Description of Business
PureTech Health plc (\u201cPureTech,\u201d the \u201cParent\u201d or the \u201cCompany\u201d) is a public company incorporated, domiciled and registered in the United Kingdom (\u201cUK\u201d). The registered number is 09582467 and the registered address is 8th Floor, 20 Farringdon Street, London EC4A 4AB, United Kingdom.
PureTech\u2019s group financial statements consolidate those of the Company and its subsidiaries (together referred to as the \u201cGroup\u201d). The Parent company financial statements present financial information about the Company as a separate entity and not about its Group.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in\u00a0these group financial statements.
Basis of Presentation
The consolidated financial statements of the Group are presented as of December 31, 2022 and 2021, and for the years ended\u00a0December 31, 2022, 2021 and 2020. The Group financial statements have been approved by the Directors on April\u00a027, 2023, and are prepared in accordance with UK-adopted International Financial Reporting Standards (IFRSs). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board (IASB). UK-adopted IFRSs differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact for the periods presented.
For presentation of the Consolidated Statements of Comprehensive Income/(Loss), the Company uses a classification based on the function of expenses, rather than based on their nature, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice.
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All\u00a0percentages have been calculated using unrounded amounts.
Basis of Measurement
The consolidated financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments held at fair value, short-term and convertible note from associate and liabilities classified as fair value through the profit or loss.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group\u2019s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis.
Significant estimation is applied in determining the following:
\u2022Financial instruments valuations (Note 16): when estimating the fair value of subsidiary preferred shares, subsidiary warrants, and subsidiary convertible notes carried at fair value through profit and loss (FVTPL) as well as investments held at fair value, at initial recognition and upon subsequent measurement. Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, earnings potential of the subsidiary businesses, appropriate discount rate, appropriate volatility, appropriate term to exit and other industry and company specific risk factors.
Significant judgement is also applied in determining the following:
\u2022Subsidiary preferred shares liability classification (Note 15): when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment of whether the financial instruments include any embedded derivative features, whether they include contractual obligations of the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgements and estimates is included below under Financial Instruments.
\u2022When the power to control the subsidiaries exists (please refer to Notes 5 and 6 and accounting policy below Subsidiaries). This judgement includes an assessment of whether the Company has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of the investor\u2019s returns. The Company considers among others its voting shares, shareholder agreements, ability to appoint board members, representation on the board, rights to appoint management, de facto control, investee dependence on the Company etc. If the power to control investees exists we consolidate the financial statements of such investee in the consolidated financial statements of the Group. Upon issuance of new shares in a subsidiary and/or a change in any shareholders or governance agreements, the Group reassesses its ability to control the investee based on the revised voting interest and board composition and revised subsidiary governance and management structure. When such new circumstances result in the Group losing its power to control the investee, the investee is deconsolidated.
\u2022Whether the Company has significant influence over financial and operating policies of investees in order to determine if the Company should account for its investment as an associate based on IAS 28 or based on IFRS 9, Financial Instruments (please refer to Note 5). This judgement includes, among others, an assessment whether the Company has representation on the Board of Directors of the investee, whether the Company participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Company and the investee.
\u2022Upon determining that the Company does have significant influence over the financial and operating policies of an investee, if the Company holds more than a single instrument issued by its equity-accounted investee, judgement is required to determine whether the additional instrument forms part of the investment in the associate, which is accounted for under IAS 28 and scoped out of IFRS 9, or it is a separate financial instrument that falls in the scope of IFRS 9 (please refer to Notes 5 and 6). This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Company and whether such financial instrument provides access to returns underlying an ownership interest.
\u2022Where the company has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute Long-Term Interests for the purposes of IAS 28 (please refer to Notes 5 and 6). This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments (please also refer to accounting policy with regard to Investments in Associates below). When the Group considered the individual facts and circumstances of the Group\u2019s investment in its associate's preferred stock in the manner described above, including the long-term nature of such investment, the ability of the Group to convert its preferred stock investment to an investment in common shares and the likelihood of such conversion, we concluded that such investment was considered a Long Term Interest.
As of December 31, 2022, the Group had cash and cash equivalents of $149.9\u00a0million and short-term investments of $200.2\u00a0million. Considering the Group\u2019s and the Company's financial position as of December 31, 2022, and its principal risks and opportunities, a going concern analysis has been prepared for at least the twelve-month period from the date of signing the Consolidated Financial Statements (\"the going concern period\") utilizing realistic scenarios and applying a severe but plausible downside scenario. Even under the downside scenario, the analysis demonstrates the Group and the Company continue to maintain sufficient liquidity headroom and continue to comply with all financial obligations. The Directors believe the Group and the Company is adequately resourced to continue in operational existence for at least the twelve-month period from the date of signing the Consolidated Financial Statements. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements and the PureTech Health plc Financial Statements.
Basis of consolidation
The consolidated financial information as of December 31, 2022 and 2021, and for each of the years ended\u00a0December 31, 2022, 2021 and 2020, comprises an aggregation of financial information of the Company and the consolidated financial information of PureTech Health LLC (\u201cPureTech LLC\u201d). Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated.
Subsidiaries
As used in these financial statements, the term subsidiaries refers to entities that are controlled by the Group. Financial results of subsidiaries of the Group as of December 31, 2022, are reported within the Internal segment, Controlled Founded Entities segment or the Parent Company and Other section (please refer to Note 4). Under applicable accounting rules, the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights, board representation, shareholders' agreements, ability to appoint Directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in\u00a0a\u00a0subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a\u00a0deficit balance.
A list of all current and former subsidiaries organized with respect to classification as of December 31, 2022, and the Group\u2019s total voting percentage, based on outstanding voting common and preferred shares as of December 31, 2022, 2021 and 2020, is outlined below. All current subsidiaries are domiciled within the United States and conduct business activities solely within the United States.
Voting percentage at December 31, through the holdings in | ||||||||
2022 | 2021 | 2020 | ||||||
Subsidiary | Common | Preferred | Common | Preferred | Common | Preferred | ||
Subsidiary operating companies | ||||||||
Alivio Therapeutics, Inc.1,2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 91.9 | ||
Entrega, Inc. (indirectly held through Enlight)1,2 | \u2014 | 77.3 | \u2014 | 77.3 | \u2014 | 83.1 | ||
Follica, Incorporated1,2 | 28.7 | 56.7 | 28.7 | 56.7 | 28.7 | 56.7 | ||
PureTech LYT (formerly Ariya Therapeutics, Inc.) | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
PureTech LYT-100 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
PureTech Management, Inc.3 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
PureTech Health LLC3 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
Vedanta Biosciences, Inc.1,2 | \u2014 | 47.0 | \u2014 | 48.6 | \u2014 | 59.3 | ||
Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)1,2 | \u2014 | 47.0 | \u2014 | 48.6 | \u2014 | 59.3 | ||
Deconsolidated former subsidiary operating\u00a0companies | ||||||||
Sonde Health, Inc.1,2,5 | \u2014 | 40.2 | \u2014 | 51.8 | \u2014 | 51.8 | ||
Akili Interactive Labs, Inc.6 | 14.7 | \u2014 | \u2014 | 26.7 | \u2014 | 41.9 | ||
Gelesis, Inc.1,2,6 | 22.8 | \u2014 | 4.8 | 19.7 | 4.9 | 20.2 | ||
Karuna Therapeutics, Inc.1,2 | 3.1 | \u2014 | 5.6 | \u2014 | 12.6 | \u2014 | ||
Vor Biopharma Inc.1,2 | 4.1 | \u2014 | 8.6 | \u2014 | \u2014 | 16.4 | ||
Nontrading holding companies | ||||||||
Endra Holdings, LLC (held indirectly through Enlight)2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
Ensof Holdings, LLC (held indirectly through Enlight)2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
PureTech Securities Corp.2 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
PureTech Securities II Corp.2 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
Inactive subsidiaries | ||||||||
Appeering, Inc.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
Commense Inc.2 | \u2014 | 99.1 | \u2014 | 99.1 | \u2014 | 99.1 | ||
Enlight Biosciences, LLC2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
Ensof Biosystems, Inc. (held indirectly through Enlight)1,2 | 57.7 | 28.3 | 57.7 | 28.3 | 57.7 | 28.3 | ||
Knode Inc. (indirectly held through Enlight)2 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | ||
Libra Biosciences, Inc.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
Mandara Sciences, LLC2 | 98.3 | \u2014 | 98.3 | \u2014 | 98.3 | \u2014 | ||
Tal Medical, Inc.1,2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 |
1\u00a0\u00a0\u00a0\u00a0The voting percentage is impacted by preferred shares that are classified as liabilities, which results in the ownership percentage not being the same as the ownership percentage used in allocations to non-controlling interests disclosed in Note 18. The allocation of losses/profits to the noncontrolling interest is based on the holdings of\u00a0subordinated stock that provide ownership rights in the subsidiaries. The ownership of liability classified preferred shares are quantified in Note 15.
2\u00a0\u00a0\u00a0\u00a0Registered address is Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801, USA.
3\u00a0\u00a0\u00a0\u00a0Registered address is 2711 Centerville Rd., Suite 400, Wilmington, DE 19808, USA.
4\u00a0\u00a0\u00a0\u00a0The Company\u2019s interests in its subsidiaries are predominantly in the form of preferred shares, which have a liquidation preference over the common stock, are convertible into common stock at the holder\u2019s discretion or upon certain liquidity events, are entitled to one vote per share on all matters submitted to shareholders for a vote and entitled to receive dividends when and if declared. In the case of Enlight, Mandara and PureTech Health LLC, the holdings are membership interests in an LLC. The holders of common stock are entitled to one vote per share on all matters submitted to shareholders for a vote and entitled to receive dividends when and if declared.
5\u00a0\u00a0\u00a0\u00a0On May 25, 2022 PureTech lost control over Sonde and Sonde was deconsolidated from the Group\u2019s financial statements, resulting in only the profits and losses generated by Sonde through the deconsolidation date being included in the Group\u2019s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5 and 6 for further details about the accounting for the investments in Sonde subsequent to deconsolidation.
6\u00a0\u00a0\u00a0\u00a0See Notes 5 and 6 for the Gelesis and Akili SPAC merger and for the exchange of the Group's preferred stock investments for common stock of those entities.
Change in subsidiary ownership and loss of control
Changes in the Group\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (\u201cNCI\u201d). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any\u00a0resulting gain or loss is recognized as profit or loss in the Consolidated Statements of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The\u00a0Group evaluates if it maintains significant influence over associates by assessing if the Group has lost the power to\u00a0participate in the financial and operating policy decisions of the associate.
Application of the equity method to associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation they are initially recorded at fair value at the date of deconsolidation. The consolidated financial statements include the Group\u2019s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases.
To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument held by PureTech is accounted for in accordance with IFRS 9 as investments held at fair value.
When the Group\u2019s share of losses exceeds its equity method investment in the investee, losses are applied against Long-Term Interests, which are investments accounted for under IFRS 9. Investments are determined to be Long-Term Interests when they are long-term in nature and in substance they form part of the Group's net investment in that associate. This determination is impacted by many factors, among others, whether settlement by the investee through redemption or repayment is planned or likely in the foreseeable future, whether the investment can be converted and/or is likely to be converted to common stock or other equity instrument and other factors regarding the nature of the investment. Whilst this assessment is dependent on many specific facts and circumstances of each investment, typically conversion features whereby the investment is likely to convert to common stock or other equity instruments would point to the investment being a Long-Term Interest. Similarly, where the investment is not planned or likely to be settled through redemption or repayment in the foreseeable future, this would indicate that the investment is a Long-Term Interest. When the net investment in the associate, which includes the Group\u2019s investments in other long-term interests, is reduced to nil, recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.
The Group has also adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 (see below) when equity method losses are applied against Long-Term Interests (LTI). The amendments provide the annual sequence in which both standards are to be applied in such a case. The Group has applied the equity method losses to the LTIs presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
\u2022Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and
\u2022Those to be measured at amortized cost.
The classification depends on the Group\u2019s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are recorded in profit or loss. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI. As of balance sheet dates, none of the Company's financial assets are accounted for as FVOCI.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets that are carried at FVTPL are expensed.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables.
Financial Assets
The Group\u2019s financial assets consist of cash and cash equivalents, investments in debt securities, trade and other receivables, notes, restricted cash deposits and investments in equity securities. The Group\u2019s financial assets are virtually all classified into the following categories: investments held at fair value, notes, trade and other receivables, short-term investments and cash and cash equivalents. The Group determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired.
Investments held at fair value are investments in equity instruments that are not held for trading. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments in the Group's associates that are not providing access to returns underlying ownership interests. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date. The Company elects if the gain or loss will be recognized in Other Comprehensive Income/(Loss) or through profit and loss on an instrument by instrument basis. The Company has elected to record the changes in fair values for the financial assets falling under this category through profit and loss. Please refer to Note 5.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss) as applicable.
The notes from an associate, since their contractual terms do not consist solely of cash flow payments of principal and interest on the principal amount outstanding, such notes are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Short term investments consist of short-term US treasury bills that are held to maturity. The contractual terms consist solely of payment of the principal and the Group's business model is to hold the treasury bills to maturity. As such, such short term investments are recorded at amortized cost. As of balance sheet date amortized cost approximated the fair value of such short-term investments.
Trade and other receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any expected lifetime losses. Such losses are determined taking into account previous experience, credit rating and economic stability of counterparty and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision. As of balance sheet date, The Group did not incur or record any such expected lifetime losses. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
Financial Liabilities
The Group\u2019s financial liabilities consist of trade and other payables, subsidiary notes payable, long-term loan, preferred shares, and warrant liability.
Warrant liabilities are initially recognized at fair value. After initial recognition, these financial liabilities are re-measured at\u00a0FVTPL using an appropriate valuation technique.
Subsidiary notes payable without embedded derivatives and the long-term loan are accounted for at amortized cost.
The majority of the Group\u2019s subsidiaries have preferred shares and certain notes payable with embedded derivatives, which are classified as current liabilities. When the Group has preferred shares and notes with embedded derivatives that qualify for bifurcation, the Group has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the instrument qualifies to be accounted for under such FVTPL method.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32:
1.They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable to the Group; and
2.Where the instrument will or may be settled in the Group\u2019s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group\u2019s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Group\u2019s own shares, the amounts presented in the Group's shareholders' equity exclude amounts in relation to those shares.
Changes in the fair value of liabilities at FVTPL are recognized in Net finance income (costs) in the Consolidated Statements of\u00a0Comprehensive Income/(Loss) as applicable.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.
The majority of the Group\u2019s contract revenue is generated from licenses and services, some of which are part of collaboration\u00a0arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, PureTech has entered into transactions that generate revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for Government Grants. Contract revenue is recognized at either a point-in-time or over time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model:
\u2022Identify the contract(s) with a customer \u2013 A contract with a customer exists when (i) the Group enters into an enforceable contract with a customer that defines each party\u2019s rights regarding the goods or services to be transferred and identifies the\u00a0payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on\u00a0the customer\u2019s intent and ability to pay the promised consideration.
\u2022Identify the performance obligations in the contract \u2013 Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Group, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
\u2022Determine the transaction price \u2013 The transaction price is determined based on the consideration to which the Group will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Group estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Group\u2019s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
\u2022Allocate the transaction price to the performance obligations in the contract \u2013 If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
\u2022Recognize revenue when (or as) the Group satisfies a performance obligation \u2013 The Group satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Revenue generated from services agreements (typically where licenses and related services were combined into one performance obligation) is determined to be recognized over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity\u2019s performance as the entity performs; (b) the entity\u2019s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity\u2019s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
It was determined that the Group has contracts that meet criteria (a), since the customer simultaneously receives and consumes the benefits provided by the Company\u2019s performance as the Company performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Company believes that in research and development service type agreements using costs incurred to date represents the most faithful depiction of the entity\u2019s performance towards complete satisfaction of a performance obligation.
Revenue from licenses that are not part of a combined performance obligation are recognized at a point in time due to the licenses relating to intellectual property that has significant stand-alone functionality and as such represent a right to use the entity's intellectual property as it exists at the point in time at which the license is granted.
Royalty income received in respect of licensing agreements is recognized as the related third party sales in the licensee occur.
Amounts that are receivable or have been received per contractual terms but have not been recognized as revenue since performance has not yet occurred or has not yet been completed are recorded as deferred revenue. The Company classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Income
The Company recognizes grants from governmental agencies as grant income in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that the Company will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Company evaluates the conditions of each grant as of each reporting date to ensure that the Company has reasonable assurance of meeting the conditions of each grant arrangement and that it is\u00a0expected that the grant payment will be received as a result of meeting the necessary conditions.
The Company submits qualifying expenses for reimbursement after the Company has incurred the research and development expense. The Company records an unbilled receivable upon incurring such expenses. In cases were grant income is received prior to the expenses being incurred or recognized, the amounts received are deferred until the related expense is incurred and/or recognized. Grant income is recognized in the Consolidated Statements of Comprehensive Income/(Loss) at the time in\u00a0which the Company recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
These consolidated financial statements are presented in United States dollars (\u201cUS dollars\u201d). The functional currency of all\u00a0members of the Group is the U.S. dollar. The Group's share in foreign exchange differences in associates were reported in\u00a0Other Comprehensive Income/(Loss).
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on remeasurement are recognized in the Consolidated Statement of Comprehensive Income/(Loss). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using\u00a0the exchange rate at the date of the transaction.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.
Share Capital
Ordinary shares are classified as equity. The Group's equity is comprised of share capital, share premium, merger reserve, other reserve, translation reserve, and retained earnings/accumulated deficit.
Treasury Shares
Treasury shares are recognized at cost and are deducted from shareholders' equity. No gain or loss is recognized in profit and loss for the purchase, sale, re-issue or cancellation of the Company's own equity shares
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes\u00a0expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.\u00a0Depreciation is calculated using the straight-line method over the estimated useful life of the related asset:
Laboratory and manufacturing equipment | 2-8 years |
Furniture and fixtures | 7 years |
Computer equipment and software | 1-5 years |
Leasehold improvements | 5-10 years, or the remaining term of the lease, if shorter |
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses with finite useful lives, are carried at historical cost less accumulated amortization, if amortization has commenced. Intangible assets with finite lives are amortized from the time they are available for their intended use. Amortization is calculated using the straight-line method to allocate the costs of patents and licenses over their estimated useful lives.
Research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are presented as In-Process Research and Development (IPR&D). IPR&D is not amortized since it is not yet available for its intended use, but it is evaluated for potential impairment on an annual basis or more frequently when facts and circumstances warrant.
Impairment
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there are indicators of impairment. If any such indicators of impairment exist, then an asset\u2019s recoverable amount is estimated. The recoverable amount is the higher of an asset\u2019s fair value less cost of disposal and value in use.
The Company\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at\u00a0least annually.
An impairment loss is recognized when an asset\u2019s carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non- financial asset instrument is impaired, an impairment loss is recognized in the Consolidated Statements of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only if, objective evidence indicates that one or more events, which occurred after the initial recognition, have had an impact on the future cash flows from the net investment and that impact can be reliably estimated. If an impairment exists the Company measures an impairment by comparing the carrying value of the net investment in the associate to its recoverable amount and recording any excess as an impairment loss. See Note 6 for impairment recorded in respect of an investment in associate during the year ended December 31, 2022.
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation due to past service provided by the employee, and the obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the periods during which related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
Share-based Payments
Share-based payment arrangements, in which the Group receives goods or services as consideration for its own equity instruments, are accounted for as equity-settled share-based payment transactions (except certain restricted stock units \u2013 see below) in accordance with IFRS 2, regardless of how the equity instruments are obtained by the Group. The grant date fair value of employee share-based payment awards is recognized as an expense with a corresponding increase in equity over the requisite service period related to the awards. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Certain restricted stock units are treated as liability settled awards starting in 2021. Such awards are remeasured at every reporting date until settlement date and are recognized as compensation expense over the requisite service period. Differences in remeasurement are recognized in profit and loss. The cumulative cost that will ultimately be recognized in respect of these awards will equal to the amount at settlement.
The fair value of the awards is measured using option pricing models and other appropriate models, which take into account the terms and conditions of the awards granted. See further details in Note 8.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). In accordance with IAS 38 development costs are capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group can demonstrate its ability to use or sell the intangible asset, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and it is able to measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is, generally, when regulatory approval has been received where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving meaningful recurring sales. Otherwise, the development expenditure is recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). As\u00a0of\u00a0balance sheet date the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statements of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at\u00a0a\u00a0pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate (and some minor equipment) for use in operations. These leases generally have lease terms of 1\u00a0to 10 years. The Group includes options that are reasonably certain to be exercised as part of the determination of the lease term. The group determines if an arrangement is a lease at inception of the contract in accordance with guidance detailed in IFRS 16. ROU assets represent the Group\u2019s right to use an underlying asset for the lease term and lease liabilities represent the Group's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Group's leases do not provide an implicit rate, The Group used its estimated incremental borrowing rate, based on information available at commencement date, in determining the present value of future payments.
The Group\u2019s leases are virtually all leases of real estate.
The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for:
\u2022Leases with a term of 12 months or less and containing no purchase options; and
\u2022Leases where the underlying asset has a value of less than $5,000.
The right-of-use asset is depreciated on a straight-line basis and the lease liability gives rise to an interest charge.
Further information regarding the subleases, right of use asset and lease liability can be found in Note 21.
Finance Income and Finance Costs
Finance income is comprised of income on funds invested in U.S. treasuries, income on money market funds and income on a\u00a0finance lease. Financing income is recognized as it is earned. Finance costs comprise mainly of loan, notes and lease liability interest expenses and the changes in the fair value of financial liabilities carried at FVTPL (such changes can consist of finance income when the fair value of such financial liabilities decreases).
Taxation
Tax on the profit or loss for the year comprises current and deferred income tax. In accordance with IAS 12, tax is recognized in the Consolidated Statements of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets with respect to investments in associates are recognized only to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Fair Value Measurements
The Group\u2019s accounting policies require that certain financial assets and certain financial liabilities be measured at their fair value.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
\u2022Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2022Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
\u2022Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The carrying amount of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable, accrued expenses and other current liabilities in the Group\u2019s Consolidated Statements of Financial Position approximates their fair value because of the short maturities of these instruments.\u00a0
Operating Segments
Description of Business
PureTech Health plc (\u201cPureTech,\u201d the \u201cParent\u201d or the \u201cCompany\u201d) is a public company incorporated, domiciled and registered in the United Kingdom (\u201cUK\u201d). The registered number is 09582467 and the registered address is 8th Floor, 20 Farringdon Street, London EC4A 4AB, United Kingdom.
PureTech\u2019s group financial statements consolidate those of the Company and its subsidiaries (together referred to as the \u201cGroup\u201d). The Parent company financial statements present financial information about the Company as a separate entity and not about its Group.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in\u00a0these group financial statements.
Basis of Presentation
The consolidated financial statements of the Group are presented as of December 31, 2022 and 2021, and for the years ended\u00a0December 31, 2022, 2021 and 2020. The Group financial statements have been approved by the Directors on April\u00a027, 2023, and are prepared in accordance with UK-adopted International Financial Reporting Standards (IFRSs). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board (IASB). UK-adopted IFRSs differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact for the periods presented.
For presentation of the Consolidated Statements of Comprehensive Income/(Loss), the Company uses a classification based on the function of expenses, rather than based on their nature, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice.
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All\u00a0percentages have been calculated using unrounded amounts.
Basis of Measurement
The consolidated financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments held at fair value, short-term and convertible note from associate and liabilities classified as fair value through the profit or loss.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group\u2019s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis.
Significant estimation is applied in determining the following:
\u2022Financial instruments valuations (Note 16): when estimating the fair value of subsidiary preferred shares, subsidiary warrants, and subsidiary convertible notes carried at fair value through profit and loss (FVTPL) as well as investments held at fair value, at initial recognition and upon subsequent measurement. Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, earnings potential of the subsidiary businesses, appropriate discount rate, appropriate volatility, appropriate term to exit and other industry and company specific risk factors.
Significant judgement is also applied in determining the following:
\u2022Subsidiary preferred shares liability classification (Note 15): when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment of whether the financial instruments include any embedded derivative features, whether they include contractual obligations of the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgements and estimates is included below under Financial Instruments.
\u2022When the power to control the subsidiaries exists (please refer to Notes 5 and 6 and accounting policy below Subsidiaries). This judgement includes an assessment of whether the Company has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of the investor\u2019s returns. The Company considers among others its voting shares, shareholder agreements, ability to appoint board members, representation on the board, rights to appoint management, de facto control, investee dependence on the Company etc. If the power to control investees exists we consolidate the financial statements of such investee in the consolidated financial statements of the Group. Upon issuance of new shares in a subsidiary and/or a change in any shareholders or governance agreements, the Group reassesses its ability to control the investee based on the revised voting interest and board composition and revised subsidiary governance and management structure. When such new circumstances result in the Group losing its power to control the investee, the investee is deconsolidated.
\u2022Whether the Company has significant influence over financial and operating policies of investees in order to determine if the Company should account for its investment as an associate based on IAS 28 or based on IFRS 9, Financial Instruments (please refer to Note 5). This judgement includes, among others, an assessment whether the Company has representation on the Board of Directors of the investee, whether the Company participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Company and the investee.
\u2022Upon determining that the Company does have significant influence over the financial and operating policies of an investee, if the Company holds more than a single instrument issued by its equity-accounted investee, judgement is required to determine whether the additional instrument forms part of the investment in the associate, which is accounted for under IAS 28 and scoped out of IFRS 9, or it is a separate financial instrument that falls in the scope of IFRS 9 (please refer to Notes 5 and 6). This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Company and whether such financial instrument provides access to returns underlying an ownership interest.
\u2022Where the company has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute Long-Term Interests for the purposes of IAS 28 (please refer to Notes 5 and 6). This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments (please also refer to accounting policy with regard to Investments in Associates below). When the Group considered the individual facts and circumstances of the Group\u2019s investment in its associate's preferred stock in the manner described above, including the long-term nature of such investment, the ability of the Group to convert its preferred stock investment to an investment in common shares and the likelihood of such conversion, we concluded that such investment was considered a Long Term Interest.
As of December 31, 2022, the Group had cash and cash equivalents of $149.9\u00a0million and short-term investments of $200.2\u00a0million. Considering the Group\u2019s and the Company's financial position as of December 31, 2022, and its principal risks and opportunities, a going concern analysis has been prepared for at least the twelve-month period from the date of signing the Consolidated Financial Statements (\"the going concern period\") utilizing realistic scenarios and applying a severe but plausible downside scenario. Even under the downside scenario, the analysis demonstrates the Group and the Company continue to maintain sufficient liquidity headroom and continue to comply with all financial obligations. The Directors believe the Group and the Company is adequately resourced to continue in operational existence for at least the twelve-month period from the date of signing the Consolidated Financial Statements. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements and the PureTech Health plc Financial Statements.
Basis of consolidation
The consolidated financial information as of December 31, 2022 and 2021, and for each of the years ended\u00a0December 31, 2022, 2021 and 2020, comprises an aggregation of financial information of the Company and the consolidated financial information of PureTech Health LLC (\u201cPureTech LLC\u201d). Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated.
