Related Party Transactions This note details related party transactions, including executive employment agreements with specified salaries and severance terms, and board compensation arrangements - The CEO's employment agreement for Fiscal Year 2024 includes a base salary of $642,700 and a performance bonus target of 59% of base salary[156] - Upon a change in control, executives are entitled to severance benefits, including salary continuation and full vesting of all unvested equity awards[159][164] - The deferred obligation for the iOx milestone earnout, valued at $4.1 million at March 31, 2023, was reduced to zero as of December 31, 2023, resulting in a gain, due to the pausing of the related clinical programs[155][184] Note 18: Financial Instruments and Risk Management This note details financial instrument classification, fair value hierarchy, and significant exposures to liquidity, credit, and foreign currency risks - The company faces significant liquidity risk, acknowledging that as an early-stage biotech without internal cash flows, its ability to fund operations depends on securing additional financing[193] - The investment in Intensity Therapeutics was transferred from Level 3 to Level 1 in the fair value hierarchy after Intensity's IPO on June 30, 2023[180][185] - Level 3 financial liabilities include the Warrant Liability ($7.4M) and the Deferred Purchase Price Payable - Tarus ($7.3M), which are valued using models with unobservable inputs like success probabilities and discount rates[171][180][183] Note 21: Events After the Balance Sheet Date Subsequent to December 31, 2023, the company began liquidating its investment in Intensity Therapeutics, selling 486,213 shares for $2.1 million in net proceeds by February 26, 2024 - In January 2024, the company began selling its shares in Intensity Therapeutics on Nasdaq[200] - As of February 26, 2024, the company had sold 486,213 shares of Intensity for net proceeds of $2.1 million[200]