Subsidiaries
As used in these financial statements, the term subsidiaries refers to entities that are controlled by the Group. Financial results of subsidiaries of the Group as of December 31, 2022, are reported within the Internal segment, Controlled Founded Entities segment or the Parent Company and Other section (please refer to Note 4). Under applicable accounting rules, the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights, board representation, shareholders' agreements, ability to appoint Directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in\u00a0a\u00a0subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a\u00a0deficit balance.
A list of all current and former subsidiaries organized with respect to classification as of December 31, 2022, and the Group\u2019s total voting percentage, based on outstanding voting common and preferred shares as of December 31, 2022, 2021 and 2020, is outlined below. All current subsidiaries are domiciled within the United States and conduct business activities solely within the United States.
Voting percentage at December 31, through the holdings in | ||||||||
2022 | 2021 | 2020 | ||||||
Subsidiary | Common | Preferred | Common | Preferred | Common | Preferred | ||
Subsidiary operating companies | ||||||||
Alivio Therapeutics, Inc.1,2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 91.9 | ||
Entrega, Inc. (indirectly held through Enlight)1,2 | \u2014 | 77.3 | \u2014 | 77.3 | \u2014 | 83.1 | ||
Follica, Incorporated1,2 | 28.7 | 56.7 | 28.7 | 56.7 | 28.7 | 56.7 | ||
PureTech LYT (formerly Ariya Therapeutics, Inc.) | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
PureTech LYT-100 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
PureTech Management, Inc.3 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
PureTech Health LLC3 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
Vedanta Biosciences, Inc.1,2 | \u2014 | 47.0 | \u2014 | 48.6 | \u2014 | 59.3 | ||
Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)1,2 | \u2014 | 47.0 | \u2014 | 48.6 | \u2014 | 59.3 | ||
Deconsolidated former subsidiary operating\u00a0companies | ||||||||
Sonde Health, Inc.1,2,5 | \u2014 | 40.2 | \u2014 | 51.8 | \u2014 | 51.8 | ||
Akili Interactive Labs, Inc.6 | 14.7 | \u2014 | \u2014 | 26.7 | \u2014 | 41.9 | ||
Gelesis, Inc.1,2,6 | 22.8 | \u2014 | 4.8 | 19.7 | 4.9 | 20.2 | ||
Karuna Therapeutics, Inc.1,2 | 3.1 | \u2014 | 5.6 | \u2014 | 12.6 | \u2014 | ||
Vor Biopharma Inc.1,2 | 4.1 | \u2014 | 8.6 | \u2014 | \u2014 | 16.4 | ||
Nontrading holding companies | ||||||||
Endra Holdings, LLC (held indirectly through Enlight)2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
Ensof Holdings, LLC (held indirectly through Enlight)2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
PureTech Securities Corp.2 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
PureTech Securities II Corp.2 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | ||
Inactive subsidiaries | ||||||||
Appeering, Inc.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
Commense Inc.2 | \u2014 | 99.1 | \u2014 | 99.1 | \u2014 | 99.1 | ||
Enlight Biosciences, LLC2 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | ||
Ensof Biosystems, Inc. (held indirectly through Enlight)1,2 | 57.7 | 28.3 | 57.7 | 28.3 | 57.7 | 28.3 | ||
Knode Inc. (indirectly held through Enlight)2 | \u2014 | 86.0 | \u2014 | 86.0 | \u2014 | 86.0 | ||
Libra Biosciences, Inc.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
Mandara Sciences, LLC2 | 98.3 | \u2014 | 98.3 | \u2014 | 98.3 | \u2014 | ||
Tal Medical, Inc.1,2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 |
1\u00a0\u00a0\u00a0\u00a0The voting percentage is impacted by preferred shares that are classified as liabilities, which results in the ownership percentage not being the same as the ownership percentage used in allocations to non-controlling interests disclosed in Note 18. The allocation of losses/profits to the noncontrolling interest is based on the holdings of\u00a0subordinated stock that provide ownership rights in the subsidiaries. The ownership of liability classified preferred shares are quantified in Note 15.
2\u00a0\u00a0\u00a0\u00a0Registered address is Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801, USA.
3\u00a0\u00a0\u00a0\u00a0Registered address is 2711 Centerville Rd., Suite 400, Wilmington, DE 19808, USA.
4\u00a0\u00a0\u00a0\u00a0The Company\u2019s interests in its subsidiaries are predominantly in the form of preferred shares, which have a liquidation preference over the common stock, are convertible into common stock at the holder\u2019s discretion or upon certain liquidity events, are entitled to one vote per share on all matters submitted to shareholders for a vote and entitled to receive dividends when and if declared. In the case of Enlight, Mandara and PureTech Health LLC, the holdings are membership interests in an LLC. The holders of common stock are entitled to one vote per share on all matters submitted to shareholders for a vote and entitled to receive dividends when and if declared.
5\u00a0\u00a0\u00a0\u00a0On May 25, 2022 PureTech lost control over Sonde and Sonde was deconsolidated from the Group\u2019s financial statements, resulting in only the profits and losses generated by Sonde through the deconsolidation date being included in the Group\u2019s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5 and 6 for further details about the accounting for the investments in Sonde subsequent to deconsolidation.
6\u00a0\u00a0\u00a0\u00a0See Notes 5 and 6 for the Gelesis and Akili SPAC merger and for the exchange of the Group's preferred stock investments for common stock of those entities.
Change in subsidiary ownership and loss of control
Changes in the Group\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (\u201cNCI\u201d). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any\u00a0resulting gain or loss is recognized as profit or loss in the Consolidated Statements of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The\u00a0Group evaluates if it maintains significant influence over associates by assessing if the Group has lost the power to\u00a0participate in the financial and operating policy decisions of the associate.
Application of the equity method to associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation they are initially recorded at fair value at the date of deconsolidation. The consolidated financial statements include the Group\u2019s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases.
To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument held by PureTech is accounted for in accordance with IFRS 9 as investments held at fair value.
When the Group\u2019s share of losses exceeds its equity method investment in the investee, losses are applied against Long-Term Interests, which are investments accounted for under IFRS 9. Investments are determined to be Long-Term Interests when they are long-term in nature and in substance they form part of the Group's net investment in that associate. This determination is impacted by many factors, among others, whether settlement by the investee through redemption or repayment is planned or likely in the foreseeable future, whether the investment can be converted and/or is likely to be converted to common stock or other equity instrument and other factors regarding the nature of the investment. Whilst this assessment is dependent on many specific facts and circumstances of each investment, typically conversion features whereby the investment is likely to convert to common stock or other equity instruments would point to the investment being a Long-Term Interest. Similarly, where the investment is not planned or likely to be settled through redemption or repayment in the foreseeable future, this would indicate that the investment is a Long-Term Interest. When the net investment in the associate, which includes the Group\u2019s investments in other long-term interests, is reduced to nil, recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.
The Group has also adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 (see below) when equity method losses are applied against Long-Term Interests (LTI). The amendments provide the annual sequence in which both standards are to be applied in such a case. The Group has applied the equity method losses to the LTIs presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
\u2022Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and
\u2022Those to be measured at amortized cost.
The classification depends on the Group\u2019s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are recorded in profit or loss. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI. As of balance sheet dates, none of the Company's financial assets are accounted for as FVOCI.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets that are carried at FVTPL are expensed.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables.
Financial Assets
The Group\u2019s financial assets consist of cash and cash equivalents, investments in debt securities, trade and other receivables, notes, restricted cash deposits and investments in equity securities. The Group\u2019s financial assets are virtually all classified into the following categories: investments held at fair value, notes, trade and other receivables, short-term investments and cash and cash equivalents. The Group determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired.
Investments held at fair value are investments in equity instruments that are not held for trading. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments in the Group's associates that are not providing access to returns underlying ownership interests. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date. The Company elects if the gain or loss will be recognized in Other Comprehensive Income/(Loss) or through profit and loss on an instrument by instrument basis. The Company has elected to record the changes in fair values for the financial assets falling under this category through profit and loss. Please refer to Note 5.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss) as applicable.
The notes from an associate, since their contractual terms do not consist solely of cash flow payments of principal and interest on the principal amount outstanding, such notes are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Short term investments consist of short-term US treasury bills that are held to maturity. The contractual terms consist solely of payment of the principal and the Group's business model is to hold the treasury bills to maturity. As such, such short term investments are recorded at amortized cost. As of balance sheet date amortized cost approximated the fair value of such short-term investments.
Trade and other receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any expected lifetime losses. Such losses are determined taking into account previous experience, credit rating and economic stability of counterparty and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision. As of balance sheet date, The Group did not incur or record any such expected lifetime losses. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
Financial Liabilities
The Group\u2019s financial liabilities consist of trade and other payables, subsidiary notes payable, long-term loan, preferred shares, and warrant liability.
Warrant liabilities are initially recognized at fair value. After initial recognition, these financial liabilities are re-measured at\u00a0FVTPL using an appropriate valuation technique.
Subsidiary notes payable without embedded derivatives and the long-term loan are accounted for at amortized cost.
The majority of the Group\u2019s subsidiaries have preferred shares and certain notes payable with embedded derivatives, which are classified as current liabilities. When the Group has preferred shares and notes with embedded derivatives that qualify for bifurcation, the Group has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the instrument qualifies to be accounted for under such FVTPL method.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32:
1.They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable to the Group; and
2.Where the instrument will or may be settled in the Group\u2019s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group\u2019s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Group\u2019s own shares, the amounts presented in the Group's shareholders' equity exclude amounts in relation to those shares.
Changes in the fair value of liabilities at FVTPL are recognized in Net finance income (costs) in the Consolidated Statements of\u00a0Comprehensive Income/(Loss) as applicable.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.
The majority of the Group\u2019s contract revenue is generated from licenses and services, some of which are part of collaboration\u00a0arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, PureTech has entered into transactions that generate revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for Government Grants. Contract revenue is recognized at either a point-in-time or over time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model:
\u2022Identify the contract(s) with a customer \u2013 A contract with a customer exists when (i) the Group enters into an enforceable contract with a customer that defines each party\u2019s rights regarding the goods or services to be transferred and identifies the\u00a0payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on\u00a0the customer\u2019s intent and ability to pay the promised consideration.
\u2022Identify the performance obligations in the contract \u2013 Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Group, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
\u2022Determine the transaction price \u2013 The transaction price is determined based on the consideration to which the Group will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Group estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Group\u2019s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
\u2022Allocate the transaction price to the performance obligations in the contract \u2013 If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
\u2022Recognize revenue when (or as) the Group satisfies a performance obligation \u2013 The Group satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Revenue generated from services agreements (typically where licenses and related services were combined into one performance obligation) is determined to be recognized over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity\u2019s performance as the entity performs; (b) the entity\u2019s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity\u2019s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
It was determined that the Group has contracts that meet criteria (a), since the customer simultaneously receives and consumes the benefits provided by the Company\u2019s performance as the Company performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Company believes that in research and development service type agreements using costs incurred to date represents the most faithful depiction of the entity\u2019s performance towards complete satisfaction of a performance obligation.
Revenue from licenses that are not part of a combined performance obligation are recognized at a point in time due to the licenses relating to intellectual property that has significant stand-alone functionality and as such represent a right to use the entity's intellectual property as it exists at the point in time at which the license is granted.
Royalty income received in respect of licensing agreements is recognized as the related third party sales in the licensee occur.
Amounts that are receivable or have been received per contractual terms but have not been recognized as revenue since performance has not yet occurred or has not yet been completed are recorded as deferred revenue. The Company classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Income
The Company recognizes grants from governmental agencies as grant income in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that the Company will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Company evaluates the conditions of each grant as of each reporting date to ensure that the Company has reasonable assurance of meeting the conditions of each grant arrangement and that it is\u00a0expected that the grant payment will be received as a result of meeting the necessary conditions.
The Company submits qualifying expenses for reimbursement after the Company has incurred the research and development expense. The Company records an unbilled receivable upon incurring such expenses. In cases were grant income is received prior to the expenses being incurred or recognized, the amounts received are deferred until the related expense is incurred and/or recognized. Grant income is recognized in the Consolidated Statements of Comprehensive Income/(Loss) at the time in\u00a0which the Company recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
These consolidated financial statements are presented in United States dollars (\u201cUS dollars\u201d). The functional currency of all\u00a0members of the Group is the U.S. dollar. The Group's share in foreign exchange differences in associates were reported in\u00a0Other Comprehensive Income/(Loss).
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on remeasurement are recognized in the Consolidated Statement of Comprehensive Income/(Loss). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using\u00a0the exchange rate at the date of the transaction.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.
Share Capital
Ordinary shares are classified as equity. The Group's equity is comprised of share capital, share premium, merger reserve, other reserve, translation reserve, and retained earnings/accumulated deficit.
Treasury Shares
Treasury shares are recognized at cost and are deducted from shareholders' equity. No gain or loss is recognized in profit and loss for the purchase, sale, re-issue or cancellation of the Company's own equity shares
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes\u00a0expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.\u00a0Depreciation is calculated using the straight-line method over the estimated useful life of the related asset:
Laboratory and manufacturing equipment | 2-8 years |
Furniture and fixtures | 7 years |
Computer equipment and software | 1-5 years |
Leasehold improvements | 5-10 years, or the remaining term of the lease, if shorter |
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses with finite useful lives, are carried at historical cost less accumulated amortization, if amortization has commenced. Intangible assets with finite lives are amortized from the time they are available for their intended use. Amortization is calculated using the straight-line method to allocate the costs of patents and licenses over their estimated useful lives.
Research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are presented as In-Process Research and Development (IPR&D). IPR&D is not amortized since it is not yet available for its intended use, but it is evaluated for potential impairment on an annual basis or more frequently when facts and circumstances warrant.
Impairment
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there are indicators of impairment. If any such indicators of impairment exist, then an asset\u2019s recoverable amount is estimated. The recoverable amount is the higher of an asset\u2019s fair value less cost of disposal and value in use.
The Company\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at\u00a0least annually.
An impairment loss is recognized when an asset\u2019s carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non- financial asset instrument is impaired, an impairment loss is recognized in the Consolidated Statements of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only if, objective evidence indicates that one or more events, which occurred after the initial recognition, have had an impact on the future cash flows from the net investment and that impact can be reliably estimated. If an impairment exists the Company measures an impairment by comparing the carrying value of the net investment in the associate to its recoverable amount and recording any excess as an impairment loss. See Note 6 for impairment recorded in respect of an investment in associate during the year ended December 31, 2022.
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation due to past service provided by the employee, and the obligation can be estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the periods during which related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
Share-based Payments
Share-based payment arrangements, in which the Group receives goods or services as consideration for its own equity instruments, are accounted for as equity-settled share-based payment transactions (except certain restricted stock units \u2013 see below) in accordance with IFRS 2, regardless of how the equity instruments are obtained by the Group. The grant date fair value of employee share-based payment awards is recognized as an expense with a corresponding increase in equity over the requisite service period related to the awards. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Certain restricted stock units are treated as liability settled awards starting in 2021. Such awards are remeasured at every reporting date until settlement date and are recognized as compensation expense over the requisite service period. Differences in remeasurement are recognized in profit and loss. The cumulative cost that will ultimately be recognized in respect of these awards will equal to the amount at settlement.
The fair value of the awards is measured using option pricing models and other appropriate models, which take into account the terms and conditions of the awards granted. See further details in Note 8.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). In accordance with IAS 38 development costs are capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group can demonstrate its ability to use or sell the intangible asset, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and it is able to measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is, generally, when regulatory approval has been received where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving meaningful recurring sales. Otherwise, the development expenditure is recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). As\u00a0of\u00a0balance sheet date the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statements of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at\u00a0a\u00a0pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate (and some minor equipment) for use in operations. These leases generally have lease terms of 1\u00a0to 10 years. The Group includes options that are reasonably certain to be exercised as part of the determination of the lease term. The group determines if an arrangement is a lease at inception of the contract in accordance with guidance detailed in IFRS 16. ROU assets represent the Group\u2019s right to use an underlying asset for the lease term and lease liabilities represent the Group's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Group's leases do not provide an implicit rate, The Group used its estimated incremental borrowing rate, based on information available at commencement date, in determining the present value of future payments.
The Group\u2019s leases are virtually all leases of real estate.
The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for:
\u2022Leases with a term of 12 months or less and containing no purchase options; and
\u2022Leases where the underlying asset has a value of less than $5,000.
The right-of-use asset is depreciated on a straight-line basis and the lease liability gives rise to an interest charge.
Further information regarding the subleases, right of use asset and lease liability can be found in Note 21.
Finance Income and Finance Costs
Finance income is comprised of income on funds invested in U.S. treasuries, income on money market funds and income on a\u00a0finance lease. Financing income is recognized as it is earned. Finance costs comprise mainly of loan, notes and lease liability interest expenses and the changes in the fair value of financial liabilities carried at FVTPL (such changes can consist of finance income when the fair value of such financial liabilities decreases).
Taxation
Tax on the profit or loss for the year comprises current and deferred income tax. In accordance with IAS 12, tax is recognized in the Consolidated Statements of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets with respect to investments in associates are recognized only to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Fair Value Measurements
The Group\u2019s accounting policies require that certain financial assets and certain financial liabilities be measured at their fair value.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
\u2022Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2022Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
\u2022Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
The carrying amount of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable, accrued expenses and other current liabilities in the Group\u2019s Consolidated Statements of Financial Position approximates their fair value because of the short maturities of these instruments.\u00a0
Operating Segments
A number of new standards, interpretations, and amendments to existing standards are effective for annual periods commencing on or after January 1, 2023 and have not been applied in preparing the consolidated financial information. The\u00a0Company\u2019s assessment of the impact of these new standards and interpretations is set out below.
Effective January 1, 2023, the definition of accounting estimates has been amended as an amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important because changes in accounting estimates are applied prospectively only to future transactions and future events, but changes in accounting policies are generally also applied retrospectively to past transactions and other past events. This amendment is not expected to have an impact on the Group's financial statements.
Effective January 1, 2023, IAS 1 has been amended to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date. The Company does not expect this amendment will have a material impact on its financial statements.
Effective January 1, 2023, IAS 12 is amended to narrow the scope of the initial recognition exemption (IRE) so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognise a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendment is not expected to have an impact on the Group's financial statements as the Group has already recognized a deferred tax asset and deferred tax liability that arose on initial recognition of its leases (the Group does not have decommissioning provisions).
Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss) consists of the following:
For the years ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Contract revenue | 2,090 | 9,979 | 8,341 |
Grant income | 13,528 | 7,409 | 3,427 |
Total revenue | 15,618 | 17,388 | 11,768 |
The Group disaggregates contract revenue in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Group disaggregates revenue based on contract revenue or grant revenue, and further disaggregates contract revenue based on the transfer of control of the underlying performance obligations.
Timing of contract revenue recognition For the years ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Transferred at a point in time \u2013 Licensing Income1 | 527 | 6,809 | 2,054 |
Transferred over time2 | 1,563 | 3,171 | 6,286 |
2,090 | 9,979 | 8,341 |
1\u00a0\u00a0\u00a0\u00a02022 \u2013 Attributed to Non-Controlled Founded Entities segment ( $19\u00a0thousand) and to Parent Company and Other ($509\u00a0thousand); 2021 \u2013 Attributed to the Internal segment ($6,500\u00a0thousand), Non-Controlled Founded Entities segment ($74\u00a0thousand), and to Parent Company and Other ($235\u00a0thousand); 2020 \u2013 Attributed to Parent Company and Other. See note 4, Segment information.
2\u00a0\u00a0\u00a0\u00a02022 \u2013 Attributed to Controlled Founded Entities segment ($1,500\u00a0thousand) and to Non-Controlled Founded Entities segment ($63\u00a0thousand ); 2021 \u2013 Attributed to Internal segment ($1,629\u00a0thousand), Non-Controlled Founded Entities segment ($41\u00a0thousand), and to Controlled Founded Entities segment ($1,500\u00a0thousand). 2020 \u2013 Attributed to Internal segment ($5,297\u00a0thousand), Controlled Founded Entities segment ($896\u00a0thousand), and to Non-Controlled Founded Entities segment ($93\u00a0thousand). See Note 4, Segment Information.
Customers over 10% of revenue | 2022 $000s | 2021 $000s | 2020 $000s |
Customer A | \u2014 | \u2014 | 1,518 |
Customer B | 1,500 | 1,500 | 896 |
Customer C | \u2014 | \u2014 | 2,043 |
Customer D | \u2014 | 7,250 | 1,736 |
Customer E | \u2014 | \u2014 | 2,000 |
Customer F | 509 | \u2014 | \u2014 |
2,009 | 8,750 | 8,193 |
Contract liabilities represent the Group\u2019s obligation to transfer products or services to a customer for which consideration has been received, or for which an amount of consideration is due from the customer. Contract liabilities are included within deferred revenue on the Consolidated Statement of Financial Position.
Contract Balances | 2022 $000s | 2021 $000s |
Accounts receivable | 606 | 704 |
Deferred revenue \u2013 short term | \u2014 | 65 |
During the year ended\u00a0December 31, 2022, $65\u00a0thousand of revenue was recognized from deferred revenue outstanding at December 31, 2021.
Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfillment of the contract has started as of the end of the reporting period. The aggregate amount of transaction consideration allocated to remaining performance obligations as of December 31, 2022, was nil.
The Non-Controlled Founded Entities segment includes Sonde Health, Inc. which was deconsolidated on May 25, 2022. Segment results incorporate the operational results of Sonde Health, Inc. to the date of deconsolidation. Following the date of\u00a0deconsolidation, the Company accounts for its investment in Sonde Health, Inc. at the parent level, and therefore the results associated with investment activity following the date of deconsolidation (including the Group's share in Sonde losses) is included in the Parent Company and Other section.
The Company has revised in these financial statements the prior year financial information to conform to the presentation as of\u00a0and for the year ending December 31, 2022 to include Sonde in the Non-Controlled Founded Entities segment. The change in segments reflects how the Company\u2019s Board of Directors reviews the Group\u2019s results, allocates resources and assesses performance of the Group at this time.
The Internal segment (the \u201cInternal segment\u201d), is advancing Wholly Owned Programs which are focused on treatments for patients with devastating diseases. The Internal segment is comprised of the technologies that are wholly owned and will be advanced through either PureTech Health funding or non-dilutive sources of financing in the near-term. The operational management of the Internal segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development. As of December 31, 2022, this segment included PureTech LYT, PureTech LYT-100 and Alivio Therapeutics, Inc.
Controlled Founded Entities
The Controlled Founded Entity segment (the \u201cControlled Founded Entity segment\u201d) is comprised of the Group\u2019s subsidiaries that are currently consolidated operational subsidiaries that either have, or have plans to hire, independent management teams and currently have already raised third-party dilutive capital. These subsidiaries have active research and development programs and either have entered into or plan to seek an equity or debt investment partner, who will provide additional industry knowledge and access to networks, as well as additional funding to continue the pursued growth of the company. As\u00a0of December 31, 2022, this segment included Entrega Inc., Follica Incorporated, and Vedanta Biosciences, Inc.
Non-Controlled Founded Entities
The Non-Controlled Founded Entities segment (the \u201cNon-Controlled Founded Entities segment\u201d) is comprised of the entities in respect of which PureTech Health no longer has control over the entity. Upon deconsolidation of an entity the segment disclosure is restated to reflect the change on a retrospective basis, as this constitutes a change in the composition of its reportable segments. The Non-Controlled Founded Entities segment includes Sonde Health Inc. which was deconsolidated on\u00a0May 25, 2022.
The Non-Controlled Founded Entities segment incorporates the operational results of the aforementioned entity to the date of\u00a0deconsolidation. Following the date of deconsolidation, the Company accounts for its investment in each entity at the parent level, and therefore the results associated with investment activity (including the recognition of equity method income/ (losses)) following the date of deconsolidation is included in the Parent Company and Other section.
Parent Company and Other
2022 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company & | Consolidated | |
Consolidated Statements of Comprehensive Income/(Loss) | |||||
Contract revenue | \u2014 | 1,500 | 81 | 509 | 2,090 |
Grant revenue | 2,826 | 10,702 | \u2014 | \u2014 | 13,528 |
Total revenue | 2,826 | 12,202 | 81 | 509 | 15,618 |
General and administrative expenses | (8,301) | (16,462) | (1,296) | (34,933) | (60,991) |
Research and development expenses | (116,054) | (34,668) | (826) | (885) | (152,433) |
Total operating expense | (124,355) | (51,130) | (2,122) | (35,817) | (213,425) |
Other income/(expense): | |||||
Gain on deconsolidation of subsidiary | \u2014 | \u2014 | \u2014 | 27,251 | 27,251 |
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | (32,060) | (32,060) |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (29,303) | (29,303) |
Other income/(expense) | (204) | (3) | \u2014 | 8,338 | 8,131 |
Total other income/(expense) | (204) | (3) | \u2014 | (25,775) | (25,981) |
Net finance income/(costs) | 615 | 138,006 | (3,045) | 3,348 | 138,924 |
Share of net income/(loss) of associates accounted for using the equity method | \u2014 | \u2014 | \u2014 | (27,749) | (27,749) |
Gain on dilution of ownership interest in associate | \u2014 | \u2014 | \u2014 | 28,220 | 28,220 |
Impairment of investment in associate | \u2014 | \u2014 | \u2014 | (8,390) | (8,390) |
Income/(loss) before taxes | (121,118) | 99,075 | (5,085) | (65,655) | (92,783) |
Income/(loss) before taxes pre IFRS 9 fair value\u00a0accounting, share-based payment expense, depreciation of tangible assets and amortization of intangible assets | (114,255) | (32,468) | (2,079) | (57,452) | (206,254) |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | 140,056 | (2,993) | \u2014 | 137,063 |
Share-based payment expense | (5,136) | (4,703) | (8) | (4,852) | (14,699) |
Depreciation of tangible assets | (1,727) | (2,526) | (4) | (1,588) | (5,845) |
Amortization of ROU assets | \u2014 | (1,283) | \u2014 | (1,764) | (3,047) |
Amortization of intangible assets | \u2014 | \u2014 | (1) | \u2014 | (1) |
Taxation | \u2014 | \u2014 | \u2014 | 55,719 | 55,719 |
Income/(loss) for the year | (121,118) | 99,075 | (5,085) | (9,936) | (37,065) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | (379) | (379) |
Total comprehensive income/(loss) for the year | (121,118) | 99,075 | (5,085) | (10,316) | (37,444) |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (121,118) | 85,471 | (4,755) | (10,331) | (50,733) |
Non-controlling interests | \u2014 | 13,604 | (330) | 15 | 13,290 |
December 31,\u00a02022 $000s | |||||
Consolidated Statements of Financial Position: | |||||
Total assets | 51,599 | 35,341 | \u2014 | 615,707 | 702,647 |
Total liabilities1 | 271,186 | 76,635 | \u2014 | (192,763) | 155,057 |
Net assets/(liabilities) | (219,587) | (41,294) | \u2014 | 808,470 | 547,589 |
1\u00a0\u00a0\u00a0\u00a0Parent Company and Other Includes eliminations of intercompany liabilities between the Parent Company and the reportable segments in the amount of $255.5 million.
2021 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company\u00a0& | Consolidated | |
Consolidated Statements of Comprehensive Income/(Loss) | |||||
Contract revenue | 8,129 | 1,500 | 115 | 235 | 9,979 |
Grant revenue | 1,253 | 6,156 | \u2014 | \u2014 | 7,409 |
Total revenue | 9,382 | 7,656 | 115 | 235 | 17,388 |
General and administrative expenses | (8,673) | (17,504) | (3,225) | (27,797) | (57,199) |
Research and development expenses | (65,444) | (40,667) | (3,116) | (1,244) | (110,471) |
Total Operating expenses | (74,118) | (58,171) | (6,341) | (29,041) | (167,671) |
Other income/(expense): | |||||
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | 179,316 | 179,316 |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (20,925) | (20,925) |
Other income/(expense) | \u2014 | 70 | \u2014 | 1,523 | 1,593 |
Total other income/(expense) | (1) | 70 | \u2014 | 159,914 | 159,983 |
Net finance income/(costs) | (16) | 7,528 | (784) | (1,679) | 5,050 |
Share of net income/(loss) of associate accounted for using the equity method | \u2014 | \u2014 | \u2014 | (73,703) | (73,703) |
Income/(loss) before taxes | (64,753) | (42,917) | (7,010) | 55,727 | (58,953) |
(Loss)/income before taxes pre IFRS 9 fair value accounting, finance costs \u2013 subsidiary preferred shares, share-based payment expense, depreciation of tangible assets and amortization of\u00a0intangible assets | (60,368) | (44,335) | (6,248) | 63,628 | (47,323) |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | 10,322 | (716) | \u2014 | 9,606 |
Share-based payment expense | (3,066) | (6,224) | (32) | (4,628) | (13,950) |
Depreciation of tangible assets | (1,319) | (1,506) | (12) | (1,510) | (4,347) |
Amortization of ROU assets | \u2014 | (1,174) | \u2014 | (1,764) | (2,938) |
Amortization of intangible assets | \u2014 | \u2014 | (2) | \u2014 | (2) |
Taxation | \u2014 | \u2014 | \u2014 | (3,756) | (3,756) |
Income/(loss) for the year | (64,753) | (42,917) | (7,010) | 51,971 | (62,709) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | (64,753) | (42,917) | (7,010) | 51,971 | (62,709) |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (64,657) | (41,283) | (6,574) | 51,956 | (60,558) |
Non-controlling interests | (96) | (1,634) | (436) | 15 | (2,151) |
December 31, 2021 $000s | |||||
Consolidated Statements of Financial Position: | |||||
Total assets | 125,726 | 64,508 | 1,765 | 754,007 | 946,006 |
Total liabilities1 | 228,789 | 209,212 | 19,645 | (95,787) | 361,859 |
Net (liabilities)/assets | (103,063) | (144,704) | (17,880) | 849,794 | 584,147 |
1\u00a0\u00a0\u00a0\u00a0Parent Company and Other Includes eliminations of intercompany liabilities between the Parent Company and the reportable segments in the amount of $233.3 million.
2020 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company\u00a0& | Consolidated | |
Consolidated Statements of Comprehensive Loss | |||||
Contract revenue | 5,297 | 896 | 93 | 2,054 | 8,341 |
Grant revenue | 1,563 | 1,864 | \u2014 | \u2014 | 3,427 |
Total revenue | 6,860 | 2,760 | 93 | 2,054 | 11,768 |
General and administrative expenses | (3,482) | (10,752) | (2,939) | (32,267) | (49,440) |
Research and development expenses | (45,346) | (33,152) | (3,128) | (234) | (81,859) |
Total operating expense | (48,828) | (43,904) | (6,067) | (32,500) | (131,299) |
Other income/(expense): | |||||
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | 232,674 | 232,674 |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (54,976) | (54,976) |
Gain/(loss) on disposal of assets | (15) | (15) | \u2014 | \u2014 | (30) |
Other income/(expense) | \u2014 | 100 | \u2014 | 965 | 1,065 |
Other income/(expense) | (15) | 85 | \u2014 | 178,662 | 178,732 |
Net finance income/(costs) | 19 | (4,352) | (852) | (930) | (6,115) |
Share of net income/(loss) of associate accounted for using the equity method | \u2014 | \u2014 | \u2014 | (34,117) | (34,117) |
Income/(loss) before taxes | (41,964) | (45,410) | (6,826) | 113,170 | 18,969 |
(Loss)/income before taxes pre IAS 39 fair value accounting, finance costs \u2013 subsidiary preferred shares, share-based payment expense, depreciation of tangible assets and amortization of intangible assets | (38,349) | (36,736) | (5,866) | 121,644 | 40,694 |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | (3,492) | (859) | \u2014 | (4,351) |
Share-based payment expense | (2,762) | (2,469) | (83) | (5,405) | (10,718) |
Depreciation of tangible assets | (854) | (1,528) | (17) | (1,547) | (3,945) |
Amortization of ROU assets | \u2014 | (1,186) | \u2014 | (1,523) | (2,709) |
Amortization of intangible assets | \u2014 | \u2014 | (1) | \u2014 | (1) |
Taxation | \u2014 | (1) | \u2014 | (14,400) | (14,401) |
Income/(loss) for the year | (41,964) | (45,411) | (6,826) | 98,769 | 4,568 |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | 469 | 469 |
Total comprehensive income/(loss) for the year | (41,964) | (45,411) | (6,826) | 99,238 | 5,037 |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (41,773) | (44,506) | (6,519) | 99,253 | 6,454 |
Non-controlling interests | (191) | (905) | (306) | (15) | (1,417) |
Investments held at fair value include both unlisted and listed securities held by PureTech. These investments, which include interests in Akili, Vor, Karuna, Gelesis (preferred shares until exchanged for common stock, accounted for under the equity method, and Earn-out shares following exchange), Sonde and other insignificant investments, are initially measured at fair value and are subsequently re-measured at fair value at each reporting date with changes in the fair value recorded through profit and loss. Interests in these investments were accounted for as shown below:
Investments held at fair value | $000's |
Balance as of January 1, 2021 | 553,167 |
Sale of Karuna shares | (218,125) |
Loss realised on sale of investments | (20,925) |
Cash purchase of Vor preferred shares | 500 |
Gain \u2013 change in fair value through profit and loss | 179,271 |
Balance as of December 31, 2021 and January 1, 2022 before allocation | 493,888 |
Investment in Sonde Preferred shares \u2013 Sonde deconsolidation | 11,168 |
Sale of Karuna and Vor shares | (118,710) |
Loss realised on sale of investments as a result of written call option | (29,303) |
Cash Investment (Akili) | 5,000 |
Gelesis Earn out shares received in SPAC exchange | 14,214 |
Exchange of Gelesis preferred shares to Gelesis common shares | (92,303) |
Loss \u2013 change in fair value through profit and loss | (32,060) |
Balance as of December 31, 2022\u00a0 | 251,892 |
Vor was deconsolidated in February 2019. As PureTech did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features, PureTech had no basis to account for its investment in Vor under IAS 28. The preferred shares held by PureTech fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value with changes in fair value recorded in the Consolidated Statement of Comprehensive Income/(Loss).
2020
On February 12, 2020, PureTech participated in the second closing of Vor\u2019s Series A-2 Preferred Share financing. For consideration of $0.7\u00a0million, PureTech received 1,625,000 A-2 shares. On June 30, 2020, PureTech participated in the first closing of Vor\u2019s Series B Preferred Share financing. For consideration of $0.5\u00a0million, PureTech received 961,538 shares. Upon the conclusion of such Vor financings PureTech no longer had significant influence over Vor.
2021
On January 8, 2021, PureTech participated in the second closing of Vor\u2019s Series B Preferred Share financing. For consideration of $0.5 million, PureTech received an additional 961,538 B Preferred shares.
On February 9, 2021, Vor closed its initial public offering (IPO) of 9,828,017 shares of its common stock at a price to the public of $18.00 per share. Subsequent to the closing, PureTech held 3,207,200 shares of Vor common stock, representing 8.6\u00a0percent of Vor common stock. Following its IPO, the valuation of Vor common stock is based on level 1 inputs in the fair value hierarchy. See Note 16.
2022
In August and December 2022, PureTech sold an aggregate of 535,400 shares of Vor common shares for aggregate proceeds of $3.3\u00a0million.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $16.2\u00a0million, a gain of $3.9\u00a0million, and a gain of $19.1\u00a0million, respectively for the changes in the fair value of the investment that were recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 16 for information regarding the valuation of these instruments.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis is accounted for under the equity method, while the preferred shares and warrants held by PureTech fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, where changes to the fair value of the preferred shares and warrant were recorded through the Consolidated Statement of Income/(Loss). Please refer to Note 6 for information regarding the Company's investment in Gelesis as an associate.
2020
On April 1, 2020, PureTech participated in the 2nd closing of Gelesis\u2019s Series 3 Growth Preferred Share financing. For consideration of $10.0 million, PureTech received 579,038 Series 3 Growth shares.
2020 and 2021
During the years ended December 31, 2021 and 2020, due to the equity method based investment in Gelesis being reduced to zero, the Group allocated a portion of its share in the net loss in Gelesis in the years ended December 31, 2021 and 2020, totaling $73.7\u00a0million, and $23.0\u00a0million, respectively, to its preferred share and warrant investments in Gelesis, which were considered to be long-term interests in Gelesis.
2022
On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp (\"Capstar\"). As\u00a0part of the business combination, all shares in Gelesis, common and preferred, including the shares held by PureTech, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (hereinafter \"Earn-out shares\"). In addition, PureTech invested $15.0 million in the class A common shares of Capstar as part of the Private Investment in Public Equity (\"PIPE\") transaction that took place immediately prior to the closing of the business combination and an additional approximately $5.0 million, as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6). Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol \"GLS\" on January 14, 2022. The exchange of the preferred stock (including warrants) for common stock (including common stock warrants) represents an additional investment in Gelesis equity investment. The Group recorded the changes in fair value of the preferred stock (including warrant) through the date of the exchange upon which the preferred stock were derecognized and recorded as an additional investment in Gelesis equity interest \u2013 See Note 6 for the net gain on the dilution of the equity interest in Gelesis, resulting from the exchange of all preferred stock in Gelesis to common stock of Gelesis Holdings Inc, the PIPE transaction and the closing of the merger. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value are now included within the equity method investment in Gelesis and were offset against the gain on dilution of interest \u2013 see Note 6.
As part of the aforementioned exchange PureTech received 4,526,622 Earn-out shares, which were valued on the date of the exchange at $14.2\u00a0million. The Group accounts for such Earn-out shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $4.4\u00a0million, a gain of $34.6\u00a0million, and a gain of $7.1\u00a0million, respectively related to the change in the fair value of the preferred shares and warrants that was recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
In addition, the Company recognized a loss of $14.1\u00a0million during the year ended\u00a0\u00a0December 31, 2022 in respect of the Earn-out shares, for the change in the fair value related to such investment during the period. As of December 31, 2022 the value of such earn-out shares amounted to $0.1\u00a0million.
Karuna
Karuna was deconsolidated in March 2019. During 2019 Karuna completed its IPO and PureTech lost its significant influence in\u00a0Karuna. The shares held in Karuna are accounted for as an investment held at fair value.
2020
On January 22, 2020, PureTech sold 2,100,000 shares of Karuna common shares for aggregate proceeds of $200.9\u00a0million. On May 26, 2020, PureTech sold an additional 555,500 Karuna common shares for aggregate proceeds of $45.0\u00a0million. On August 26, 2020, PureTech sold 1,333,333 common shares of Karuna for aggregate proceeds of $101.6\u00a0million. As a result of the sales, Puretech recorded a loss of $54.8\u00a0million attributable to blockage discount included in the sales price, to the line item Loss Realized on Sale of Investment within the Consolidated Statement of Comprehensive Income/(Loss). See below for gain recorded in respect of the change in fair value of the Karuna investment.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118.0 million. Following the sale the Group held 2,406,564 common shares of Karuna, which represented 8.2 percent of Karuna common stock at the time of sale. On November 9, 2021, the group sold an additional 750,000 common shares of Karuna for $100.1\u00a0million. Following the sale the group holds 1,656,564 common shares of Karuna, which represented 5.6 percent at time of sale. As a result of the aforementioned sales, the Company recorded a loss of $20.9\u00a0million, attributable to blockage discount included in the sales price, to the line item Loss Realised on Sale of Investment within the Consolidated Statement of Comprehensive Income/ (Loss). See below for gain recorded in respect of the change in fair value of the Karuna investment.
2022
On August 8, 2022, the Company sold 125,000 shares of Karuna common stock. In addition, the Company wrote a series of call options entitling the holders thereof to purchase up to 477,100 Karuna common stock at a set price, which were exercised in full in August and September 2022. Aggregate proceeds to the Company from all aforementioned transactions amounted to $115.5 million, net of transaction fees. As a result of the aforementioned sales, the Company recorded a loss of $29.3 million, attributable to the exercise of the aforementioned call options, to the line item Realized Loss on Sale of Investment within the Consolidated Statement of Comprehensive Income/ (Loss).See below for gain recorded in respect of the change in fair value of the Karuna investment.
During the years ended\u00a0December 31, 2022, 2021, and 2020 the Company recognized gains of $135.0\u00a0million, $110.0\u00a0million and $191.2\u00a0million, respectively for the changes in the fair value of the Karuna investment that were recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2022, PureTech continued to hold Karuna common shares or 3.1 percent of total outstanding Karuna common shares. Please refer to Note 16 for information regarding the valuation of these instruments.
Akili
Akili was deconsolidated in 2018. As PureTech did not hold common shares in Akili and the preferred shares it held did not have equity-like features, PureTech had no basis to account for its investment in Akili under IAS 28. The preferred shares held by PureTech Health fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and all movements to the value of the preferred shares were recorded through the Consolidated Statements of Comprehensive Income/(Loss), in accordance with IFRS 9.
2021
On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110.0 million in which Akili issued 13,053,508 Series D preferred shares. The Group did not participate in this round of financing and as a result, the Group's interest in Akili was reduced from 41.9 percent to 27.5 percent.
2022
On January 26, 2022, Akili Interactive and Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company, announced they had entered into a definitive business combination agreement. The transaction closed on August 19, 2022 and the combined company's securities began trading on August 22, 2022 on the Nasdaq Stock Market under the ticker symbol \"AKLI\". As part of this transaction the Akili Interactive shares held by the Company were exchanged for the common stock of the combined company's securities as well as unvested common stock (\"Akili Earnout Shares\") that will vest when the share price exceeds certain thresholds. In addition, as part of a PIPE transaction that took place concurrently with the closing of the transaction, the Company purchased 500,000 shares in consideration for $5.0\u00a0million. Following the closing of the aforementioned transactions, the Company holds 12,527,477 shares of the combined entity (excluding the Akili Earnout Shares), which represents 14.7 percent of its outstanding common stock. The Company also holds 1,433,914 Akili Earn-out Shares, which fair value amounted to $1.0 million as of December 31, 2022.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $131.4\u00a0million, a gain of $32.2\u00a0million, and a gain of $14.4\u00a0million, respectively for the changes in the fair value of the investment in Akili that was recorded on the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 16 for information regarding the valuation of these instruments.
resTORbio
On April 30, 2020, PureTech sold its remaining 2,119,696 resTORbio common shares, for aggregate proceeds of $3.0\u00a0million. As a result of the sale, the Company recorded a loss of $0.2\u00a0million attributable to blockage discount included in the sales price, to the line item Loss realized on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss). Additionally, during the year ended December 31, 2020, the Company recognized a gain of $0.1\u00a0million that was recorded on the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
Sonde \u2013 Investment and gain on deconsolidation
On May 25, 2022, Sonde completed a Series B Preferred Share financing. As part of the financing a new investor invested $3.5\u00a0million in cash in exchange for 1,125,401 shares and all convertible notes, including the convertible notes held by PureTech, converted into Preferred B shares at the price per share paid by the investor minus a 20% discount. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group no longer controls Sonde's Board of Directors, which is the governance body that has the power to direct the relevant activities of Sonde. Consequently, the Group concluded it lost control over Sonde and as such it should cease to consolidate Sonde on the date the round of financing was completed. Therefore, the results of operations of Sonde are included in the consolidated financial statements through the date of deconsolidation.
Following deconsolidation, the Group still has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss.
Upon deconsolidation, the Group derecognized its assets and liabilities and non controlling interest in respect of Sonde and recorded its aforementioned investments in Sonde at fair value. The deconsolidation resulted in a gain of $27.3\u00a0million. As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11.2\u00a0million.
Gelesis
Gelesis was founded by PureTech and raised funding through preferred shares financings as well as issuances of warrants and loans. As of July 1, 2019, Gelesis was deconsolidated from the Group\u2019s financial statements. While the Group no longer controls Gelesis, it was concluded that PureTech still has significant influence over Gelesis and as such Gelesis is accounted for as an associate under IAS 28 in the consolidated financial statements.
Upon the date of deconsolidation, PureTech held preferred shares and common shares of Gelesis and warrants issued by Gelesis to PureTech. PureTech\u2019s investment in common shares of Gelesis is subject to equity method accounting. See table below for the Group's share in the profits and losses of Gelesis for the periods presented.
The preferred shares and warrants held by PureTech fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, where changes to the fair value of the preferred shares and warrants were recorded through the Consolidated Statement of Comprehensive Income/(Loss). See Note 5 above.
Years ended December 31, 2020 and 2021
During the years ended December 31, 2021 and 2020, the Group recorded its share in the losses of Gelesis. In 2020 the Group's investment in associates accounted for under the equity method was reduced to zero. Since the Group had investments in Gelesis warrants and preferred shares that were deemed to be Long-term interests, the Company continued recognizing its share in Gelesis losses while applying such losses to its preferred share and warrant investment in Gelesis accounted for as an investment held at fair value. In 2021, the total investment in Gelesis, including the Long-term interests, was reduced to zero. Since the Group did not incur legal or constructive obligations or made payments on behalf of Gelesis, the Group discontinued recognizing equity method losses in 2021. As of December 31, 2021, unrecognized equity method losses amounted to $38.1 million, which included $0.7 million of unrecognized other comprehensive loss.
During 2021, due to exercise of stock options into common shares in Gelesis the Group's equity interest in Gelesis was reduced from\u00a047.9 percent at December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting from the issuance of shares to third parties and the resulting reduction in the Group's share in the accumulated deficit of Gelesis under the equity method was fully offset by the unrecognized equity method losses.
Backstop agreement \u2013 2022 and 2021
On December 30, 2021, PureTech signed a Backstop agreement with Capstar according to which PureTech had committed to acquire Capstar class A common shares immediately prior to the closing of the business combination between Gelesis and Capstar, in case subsequent to the redemptions of Capstar shares being completed, the Available Funds, as defined in the agreement, were less than$15.0 million. PureTech had committed to acquire two thirds of the necessary shares at $10 per share so that the Available Funds increase to $15.0 million. According to the Backstop agreement, in case PureTech were required to acquire any shares under the agreement, PureTech would receive an additional 1,322,500 class A common shares of Capstar (immediately prior to the closing of the business combination) at no additional consideration.
The Company determined that such agreement meets the definition of a derivative under IFRS 9 and as such should be recorded at fair value with changes in fair value recorded through profit and loss. The derivative was initially recorded at fair value adjusted to defer the day 1 gain equal to the difference between the fair value of $11.2 million and transaction price of zero on the effective date and as such was initially recorded at zero. The deferred gain was amortized to Other income (expense) in the Consolidated Statement of Income (loss) over the period from the effective date until settlement date, January 13, 2022. During the years ended December 31, 2022 and 2021, the Group recognized income of $10.4 million and $0.8 million, respectively for the amortization of the deferred gain. During the year ended December 31, 2022 the Group recognized a loss of $2.8 million in respect of the decrease in the fair value of the derivative until date of settlement, resulting in a net gain of $7.6 million recorded during the year ended December 31, 2022 in respect of the Backstop agreement. The gain was recorded in the line item Other Income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss).
The fair value of the derivative on the date of settlement in the amount of $8.4 million represents an additional investment in Gelesis as part of the SPAC transaction described below.
On January 13, 2022, as part of the conclusion of the aforementioned Backstop agreement, the Group acquired 496,145 class A common shares of Capstar for $5.0 million and received an additional 1,322,500 common A shares of Capstar for no additional consideration.
2022
Share exchange \u2013 Capstar
On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp (\"Capstar\"). As\u00a0part of the business combination, all shares in Gelesis, common and preferred, including the shares held by PureTech, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of\u00a0the new combined entity reaching certain target prices (hereinafter \"Earn-out shares\"). In addition, PureTech invested $15.0 million in the class A common shares of Capstar as part of the PIPE transaction that took place immediately prior to the closing of the business combination and an additional $5.0 million, as part of the Backstop agreement described above. Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol \"GLS\" on January 14, 2022. Following the closing of the business combination, the PIPE transaction, the settlement of the aforementioned Backstop agreement with Capstar, and the exchange of all preferred shares in Gelesis to common shares in the new combined entity, PureTech holds 16,727,582 common shares of Gelesis Holdings Inc., which was equal to approximately 23.2% of Gelesis Holdings Inc's outstanding common shares at the time of the exchange. Due to PureTech's significant equity holding and voting interest in Gelesis, PureTech continues to maintain significant influence in Gelesis and as such continues to account for its Gelesis equity investment under the equity method.
Gelesis was deemed to be the acquirer in Gelesis Holdings Inc. and the financial assets and financial liabilities in Capstar were deemed to be acquired by Gelesis in consideration for the shares held by Capstar legacy shareholders. As such, the Group did not revalue the retained investment in Gelesis but rather treated the exchange as a dilution of its equity interest in Gelesis from 42.0 percent as of December 31, 2021 to 22.8 percent as of January 13, 2022 (including warrants that provide its holders access to returns associated with equity holders). After considering the aforementioned additional investments, the exchange of the preferred stock, previously accounted for as an investment held at fair value, to common stock (and representing an additional equity investment in Gelesis \u2013 See Note 5), the Earn-out shares received in Gelesis (see Note 5) and the offset of previously unrecognized equity method losses, the net gain recorded on the dilution of interest amounted to $28.3 million.
Impairment
Following Gelesis\u2019s decline in its market price in 2022 and its lack of liquidity, the Group recorded an impairment loss of $8.4\u00a0million as of December 31, 2022 in respect of its investment in Gelesis. The recoverable amount of the investment in Gelesis was $4.9\u00a0million as of December 31, 2022, which was determined based on fair value less costs to sell (costs to sell were estimated to be insignificant). Fair value was determined based on level 1 of the fair value hierarchy as Gelesis shares were traded on an active market as of December 31, 2022.
The impairment loss was presented separately in the Consolidated Statement of Comprehensive Income/ (loss) for the year ended December 31, 2022 in the line item Impairment of investment in associate.
Sonde
On May 25, 2022, Sonde completed a Series B Preferred Share financing. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group lost its control over Sonde and as such ceased to consolidate Sonde on the date the round of financing was completed. See Note 5 above for further details.
Following deconsolidation, the Group has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group's voting interest at date of deconsolidation and as of December 31, 2022 was\u00a048.2% and 40.17%, respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value. See Note 5.
The fair value of the Preferred A-1 shares on the date of deconsolidation amounted to $7.7 million, which is the initial value of the equity method investment in Sonde. When applying the equity method, the Group records its share of the losses in Sonde based on its equity interest in Sonde. Since only the common shares and Preferred A-1 shares in Sonde represent a residual equity interest and PureTech is the sole holder of the Preferred A-1 shares, the Group's share in Sonde's equity is 93.6%.
During the year ended\u00a0December 31, 2022 the Company recorded $3.4 million of equity method losses in respect of Sonde.
The following table summarizes the activity related to the investment in associates balance for the years ended\u00a0December 31, 2022 and 2021.
Investment in Associates | $000's |
As of January 1, 2021 | \u2014 |
Share of net loss in Gelesis \u2013 limited to net investment amount | (73,703) |
Share of losses recorded against Long Term Interests (LTIs) | 73,703 |
As of December 31, 2021 and January 1, 2022 | \u2014 |
Cash investment in associate | 19,961 |
Additional investment as a result of backstop settlement (see above) | 8,424 |
Gain on dilution of interest in associate* | 13,793 |
Investment in Sonde \u2013 deconsolidation | 7,680 |
Share in net loss of associates | (27,749) |
Reversal of equity method losses recorded against LTIs (due to decrease in LTI fair value) | (4,406) |
Share in other comprehensive loss of associates | (166) |
Impairment | (8,390) |
As of December 31, 2022 | 9,147 |
*\u00a0\u00a0\u00a0\u00a0Gain on dilution of interest was further increased due to the receipt of Gelesis earn out shares accounted for as investments held at fair value (see above).
Summarized financial information
The following table summarizes the financial information of Gelesis as included in its own financial statements, adjusted for fair value adjustments at deconsolidation and differences in accounting policies. The table also reconciles the summarized financial information to the carrying amount of the Company\u2019s interest in Gelesis.
2022 $000s | 2021 $000s | ||
As of and for the year ended December 31, | |||
Percentage ownership interest | 22.5% | 42.0% | |
Non-current assets | 333,040 | 357,508 | |
Current assets | 23,495 | 66,092 | |
Non-current liabilities | (99,053) | (120,786) | |
Current liabilities | (80,010) | (537,432) | |
Non controlling interests and options issued to third parties | (46,204) | (14,216) | |
Net assets (deficit) attributable to shareholders of Gelesis Inc. | 131,268 | (248,834) | |
Group's share of net assets (net deficit) | 29,504 | (104,527) | |
Goodwill | 3,858 | 7,211 | |
Impairment | (28,452) | (37,495) | |
Equity method losses recorded against Long-term Interests | \u2014 | 96,709 | |
Unrecognized equity method losses* | \u2014 | 38,101 | |
Investment in associate | 4,910 | \u2014 | |
2022 $000s | 2021 $000s | 2020 $000s | |
Revenue | 25,767 | 11,185 | 21,442 |
Loss from continuing operations (100%) | (111,567) | (271,430) | (71,157) |
Total comprehensive loss (100%) | (112,285) | (273,005) | (70,178) |
Group's share in net losses \u2013 limited to net investment amount** | (24,306) | (73,703) | (34,117) |
Group's share of total comprehensive loss \u2013 limited to net investment amount | (24,472) | (73,703) | (33,648) |
*\u00a0\u00a0\u00a0\u00a0Unrecognized equity method losses includes unrecognized other comprehensive loss of $0.7 million for the year ended December 31, 2021.
**\u00a0\u00a0\u00a0\u00a0For the year ended December 31, 2022 includes $4.4 million reversal of equity method losses recorded against Long-Term Interest (LTI) due to the decrease in fair value of\u00a0such\u00a0LTI.
Subsequent to balance sheet date, on April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH.
In addition, in April 2023 (subsequent to balance sheet date) PureTech submitted a non-binding proposal to acquire all of the outstanding equity of Gelesis. Negotiations related to the proposal and any potential deal remain ongoing and are subject to, among other things, approval of any definitive transaction by independent committees of the boards of both Gelesis and PureTech.
Total operating expenses were as follows:
For the years ending December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
General and administrative | 60,991 | 57,199 | 49,440 |
Research and development | 152,433 | 110,471 | 81,859 |
Total operating expenses | 213,425 | 167,671 | 131,299 |
The average number of persons employed by the Group during the year, analyzed by category, was as follows:
For the years ending December 31, | 2022 | 2021 | 2020 |
General and administrative | 57 | 52 | 43 |
Research and development | 144 | 119 | 95 |
Total | 201 | 171 | 138 |
The aggregate payroll costs of these persons were as follows:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ending December 31, | |||
General and administrative | 25,322 | 26,438 | 22,943 |
Research and development | 36,321 | 28,950 | 20,674 |
Total | 61,643 | 55,388 | 43,616 |
Detailed operating expenses were as follows:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ending December 31, | |||
Salaries and wages | 41,750 | 36,792 | 29,403 |
Healthcare benefits | 2,908 | 2,563 | 1,866 |
Payroll taxes | 2,286 | 2,084 | 1,629 |
Share-based payments | 14,699 | 13,950 | 10,718 |
Total payroll costs | 61,643 | 55,388 | 43,616 |
Other general and administrative expenses | 35,669 | 30,761 | 26,497 |
Other research and development expenses | 116,113 | 81,521 | 61,186 |
Total other operating expenses | 151,782 | 112,282 | 87,683 |
Total operating expenses | 213,425 | 167,671 | 131,299 |
Auditor's remuneration:
For the years ending December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Audit of these financial statements | 1,716 | 1,183 | 1,145 |
Audit of the financial statements of subsidiaries | 132 | 312 | 291 |
Audit of the financial statements of associate** | 814 | 571 | 350 |
Audit-related assurance services* | 1,157 | 1,868 | 490 |
Non-audit related services | \u2014 | \u2014 | 173 |
Total | 3,819 | 3,934 | 2,449 |
*\u00a0\u00a0\u00a0\u00a02021 \u2013 $468.2 thousand represents prepaid expenses related to an expected initial public offering of a subsidiary.
**\u00a0\u00a0\u00a0\u00a0Audit fees of $720.0 thousand, $500.0 thousand and $350.0 thousand in respect of financial statements of associates for the years ended\u00a0December 31, 2022, 2021, and 2020\u00a0respectively, are not included within the consolidated financial statements. Fees related to the audit of the financial statements of associates have been disclosed in respect of 2022, 2021, and 2020 as these fees went towards supporting the audit opinion on the Group accounts. Such amounts were not previously disclosed in the 2020\u00a0financial statements.
Share-based payments includes stock options, restricted stock units (\u201cRSUs\u201d) and performance-based RSUs in which the expense is recognized based on the grant date fair value of these awards, except for performance based RSUs to executives that are treated as liability awards where expense is recognized based on reporting date fair value up until settlement date.
Share-based Payment Expense
The Group share-based payment expense for the years ended\u00a0December 31, 2022, 2021 and 2020, were comprised of charges related to the PureTech Health plc incentive stock and stock option issuances and subsidiary stock plans.
The following table provides the classification of the Group\u2019s consolidated share-based payment expense as reflected in the Consolidated Statement of Income/(Loss):
Year ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
General and administrative | 8,862 | 9,310 | 7,650 |
Research and development | 5,837 | 4,640 | 3,068 |
Total | 14,699 | 13,950 | 10,718 |
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan (\u201cPSP\u201d). Under the PSP and subsequent amendments, awards of ordinary shares may be made to the Directors, senior managers and employees of, and other individuals providing services to the Company and its subsidiaries up to a maximum authorized amount of 10.0 percent of the total ordinary shares outstanding. The shares have various vesting terms over a period of service between two and four years, provided the recipient remains continuously engaged as a service provider.
The share-based awards granted under the PSP are generally equity settled (see cash settlements below) and expire 10 years from the grant date. As of December 31, 2022, the Company had issued share-based awards to purchase an aggregate of 24,889,462 shares under this plan.
RSUs
RSU activity for the years ended\u00a0December 31, 2022, 2021 and 2020 is detailed as follows:
Number of Shares/Units | Wtd Avg Grant Date Fair Value (GBP)* | |
Outstanding (Non-vested) at January 1, 2020 | 4,636,347 | 2.08 |
RSUs Granted in Period | 1,759,011 | 1.80 |
Vested | (2,781,687) | 1.54 |
Forfeited | (191,089) | 2.37 |
Outstanding (Non-vested) at December 31, 2020 and January 1, 2021 | 3,422,582 | 2.46 |
RSUs Granted in Period | 2,195,133 | 2.15 |
Vested | (1,176,695) | 2.93 |
Forfeited | (808,305) | 2.25 |
Outstanding (Non-vested) at December 31, 2021 and January 1, 2022 | 3,632,715 | 1.91 |
RSUs Granted in Period | 4,309,883 | 1.76 |
Vested | (696,398) | 2.80 |
Forfeited | (1,155,420) | 2.67 |
Outstanding (Non-vested) at December 31, 2022 | 6,090,780 | 1.74 |
*\u00a0\u00a0\u00a0\u00a02021 \u2013 for liability awards based on fair value at reporting date.
Each RSU entitles the holder to one ordinary share on vesting and the RSU awards are generally based on a cliff vesting schedule over a one to three-year requisite service period in which the Company recognizes compensation expense for the RSUs. Following vesting, each recipient will be required to make a payment of one pence per ordinary share on settlement of the RSUs. Vesting of the majority of the RSUs is subject to the satisfaction of performance and market conditions. The grant date fair value of market condition awards that were treated as equity settled awards were measured to reflect such conditions and there was no true-up for differences between expected and actual outcomes. For liability settled awards, see below.
The Company recognizes the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon its determination of whether it is probable that the performance targets will be achieved. The Company assesses the probability of achieving the performance targets at each reporting period. Cumulative adjustments, if any, are recorded to reflect subsequent changes in the estimated outcome of performance-related conditions.
The fair value of the market and performance-based awards is based on the Monte Carlo simulation analysis utilizing a Geometric Brownian Motion process with 100,000 simulations to value those shares. The model considers share price volatility, risk-free rate and other covariance of comparable public companies and other market data to predict distribution of relative share performance.
The performance and market conditions attached to the RSU awards are based on the achievement of total shareholder return\u00a0(\u201cTSR\u201d), based on the achievement of absolute TSR targets, and to a lesser extent based on TSR as compared to the FTSE 250 Index, and the MSCI Europe Health Care Index. The remaining portion is based on the achievement of strategic targets. The RSU award performance criteria have changed over time as the criteria is continually evaluated by the Group\u2019s Remuneration Committee.
In 2017, the Company granted certain executives RSUs that vested based on the service, market and performance conditions, as described above. The vesting of all RSUs was achieved by December 31, 2019 where all service, market and performance conditions were met. The remuneration committee of PureTech's Board of Directors approved the achievement of the vesting conditions as of December 31, 2019 and reached the decision during the year ended December 31, 2020 to cash settle the 2017 RSUs. The settlement value was determined based on the 3 day average closing price of the shares. The settlement value was $12.5\u00a0million\u00a0(which after deducting tax withheld on behalf of recipients amounted to $7.2\u00a0million). The settlement value did not exceed the fair value at settlement date and as such the cash settlement was treated as an equity transaction in the financial statements for the year ended December 31, 2020, whereby the full repurchase cash settlement amount was charged to equity in Other reserves.
Similarly in 2018, the Company granted certain executives RSUs that vested based on service, market and performance conditions, as described above. The vesting of all RSUs was achieved by December 31, 2020 where all service, market and performance conditions were met. In February 2021 the remuneration committee of PureTech's board of directors approved the achievement of the vesting conditions as of December 31, 2020 and on May 28, 2021 reached the decision to cash settle RSUs to certain employees while others were issued shares. The settlement value was determined based on the three day average closing price of the shares. The settlement value was $10.7 million (which after deducting tax withheld on behalf of recipients amounted to $6.4 million). The settlement value did not exceed the fair value at settlement date and as such the cash settlement was treated as an equity transaction, whereby the full repurchase cash settlement amount was charged to equity in Other reserves in the financial statements as of and for the year ended December 31, 2021.
Following the different cash settlements, the Company concluded that although the remaining RSUs are to be settled by shares according to their respective agreements, and any cash settlement is at the Company's discretion, due to past practice of cash settlement to multiple employees, some for multiple years, these RSUs to the company executives should be treated as liability awards and as such adjusted to fair value at every reporting date with changes in fair value recorded in earnings as stock based compensation expense.
Consequently, the Company reclassified during the year ended December 31, 2021 $1.9\u00a0million from equity to other non-current liabilities and $4.8 million from equity to other payables equal to the fair value of the awards at the date of reclassification. The Company treated the excess of the fair value at the reclassification date over the grant date fair value of the RSUs (for the portion of the vesting period that has already elapsed) in the amount of $2.9 million as an equity transaction. Therefore the full amount of the liability at reclassification was recorded as a charge to equity. The changes in fair value of the liability from reclassification date to balance sheet date or settlement date are recorded as stock-based compensation expense in the Consolidated Statement of Comprehensive Income (loss).
The Company incurred share-based payment expenses for performance, market and service based RSUs of $1.6 million (including $1.1 million expense in respect of RSU liability awards), $1.5 million (including $0.6 million expense in respect of RSU liability awards), and $5.7 million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. The decrease in the share based compensation expense in respect of the RSUs for the year ended December 31, 2021, as compared to the year ended December 31, 2020 is due to reduction in the fair value of the liability awards as compared to their value at the date the awards were reclassified from equity awards to liability awards, as well as forfeitures of certain awards due to unexpected terminations of RSU holders.
As of December 31, 2022, the carrying amount of the RSU liability awards was $5.9 million, $1.8 million current; $4.1 million non current, out of which $1.8 million related to awards that have met all their performance and market conditions.
Stock Options
Stock option activity for the years ended\u00a0December 31, 2022, 2021 and 2020, is detailed as follows:
Number of Options | Wtd Average Exercise Price (GBP) | Wtd Average of | Wtd Average Stock Price at Exercise (GBP) | |
Outstanding at January 1, 2020 | 8,472,827 | 1.16 | 8.55 | |
Granted | 4,076,982 | 3.14 | ||
Exercised | (514,410) | 1.52 | 2.88 | |
Forfeited and expired | (1,119,313) | 1.88 | ||
Options Exercisable at December 31, 2020 and January 1, 2021 | 5,447,405 | 0.98 | 7.46 | |
Outstanding at December 31, 2020 and January 1, 2021 | 10,916,086 | 1.81 | 8.38 | |
Granted | 5,424,000 | 3.34 | ||
Exercised | (2,238,187) | 0.70 | 3.63 | |
Forfeited and expired | (687,781) | 2.53 | ||
Options Exercisable at December 31, 2021 and January 1, 2022 | 4,773,873 | 1.42 | 6.50 | |
Outstanding at December 31, 2021 and January 1, 2022 | 13,414,118 | 2.58 | 8.29 | |
Granted | 8,881,000 | 2.04 | ||
Exercised | (577,022) | 0.50 | 2.43 | |
Forfeited and expired | (3,924,215) | 2.89 | ||
Options Exercisable at December 31, 2022 | 6,185,216 | 2.03 | 6.21 | |
Outstanding at December 31, 2022 | 17,793,881 | 2.31 | 8.03 |
The fair value of the stock options awarded by the Company was estimated at the grant date using the Black-Scholes option valuation model, considering the terms and conditions upon which options were granted, with the following weighted-average\u00a0assumptions:
At December 31, | 2022 | 2021 | 2020 |
Expected volatility | 41.70% | 41.05% | 41.25% |
Expected terms (in years) | 6.11 | 6.16 | 6.11 |
Risk-free interest rate | 2.13% | 1.06% | 0.53% |
Expected dividend yield | \u2014 | \u2014 | \u2014 |
Grant date fair value | $1.15 | $1.87 | $1.72 |
The Company incurred share-based payment expense for the stock options of $8.4 million, $6.2 million and $2.1 million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. The increase in expense for the year ended\u00a0December 31, 2022, as compared to the year ended\u00a0December 31, 2021, is due to the new grants granted in 2022. The increase in expense\u00a0for the year ended\u00a0December 31, 2021, as compared to the year ended\u00a0December 31, 2020, is due to new grants granted in 2021.
For shares outstanding as of December 31, 2022, the range of exercise prices is detailed as follows:
Range of Exercise Prices (GBP) | Options | Wtd | Wtd Average of |
0.01 | 439,490 | \u2014 | 6.76 |
1.00 to 2.00 | 6,276,391 | 1.58 | 7.00 |
2.00 to 3.00 | 5,375,750 | 2.26 | 8.92 |
3.00 to 4.00 | 5,702,250 | 3.34 | 8.40 |
Total | 17,793,881 | 2.31 | 8.03 |
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option plans. A summary of stock option activity by number of shares in\u00a0these subsidiaries is presented in the following table:
Outstanding as of January 1, 2022 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2022 | |
Entrega | 349,500 | 45,000 | \u2014 | (50,000) | \u2014 | \u2014 | 344,500 |
Follica | 2,686,120 | 90,000 | \u2014 | \u2014 | \u2014 | \u2014 | 2,776,120 |
Sonde | 2,049,004 | \u2014 | \u2014 | \u2014 | \u2014 | (2,049,004) | \u2014 |
Vedanta | 1,991,637 | 490,506 | (400,000) | (65,235) | (192,332) | \u2014 | 1,824,576 |
Outstanding as of January 1, 2021 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2021 | |
Alivio | 3,888,168 | 197,398 | (2,373,750) | (506,260) | (1,205,556) | \u2014 | \u2014 |
Entrega | 962,000 | \u2014 | (525,000) | (87,500) | \u2014 | \u2014 | 349,500 |
Follica | 1,309,040 | 1,383,080 | \u2014 | (6,000) | \u2014 | \u2014 | 2,686,120 |
Sonde | 2,192,834 | \u2014 | \u2014 | (51,507) | (92,323) | \u2014 | 2,049,004 |
Vedanta | 1,741,888 | 451,532 | (52,938) | (76,491) | (72,354) | \u2014 | 1,991,637 |
Outstanding as of January 1, 2020 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2020 | |
Alivio | 3,698,244 | 189,924 | \u2014 | \u2014 | \u2014 | \u2014 | 3,888,168 |
Entrega | 972,000 | \u2014 | \u2014 | \u2014 | (10,000) | \u2014 | 962,000 |
Follica | 1,309,040 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 1,309,040 |
Sonde | 1,829,004 | 363,830 | \u2014 | \u2014 | \u2014 | \u2014 | 2,192,834 |
Vedanta | 1,450,100 | 493,951 | (813) | \u2014 | (201,350) | \u2014 | 1,741,888 |
The weighted-average exercise prices and remaining contractual life for the options outstanding as of December 31, 2022, were as\u00a0follows:
Outstanding at December 31, 2022 | Number of options | Weighted-average exercise price $ | Weighted-average contractual life outstanding |
Entrega | 344,500 | 1.91 | 4.92 |
Follica | 2,776,120 | 1.41 | 6.38 |
Vedanta | 1,824,576 | 15.89 | 6.88 |
The weighted average exercise prices for the options granted for the years ended\u00a0December 31, 2022, 2021 and 2020, were as\u00a0follows:
For the years ended December 31, | 2022 $ | 2021 $ | 2020 $ |
Alivio | \u2014 | \u2014 | 0.47 |
Entrega | 0.02 | \u2014 | \u2014 |
Follica | 1.86 | 1.86 | \u2014 |
Sonde | \u2014 | \u2014 | 0.18 |
Vedanta | 14.94 | 19.69 | 19.59 |
The weighted average exercise prices for options forfeited during the year ended\u00a0December 31, 2022, were as follows:
Forfeited during the year ended December 31, 2022 | Number of options | Weighted-average exercise price $ |
Vedanta | 192,332 | 19.64 |
The weighted average exercise prices for options exercised during the year ended\u00a0December 31, 2022, were as follows:
Exercised during the year ended December 31, 2022 | Number of options | Weighted-average exercise price |
Vedanta | 400,000 | 0.02 |
The weighted average exercise prices for options exercisable as of December 31, 2022, were as follows:
Exercisable at December 31, 2022 | Number of Options | Weighted-average exercise price $ | Exercise Price Range |
Entrega | 344,500 | 1.91 | 0.02-2.36 |
Follica | 2,776,120 | 1.41 | 0.03-1.86 |
Vedanta | 1,824,576 | 15.89 | 0.02-21.35 |
Significant Subsidiary Plans
Vedanta 2020 Stock Incentive Plan
On June 2, 2020, the Company\u2019s Board of Directors approved the 2020 Stock Incentive Plan, or 2020 Plan, which replaced the 2010 Stock Incentive Plan, or 2010 Plan, which was set to expire in December 2020. All authorized and issued shares under the 2010 Plan were transferred to the 2020 Plan. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and nonemployees of the Company up to an aggregate of 2,145,867 shares of the Company's common stock. In March 2021, the Company\u2019s Board of Directors approved an increase in the authorized shares of 151,188 for a total of 2,297,055. In July 2021, the Company\u2019s Board of Directors approved an increase in the authorized shares of 500,000 for a total of 2,797,055. Under the 2020 Plan, 914,331 shares remained available for issuance as of December 31, 2022.
The options granted under the 2020 Plan are equity settled and expire 10 years\u00a0from the grant date. Typically, the awards vest in four years but vesting conditions can vary based on the discretion of Vedanta\u2019s Board of Directors.
Options granted under the 2020 Plan are exercisable at a price per share not less than the fair market value of the underlying ordinary shares on the date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the options\u2019 vesting period.
The fair value of the stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following range of assumptions:
Assumption/Input | 2022 | 2021 | 2020 |
Expected award life (in years) | 6.00-8.33 | 6.00-7.11 | 6.00-10.00 |
Expected award price volatility | 88.22%-89.68% | 88.05%-88.59% | 89.24%-95.46% |
Risk free interest rate | 1.67%-3.13% | 0.96%-1.32% | 0.32%-0.87% |
Expected dividend yield | \u2014 | \u2014 | \u2014 |
Grant date fair value | $10.51-$15.14 | $13.84-$16.23 | $13.09-$16.54 |
Share price at grant date | $14.00-$18.84 | $19.00-$21.35 | $19.59 |
Vedanta incurred share-based compensation expense of $4.3 million, $5.4 million and $2.4\u00a0million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively.
Other Plans
The following table shows the breakdown of finance income and costs:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ended\u00a0December 31, | |||
Finance income | |||
Interest income from financial assets | 5,799 | 214 | 1,183 |
Total finance income | 5,799 | 214 | 1,183 |
Finance costs | |||
Contractual interest expense on notes payable | (212) | (1,031) | (96) |
Interest expense on other borrowings | (1,759) | (1,502) | (496) |
Interest expense on lease liability | (1,982) | (2,181) | (2,354) |
Gain/(loss) on foreign currency exchange | 14 | (56) | \u2014 |
Total finance cost \u2013 contractual | (3,939) | (4,771) | (2,946) |
Gain/(loss) from change in fair value of warrant liability | 6,740 | 1,419 | (117) |
Gain/(loss) from change in fair value of preferred shares | 130,825 | 8,362 | (4,234) |
Gain/(loss) from change in fair value of convertible debt | (502) | (175) | \u2014 |
Total finance income/(costs) \u2013 fair value accounting | 137,063 | 9,606 | (4,351) |
Finance income/(costs), net | 138,924 | 5,050 | (6,115) |
The basic and diluted income/(loss) per share has been calculated by dividing the income/(loss) for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. During the years ended\u00a0December 31, 2022\u00a0and 2021 the Company incurred a net loss and therefore all outstanding potential securities were considered anti-dilutive. The amount of potential securities that were excluded from the calculation amounted to 3,134,131\u00a0 and 6,553,905 shares, respectively.
Earnings/(Loss) Attributable to Owners of the Company:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Income/(loss) for the year, attributable to the owners of the Company | (50,354) | (50,354) | (60,558) | (60,558) | 5,985 | 5,985 | ||
Income/(loss) attributable to ordinary shareholders | (50,354) | (50,354) | (60,558) | (60,558) | 5,985 | 5,985 |
Weighted-Average Number of Ordinary Shares:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Issued ordinary shares at January 1, | 287,796,585 | 287,796,585 | 285,885,025 | 285,885,025 | 285,370,619 | 285,370,619 | ||
Effect of shares issued | 690,772 | 690,772 | 705,958 | 705,958 | 233,048 | 233,048 | ||
Effect of dilutive shares (please refer to Note 8) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 7,252,246 | ||
Effect of treasury shares purchased | (3,727,922) | (3,727,922) | \u2014 | \u2014 | \u2014 | \u2014 | ||
Weighted average number of ordinary shares at December 31, | 284,759,435 | 284,759,435 | 286,590,983 | 286,590,983 | 285,603,667 | 292,855,913 |
Earnings/(Loss) per Share:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Basic and diluted earnings/(loss) per share | (0.18) | (0.18) | (0.21) | (0.21) | 0.02 | 0.02 |
Cost | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of January 1, 2021 | 8,420 | 1,452 | 1,519 | 18,054 | 3,852 | 33,297 |
Additions, net of transfers | 1,424 | \u2014 | 92 | 183 | 6,723 | 8,422 |
Disposals | (323) | \u2014 | (282) | \u2014 | \u2014 | (605) |
Reclassifications | 2,211 | \u2014 | \u2014 | 248 | (2,459) | \u2014 |
Balance as of December 31, 2021 | 11,733 | 1,452 | 1,329 | 18,485 | 8,116 | 41,115 |
Additions, net of transfers | 390 | \u2014 | 11 | 412 | 1,362 | 2,176 |
Disposals | (118) | \u2014 | \u2014 | \u2014 | (77) | (195) |
Deconsolidation of subsidiaries | \u2014 | \u2014 | (58) | \u2014 | \u2014 | (58) |
Reclassifications | 1,336 | 58 | 137 | 5,067 | (6,598) | \u2014 |
Balance as of December 31, 2022 | 13,341 | 1,510 | 1,419 | 23,964 | 2,803 | 43,037 |
Accumulated depreciation and impairment\u00a0loss | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of January 1, 2021 | (3,965) | (454) | (1,287) | (4,815) | \u2014 | (10,520) |
Depreciation | (1,973) | (208) | (174) | (1,991) | \u2014 | (4,346) |
Disposals | 251 | \u2014 | 271 | \u2014 | \u2014 | 522 |
Balance as of December 31, 2021 | (5,686) | (663) | (1,190) | (6,806) | \u2014 | (14,344) |
Depreciation | (2,082) | (212) | (107) | (3,444) | \u2014 | (5,845) |
Disposals | 57 | \u2014 | \u2014 | \u2014 | \u2014 | 57 |
Deconsolidation of subsidiaries | \u2014 | \u2014 | 53 | \u2014 | \u2014 | 53 |
Balance as of December 31, 2022 | (7,711) | (875) | (1,244) | (10,250) | \u2014 | (20,080) |
Property and Equipment, net | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of December 31, 2021 | 6,047 | 790 | 139 | 11,679 | 8,116 | 26,771 |
Balance as of December 31, 2022 | 5,630 | 635 | 174 | 13,714 | 2,803 | 22,957 |
Intangible assets consist of licenses of intellectual property acquired by the Group through various agreements with third parties and are recorded at the value of the consideration transferred. Information regarding the cost and accumulated amortization of intangible assets is as follows:
Cost | Licenses |
Balance as of January 1, 2021 | 900 |
Additions | 90 |
Balance as of December 31, 2021 | 990 |
Additions | 25 |
Write-off | (163) |
Deconsolidation of subsidiaries | (21) |
Balance as of December 31, 2022 | 831 |
Accumulated amortization | Licenses |
Balance as of January 1, 2021 | (1) |
Amortization | (2) |
Balance as of December 31, 2021 | (3) |
Amortization | (1) |
Deconsolidation of subsidiary | 4 |
Balance as of December 31, 2022 | \u2014 |
Intangible assets, net | Licenses |
Balance as of December 31, 2021 | 987 |
Balance as of December 31, 2022 | 831 |
The Company tested all other such intangible assets for impairment as of balance sheet date and concluded that none of such assets were impaired.
During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated and as such $17.5 thousand in net assets were derecognised.
Other financial assets consist of restricted cash held, which represents amounts that are reserved as collateral against letters of credit with a bank that are issued for the benefit of a landlord in lieu of a security deposit for office space leased by the Group. Information regarding restricted cash was as follows:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Restricted cash | 2,124 | 2,124 |
Total other financial assets | 2,124 | 2,124 |
Total equity for PureTech as of December 31, 2022, and 2021, was as follows:
December 31, 2022 $000s | December 31, 2021 $000s | |
Equity | ||
Share capital, \u00a30.01 par value, issued and paid 278,566,306 and 287,796,585 as of December\u00a031, 2022 and 2021, respectively | 5,455 | 5,444 |
Merger Reserve | 138,506 | 138,506 |
Share premium | 289,624 | 289,303 |
Treasury shares, 10,595,347 and zero as of December 31, 2022 and 2021, respectively | (26,492) | \u2014 |
Translation reserve | 89 | 469 |
Other reserves | (14,478) | (40,077) |
Retained earnings/(accumulated deficit) | 149,516 | 199,871 |
Equity attributable to owners of the Group | 542,220 | 593,515 |
Non-controlling interests | 5,369 | (9,368) |
Total equity | 547,589 | 584,147 |
Changes in share capital and share premium relate primarily to incentive options exercises during the period.
Shareholders are entitled to vote on all matters submitted to shareholders for a vote. Each ordinary share is entitled to one vote. Each ordinary share is entitled to receive dividends when and if declared by the Company\u2019s Directors. The Company has not declared any dividends in the past.
On June 18, 2015, the Company acquired the entire issued share capital of PureTech LLC in return for 159,648,387 Ordinary Shares. This was accounted for as a common control transaction at cost. It was deemed that the share capital was issued in line with movements in share capital as shown prior to the transaction taking place. In addition, the merger reserve records amounts previously recorded as share premium.
Other reserves comprise the cumulative credit to share-based payment reserves corresponding to share-based payment expenses recognized through Consolidated Statements of Comprehensive Income/(Loss), settlements of vested share based payment awards as well as other additions that flow directly through equity such as the excess or deficit from changes in ownership of subsidiaries while control is maintained by the Group.
On May 9, 2022, the Company announced the commencement of a $50.0 million share repurchase program the (\"Program\") of its ordinary shares of one pence each (\u201cOrdinary Shares\u201d). The Company is executing the Program in two equal tranches. In respect of the two tranches, PureTech entered into an irrevocable (see below) non-discretionary instruction with Jefferies International Limited (\u201cJefferies\u201d) in relation to the purchase by Jefferies of Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25.0 million for each tranche and the simultaneous on-sale of such Ordinary Shares by Jefferies to PureTech, subject to certain volume and price restrictions. Jefferies makes its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Company. Purchases may continue during any close period to which the Company is subject. The instruction to Jeffries may be amended or withdrawn so long as the Company is not in a\u00a0close period or otherwise in possession of inside information.
Any purchases of Ordinary Shares under the Program were carried out on the London Stock Exchange and could be carried out on any other UK recognized investment exchange which may be agreed, in accordance with pre-set parameters and in accordance with, and subject to limits, including those limits related to daily volume and price, prescribed by the Company\u2019s general authority to repurchase Ordinary Shares granted by its shareholders at its annual general meeting on May 27, 2021, and relevant Rules and Regulations. All Ordinary Shares repurchased under the Program are held in treasury.
Preferred shares issued by subsidiaries often contain redemption and conversion features that are assessed under IFRS\u00a09 in conjunction with the host preferred share instrument. This balance represents subsidiary preferred shares issued to third\u00a0parties.
The subsidiary preferred shares are redeemable upon the occurrence of a contingent event, other than full liquidation of the Company, that is not considered to be within the control of the Company. Therefore these subsidiary preferred shares are classified as liabilities. These liabilities are measured at fair value through profit and loss. The preferred shares are convertible into ordinary shares of the subsidiaries at the option of the holder and mandatorily convertible into ordinary shares upon a subsidiary listing in a public market at a price above that specified in the subsidiary\u2019s charter or upon the vote of the holders of subsidiary preferred shares specified in the charter. Under certain scenarios the number of ordinary shares receivable on conversion will change and therefore, the number of shares that will be issued is not fixed. As such the conversion feature is considered to be an embedded derivative that normally would require bifurcation. However, since the preferred share liabilities are measured at fair value through profit and loss, as mentioned above, no bifurcation is required.
The preferred shares are entitled to vote with holders of common shares on an as converted basis.
The Group recognized the preferred share balance upon the receipt of cash financing or upon the conversion of notes into preferred shares at the amount received or carrying balance of any notes converted into preferred shares.
The balance as of December 31, 2022 and December 31, 2021, represents the fair value of the instruments for all subsidiary preferred shares. The following summarizes the subsidiary preferred share balance:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Entrega | 169 | 669 |
Follica | 350 | 11,191 |
Sonde | \u2014 | 13,362 |
Vedanta Biosciences | 26,820 | 148,796 |
Total subsidiary preferred share balance | 27,339 | 174,017 |
As is customary, in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, the holders of subsidiary preferred shares which are outstanding shall be entitled to be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. A merger, acquisition, sale of voting control or other transaction of a subsidiary in which the shareholders of the subsidiary immediately before the transaction do\u00a0not own a majority of the outstanding shares of the surviving company shall be deemed to be a liquidation event. Additionally, a sale, lease, transfer or other disposition of all or substantially all of the assets of the subsidiary shall also be deemed a liquidation event.
As of December 31, 2022 and December 31, 2021, the minimum liquidation preference reflects the amounts that would be payable to the subsidiary preferred holders upon a liquidation event of the subsidiaries, which is as follows:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Entrega | 2,216 | 2,216 |
Follica | 6,405 | 6,405 |
Sonde | \u2014 | 12,000 |
Vedanta Biosciences | 149,568 | 149,568 |
Total minimum liquidation preference | 158,189 | 170,189 |
$000s | |
Balance as of January 1, 2021 | 118,972 |
Issuance of new preferred shares \u2013 financing cash flow | 37,610 |
Conversion of convertible notes | 25,797 |
Decrease in value of preferred shares measured at fair value \u2013 finance costs (income) | (8,362) |
Balance as of January 1, 2022 | 174,017 |
Decrease in value of preferred shares measured at fair value \u2013 finance costs (income) | (130,825) |
Deconsolidation of subsidiary \u2013 (Sonde) | (15,853) |
Balance as of December 31, 2022 | 27,339 |
During the year ended December 31, 2022 there were no issuances of new preferred shares.
2021
The Group\u2019s financial instruments consist of financial liabilities, including preferred shares, convertible notes, warrants and loans payable, as well as financial assets. Many of these financial instruments are presented at fair value with fair value changes recorded through profit and loss.
Fair Value Process
For financial instruments measured at fair value under IFRS 9, the change in the fair value is reflected through profit and loss. Using the guidance in IFRS 13, the total business enterprise value and allocable equity of each entity being valued was determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market PWERM approach, discounted cash flow income approach, or hybrid approaches. The approaches, in order of strongest fair value evidence, are detailed as\u00a0follows:
Valuation Method | Description |
Market \u2013 Backsolve | The market backsolve approach benchmarks the original issue price (OIP) of the company\u2019s latest funding transaction as current value. |
Market/Asset \u2013 PWERM | Under a PWERM, the company value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise. An asset approach may be included as an expected future outcome within the PWERM method. Possible future outcomes can include IPO scenarios, potential SPAC transactions, merger and acquisition transactions as well as other similar exit transactions of the investee. |
Income Based \u2013 DCF | The income approach is used to estimate fair value based on the income streams, such as cash flows or earnings, that an asset or business can be expected to generate. |
As of December 31, 2022 and 2021, at each measurement date, the fair value of preferred shares and warrant liabilities, including embedded conversion rights that are not bifurcated, as well as investments held at fair value (that are not publicly traded), were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), Probability-Weighted Expected Return Method (\"PWERM\"), or Hybrid allocation framework.\u00a0The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\u2019s equity value, with exercise prices based on the liquidation preferences of the preferred stock.\u00a0 |
PWERM | Under a PWERM, share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise, as well as the rights of each share class. |
Hybrid | The hybrid method (\u201cHM\u201d) is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenarios occurrence, similar\u00a0to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more\u00a0of the scenarios. |
Valuation policies and procedures are regularly monitored by the Company\u2019s finance group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed on their issuance date and then on an annual basis for reasonableness and compliance with the fair value measurements guidance under IFRS. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument\u2019s valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable, reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed.
Subsidiary Preferred Shares Liability and Subsidiary Convertible Notes
The following table summarizes the changes in the Group\u2019s subsidiary preferred shares and convertible note liabilities measured at fair value, which were categorized as Level 3 in the fair value hierarchy:
Subsidiary Preferred Shares | Subsidiary Convertible | |
Balance at January 1, 2020 | 100,989 | \u2014 |
Value at issuance | 13,750 | 25,000 |
Change in fair value | 4,233 | \u2014 |
Balance at December 31, 2020 and January 1, 2021 | 118,972 | 25,000 |
Value at issuance | 37,610 | 2,215 |
Conversion to subsidiary preferred shares | 25,797 | (25,797) |
Accrued interest \u2013 contractual | \u2014 | 867 |
Change in fair value | (8,362) | 175 |
Balance at December 31, 2021 and January 1, 2022 | 174,017 | 2,461 |
Value at issuance | \u2014 | 393 |
Accrued interest \u2013 contractual | \u2014 | 48 |
Change in fair value | (130,825) | 502 |
Deconsolidation \u2013 Sonde | (15,853) | (3,403) |
Balance at December 31, 2022 | 27,339 | \u2014 |
The change in fair value of preferred shares and convertible notes are recorded in Finance income/(costs) \u2013 fair value accounting in the Consolidated Statements of Comprehensive Income/(Loss).
The table below sets out information about the significant unobservable inputs used at December 31, 2022, in the fair value measurement of the Group\u2019s material subsidiary preferred shares liabilities categorized as Level 3 in the fair value hierarchy:
Fair Value at December 31, 2022 | Valuation Technique | Unobservable Inputs | Weighted Average | Sensitivity to Decrease\u00a0in\u00a0Input |
26,820 | PWERM based on pro forma backsolve approach that leverages a Monte Carlo simulation | Estimated Time to Exit | 2.14 | Fair value decrease |
Equity Discount Rate | 30% | Fair value increase | ||
Debt Discount Rate | 15% | Fair value decrease | ||
Volatility | 95% | Fair value decrease |
Subsidiary Preferred Shares Sensitivity
The following summarizes the sensitivity from the assumptions made by the Company with respect to the significant unobservable inputs which are categorized as Level 3 in the fair value hierarchy and used in the fair value measurement of the Group\u2019s subsidiary preferred shares liabilities (Please refer to Note 15):
Input | Subsidiary Preferred Share Liability | |
As of December 31, 2022 | Sensitivity Range | Financial Liability Increase/(Decrease) |
Time to Liquidity | - 6 Months | (1,322) |
+ 6 Months | 856 | |
Volatility | (10)% | (1,133) |
+10% | 1,200 | |
Discount Rate | (5)% | (2,035) |
+5% | 1,922 |
Financial Assets Held at Fair Value
Karuna, Vor and Akili Valuation
Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq: AKLI) and additional immaterial investments are listed entities on an active exchange and as such the fair value as of December 31, 2022, was calculated utilizing the quoted common share price. Please refer to Note 5 for further details.
Akili, Gelesis and Sonde
In accordance with IFRS 9, the Company accounted for its preferred share investments in Akili (until the exchange of such shares to common stock traded on Nasdaq) and Gelesis (until the exchange of such shares to common stock) and accounts for its investment in Sonde (investment in Preferred A-2 and B shares, subsequent to the date of deconsolidation) as financial assets held at fair value through the profit and loss. In addition, the Company accounts for its investment in Gelesis Earn-out shares and Akili Earn-out shares (see Note 5) as investments held at fair value. All the valuations of the aforementioned investments are categorized as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs to value such assets. During the year ended\u00a0December 31, 2022, the Company recorded such investments at fair value and recognized the change in fair value of the investments as a loss of $30.0\u00a0million that was recorded to the Consolidated Statements of Comprehensive Income/(Loss) in the line item Gain/(loss) on investments held at fair\u00a0value.
The following table summarizes the changes in all the Group\u2019s investments held at fair value, which were categorized as Level 3 in the fair value hierarchy:
$'000s | |
Balance at January 1, 2020 | 154,445 |
Cash purchase of Gelesis preferred shares (please refer to Note 6) | 10,000 |
Cash purchase of Vor preferred shares | 1,150 |
Gain/(Loss) on changes in fair value | 41,297 |
Balance at December 31, 2020 and January 1, 2021 | 206,892 |
Cash purchase of Vor preferred shares | 500 |
Reclassification of Vor from level 3 to level 1 | (33,365) |
Gain/(Loss) on changes in fair value | 65,505 |
Balance at January 1, 2022 before allocation of associate loss to long-term interest | 239,533 |
Deconsolidation of Sonde | 11,168 |
Gelesis \u2013 New Investment \u2013 Earn out Shares | 14,214 |
Exchange of Gelesis preferred shares to Gelesis common shares | (92,303) |
Reclassification of Akili to level 1 investment | (128,764) |
Change in fair value | (31,253) |
Balance as of December 31, 2022 | 12,593 |
The change in fair value of investments held at fair value are recorded in Gain/(loss) on investments held at fair value in the Consolidated Statements of Comprehensive Income/(Loss).
The table below sets out information about the significant unobservable inputs used at December 31, 2022, in the fair value measurement of the Group\u2019s material preferred share investments held at fair value categorized as Level 3 in the fair value hierarchy:
Fair Value at December 31, 2022 | Valuation Technique | Unobservable Inputs | Weighted Average | Sensitivity to Decrease in Input |
11,403 | Market Backsolve & OPM | Estimated time to exit | 2.00 | Fair value decrease |
Volatility | 55% | Fair value decrease |
As the material investments held at fair value categorized as level 3 in the fair value hierarchy are based on a market backsolve approach using a recent arm's length transaction the change in unobservable inputs in reasonably possible scenarios has an immaterial impact on the financial statements.
Warrants
Warrants issued by subsidiaries within the Group are classified as liabilities, as they will be settled in a variable number of preferred shares. The following table summarizes the changes in the Group\u2019s subsidiary warrant liabilities, which were categorized as Level 3 in the fair value hierarchy:
Subsidiary Warrant Liability | |
Balance at January 1, 2020 | 7,997 |
Warrant Issuance | 92 |
Change in fair value \u2013 finance costs (income) | 117 |
Balance at December 31, 2020 and January 1, 2021 | 8,206 |
Change in fair value \u2013 finance costs (income) | (1,419) |
Balance at December 31, 2021 and January 1, 2022 | 6,787 |
Change in fair value \u2013 finance costs (income) | (6,740) |
Balance at December 31, 2022 | 47 |
The change in fair value of warrants are recorded in Finance income/(costs) \u2013 fair value accounting in the Consolidated Statements of Comprehensive Income/(Loss).
In connection with various amendments to its 2010 Loan and Security Agreement, Follica issued Series A-1 preferred share warrants at various dates in 2013 and 2014. In 2017, in conjunction with the issuance of convertible notes, the exercise price of\u00a0the warrants was adjusted to $0.07 per share.
In connection with the September 2, 2021 Oxford Finance LLC loan issuance, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030.
The fair value of the warrant liabilities was immaterial as of December 31, 2022 due to the decline in the fair value of the underlying preferred shares in the Follica warrant. See also Note 15 for the fair value of Follica preferred share liabilities.
Short-term Note from Associate
On December 7, 2021, Gelesis issued PureTech a $15.0\u00a0million note to be repaid the earlier of three business days after the closing of the business combination of Gelesis with Capstar Special Acquisition Corp (\"Capstar\"), or 30 days following the termination of such business combination. In the event of the business combination termination, the Company, who represented the majority of the note holders, could have elected to convert the note at the next equity financing at a discount of 25% from the financing price. The note bore interest at a rate of 10% per annum.
The note was repaid by Gelesis in January 2022 due to the closing of the business combination between Gelesis and Capstar on January 13, 2022.
Note from Associate
On July 27, 2022, PureTech, as a lender, entered into an unsecured Short Term Promissory Note (\"Note\") with Gelesis (GLS), as a borrower, in the amount of\u00a0$15.0\u00a0million. The Note bears an annual interest rate of 15% per annum and accrues until the note is repaid. The term of the Note is the earlier of December 31, 2023 or five business days following the consummation of a\u00a0qualified financing by Gelesis.
In case of default, PureTech will be issued a warrant which shall entitle PureTech to purchase at an exercise price per share of $0.01 a number of shares of Gelesis common Stock equal to (i) (A) 0.2 multiplied by (B) the amount of outstanding principal and accrued interest under the Note as of the date of conversion described below, divided by (ii) the volume weighted average price of each share of Common Stock, as reported by the New York Stock Exchange, for the last five (5) trading days (\"the \u201cCommon Stock VWAP\u201d) occurring immediately prior to the date of exercise. In addition, PureTech will have the option to convert the amount of outstanding principal and accrued interest under the Note into a number of shares of Gelesis Common Stock (the \u201cConversion Securities\u201d) equal to (i) the amount of outstanding principal and accrued interest under the Note as of the date of such conversion, divided by (ii) the lesser of the price per share of (A) the Gelesis common Stock, as reported by the New York Stock Exchange, as of 4:00 P.M. Eastern Time on the date of the conversion notice or (B) the Common Stock VWAP as of the day prior to the date of the conversion notice.
Based on the terms of the note, the note is required to be measured at fair value with changes in fair value recorded through profit and loss. The fair value of the note as of December 31, 2022 was $16.5\u00a0million. During the year ended December 31, 2022 the Group recorded $963\u00a0thousand of interest income and a gain of $539\u00a0thousand for the change in the fair value of the note. The change in the fair value of the note was recorded in the line item Other Income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss).
The note was valued using a discounted cash flow approach of the probability weighted future returns on the note, using a discount rate of 28.9%. Increasing or decreasing the discount rate by 5.0% will decrease or increase the value, respectively, by approximately $0.4\u00a0million. Also, increasing the estimated term to a qualified financing by 6 months (estimated as 3 months from December 31, 2022) will decrease the fair value by approximately $0.9\u00a0million.
Subsequent to balance sheet date, on April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH. See Note 26 for additional details, including information related to an additional note issued by Gelesis to the Group after balance sheet date.
Fair Value Measurement and Classification
The fair value of financial instruments by category at December 31, 2022 and 2021:
2022 | |||||||
Carrying Amount | Fair Value | ||||||
Financial Assets | Financial Liabilities | Level 1 | Level 2 | Level 3 | Total | ||
Financial assets: | |||||||
Money Markets1,2 | 95,249 | \u2014 | 95,249 | \u2014 | \u2014 | 95,249 | |
Short-term investments1 | 200,229 | \u2014 | 200,229 | \u2014 | \u2014 | 200,229 | |
Note from associate | 16,501 | \u2014 | \u2014 | \u2014 | 16,501 | 16,501 | |
Investments held at fair value | 251,892 | \u2014 | 239,299 | \u2014 | 12,593 | 251,892 | |
Trade and other receivables3 | 11,867 | \u2014 | \u2014 | 11,867 | \u2014 | 11,867 | |
Total financial assets | 575,738 | \u2014 | 534,777 | 11,867 | 29,094 | 575,738 | |
Financial liabilities: | |||||||
Subsidiary warrant liability | \u2014 | 47 | \u2014 | \u2014 | 47 | 47 | |
Subsidiary preferred shares | \u2014 | 27,339 | \u2014 | \u2014 | 27,339 | 27,339 | |
Subsidiary notes payable | \u2014 | 2,345 | \u2014 | 2,097 | 248 | 2,345 | |
Share based liability awards | \u2014 | 5,932 | 4,396 | \u2014 | 1,537 | 5,932 | |
Total financial liabilities | \u2014 | 35,664 | 4,396 | 2,097 | 29,171 | 35,664 |
1\u00a0\u00a0\u00a0\u00a0Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade.
2\u00a0\u00a0\u00a0\u00a0Included within Cash and cash equivalents
3\u00a0\u00a0\u00a0\u00a0Outstanding receivables are owed primarily by government agencies and large corporations, virtually all of which are investment grade.
As of balance sheet date the long term loan book value (see Note 20) approximated its fair value due to its variable rate.
2021 | |||||||
Carrying Amount | Fair Value | ||||||
Financial Assets | Financial Liabilities | Level 1 | Level 2 | Level 3 | Total | ||
Financial assets: | |||||||
Money Markets1 | 432,649 | \u2014 | 432,649 | \u2014 | \u2014 | 432,649 | |
Short-term note from associate | 15,120 | \u2014 | \u2014 | \u2014 | 15,120 | 15,120 | |
Investments held at fair value2 | 493,888 | \u2014 | 254,355 | \u2014 | 239,533 | 493,888 | |
Trade and other receivables3 | 3,174 | \u2014 | \u2014 | 3,174 | \u2014 | 3,174 | |
Total financial assets | 944,832 | \u2014 | 687,005 | 3,174 | 254,653 | 944,832 | |
Financial liabilities: | |||||||
Subsidiary warrant liability | \u2014 | 6,787 | \u2014 | \u2014 | 6,787 | 6,787 | |
Subsidiary preferred shares | \u2014 | 174,017 | \u2014 | \u2014 | 174,017 | 174,017 | |
Subsidiary notes payable | \u2014 | 4,641 | \u2014 | 1,945 | 2,696 | 4,641 | |
Share based liability awards | \u2014 | 7,362 | 6,081 | \u2014 | 1,281 | 7,362 | |
Total financial liabilities | \u2014 | 192,808 | 6,081 | 1,945 | 184,781 | 192,808 |
1\u00a0\u00a0\u00a0\u00a0Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade. Included within Cash and cash equivalents
2\u00a0\u00a0\u00a0\u00a0Balance prior to share of associate loss allocated to long-term interest (please refer to Note 5).
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2022 and December 31, 2021, the loan in Follica and the financial instruments for Knode and Appeering did not contain embedded derivatives and therefore these instruments continue to be held at amortized cost. The notes payable consist of the following:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Loans | 2,097 | 1,945 |
Convertible notes | 248 | 2,696 |
Total subsidiary notes payable | 2,345 | 4,641 |
Loans
Convertible Notes outstanding were as follows:
Vedanta $000s | Knode $000s | Appeering $000s | Sonde $000s | Total $000s | |
January 1, 2021 | 25,000 | 89 | 134 | \u2014 | 25,223 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 2,215 | 2,215 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | 797 | 5 | 8 | 70 | 880 |
Conversion to subsidiary preferred shares | (25,797) | \u2014 | \u2014 | \u2014 | (25,797) |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 175 | 175 |
December 31, 2021 and January 1, 2022 | \u2014 | 94 | 141 | 2,461 | 2,696 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 393 | 393 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | \u2014 | 5 | 8 | 48 | 60 |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 502 | 502 |
Deconsolidation | \u2014 | \u2014 | \u2014 | (3,403) | (3,403) |
December 31, 2022 | \u2014 | 99 | 149 | \u2014 | 248 |
On December 30, 2020, Vedanta issued a $25.0\u00a0million convertible promissory note to an investor. The note bore interest at an annual rate of 6.0 percent and its maturity date was the first anniversary of the note. Prepayment of the note was not allowed and there was no conversion discount feature on the note. The note was mandatorily convertible in a Qualified equity financing and a Qualified Public Offering at the current price of the financing or offering, all as defined in the note purchase agreement. In addition, the note allowed for optional conversion immediately prior to a Non Qualified public offering, Non Qualified Equity financing, or a Corporate transaction and for a pay-out in the case of a change of control transaction. On July 19, 2021, upon the occurrence of Vedanta's Series D preferred share issuance that was considered to be a Qualified Equity Financing, the entire outstanding amount of the note, principal and interest, was converted into Series D preferred shares of Vedanta at the current price of the financing. For further details, please see Note 15.
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4.3 million, of which $2.2 million were issued to third party shareholders (and $2.1\u00a0million were issued to the Company and eliminated in consolidation). In addition, in March 2022 Sonde issued an additional amount of $0.9 million, of which $0.4 million were issued to third parties (and $0.5 million issued to PureTech and eliminated in consolidation). The notes bore interest at an annual rate of 6.0 percent and were to mature on the second anniversary of the issuance. The notes were to mandatorily convert in a Qualified Financing, as defined in the note purchase agreement, at a discount of 20.0 percent from the price per share in the Qualified Financing. In addition, the notes allowed for optional conversion concurrently with a discount of 20.0 percent from the price per share in the Non Qualified Equity Financing. Upon the completion of the Preferred B round of financing in Sonde on May 25, 2022, the Group lost control in Sonde and all convertible notes were derecognized as part of the deconsolidation \u2013 See Note 5.
During the year ended December 31, 2022, Sonde Health, Inc was deconsolidated and therefore transferred retroactively to\u00a0the Non-Controlled Founded Entity segment. See Note 5. Investments Held at Fair Value.
The Company has revised in the 2022 financial statements the prior period financial information related to the segmentation of NCI, to conform to the presentation as of and for the year ending December 31, 2022. Please refer to Note 4 \u201cSegment Information\u201d for further details regarding reportable segments.
The following table summarizes the changes in the equity classified non-controlling ownership interest in subsidiaries by\u00a0reportable segment:
Internal $000s | Controlled Founded Entities $000s | Non-Controlled Founded $000s | Parent Company & Other | Total | |
Balance at January 1, 2020 * | (8,682) | 1,465 | (11,016) | 593 | (17,639) |
Share of comprehensive loss | (191) | (905) | (306) | (15) | (1,417) |
Equity settled share-based payments | 305 | 2,395 | 122 | \u2014 | 2,822 |
Other | \u2014 | 11 | 19 | (6) | 24 |
Balance at December 31, 2020 and January 1, 2021 * | (8,567) | 2,966 | (11,181) | 574 | (16,209) |
Share of comprehensive loss | (96) | (1,634) | (436) | 15 | (2,151) |
NCI exercise of share-based awards in subsidiaries \u2013 change in NCI interest | \u2014 | (5,922) | \u2014 | \u2014 | (5,922) |
Equity settled share-based payments | (4) | 6,224 | 32 | \u2014 | 6,252 |
Acquisition of a subsidiary non controlling interest | 8,668 | \u2014 | \u2014 | \u2014 | 8,668 |
Other | \u2014 | \u2014 | \u2014 | (6) | (6) |
Balance at December 31, 2021 and January 1, 2022 | \u2014 | 1,634 | (11,585) | 583 | (9,368) |
Share of comprehensive income (loss) | \u2014 | 13,604 | (330) | 15 | 13,290 |
NCI exercise of share-based awards | \u2014 | (15,164) | \u2014 | \u2014 | (15,164) |
Deconsolidation of subsidiaries | \u2014 | \u2014 | 11,904 | \u2014 | 11,904 |
Equity settled share-based payments | \u2014 | 4,703 | 8 | \u2014 | 4,711 |
Other | \u2014 | \u2014 | 2 | (6) | (4) |
Balance as of December 31, 2022 | \u2014 | 4,778 | \u2014 | 592 | 5,369 |
*\u00a0\u00a0\u00a0\u00a0Revised to reclassify Sonde to the Non-controlled Founded Entities segment to comply with current period classification. See Note 4.
The following tables summarize the financial information related to the Group\u2019s subsidiaries with material non-controlling interests, aggregated for interests in similar entities, and before and after intra group eliminations.
2022 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations $000s | Total $000s |
Statement of Comprehensive Loss | ||||
Total revenue | \u2014 | 12,202 | \u2014 | 12,202 |
Income/(loss) for the year | \u2014 | 98,633 | 1,003 | 99,636 |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | \u2014 | 98,633 | 1,003 | 99,636 |
Statement of Financial Position | ||||
Total assets | \u2014 | 35,341 | (100) | 35,241 |
Total liabilities | \u2014 | 76,635 | (11,057) | 65,578 |
Net assets/(liabilities) | \u2014 | (41,294) | 10,957 | (30,336) |
As of December 31, 2022, Controlled Founded Entities with non-controlling interests primarily include Follica Incorporated, Entrega Inc., and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Follica Incorporated, Entrega Inc., and Vedanta Biosciences, Inc are 19.9 percent, 11.7 percent, and 12.2 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
2021 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations $000s | Total $000s |
Statement of Comprehensive Loss | ||||
Total revenue | \u2014 | 7,771 | \u2014 | 7,771 |
Income/(loss) for the year | \u2014 | (50,436) | 792 | (49,644) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | \u2014 | (50,436) | 792 | (49,644) |
Statement of Financial Position | ||||
Total assets | \u2014 | 66,279 | (161) | 66,118 |
Total liabilities | \u2014 | 228,856 | (10,755) | 218,101 |
Net assets/(liabilities) | \u2014 | (162,576) | 10,594 | (151,982) |
As of December 31, 2021, Controlled Founded Entities with non-controlling interests primarily include, Follica Incorporated, Sonde Health Inc., Entrega Inc. and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc are 19.9 percent, 11.7 percent, 6.2 percent and 3.7 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
2020 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations | Total |
Statement of Comprehensive Loss | ||||
Total revenue | 3,267 | 1,957 | \u2014 | 5,224 |
Income/(loss) for the year | (2,407) | (53,535) | 1,073 | (54,869) |
Total comprehensive income/(loss) for the year | (2,407) | (53,535) | 1,073 | (54,869) |
As of December 31, 2020, Internal segment with non-controlling interests includes Alivio, Controlled Founded Entities with non-controlling interests primarily include, Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Alivio Therapeutics, Inc., Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc are 8.1 percent, 19.9 percent, 4.5 percent and 0.4 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
On June 11, 2021, PureTech acquired the remaining 17.1 percent of the minority non-controlling interests of Alivio (after exercise of all in the money stock options) increasing its ownership to 100.0 percent of Alivio. The consideration for such non controlling interests amounted to $1.2 million, to be paid in three equal installments, with the first installment of $0.4\u00a0million paid at the effective date of the transaction and two additional installment to be paid upon the occurrence of certain contingent events. The Group recorded a contingent consideration liability of $0.6 million at fair value for the two additional installments, resulting in a total acquisition cost of $1.0 million. The excess of the consideration paid over the book value of the non-controlling interest of approximately $9.6 million was recorded directly as a charge to shareholders\u2019 equity. The second installment of $0.4 million was paid in July 2021, upon the occurrence of the contingent event specified in the agreement. The contingent consideration liability is adjusted to fair value at the end of each reporting period with changes in fair value recorded in earnings. Changes in fair value of the aforementioned contingent consideration liability were not material. As of December 31, 2022, the remaining contingent liability was reduced to zero as the second contingent event did not occur.
On December 1, 2021, options holders in Entrega exercised options into shares of common stock, increasing the NCI interest\u00a0held from 0.2 percent to 11.7 percent. During 2021 option holders in Vedanta exercised options and increased the NCI interest to 3.7 percent. The exercise of the options resulted in an increase in the NCI share in Entrega's and Vedanta's shareholder's deficit of $5.9 million. The consideration paid by NCI ($0.1\u00a0million) together with the increase in NCI share in\u00a0Entrega's and Vedanta's shareholder deficit ( $5.9 million) amounted to $6.0 million and was recorded as a gain directly in\u00a0shareholders' equity.
Information regarding Trade and other payables was as follows:
As of December 31, | 2022 $000s | 2021 $000s |
Trade payables | 26,504 | 11,346 |
Accrued expenses | 24,518 | 17,309 |
Income tax payable | 57 | 57 |
Liability settled share based awards | 1,805 | 4,703 |
Other | 1,957 | 2,403 |
Total trade and other payables | 54,840 | 35,817 |
In September 2020, Vedanta entered into a $15.0\u00a0million loan and security agreement with Oxford Finance LLC. The loan is secured by Vedanta's assets, including equipment, inventory and intellectual property. The loan bears a floating interest rate of 7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.17 percent. The loan matures September 2025 and requires interest only payments prior to 2023. The loan also carries a final fee upon full repayment of 7.0 percent of the original principal, or $1.1\u00a0million. As part of the loan agreement, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030. The outstanding loan balance totaled approximately $15.4 million as of December 31, 2022.
The following table summarizes long-term loan activity for the years ended\u00a0December 31, 2022 and 2021:
Long-term loan | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 15,118 | 14,818 |
Accrued interest | 1,755 | 1,502 |
Interest paid | (1,436) | (1,201) |
Other | (38) | \u2014 |
Balance at December 31, | 15,400 | 15,118 |
The following table summarizes Vedanta's future principal payments for the long-term loan as of December 31, 2022:
Balance Type | 2023 | 2024 | 2025 | Total |
Principal | 5,156 | 5,625 | 4,219 | 15,000 |
Balance of accreted premium net of unamortized issuance costs | 400 | |||
Total | 15,400 |
The long-term loan is presented as follows in the Statement of Financial Position as of December 31, 2022 and 2021:\u00a0
Long-term loan | ||
2022 $000s | 2021 $000s | |
Current portion of Long-term loan | 5,156 | 857 |
Long-term loan | 10,244 | 14,261 |
Total Long-term loan | 15,400 | 15,118 |
The activity related to the Group\u2019s right of use asset and lease liability for the years ended\u00a0December 31, 2022 and 2021\u00a0is\u00a0as\u00a0follows:
Right of use asset, net | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 17,166 | 20,098 |
Additions | 163 | 739 |
Tenant improvement \u2013 lease incentive | \u2014 | (733) |
Depreciation | (3,047) | (2,938) |
Balance at December 31, | 14,281 | 17,166 |
Total lease liability | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 32,990 | 35,348 |
Additions | 163 | 1,016 |
Cash paid for rent \u2013 principal \u2013 financing cash flow | (4,025) | (3,375) |
Cash paid for rent \u2013 interest | (1,982) | (2,181) |
Interest expense | 1,982 | 2,181 |
Balance at December 31, | 29,128 | 32,990 |
Depreciation of the right-of-use assets, which virtually all consist of leased real estate, is included in the General and administrative expenses and Research and development expenses line items in the Consolidated Statements of Comprehensive Income/(Loss). The Company recorded depreciation expense of $3.0 million, $2.9 million and $2.7 million for\u00a0the years ended\u00a0December 31, 2022, 2021 and 2020 respectively.
The following details the short term and long-term portion of the lease liability as of December 31, 2022 and 2021:
Total lease liability | ||
2022 $000s | 2021 $000s | |
Short-term Portion of Lease Liability | 4,972 | 3,950 |
Long-term Portion of Lease Liability | 24,155 | 29,040 |
Total Lease Liability | 29,128 | 32,990 |
2022 $000s | |
Less than one year | 6,673 |
One to two years | 6,763 |
Two to three years | 5,168 |
Three to four years | 4,419 |
Four to five years | 4,551 |
More than five years | 7,483 |
Total undiscounted lease maturities | 35,056 |
Interest | 5,928 |
Total lease liability | 29,128 |
Total lease receivable $000s | |
Short-term Portion of Lease Receivable | 450 |
Long-term Portion of Lease Receivable | 835 |
Total Lease Receivable | 1,285 |
2022 $000s | |
Less than one year | 513 |
One to two years | 523 |
Two to three years | 353 |
Total undiscounted lease receivable | 1,389 |
Unearned Finance income | 103 |
Net investment in the lease | 1,285 |
Capital Risk Management
The Group's capital and financial risk management policy is to maintain a strong capital base so as to support its strategic priorities, maintain investor, creditor and market confidence as well as sustain the future development of the business. The Group\u2019s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Group may issue new shares or incur new debt. The Group has some external debt and no material externally imposed capital requirements. The Group\u2019s share capital is clearly set out in Note 14.
Management continuously monitors the level of capital deployed and available for deployment in the Internal segment and at the corporate level as well as at Controlled Founded Entities. The Directors seek to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position.
The Group\u2019s Directors have overall responsibility for establishment and oversight of the Group's capital and risk management framework. The Group is exposed to certain risks through its normal course of operations. The Group\u2019s main objective in using financial instruments is to promote the development and commercialization of intellectual property through the raising and investing of funds for this purpose. The Group\u2019s policies in calculating the nature, amount and timing of investments are determined by planned future investment activity. Due to the nature of activities and with the aim to maintain the investors\u2019 funds as secure and protected, the Group\u2019s policy is to hold any excess funds in highly liquid and readily available financial instruments and maintain insignificant exposure to other financial risks.
The Group has exposure to the following risks arising from financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short term investments, and trade and other receivables. The Group held the following balances (not including the income tax receivable resulting from overpayment of income taxes, see Note 25):
2022 $000s | 2021 $000s | |
As of December 31 | ||
Cash and cash equivalents | 149,866 | 465,708 |
Short-term investments | 200,229 | \u2014 |
Trade and other receivables | 11,867 | 3,174 |
Total | 361,961 | 468,882 |
The Group invests its excess cash in U.S. Treasury Bills (presented as short-term investments), and money market accounts, which the Group believes are of high credit quality. Further the Group's cash and cash equivalents and short-term investments are held at diverse, investment-grade financial institutions.
The Group assesses the credit quality of customers on an ongoing basis. The credit quality of financial assets is assessed by historical and recent payment history, counterparty financial position, reference to credit ratings (if available) or to historical information about counterparty default rates. The Group does not have expected credit losses owing largely to a small number of counterparties and the high credit quality of most counterparties (primarily the US government and large funds with respect to grant income and large high credit quality corporations).
The aging of trade and other receivables that were not impaired at December 31 is as follows:
As of December 31 | 2022 $000s | 2021 $000s |
Not impaired | 11,867 | 3,174 |
Total | 11,867 | 3,174 |
With regard to the Note from associate, such note is presented at fair value which incorporates, among other factors, the credit risk of the counterparty. See Note 16 for details.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group actively manages its risk of a funds shortage by closely monitoring the maturity of its financial assets and liabilities and projected cash flows from operations, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group\u2019s reputation. Due to the nature of these financial liabilities, the funds are available on demand to provide optimal financial flexibility.
The table below summarizes the maturity profile of the Group\u2019s financial liabilities, including subsidiary preferred shares that have customary liquidation preferences, as of December 31, 2022 and 2021, based on contractual undiscounted payments:
As of December 31 | 2022 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total $000s* | |
Long-term loan (non-current + current) | 15,400 | 1,838 | 5,281 | 11,413 | 18,531 |
Subsidiary notes payable | 2,345 | 2,345 | \u2014 | \u2014 | 2,345 |
Trade and other payables | 54,840 | 54,840 | \u2014 | \u2014 | 54,840 |
Warrants2 | 47 | 47 | \u2014 | \u2014 | 47 |
Subsidiary preferred shares (Note 15)1 | 27,339 | 27,339 | \u2014 | \u2014 | 27,339 |
Total | 99,971 | 86,409 | 5,281 | 11,413 | 103,103 |
As of December 31 | 2021 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total $000s* | |
Long-term loan | 15,118 | 296 | 2,182 | 16,274 | 18,752 |
Subsidiary notes payable | 4,641 | 4,641 | \u2014 | \u2014 | 4,641 |
Trade and other payables | 35,817 | 35,817 | \u2014 | \u2014 | 35,817 |
Warrants2 | 6,787 | 6,787 | \u2014 | \u2014 | 6,787 |
Subsidiary preferred shares (Note 15)1 | 174,017 | 174,017 | \u2014 | \u2014 | 174,017 |
Total | 236,381 | 221,559 | 2,182 | 16,274 | 240,015 |
1\u00a0\u00a0\u00a0\u00a0Redeemable only upon a liquidation or Deemed liquidation event, as defined in the applicable shareholder documents.
2\u00a0\u00a0\u00a0\u00a0Warrants issued by subsidiaries to third parties to purchase preferred shares.
*\u00a0\u00a0\u00a0\u00a0Does not include payments in respect of lease obligations. For the contractual future payments related to lease obligations, see Note 21.
Interest Rate Sensitivity
As of December 31, 2022, the Group had cash and cash equivalents of $149.9\u00a0million, and short term investments of $200.2\u00a0million. The Group's exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. The Group has not entered into investments for trading or speculative purposes. Due to the conservative nature of the Group's investment portfolio, which is predicated on capital preservation and investments in short duration, high-quality U.S. Treasury Bills and related money market accounts, a change in interest rates would not have a material effect on the fair market value of the Group's portfolio, and therefore the Group does not expect operating results or cash flows to be significantly affected by changes in market interest rates.
Controlled Founded Entity Investments
The Group maintains investments in certain Controlled Founded Entities. The Group\u2019s investments in Controlled Founded Entities are eliminated as intercompany transactions upon financial consolidation. The Group is however exposed to a preferred share liability owing to the terms of existing preferred shares and the ownership of Controlled Founded Entities preferred shares by third parties. As discussed in Note 15, certain of the Group\u2019s subsidiaries have issued preferred shares that include the right to receive a payment in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, including in the event of \"deemed liquidation\" as defined in the incorporation documents of the entities, which shall be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. The liability of preferred shares is maintained at fair value through the profit and loss. The Group\u2019s strong cash position, budgeting and forecasting processes, as well as decision making and risk mitigation framework enable the Group to robustly monitor and support the business activities of the Controlled Founded Entities to ensure no exposure to dissolution or liquidation. Accordingly, the Group views exposure to 3rd party preferred share liability as low.
Non-Controlled Founded Entity Investments
The Group maintains certain investments in Non-Controlled Founded Entities which are deemed either as investments and accounted for as investments held at fair value or associates and accounted for under the equity method (please refer to Note 1). The Group's exposure to investments held at fair value is $251.9\u00a0million as of December 31, 2022, and the Group may or may not be able to realize the value in the future. Accordingly, the Group views the risk as high. The Group\u2019s exposure to investments in associates is limited to the carrying amount of the investment in an Associate. The Group is not exposed to further contractual obligations or contingent liabilities beyond the value of the investments. Accordingly, the Group does not view this as a high risk. As of December 31, 2022, Gelesis and Sonde are the only associates. The carrying amount of the investment in Gelesis and Sonde as associates was $9.1 million. Please refer to Notes 5, 6 and 16 for further information regarding the Group's exposure to Non-Controlled Founded Entity Investments.
Equity Price Risk
As of December 31, 2022, the Group held 1,054,464 common shares of Karuna, 2,671,800 common shares of Vor and 12,527,477 common shares of Akili. The fair value of these investments in Karuna, Vor and Akili was $239.0\u00a0million.
The investments in Karuna, Vor and Akili are exposed to fluctuations in the market price of these common shares. The effect of a 10.0 percent adverse change in the market price of Karuna, Vor and Akili common shares as of December 31, 2022, would have been a loss of approximately\u00a0$23.9\u00a0million, that would have been recognized as a component of Other income (expense) in the Consolidated Statements of Comprehensive Income/(Loss).
Foreign Exchange Risk
The Group maintains consolidated financial statements in the Group's functional currency, which is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.\u00a0Non-monetary\u00a0assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Such foreign currency gains or losses were not material for all reported periods. See Note 9.
Related Party Subleases and royalties
During 2019, PureTech executed a sublease agreement with a related party, Gelesis. Please refer to Note 21 for further details regarding the sublease.
The Group receives royalties from Gelesis on its product sales. Such royalties amounted to $509\u00a0thousand and $231\u00a0thousand for the years ended\u00a0December 31, 2022 and 2021, respectively and are presented in Contract revenue in the Consolidated Statements of Comprehensive Income/(Loss).
Key Management Personnel Compensation
Key management includes executive directors and members of the executive management team of the Group (not including compensation provided to non-executive directors). The key management personnel compensation of the Group was as follows for the years ended\u00a0December 31:
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Short-term employee benefits | 4,369 | 4,666 | 4,833 |
Share-based payment expense | 2,741 | 4,045 | 5,822 |
Total | 7,109 | 8,711 | 10,656 |
Short-term employee benefits include salaries, health care and other non-cash benefits. Share-based payments are generally subject to vesting terms over future periods.
For cash settlements of share based awards \u2013 see Note 8.
In addition the Company paid remuneration to non-executive directors in the amounts of $655\u00a0thousand, $605\u00a0thousand and $690\u00a0thousand for the years ended\u00a0December 31, 2022, 2021, and 2020, respectively. Also, the Company incurred $365 thousand and $161 thousand of stock based compensation expense for such non-executive directors for the years ended\u00a0December 31, 2022 and 2021, respectively. There is no stock based compensation expense for such non-executive directors for the year ended December 31, 2020.
During the years ended\u00a0December 31, 2022 and 2021, the Company incurred $51\u00a0thousand, and $181\u00a0thousand, respectively of expenses paid to related parties.
Convertible Notes Issued to Directors
Certain related parties of the Group have invested in convertible notes issued by the Group\u2019s subsidiaries. As of December 31, 2022 and 2021, the outstanding related party notes payable totaled $99\u00a0thousand and $94\u00a0thousand respectively, including principal and interest.
The notes issued to related parties bear interest rates, maturity dates, discounts and other contractual terms that are the same as those issued to outside investors during the same issuances, as described in Note 17.
Directors\u2019 and Senior Managers\u2019 Shareholdings and Share Incentive Awards
The Directors and senior managers hold beneficial interests in shares in the following businesses and sourcing companies as\u00a0at\u00a0December 31, 2022:
Business Name (Share Class) | Number of shares held as of December 31, 2022 | Number of options held as of December 31, 2022 | Number of RSUs held as of December 31, 2022 | Ownership | |
Directors: | |||||
Ms Daphne Zohar\u00b2 | Gelesis (Common) | 465,121 | 3,303,306 | 1,349,697 | 4.45% |
Dr Robert Langer | Entrega (Common) | 250,000 | 82,500 | \u2014 | 4.09% |
Dr Raju Kucherlapati | Enlight (Class B Common) | \u2014 | 30,000 | \u2014 | 3.00% |
Gelesis (Common) | 139,625 | \u2014 | 50,639 | 0.12% | |
Dr John LaMattina3 | Akili (Common) | 56,554 | \u2014 | \u2014 | 0.07% |
Gelesis (Common)3 | 395,035 | 37,129 | \u2014 | 0.38% | |
Vedanta Biosciences (Common) | 25,000 | \u2014 | \u2014 | 0.17% | |
Senior Managers: | |||||
Dr Bharatt Chowrira | Karuna (Common) | 5,000 | \u2014 | \u2014 | 0.01% |
Dr Joseph Bolen | Vor (Common) | \u2014 | 9,191 | \u2014 | 0.01% |
1\u00a0\u00a0\u00a0\u00a0Ownership interests as of December 31, 2022 are calculated on a diluted basis, including issued and outstanding shares, warrants and options (and written commitments to issue options) but excluding unallocated shares authorized to be issued pursuant to equity incentive plans and any shares issuable upon conversion of outstanding convertible promissory notes.
2\u00a0\u00a0\u00a0\u00a0Common shares, RSUs and options held by Yishai Zohar, who is the husband of Ms. Zohar. Ms. Zohar does not have any direct interest in the share capital of Gelesis. Ms. Zohar recuses herself from any and all material decisions with regard to Gelesis.
3\u00a0\u00a0\u00a0\u00a0Dr John and Ms Mary LaMattina hold 345,035 shares of common shares in Gelesis. Individually, Dr LaMattina holds 50,000 shares of Gelesis and convertible notes issued by\u00a0Appeering in the aggregate principal amount o $50,000.
Directors and senior managers hold 25,371,839 ordinary shares and 9.1 percent voting rights of the Company as of December 31, 2022. This amount excludes options to purchase 2,350,000 ordinary shares. This amount also excludes 6,448,899 shares, which are issuable based on the terms of performance based RSU awards granted to certain senior managers covering the financial years 2022, 2021 and 2020, and 172,056 shares, which are issuable to directors immediately prior to the Company's 2023 Annual General Meeting of Stockholders based on the terms of the RSU awards granted to non-executive directors in 2022. Such shares will be issued to such senior managers and non executive directors in future periods provided that performance and/or service conditions are met and certain of the shares will be withheld for payment of customary withholding\u00a0taxes.
Note from Associate
See Note 16 for details on the notes issued by Gelesis to the Company. The Company recognized finance income of 1.6 million with respect to interest and changes in fair value related to the notes.
Tax on the profit or loss for the year comprises current and deferred income tax. Tax is recognized in the Consolidated Statements of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
For the years ended\u00a0December 31, 2022, 2021 and 2020, the Group filed a consolidated U.S. federal income tax return which included all subsidiaries in which the Company owned greater than 80 percent of the vote and value. For the years ended\u00a0December 31, 2022, 2021 and 2020, the Group filed certain consolidated state income tax returns which included all subsidiaries in which the Company owned greater than 50 percent of the vote and value. The remaining subsidiaries file separate U.S. tax returns.
Amounts recognized in Consolidated Statements of Comprehensive Income/(Loss):
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Income/(loss) for the year | (37,065) | (62,709) | 4,568 |
Income tax expense/(benefit) | (55,719) | 3,756 | 14,401 |
Income/(loss) before taxes | (92,783) | (58,953) | 18,969 |
Recognized income tax expense/(benefit):
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Federal | 13,065 | 22,138 | 21,796 |
Foreign | \u2014 | \u2014 | \u2014 |
State | 1,336 | 109 | \u2014 |
Total current income tax expense/(benefit) | 14,401 | 22,247 | 21,796 |
Federal | (48,240) | (15,416) | (7,349) |
Foreign | \u2014 | \u2014 | \u2014 |
State | (21,880) | (3,075) | (46) |
Total deferred income tax expense/(benefit) | (70,120) | (18,491) | (7,395) |
Total income tax expense/(benefit), recognized | (55,719) | 3,756 | 14,401 |
The tax expense/(benefit) was $(55.7) million, $3.8 million and $14.4 million in 2022, 2021 and 2020 respectively. The increase in tax benefit for the year ended December 31, 2022 is primarily the result of the loss before taxes in entities in the U.S. Federal and Massachusetts consolidated return groups of the Company.
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the U.S. A reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:
2022 | 2021 | 2020 | ||||||
As of December 31 | $000s | % | $000s | % | $000s | % | ||
US federal statutory rate | (19,486) | 21.00 | (12,380) | 21.00 | 3,984 | 21.00 | ||
Effects of state tax rate in U.S. | (8,043) | 8.67 | (4,484) | 7.61 | 1,844 | 9.72 | ||
R&D and orphan drug tax credits | (6,876) | 7.41 | (5,056) | 8.58 | (5,642) | (29.74) | ||
Non deductible share based payment expenses | 788 | (0.85) | 555 | (0.94) | 327 | 1.73 | ||
Finance income/(costs) \u2013 fair value accounting | (28,783) | 31.02 | (2,017) | 3.42 | 919 | 4.84 | ||
Loss with respect to associate for which no deferred tax asset is recognized | 1,413 | (1.52) | 11,542 | (19.58) | \u2014 | \u2014 | ||
Change in blended state rate impact due to state apportionment change | (8,856) | 9.54 | \u2014 | \u2014 | \u2014 | \u2014 | ||
Transaction Costs | \u2014 | \u2014 | 309 | (0.52) | 361 | 1.91 | ||
Interest Expense | 69 | (0.07) | 217 | (0.37) | (2,258) | (11.91) | ||
Executive Compensation | 300 | (0.32) | 746 | (1.27) | 827 | 4.36 | ||
Recognition of deferred tax assets and tax benefits not previously recognized | (184) | 0.20 | (414) | 0.70 | \u2014 | \u2014 | ||
Current year losses for which no deferred tax asset is recognized | 17,287 | (18.63) | 14,375 | (24.38) | 13,948 | 73.53 | ||
Sonde Deconsolidation | (3,572) | 3.85 | \u2014 | \u2014 | \u2014 | \u2014 | ||
Other | 224 | (0.25) | 363 | (0.62) | 91 | 0.48 | ||
(55,719) | 60.05 | 3,756 | (6.37) | 14,401 | 75.92 |
The Company is also subject to taxation in the UK but to date no taxable income has been generated in the UK. Changes in corporate tax rates can change both the current tax expense (benefit) as well as the deferred tax expense (benefit).
Deferred Tax Assets and Liabilities
Deferred tax assets have been recognized in the U.S. jurisdiction in respect of the following items:
2022 $000s | 2021 $000s | |
As of December 31 | ||
Operating tax losses | 48,317 | 46,982 |
Tax credits | 11,101 | 10,673 |
Share-based payments | 8,423 | 7,265 |
Capitalized Research & Experimental Expenditures | 36,084 | \u2014 |
Investment in Associates | 13,036 | 11,542 |
Lease Liability | 7,143 | 8,969 |
Other temporary differences | 2,957 | 2,665 |
Deferred tax assets | 127,061 | 88,096 |
Investments held at fair value | (47,877) | (96,804) |
ROU asset | (3,519) | (4,667) |
Fixed assets | (2,348) | (3,547) |
Deferred tax liabilities | (53,744) | (105,018) |
Deferred tax assets (liabilities), net | 73,317 | (16,922) |
Deferred tax liabilities, net, recognized | (19,645) | (89,765) |
Deferred tax assets (liabilities), net, not recognized | 92,962 | 72,843 |
We have recognized deferred tax assets related to entities in the U.S. Federal and Massachusetts consolidated return groups due to future reversals of existing taxable temporary differences that will be sufficient to recover the net deferred tax assets. Our unrecognized deferred tax assets of $93.0 million are primarily related to tax credit, loss carryforwards and deductible temporary differences in subsidiaries outside the U.S. Federal and Massachusetts consolidated return groups. Such deferred tax assets have not been recognized because it is not probable that future taxable profits will be available to support their realizability. The unrecognized deferred tax assets, to a lesser extent, also relate to unrecognized deferred tax assets with respect to a portion of Section 174 capitalized research & experimental expenditures which became effective in 2022 under the Tax Cuts and Jobs Act and an investment in an associate since the Group does not believe it is probable that such tax benefits will be realized in the foreseeable future.
There was movement in deferred tax recognized, which impacted income tax expense by approximately $70.1 million benefit, primarily related to changes in the value of investments and Section 174 capitalized research & experimental expenditures. The Company sold a portion of its stock in Karuna and VOR during 2022 resulting in net taxable income and current tax expense of $14.4 million.
Unrecognized Deferred Tax Assets
Deferred tax assets have not been recognized in respect of the following carryforward losses, credits and temporary differences, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.
2022 $000s | 2021 $000s | ||||
As of December 31 | |||||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Deductible Temporary Difference | 132,145 | 33,544 | 59,925 | 16,224 | |
Tax Losses | 219,466 | 48,317 | 215,425 | 46,982 | |
Tax Credits | 11,101 | 11,101 | 9,636 | 9,636 | |
Total | 362,712 | 92,962 | 284,986 | 72,843 |
Tax Losses and tax credits carryforwards
Tax losses and tax credits for which no deferred tax asset was recognized
As of December 31 | 2022 $000s | 2021 $000s | |||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Tax losses expiring: | |||||
Within 10 years | 23,930 | 5,387 | 19,735 | 4,343 | |
More than 10 years | 42,822 | 10,509 | 47,937 | 11,611 | |
Available Indefinitely | 152,714 | 32,421 | 147,753 | 31,028 | |
Total | 219,466 | 48,317 | 215,425 | 46,982 | |
Tax credits expiring: | |||||
Within 10 years | 43 | 43 | 4 | 4 | |
More than 10 years | 11,058 | 11,058 | 9,632 | 9,632 | |
Available indefinitely | \u2014 | \u2014 | \u2014 | \u2014 | |
Total | 11,101 | 11,101 | 9,636 | 9,636 |
The Group had U.S. federal net operating losses carry forwards (\u201cNOLs\u201d) of approximately $219.5 million, $215.4 million and $169.7 million as of December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxable income. These NOLs expire through 2037 with the exception of $152.7 million which is not subject to expiration. The Group had U.S. Federal research and development tax credits of approximately $4.5 million, $3.9 million and $3.9 million as of December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxes that expire at various dates through 2042. The Group also had Federal Orphan Drug credits of approximately $6.1 million and $5.7 million as of December 31, 2022, and 2021, which are available to offset future taxes that expire at various dates through 2042. A portion of these Federal NOLs and credits can only be used to offset the profits from the Company\u2019s subsidiaries who file separate Federal tax returns. These\u00a0NOLs and credits are subject to review and possible adjustment by the Internal Revenue Service.
The Group had state net operating losses carry forwards (\u201cNOLs\u201d) of approximately $71.7 million, $27.9 million and $67.4\u00a0million for the years ended December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxable\u00a0income. These NOLs expire at various dates beginning in 2030. The Group had Massachusetts research and development tax credits of approximately $0.6 million, $1.3 million and $2.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxes and expire at various dates through 2037. These NOLs and credits are subject to review and possible adjustment by the Massachusetts Department of Revenue.
Utilization of the NOLs and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company notes that a 382 analysis was performed through December 31, 2022. The results of this analysis concluded that certain net operating losses were subject to limitation under Section 382 of the Internal Revenue Code. None of the Company\u2019s tax attributes which are subject to a restrictive Section 382 limitation have been recognized in the financial statements.
Tax Balances
The current tax related balances are presented in the Statement of Financial Position as follows:
As of December 31 | 2022 $000s | 2021 $000s |
Income tax receivable \u2013 current | 10,040 | 4,514 |
Trade and Other Payables | (57) | (57) |
Uncertain Tax Positions
The Company has evaluated subsequent events after December 31, 2022, the date of issuance of the Consolidated Financial Statements, and has not identified any recordable or disclosable events not otherwise reported in these Consolidated Financial Statements or notes thereto, except for the following:
On March 1, 2023 Vedanta issued convertible debt to a syndicate of investors. The initial close of the debt was for proceeds of approximately $88.5 million. The note carries an interest rate of 9 percent per annum. The debt has various conversion triggers and the conversion price is established at the lower of 80% of the equity price of the last financing round, or a certain pre-money valuation cap established in the agreement. As part of the issuance of the debt, the convertible debt holders were granted representation in Vedanta's Board of Directors and PureTech lost control over Vedanta. On April 24, 2023, Vedanta closed the second tranche of the convertible debt for additional proceeds of $18.0 million, of which $5.0 million were invested by the Company.
On March 22, 2023, the Company entered into an agreement with Royalty Pharma according to which Royalty Pharma acquired an interset in the Group's royalty from Karuna's KarXT, with $100.0 million in cash up-front, and up to $400.0 million in\u00a0additional cash consideration, contingent on the achievement of certain regulatory and commercial milestones.
Gelesis
On February 21, 2023, the Company entered into a Note and Warrant Purchase agreement with Gelesis for $5.0 million cash consideration. As part of the agreement, the Company received a short term convertible senior secured note of $5.0 million and warrants to purchase additional shares of Gelesis' common stock. The note carries an interest rate of 12 percent per annum and holds an initial maturity date of July 31, 2023 unless the note is earlier converted or redeemed by the issuer.
On April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in the Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in\u00a0the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH.
Basis of Presentation
The consolidated financial statements of the Group are presented as of December 31, 2022 and 2021, and for the years ended\u00a0December 31, 2022, 2021 and 2020. The Group financial statements have been approved by the Directors on April\u00a027, 2023, and are prepared in accordance with UK-adopted International Financial Reporting Standards (IFRSs). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board (IASB). UK-adopted IFRSs differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact for the periods presented.
For presentation of the Consolidated Statements of Comprehensive Income/(Loss), the Company uses a classification based on the function of expenses, rather than based on their nature, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice.
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All\u00a0percentages have been calculated using unrounded amounts.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group\u2019s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis.
Significant estimation is applied in determining the following:
\u2022Financial instruments valuations (Note 16): when estimating the fair value of subsidiary preferred shares, subsidiary warrants, and subsidiary convertible notes carried at fair value through profit and loss (FVTPL) as well as investments held at fair value, at initial recognition and upon subsequent measurement. Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, earnings potential of the subsidiary businesses, appropriate discount rate, appropriate volatility, appropriate term to exit and other industry and company specific risk factors.
Significant judgement is also applied in determining the following:
\u2022Subsidiary preferred shares liability classification (Note 15): when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment of whether the financial instruments include any embedded derivative features, whether they include contractual obligations of the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgements and estimates is included below under Financial Instruments.
\u2022When the power to control the subsidiaries exists (please refer to Notes 5 and 6 and accounting policy below Subsidiaries). This judgement includes an assessment of whether the Company has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of the investor\u2019s returns. The Company considers among others its voting shares, shareholder agreements, ability to appoint board members, representation on the board, rights to appoint management, de facto control, investee dependence on the Company etc. If the power to control investees exists we consolidate the financial statements of such investee in the consolidated financial statements of the Group. Upon issuance of new shares in a subsidiary and/or a change in any shareholders or governance agreements, the Group reassesses its ability to control the investee based on the revised voting interest and board composition and revised subsidiary governance and management structure. When such new circumstances result in the Group losing its power to control the investee, the investee is deconsolidated.
\u2022Whether the Company has significant influence over financial and operating policies of investees in order to determine if the Company should account for its investment as an associate based on IAS 28 or based on IFRS 9, Financial Instruments (please refer to Note 5). This judgement includes, among others, an assessment whether the Company has representation on the Board of Directors of the investee, whether the Company participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Company and the investee.
\u2022Upon determining that the Company does have significant influence over the financial and operating policies of an investee, if the Company holds more than a single instrument issued by its equity-accounted investee, judgement is required to determine whether the additional instrument forms part of the investment in the associate, which is accounted for under IAS 28 and scoped out of IFRS 9, or it is a separate financial instrument that falls in the scope of IFRS 9 (please refer to Notes 5 and 6). This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Company and whether such financial instrument provides access to returns underlying an ownership interest.
\u2022Where the company has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute Long-Term Interests for the purposes of IAS 28 (please refer to Notes 5 and 6). This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments (please also refer to accounting policy with regard to Investments in Associates below). When the Group considered the individual facts and circumstances of the Group\u2019s investment in its associate's preferred stock in the manner described above, including the long-term nature of such investment, the ability of the Group to convert its preferred stock investment to an investment in common shares and the likelihood of such conversion, we concluded that such investment was considered a Long Term Interest.
Basis of consolidation
The consolidated financial information as of December 31, 2022 and 2021, and for each of the years ended\u00a0December 31, 2022, 2021 and 2020, comprises an aggregation of financial information of the Company and the consolidated financial information of PureTech Health LLC (\u201cPureTech LLC\u201d). Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated.
Subsidiaries
As used in these financial statements, the term subsidiaries refers to entities that are controlled by the Group. Financial results of subsidiaries of the Group as of December 31, 2022, are reported within the Internal segment, Controlled Founded Entities segment or the Parent Company and Other section (please refer to Note 4). Under applicable accounting rules, the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights, board representation, shareholders' agreements, ability to appoint Directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in\u00a0a\u00a0subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a\u00a0deficit balance.
Change in subsidiary ownership and loss of control
Changes in the Group\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (\u201cNCI\u201d). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any\u00a0resulting gain or loss is recognized as profit or loss in the Consolidated Statements of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The\u00a0Group evaluates if it maintains significant influence over associates by assessing if the Group has lost the power to\u00a0participate in the financial and operating policy decisions of the associate.
Application of the equity method to associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation they are initially recorded at fair value at the date of deconsolidation. The consolidated financial statements include the Group\u2019s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases.
To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument held by PureTech is accounted for in accordance with IFRS 9 as investments held at fair value.
When the Group\u2019s share of losses exceeds its equity method investment in the investee, losses are applied against Long-Term Interests, which are investments accounted for under IFRS 9. Investments are determined to be Long-Term Interests when they are long-term in nature and in substance they form part of the Group's net investment in that associate. This determination is impacted by many factors, among others, whether settlement by the investee through redemption or repayment is planned or likely in the foreseeable future, whether the investment can be converted and/or is likely to be converted to common stock or other equity instrument and other factors regarding the nature of the investment. Whilst this assessment is dependent on many specific facts and circumstances of each investment, typically conversion features whereby the investment is likely to convert to common stock or other equity instruments would point to the investment being a Long-Term Interest. Similarly, where the investment is not planned or likely to be settled through redemption or repayment in the foreseeable future, this would indicate that the investment is a Long-Term Interest. When the net investment in the associate, which includes the Group\u2019s investments in other long-term interests, is reduced to nil, recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.
The Group has also adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 (see below) when equity method losses are applied against Long-Term Interests (LTI). The amendments provide the annual sequence in which both standards are to be applied in such a case. The Group has applied the equity method losses to the LTIs presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
\u2022Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and
\u2022Those to be measured at amortized cost.
The classification depends on the Group\u2019s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are recorded in profit or loss. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI. As of balance sheet dates, none of the Company's financial assets are accounted for as FVOCI.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets that are carried at FVTPL are expensed.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32:
1.They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable to the Group; and
2.Where the instrument will or may be settled in the Group\u2019s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group\u2019s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Group\u2019s own shares, the amounts presented in the Group's shareholders' equity exclude amounts in relation to those shares.
Financial Assets
The Group\u2019s financial assets consist of cash and cash equivalents, investments in debt securities, trade and other receivables, notes, restricted cash deposits and investments in equity securities. The Group\u2019s financial assets are virtually all classified into the following categories: investments held at fair value, notes, trade and other receivables, short-term investments and cash and cash equivalents. The Group determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired.
Investments held at fair value are investments in equity instruments that are not held for trading. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments in the Group's associates that are not providing access to returns underlying ownership interests. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date. The Company elects if the gain or loss will be recognized in Other Comprehensive Income/(Loss) or through profit and loss on an instrument by instrument basis. The Company has elected to record the changes in fair values for the financial assets falling under this category through profit and loss. Please refer to Note 5.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss) as applicable.
The notes from an associate, since their contractual terms do not consist solely of cash flow payments of principal and interest on the principal amount outstanding, such notes are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Short term investments consist of short-term US treasury bills that are held to maturity. The contractual terms consist solely of payment of the principal and the Group's business model is to hold the treasury bills to maturity. As such, such short term investments are recorded at amortized cost. As of balance sheet date amortized cost approximated the fair value of such short-term investments.
Trade and other receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any expected lifetime losses. Such losses are determined taking into account previous experience, credit rating and economic stability of counterparty and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision. As of balance sheet date, The Group did not incur or record any such expected lifetime losses. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
Financial Liabilities
The Group\u2019s financial liabilities consist of trade and other payables, subsidiary notes payable, long-term loan, preferred shares, and warrant liability.
Warrant liabilities are initially recognized at fair value. After initial recognition, these financial liabilities are re-measured at\u00a0FVTPL using an appropriate valuation technique.
Subsidiary notes payable without embedded derivatives and the long-term loan are accounted for at amortized cost.
The majority of the Group\u2019s subsidiaries have preferred shares and certain notes payable with embedded derivatives, which are classified as current liabilities. When the Group has preferred shares and notes with embedded derivatives that qualify for bifurcation, the Group has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the instrument qualifies to be accounted for under such FVTPL method.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.
The majority of the Group\u2019s contract revenue is generated from licenses and services, some of which are part of collaboration\u00a0arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, PureTech has entered into transactions that generate revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for Government Grants. Contract revenue is recognized at either a point-in-time or over time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model:
\u2022Identify the contract(s) with a customer \u2013 A contract with a customer exists when (i) the Group enters into an enforceable contract with a customer that defines each party\u2019s rights regarding the goods or services to be transferred and identifies the\u00a0payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on\u00a0the customer\u2019s intent and ability to pay the promised consideration.
\u2022Identify the performance obligations in the contract \u2013 Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Group, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
\u2022Determine the transaction price \u2013 The transaction price is determined based on the consideration to which the Group will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Group estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Group\u2019s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
\u2022Allocate the transaction price to the performance obligations in the contract \u2013 If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
\u2022Recognize revenue when (or as) the Group satisfies a performance obligation \u2013 The Group satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Revenue generated from services agreements (typically where licenses and related services were combined into one performance obligation) is determined to be recognized over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity\u2019s performance as the entity performs; (b) the entity\u2019s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity\u2019s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
It was determined that the Group has contracts that meet criteria (a), since the customer simultaneously receives and consumes the benefits provided by the Company\u2019s performance as the Company performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Company believes that in research and development service type agreements using costs incurred to date represents the most faithful depiction of the entity\u2019s performance towards complete satisfaction of a performance obligation.
Revenue from licenses that are not part of a combined performance obligation are recognized at a point in time due to the licenses relating to intellectual property that has significant stand-alone functionality and as such represent a right to use the entity's intellectual property as it exists at the point in time at which the license is granted.
Royalty income received in respect of licensing agreements is recognized as the related third party sales in the licensee occur.
Amounts that are receivable or have been received per contractual terms but have not been recognized as revenue since performance has not yet occurred or has not yet been completed are recorded as deferred revenue. The Company classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Income
The Company recognizes grants from governmental agencies as grant income in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that the Company will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Company evaluates the conditions of each grant as of each reporting date to ensure that the Company has reasonable assurance of meeting the conditions of each grant arrangement and that it is\u00a0expected that the grant payment will be received as a result of meeting the necessary conditions.
The Company submits qualifying expenses for reimbursement after the Company has incurred the research and development expense. The Company records an unbilled receivable upon incurring such expenses. In cases were grant income is received prior to the expenses being incurred or recognized, the amounts received are deferred until the related expense is incurred and/or recognized. Grant income is recognized in the Consolidated Statements of Comprehensive Income/(Loss) at the time in\u00a0which the Company recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
These consolidated financial statements are presented in United States dollars (\u201cUS dollars\u201d). The functional currency of all\u00a0members of the Group is the U.S. dollar. The Group's share in foreign exchange differences in associates were reported in\u00a0Other Comprehensive Income/(Loss).
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with original maturities of three months or less.
Share Capital
Ordinary shares are classified as equity. The Group's equity is comprised of share capital, share premium, merger reserve, other reserve, translation reserve, and retained earnings/accumulated deficit.
Treasury Shares
Treasury shares are recognized at cost and are deducted from shareholders' equity. No gain or loss is recognized in profit and loss for the purchase, sale, re-issue or cancellation of the Company's own equity shares
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes\u00a0expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.\u00a0Depreciation is calculated using the straight-line method over the estimated useful life of the related asset:
Laboratory and manufacturing equipment | 2-8 years |
Furniture and fixtures | 7 years |
Computer equipment and software | 1-5 years |
Leasehold improvements | 5-10 years, or the remaining term of the lease, if shorter |
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses with finite useful lives, are carried at historical cost less accumulated amortization, if amortization has commenced. Intangible assets with finite lives are amortized from the time they are available for their intended use. Amortization is calculated using the straight-line method to allocate the costs of patents and licenses over their estimated useful lives.
Research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are presented as In-Process Research and Development (IPR&D). IPR&D is not amortized since it is not yet available for its intended use, but it is evaluated for potential impairment on an annual basis or more frequently when facts and circumstances warrant.
Impairment
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there are indicators of impairment. If any such indicators of impairment exist, then an asset\u2019s recoverable amount is estimated. The recoverable amount is the higher of an asset\u2019s fair value less cost of disposal and value in use.
The Company\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at\u00a0least annually.
An impairment loss is recognized when an asset\u2019s carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non- financial asset instrument is impaired, an impairment loss is recognized in the Consolidated Statements of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only if, objective evidence indicates that one or more events, which occurred after the initial recognition, have had an impact on the future cash flows from the net investment and that impact can be reliably estimated. If an impairment exists the Company measures an impairment by comparing the carrying value of the net investment in the associate to its recoverable amount and recording any excess as an impairment loss. See Note 6 for impairment recorded in respect of an investment in associate during the year ended December 31, 2022.
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation due to past service provided by the employee, and the obligation can be estimated reliably.
Defined Contribution Plans
Share-based Payments
Share-based payment arrangements, in which the Group receives goods or services as consideration for its own equity instruments, are accounted for as equity-settled share-based payment transactions (except certain restricted stock units \u2013 see below) in accordance with IFRS 2, regardless of how the equity instruments are obtained by the Group. The grant date fair value of employee share-based payment awards is recognized as an expense with a corresponding increase in equity over the requisite service period related to the awards. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Certain restricted stock units are treated as liability settled awards starting in 2021. Such awards are remeasured at every reporting date until settlement date and are recognized as compensation expense over the requisite service period. Differences in remeasurement are recognized in profit and loss. The cumulative cost that will ultimately be recognized in respect of these awards will equal to the amount at settlement.
The fair value of the awards is measured using option pricing models and other appropriate models, which take into account the terms and conditions of the awards granted. See further details in Note 8.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). In accordance with IAS 38 development costs are capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group can demonstrate its ability to use or sell the intangible asset, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and it is able to measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is, generally, when regulatory approval has been received where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving meaningful recurring sales. Otherwise, the development expenditure is recognized as incurred in the Consolidated Statements of Comprehensive Income/(Loss). As\u00a0of\u00a0balance sheet date the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statements of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at\u00a0a\u00a0pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate (and some minor equipment) for use in operations. These leases generally have lease terms of 1\u00a0to 10 years. The Group includes options that are reasonably certain to be exercised as part of the determination of the lease term. The group determines if an arrangement is a lease at inception of the contract in accordance with guidance detailed in IFRS 16. ROU assets represent the Group\u2019s right to use an underlying asset for the lease term and lease liabilities represent the Group's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Group's leases do not provide an implicit rate, The Group used its estimated incremental borrowing rate, based on information available at commencement date, in determining the present value of future payments.
The Group\u2019s leases are virtually all leases of real estate.
The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for:
\u2022Leases with a term of 12 months or less and containing no purchase options; and
\u2022Leases where the underlying asset has a value of less than $5,000.
The right-of-use asset is depreciated on a straight-line basis and the lease liability gives rise to an interest charge.
Further information regarding the subleases, right of use asset and lease liability can be found in Note 21.
Finance Income and Finance Costs
Finance income is comprised of income on funds invested in U.S. treasuries, income on money market funds and income on a\u00a0finance lease. Financing income is recognized as it is earned. Finance costs comprise mainly of loan, notes and lease liability interest expenses and the changes in the fair value of financial liabilities carried at FVTPL (such changes can consist of finance income when the fair value of such financial liabilities decreases).
Taxation
Tax on the profit or loss for the year comprises current and deferred income tax. In accordance with IAS 12, tax is recognized in the Consolidated Statements of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets with respect to investments in associates are recognized only to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Fair Value Measurements
The Group\u2019s accounting policies require that certain financial assets and certain financial liabilities be measured at their fair value.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
\u2022Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2022Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
\u2022Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
A number of new standards, interpretations, and amendments to existing standards are effective for annual periods commencing on or after January 1, 2023 and have not been applied in preparing the consolidated financial information. The\u00a0Company\u2019s assessment of the impact of these new standards and interpretations is set out below.
Effective January 1, 2023, the definition of accounting estimates has been amended as an amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important because changes in accounting estimates are applied prospectively only to future transactions and future events, but changes in accounting policies are generally also applied retrospectively to past transactions and other past events. This amendment is not expected to have an impact on the Group's financial statements.
Effective January 1, 2023, IAS 1 has been amended to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date. The Company does not expect this amendment will have a material impact on its financial statements.
Effective January 1, 2023, IAS 12 is amended to narrow the scope of the initial recognition exemption (IRE) so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognise a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendment is not expected to have an impact on the Group's financial statements as the Group has already recognized a deferred tax asset and deferred tax liability that arose on initial recognition of its leases (the Group does not have decommissioning provisions).
Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss) consists of the following:
For the years ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Contract revenue | 2,090 | 9,979 | 8,341 |
Grant income | 13,528 | 7,409 | 3,427 |
Total revenue | 15,618 | 17,388 | 11,768 |
The Group disaggregates contract revenue in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Group disaggregates revenue based on contract revenue or grant revenue, and further disaggregates contract revenue based on the transfer of control of the underlying performance obligations.
Timing of contract revenue recognition For the years ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Transferred at a point in time \u2013 Licensing Income1 | 527 | 6,809 | 2,054 |
Transferred over time2 | 1,563 | 3,171 | 6,286 |
2,090 | 9,979 | 8,341 |
1\u00a0\u00a0\u00a0\u00a02022 \u2013 Attributed to Non-Controlled Founded Entities segment ( $19\u00a0thousand) and to Parent Company and Other ($509\u00a0thousand); 2021 \u2013 Attributed to the Internal segment ($6,500\u00a0thousand), Non-Controlled Founded Entities segment ($74\u00a0thousand), and to Parent Company and Other ($235\u00a0thousand); 2020 \u2013 Attributed to Parent Company and Other. See note 4, Segment information.
2\u00a0\u00a0\u00a0\u00a02022 \u2013 Attributed to Controlled Founded Entities segment ($1,500\u00a0thousand) and to Non-Controlled Founded Entities segment ($63\u00a0thousand ); 2021 \u2013 Attributed to Internal segment ($1,629\u00a0thousand), Non-Controlled Founded Entities segment ($41\u00a0thousand), and to Controlled Founded Entities segment ($1,500\u00a0thousand). 2020 \u2013 Attributed to Internal segment ($5,297\u00a0thousand), Controlled Founded Entities segment ($896\u00a0thousand), and to Non-Controlled Founded Entities segment ($93\u00a0thousand). See Note 4, Segment Information.
Customers over 10% of revenue | 2022 $000s | 2021 $000s | 2020 $000s |
Customer A | \u2014 | \u2014 | 1,518 |
Customer B | 1,500 | 1,500 | 896 |
Customer C | \u2014 | \u2014 | 2,043 |
Customer D | \u2014 | 7,250 | 1,736 |
Customer E | \u2014 | \u2014 | 2,000 |
Customer F | 509 | \u2014 | \u2014 |
2,009 | 8,750 | 8,193 |
Contract liabilities represent the Group\u2019s obligation to transfer products or services to a customer for which consideration has been received, or for which an amount of consideration is due from the customer. Contract liabilities are included within deferred revenue on the Consolidated Statement of Financial Position.
Contract Balances | 2022 $000s | 2021 $000s |
Accounts receivable | 606 | 704 |
Deferred revenue \u2013 short term | \u2014 | 65 |
During the year ended\u00a0December 31, 2022, $65\u00a0thousand of revenue was recognized from deferred revenue outstanding at December 31, 2021.
Remaining performance obligations represent the transaction price of unsatisfied or partially satisfied performance obligations within contracts with an original expected contract term that is greater than one year and for which fulfillment of the contract has started as of the end of the reporting period. The aggregate amount of transaction consideration allocated to remaining performance obligations as of December 31, 2022, was nil.
The Non-Controlled Founded Entities segment includes Sonde Health, Inc. which was deconsolidated on May 25, 2022. Segment results incorporate the operational results of Sonde Health, Inc. to the date of deconsolidation. Following the date of\u00a0deconsolidation, the Company accounts for its investment in Sonde Health, Inc. at the parent level, and therefore the results associated with investment activity following the date of deconsolidation (including the Group's share in Sonde losses) is included in the Parent Company and Other section.
The Company has revised in these financial statements the prior year financial information to conform to the presentation as of\u00a0and for the year ending December 31, 2022 to include Sonde in the Non-Controlled Founded Entities segment. The change in segments reflects how the Company\u2019s Board of Directors reviews the Group\u2019s results, allocates resources and assesses performance of the Group at this time.
The Internal segment (the \u201cInternal segment\u201d), is advancing Wholly Owned Programs which are focused on treatments for patients with devastating diseases. The Internal segment is comprised of the technologies that are wholly owned and will be advanced through either PureTech Health funding or non-dilutive sources of financing in the near-term. The operational management of the Internal segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development. As of December 31, 2022, this segment included PureTech LYT, PureTech LYT-100 and Alivio Therapeutics, Inc.
Controlled Founded Entities
The Controlled Founded Entity segment (the \u201cControlled Founded Entity segment\u201d) is comprised of the Group\u2019s subsidiaries that are currently consolidated operational subsidiaries that either have, or have plans to hire, independent management teams and currently have already raised third-party dilutive capital. These subsidiaries have active research and development programs and either have entered into or plan to seek an equity or debt investment partner, who will provide additional industry knowledge and access to networks, as well as additional funding to continue the pursued growth of the company. As\u00a0of December 31, 2022, this segment included Entrega Inc., Follica Incorporated, and Vedanta Biosciences, Inc.
Non-Controlled Founded Entities
The Non-Controlled Founded Entities segment (the \u201cNon-Controlled Founded Entities segment\u201d) is comprised of the entities in respect of which PureTech Health no longer has control over the entity. Upon deconsolidation of an entity the segment disclosure is restated to reflect the change on a retrospective basis, as this constitutes a change in the composition of its reportable segments. The Non-Controlled Founded Entities segment includes Sonde Health Inc. which was deconsolidated on\u00a0May 25, 2022.
The Non-Controlled Founded Entities segment incorporates the operational results of the aforementioned entity to the date of\u00a0deconsolidation. Following the date of deconsolidation, the Company accounts for its investment in each entity at the parent level, and therefore the results associated with investment activity (including the recognition of equity method income/ (losses)) following the date of deconsolidation is included in the Parent Company and Other section.
Parent Company and Other
2022 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company & | Consolidated | |
Consolidated Statements of Comprehensive Income/(Loss) | |||||
Contract revenue | \u2014 | 1,500 | 81 | 509 | 2,090 |
Grant revenue | 2,826 | 10,702 | \u2014 | \u2014 | 13,528 |
Total revenue | 2,826 | 12,202 | 81 | 509 | 15,618 |
General and administrative expenses | (8,301) | (16,462) | (1,296) | (34,933) | (60,991) |
Research and development expenses | (116,054) | (34,668) | (826) | (885) | (152,433) |
Total operating expense | (124,355) | (51,130) | (2,122) | (35,817) | (213,425) |
Other income/(expense): | |||||
Gain on deconsolidation of subsidiary | \u2014 | \u2014 | \u2014 | 27,251 | 27,251 |
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | (32,060) | (32,060) |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (29,303) | (29,303) |
Other income/(expense) | (204) | (3) | \u2014 | 8,338 | 8,131 |
Total other income/(expense) | (204) | (3) | \u2014 | (25,775) | (25,981) |
Net finance income/(costs) | 615 | 138,006 | (3,045) | 3,348 | 138,924 |
Share of net income/(loss) of associates accounted for using the equity method | \u2014 | \u2014 | \u2014 | (27,749) | (27,749) |
Gain on dilution of ownership interest in associate | \u2014 | \u2014 | \u2014 | 28,220 | 28,220 |
Impairment of investment in associate | \u2014 | \u2014 | \u2014 | (8,390) | (8,390) |
Income/(loss) before taxes | (121,118) | 99,075 | (5,085) | (65,655) | (92,783) |
Income/(loss) before taxes pre IFRS 9 fair value\u00a0accounting, share-based payment expense, depreciation of tangible assets and amortization of intangible assets | (114,255) | (32,468) | (2,079) | (57,452) | (206,254) |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | 140,056 | (2,993) | \u2014 | 137,063 |
Share-based payment expense | (5,136) | (4,703) | (8) | (4,852) | (14,699) |
Depreciation of tangible assets | (1,727) | (2,526) | (4) | (1,588) | (5,845) |
Amortization of ROU assets | \u2014 | (1,283) | \u2014 | (1,764) | (3,047) |
Amortization of intangible assets | \u2014 | \u2014 | (1) | \u2014 | (1) |
Taxation | \u2014 | \u2014 | \u2014 | 55,719 | 55,719 |
Income/(loss) for the year | (121,118) | 99,075 | (5,085) | (9,936) | (37,065) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | (379) | (379) |
Total comprehensive income/(loss) for the year | (121,118) | 99,075 | (5,085) | (10,316) | (37,444) |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (121,118) | 85,471 | (4,755) | (10,331) | (50,733) |
Non-controlling interests | \u2014 | 13,604 | (330) | 15 | 13,290 |
December 31,\u00a02022 $000s | |||||
Consolidated Statements of Financial Position: | |||||
Total assets | 51,599 | 35,341 | \u2014 | 615,707 | 702,647 |
Total liabilities1 | 271,186 | 76,635 | \u2014 | (192,763) | 155,057 |
Net assets/(liabilities) | (219,587) | (41,294) | \u2014 | 808,470 | 547,589 |
1\u00a0\u00a0\u00a0\u00a0Parent Company and Other Includes eliminations of intercompany liabilities between the Parent Company and the reportable segments in the amount of $255.5 million.
2021 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company\u00a0& | Consolidated | |
Consolidated Statements of Comprehensive Income/(Loss) | |||||
Contract revenue | 8,129 | 1,500 | 115 | 235 | 9,979 |
Grant revenue | 1,253 | 6,156 | \u2014 | \u2014 | 7,409 |
Total revenue | 9,382 | 7,656 | 115 | 235 | 17,388 |
General and administrative expenses | (8,673) | (17,504) | (3,225) | (27,797) | (57,199) |
Research and development expenses | (65,444) | (40,667) | (3,116) | (1,244) | (110,471) |
Total Operating expenses | (74,118) | (58,171) | (6,341) | (29,041) | (167,671) |
Other income/(expense): | |||||
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | 179,316 | 179,316 |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (20,925) | (20,925) |
Other income/(expense) | \u2014 | 70 | \u2014 | 1,523 | 1,593 |
Total other income/(expense) | (1) | 70 | \u2014 | 159,914 | 159,983 |
Net finance income/(costs) | (16) | 7,528 | (784) | (1,679) | 5,050 |
Share of net income/(loss) of associate accounted for using the equity method | \u2014 | \u2014 | \u2014 | (73,703) | (73,703) |
Income/(loss) before taxes | (64,753) | (42,917) | (7,010) | 55,727 | (58,953) |
(Loss)/income before taxes pre IFRS 9 fair value accounting, finance costs \u2013 subsidiary preferred shares, share-based payment expense, depreciation of tangible assets and amortization of\u00a0intangible assets | (60,368) | (44,335) | (6,248) | 63,628 | (47,323) |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | 10,322 | (716) | \u2014 | 9,606 |
Share-based payment expense | (3,066) | (6,224) | (32) | (4,628) | (13,950) |
Depreciation of tangible assets | (1,319) | (1,506) | (12) | (1,510) | (4,347) |
Amortization of ROU assets | \u2014 | (1,174) | \u2014 | (1,764) | (2,938) |
Amortization of intangible assets | \u2014 | \u2014 | (2) | \u2014 | (2) |
Taxation | \u2014 | \u2014 | \u2014 | (3,756) | (3,756) |
Income/(loss) for the year | (64,753) | (42,917) | (7,010) | 51,971 | (62,709) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | (64,753) | (42,917) | (7,010) | 51,971 | (62,709) |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (64,657) | (41,283) | (6,574) | 51,956 | (60,558) |
Non-controlling interests | (96) | (1,634) | (436) | 15 | (2,151) |
December 31, 2021 $000s | |||||
Consolidated Statements of Financial Position: | |||||
Total assets | 125,726 | 64,508 | 1,765 | 754,007 | 946,006 |
Total liabilities1 | 228,789 | 209,212 | 19,645 | (95,787) | 361,859 |
Net (liabilities)/assets | (103,063) | (144,704) | (17,880) | 849,794 | 584,147 |
1\u00a0\u00a0\u00a0\u00a0Parent Company and Other Includes eliminations of intercompany liabilities between the Parent Company and the reportable segments in the amount of $233.3 million.
2020 | |||||
Internal | Controlled Founded Entities | Non-Controlled Founded | Parent Company\u00a0& | Consolidated | |
Consolidated Statements of Comprehensive Loss | |||||
Contract revenue | 5,297 | 896 | 93 | 2,054 | 8,341 |
Grant revenue | 1,563 | 1,864 | \u2014 | \u2014 | 3,427 |
Total revenue | 6,860 | 2,760 | 93 | 2,054 | 11,768 |
General and administrative expenses | (3,482) | (10,752) | (2,939) | (32,267) | (49,440) |
Research and development expenses | (45,346) | (33,152) | (3,128) | (234) | (81,859) |
Total operating expense | (48,828) | (43,904) | (6,067) | (32,500) | (131,299) |
Other income/(expense): | |||||
Gain/(loss) on investment held at fair value | \u2014 | \u2014 | \u2014 | 232,674 | 232,674 |
Realized loss on sale of investments | \u2014 | \u2014 | \u2014 | (54,976) | (54,976) |
Gain/(loss) on disposal of assets | (15) | (15) | \u2014 | \u2014 | (30) |
Other income/(expense) | \u2014 | 100 | \u2014 | 965 | 1,065 |
Other income/(expense) | (15) | 85 | \u2014 | 178,662 | 178,732 |
Net finance income/(costs) | 19 | (4,352) | (852) | (930) | (6,115) |
Share of net income/(loss) of associate accounted for using the equity method | \u2014 | \u2014 | \u2014 | (34,117) | (34,117) |
Income/(loss) before taxes | (41,964) | (45,410) | (6,826) | 113,170 | 18,969 |
(Loss)/income before taxes pre IAS 39 fair value accounting, finance costs \u2013 subsidiary preferred shares, share-based payment expense, depreciation of tangible assets and amortization of intangible assets | (38,349) | (36,736) | (5,866) | 121,644 | 40,694 |
Finance income/(costs) \u2013 IFRS 9 fair value\u00a0accounting | \u2014 | (3,492) | (859) | \u2014 | (4,351) |
Share-based payment expense | (2,762) | (2,469) | (83) | (5,405) | (10,718) |
Depreciation of tangible assets | (854) | (1,528) | (17) | (1,547) | (3,945) |
Amortization of ROU assets | \u2014 | (1,186) | \u2014 | (1,523) | (2,709) |
Amortization of intangible assets | \u2014 | \u2014 | (1) | \u2014 | (1) |
Taxation | \u2014 | (1) | \u2014 | (14,400) | (14,401) |
Income/(loss) for the year | (41,964) | (45,411) | (6,826) | 98,769 | 4,568 |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | 469 | 469 |
Total comprehensive income/(loss) for the year | (41,964) | (45,411) | (6,826) | 99,238 | 5,037 |
Total comprehensive income/(loss) attributable to: | |||||
Owners of the Company | (41,773) | (44,506) | (6,519) | 99,253 | 6,454 |
Non-controlling interests | (191) | (905) | (306) | (15) | (1,417) |
Investments held at fair value include both unlisted and listed securities held by PureTech. These investments, which include interests in Akili, Vor, Karuna, Gelesis (preferred shares until exchanged for common stock, accounted for under the equity method, and Earn-out shares following exchange), Sonde and other insignificant investments, are initially measured at fair value and are subsequently re-measured at fair value at each reporting date with changes in the fair value recorded through profit and loss. Interests in these investments were accounted for as shown below:
Investments held at fair value | $000's |
Balance as of January 1, 2021 | 553,167 |
Sale of Karuna shares | (218,125) |
Loss realised on sale of investments | (20,925) |
Cash purchase of Vor preferred shares | 500 |
Gain \u2013 change in fair value through profit and loss | 179,271 |
Balance as of December 31, 2021 and January 1, 2022 before allocation | 493,888 |
Investment in Sonde Preferred shares \u2013 Sonde deconsolidation | 11,168 |
Sale of Karuna and Vor shares | (118,710) |
Loss realised on sale of investments as a result of written call option | (29,303) |
Cash Investment (Akili) | 5,000 |
Gelesis Earn out shares received in SPAC exchange | 14,214 |
Exchange of Gelesis preferred shares to Gelesis common shares | (92,303) |
Loss \u2013 change in fair value through profit and loss | (32,060) |
Balance as of December 31, 2022\u00a0 | 251,892 |
Vor was deconsolidated in February 2019. As PureTech did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features, PureTech had no basis to account for its investment in Vor under IAS 28. The preferred shares held by PureTech fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value with changes in fair value recorded in the Consolidated Statement of Comprehensive Income/(Loss).
2020
On February 12, 2020, PureTech participated in the second closing of Vor\u2019s Series A-2 Preferred Share financing. For consideration of $0.7\u00a0million, PureTech received 1,625,000 A-2 shares. On June 30, 2020, PureTech participated in the first closing of Vor\u2019s Series B Preferred Share financing. For consideration of $0.5\u00a0million, PureTech received 961,538 shares. Upon the conclusion of such Vor financings PureTech no longer had significant influence over Vor.
2021
On January 8, 2021, PureTech participated in the second closing of Vor\u2019s Series B Preferred Share financing. For consideration of $0.5 million, PureTech received an additional 961,538 B Preferred shares.
On February 9, 2021, Vor closed its initial public offering (IPO) of 9,828,017 shares of its common stock at a price to the public of $18.00 per share. Subsequent to the closing, PureTech held 3,207,200 shares of Vor common stock, representing 8.6\u00a0percent of Vor common stock. Following its IPO, the valuation of Vor common stock is based on level 1 inputs in the fair value hierarchy. See Note 16.
2022
In August and December 2022, PureTech sold an aggregate of 535,400 shares of Vor common shares for aggregate proceeds of $3.3\u00a0million.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $16.2\u00a0million, a gain of $3.9\u00a0million, and a gain of $19.1\u00a0million, respectively for the changes in the fair value of the investment that were recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 16 for information regarding the valuation of these instruments.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis is accounted for under the equity method, while the preferred shares and warrants held by PureTech fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, where changes to the fair value of the preferred shares and warrant were recorded through the Consolidated Statement of Income/(Loss). Please refer to Note 6 for information regarding the Company's investment in Gelesis as an associate.
2020
On April 1, 2020, PureTech participated in the 2nd closing of Gelesis\u2019s Series 3 Growth Preferred Share financing. For consideration of $10.0 million, PureTech received 579,038 Series 3 Growth shares.
2020 and 2021
During the years ended December 31, 2021 and 2020, due to the equity method based investment in Gelesis being reduced to zero, the Group allocated a portion of its share in the net loss in Gelesis in the years ended December 31, 2021 and 2020, totaling $73.7\u00a0million, and $23.0\u00a0million, respectively, to its preferred share and warrant investments in Gelesis, which were considered to be long-term interests in Gelesis.
2022
On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp (\"Capstar\"). As\u00a0part of the business combination, all shares in Gelesis, common and preferred, including the shares held by PureTech, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (hereinafter \"Earn-out shares\"). In addition, PureTech invested $15.0 million in the class A common shares of Capstar as part of the Private Investment in Public Equity (\"PIPE\") transaction that took place immediately prior to the closing of the business combination and an additional approximately $5.0 million, as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6). Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol \"GLS\" on January 14, 2022. The exchange of the preferred stock (including warrants) for common stock (including common stock warrants) represents an additional investment in Gelesis equity investment. The Group recorded the changes in fair value of the preferred stock (including warrant) through the date of the exchange upon which the preferred stock were derecognized and recorded as an additional investment in Gelesis equity interest \u2013 See Note 6 for the net gain on the dilution of the equity interest in Gelesis, resulting from the exchange of all preferred stock in Gelesis to common stock of Gelesis Holdings Inc, the PIPE transaction and the closing of the merger. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value are now included within the equity method investment in Gelesis and were offset against the gain on dilution of interest \u2013 see Note 6.
As part of the aforementioned exchange PureTech received 4,526,622 Earn-out shares, which were valued on the date of the exchange at $14.2\u00a0million. The Group accounts for such Earn-out shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $4.4\u00a0million, a gain of $34.6\u00a0million, and a gain of $7.1\u00a0million, respectively related to the change in the fair value of the preferred shares and warrants that was recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
In addition, the Company recognized a loss of $14.1\u00a0million during the year ended\u00a0\u00a0December 31, 2022 in respect of the Earn-out shares, for the change in the fair value related to such investment during the period. As of December 31, 2022 the value of such earn-out shares amounted to $0.1\u00a0million.
Karuna
Karuna was deconsolidated in March 2019. During 2019 Karuna completed its IPO and PureTech lost its significant influence in\u00a0Karuna. The shares held in Karuna are accounted for as an investment held at fair value.
2020
On January 22, 2020, PureTech sold 2,100,000 shares of Karuna common shares for aggregate proceeds of $200.9\u00a0million. On May 26, 2020, PureTech sold an additional 555,500 Karuna common shares for aggregate proceeds of $45.0\u00a0million. On August 26, 2020, PureTech sold 1,333,333 common shares of Karuna for aggregate proceeds of $101.6\u00a0million. As a result of the sales, Puretech recorded a loss of $54.8\u00a0million attributable to blockage discount included in the sales price, to the line item Loss Realized on Sale of Investment within the Consolidated Statement of Comprehensive Income/(Loss). See below for gain recorded in respect of the change in fair value of the Karuna investment.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118.0 million. Following the sale the Group held 2,406,564 common shares of Karuna, which represented 8.2 percent of Karuna common stock at the time of sale. On November 9, 2021, the group sold an additional 750,000 common shares of Karuna for $100.1\u00a0million. Following the sale the group holds 1,656,564 common shares of Karuna, which represented 5.6 percent at time of sale. As a result of the aforementioned sales, the Company recorded a loss of $20.9\u00a0million, attributable to blockage discount included in the sales price, to the line item Loss Realised on Sale of Investment within the Consolidated Statement of Comprehensive Income/ (Loss). See below for gain recorded in respect of the change in fair value of the Karuna investment.
2022
On August 8, 2022, the Company sold 125,000 shares of Karuna common stock. In addition, the Company wrote a series of call options entitling the holders thereof to purchase up to 477,100 Karuna common stock at a set price, which were exercised in full in August and September 2022. Aggregate proceeds to the Company from all aforementioned transactions amounted to $115.5 million, net of transaction fees. As a result of the aforementioned sales, the Company recorded a loss of $29.3 million, attributable to the exercise of the aforementioned call options, to the line item Realized Loss on Sale of Investment within the Consolidated Statement of Comprehensive Income/ (Loss).See below for gain recorded in respect of the change in fair value of the Karuna investment.
During the years ended\u00a0December 31, 2022, 2021, and 2020 the Company recognized gains of $135.0\u00a0million, $110.0\u00a0million and $191.2\u00a0million, respectively for the changes in the fair value of the Karuna investment that were recorded in the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2022, PureTech continued to hold Karuna common shares or 3.1 percent of total outstanding Karuna common shares. Please refer to Note 16 for information regarding the valuation of these instruments.
Akili
Akili was deconsolidated in 2018. As PureTech did not hold common shares in Akili and the preferred shares it held did not have equity-like features, PureTech had no basis to account for its investment in Akili under IAS 28. The preferred shares held by PureTech Health fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and all movements to the value of the preferred shares were recorded through the Consolidated Statements of Comprehensive Income/(Loss), in accordance with IFRS 9.
2021
On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110.0 million in which Akili issued 13,053,508 Series D preferred shares. The Group did not participate in this round of financing and as a result, the Group's interest in Akili was reduced from 41.9 percent to 27.5 percent.
2022
On January 26, 2022, Akili Interactive and Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company, announced they had entered into a definitive business combination agreement. The transaction closed on August 19, 2022 and the combined company's securities began trading on August 22, 2022 on the Nasdaq Stock Market under the ticker symbol \"AKLI\". As part of this transaction the Akili Interactive shares held by the Company were exchanged for the common stock of the combined company's securities as well as unvested common stock (\"Akili Earnout Shares\") that will vest when the share price exceeds certain thresholds. In addition, as part of a PIPE transaction that took place concurrently with the closing of the transaction, the Company purchased 500,000 shares in consideration for $5.0\u00a0million. Following the closing of the aforementioned transactions, the Company holds 12,527,477 shares of the combined entity (excluding the Akili Earnout Shares), which represents 14.7 percent of its outstanding common stock. The Company also holds 1,433,914 Akili Earn-out Shares, which fair value amounted to $1.0 million as of December 31, 2022.
During the years ended\u00a0December 31, 2022, 2021 and 2020, the Company recognized a loss of $131.4\u00a0million, a gain of $32.2\u00a0million, and a gain of $14.4\u00a0million, respectively for the changes in the fair value of the investment in Akili that was recorded on the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 16 for information regarding the valuation of these instruments.
resTORbio
On April 30, 2020, PureTech sold its remaining 2,119,696 resTORbio common shares, for aggregate proceeds of $3.0\u00a0million. As a result of the sale, the Company recorded a loss of $0.2\u00a0million attributable to blockage discount included in the sales price, to the line item Loss realized on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss). Additionally, during the year ended December 31, 2020, the Company recognized a gain of $0.1\u00a0million that was recorded on the line item Gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
Sonde \u2013 Investment and gain on deconsolidation
On May 25, 2022, Sonde completed a Series B Preferred Share financing. As part of the financing a new investor invested $3.5\u00a0million in cash in exchange for 1,125,401 shares and all convertible notes, including the convertible notes held by PureTech, converted into Preferred B shares at the price per share paid by the investor minus a 20% discount. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group no longer controls Sonde's Board of Directors, which is the governance body that has the power to direct the relevant activities of Sonde. Consequently, the Group concluded it lost control over Sonde and as such it should cease to consolidate Sonde on the date the round of financing was completed. Therefore, the results of operations of Sonde are included in the consolidated financial statements through the date of deconsolidation.
Following deconsolidation, the Group still has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss.
Upon deconsolidation, the Group derecognized its assets and liabilities and non controlling interest in respect of Sonde and recorded its aforementioned investments in Sonde at fair value. The deconsolidation resulted in a gain of $27.3\u00a0million. As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11.2\u00a0million.
Gelesis
Gelesis was founded by PureTech and raised funding through preferred shares financings as well as issuances of warrants and loans. As of July 1, 2019, Gelesis was deconsolidated from the Group\u2019s financial statements. While the Group no longer controls Gelesis, it was concluded that PureTech still has significant influence over Gelesis and as such Gelesis is accounted for as an associate under IAS 28 in the consolidated financial statements.
Upon the date of deconsolidation, PureTech held preferred shares and common shares of Gelesis and warrants issued by Gelesis to PureTech. PureTech\u2019s investment in common shares of Gelesis is subject to equity method accounting. See table below for the Group's share in the profits and losses of Gelesis for the periods presented.
The preferred shares and warrants held by PureTech fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, where changes to the fair value of the preferred shares and warrants were recorded through the Consolidated Statement of Comprehensive Income/(Loss). See Note 5 above.
Years ended December 31, 2020 and 2021
During the years ended December 31, 2021 and 2020, the Group recorded its share in the losses of Gelesis. In 2020 the Group's investment in associates accounted for under the equity method was reduced to zero. Since the Group had investments in Gelesis warrants and preferred shares that were deemed to be Long-term interests, the Company continued recognizing its share in Gelesis losses while applying such losses to its preferred share and warrant investment in Gelesis accounted for as an investment held at fair value. In 2021, the total investment in Gelesis, including the Long-term interests, was reduced to zero. Since the Group did not incur legal or constructive obligations or made payments on behalf of Gelesis, the Group discontinued recognizing equity method losses in 2021. As of December 31, 2021, unrecognized equity method losses amounted to $38.1 million, which included $0.7 million of unrecognized other comprehensive loss.
During 2021, due to exercise of stock options into common shares in Gelesis the Group's equity interest in Gelesis was reduced from\u00a047.9 percent at December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting from the issuance of shares to third parties and the resulting reduction in the Group's share in the accumulated deficit of Gelesis under the equity method was fully offset by the unrecognized equity method losses.
Backstop agreement \u2013 2022 and 2021
On December 30, 2021, PureTech signed a Backstop agreement with Capstar according to which PureTech had committed to acquire Capstar class A common shares immediately prior to the closing of the business combination between Gelesis and Capstar, in case subsequent to the redemptions of Capstar shares being completed, the Available Funds, as defined in the agreement, were less than$15.0 million. PureTech had committed to acquire two thirds of the necessary shares at $10 per share so that the Available Funds increase to $15.0 million. According to the Backstop agreement, in case PureTech were required to acquire any shares under the agreement, PureTech would receive an additional 1,322,500 class A common shares of Capstar (immediately prior to the closing of the business combination) at no additional consideration.
The Company determined that such agreement meets the definition of a derivative under IFRS 9 and as such should be recorded at fair value with changes in fair value recorded through profit and loss. The derivative was initially recorded at fair value adjusted to defer the day 1 gain equal to the difference between the fair value of $11.2 million and transaction price of zero on the effective date and as such was initially recorded at zero. The deferred gain was amortized to Other income (expense) in the Consolidated Statement of Income (loss) over the period from the effective date until settlement date, January 13, 2022. During the years ended December 31, 2022 and 2021, the Group recognized income of $10.4 million and $0.8 million, respectively for the amortization of the deferred gain. During the year ended December 31, 2022 the Group recognized a loss of $2.8 million in respect of the decrease in the fair value of the derivative until date of settlement, resulting in a net gain of $7.6 million recorded during the year ended December 31, 2022 in respect of the Backstop agreement. The gain was recorded in the line item Other Income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss).
The fair value of the derivative on the date of settlement in the amount of $8.4 million represents an additional investment in Gelesis as part of the SPAC transaction described below.
On January 13, 2022, as part of the conclusion of the aforementioned Backstop agreement, the Group acquired 496,145 class A common shares of Capstar for $5.0 million and received an additional 1,322,500 common A shares of Capstar for no additional consideration.
2022
Share exchange \u2013 Capstar
On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp (\"Capstar\"). As\u00a0part of the business combination, all shares in Gelesis, common and preferred, including the shares held by PureTech, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of\u00a0the new combined entity reaching certain target prices (hereinafter \"Earn-out shares\"). In addition, PureTech invested $15.0 million in the class A common shares of Capstar as part of the PIPE transaction that took place immediately prior to the closing of the business combination and an additional $5.0 million, as part of the Backstop agreement described above. Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol \"GLS\" on January 14, 2022. Following the closing of the business combination, the PIPE transaction, the settlement of the aforementioned Backstop agreement with Capstar, and the exchange of all preferred shares in Gelesis to common shares in the new combined entity, PureTech holds 16,727,582 common shares of Gelesis Holdings Inc., which was equal to approximately 23.2% of Gelesis Holdings Inc's outstanding common shares at the time of the exchange. Due to PureTech's significant equity holding and voting interest in Gelesis, PureTech continues to maintain significant influence in Gelesis and as such continues to account for its Gelesis equity investment under the equity method.
Gelesis was deemed to be the acquirer in Gelesis Holdings Inc. and the financial assets and financial liabilities in Capstar were deemed to be acquired by Gelesis in consideration for the shares held by Capstar legacy shareholders. As such, the Group did not revalue the retained investment in Gelesis but rather treated the exchange as a dilution of its equity interest in Gelesis from 42.0 percent as of December 31, 2021 to 22.8 percent as of January 13, 2022 (including warrants that provide its holders access to returns associated with equity holders). After considering the aforementioned additional investments, the exchange of the preferred stock, previously accounted for as an investment held at fair value, to common stock (and representing an additional equity investment in Gelesis \u2013 See Note 5), the Earn-out shares received in Gelesis (see Note 5) and the offset of previously unrecognized equity method losses, the net gain recorded on the dilution of interest amounted to $28.3 million.
Impairment
Following Gelesis\u2019s decline in its market price in 2022 and its lack of liquidity, the Group recorded an impairment loss of $8.4\u00a0million as of December 31, 2022 in respect of its investment in Gelesis. The recoverable amount of the investment in Gelesis was $4.9\u00a0million as of December 31, 2022, which was determined based on fair value less costs to sell (costs to sell were estimated to be insignificant). Fair value was determined based on level 1 of the fair value hierarchy as Gelesis shares were traded on an active market as of December 31, 2022.
The impairment loss was presented separately in the Consolidated Statement of Comprehensive Income/ (loss) for the year ended December 31, 2022 in the line item Impairment of investment in associate.
Sonde
On May 25, 2022, Sonde completed a Series B Preferred Share financing. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group lost its control over Sonde and as such ceased to consolidate Sonde on the date the round of financing was completed. See Note 5 above for further details.
Following deconsolidation, the Group has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group's voting interest at date of deconsolidation and as of December 31, 2022 was\u00a048.2% and 40.17%, respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value. See Note 5.
The fair value of the Preferred A-1 shares on the date of deconsolidation amounted to $7.7 million, which is the initial value of the equity method investment in Sonde. When applying the equity method, the Group records its share of the losses in Sonde based on its equity interest in Sonde. Since only the common shares and Preferred A-1 shares in Sonde represent a residual equity interest and PureTech is the sole holder of the Preferred A-1 shares, the Group's share in Sonde's equity is 93.6%.
During the year ended\u00a0December 31, 2022 the Company recorded $3.4 million of equity method losses in respect of Sonde.
The following table summarizes the activity related to the investment in associates balance for the years ended\u00a0December 31, 2022 and 2021.
Investment in Associates | $000's |
As of January 1, 2021 | \u2014 |
Share of net loss in Gelesis \u2013 limited to net investment amount | (73,703) |
Share of losses recorded against Long Term Interests (LTIs) | 73,703 |
As of December 31, 2021 and January 1, 2022 | \u2014 |
Cash investment in associate | 19,961 |
Additional investment as a result of backstop settlement (see above) | 8,424 |
Gain on dilution of interest in associate* | 13,793 |
Investment in Sonde \u2013 deconsolidation | 7,680 |
Share in net loss of associates | (27,749) |
Reversal of equity method losses recorded against LTIs (due to decrease in LTI fair value) | (4,406) |
Share in other comprehensive loss of associates | (166) |
Impairment | (8,390) |
As of December 31, 2022 | 9,147 |
*\u00a0\u00a0\u00a0\u00a0Gain on dilution of interest was further increased due to the receipt of Gelesis earn out shares accounted for as investments held at fair value (see above).
Summarized financial information
The following table summarizes the financial information of Gelesis as included in its own financial statements, adjusted for fair value adjustments at deconsolidation and differences in accounting policies. The table also reconciles the summarized financial information to the carrying amount of the Company\u2019s interest in Gelesis.
2022 $000s | 2021 $000s | ||
As of and for the year ended December 31, | |||
Percentage ownership interest | 22.5% | 42.0% | |
Non-current assets | 333,040 | 357,508 | |
Current assets | 23,495 | 66,092 | |
Non-current liabilities | (99,053) | (120,786) | |
Current liabilities | (80,010) | (537,432) | |
Non controlling interests and options issued to third parties | (46,204) | (14,216) | |
Net assets (deficit) attributable to shareholders of Gelesis Inc. | 131,268 | (248,834) | |
Group's share of net assets (net deficit) | 29,504 | (104,527) | |
Goodwill | 3,858 | 7,211 | |
Impairment | (28,452) | (37,495) | |
Equity method losses recorded against Long-term Interests | \u2014 | 96,709 | |
Unrecognized equity method losses* | \u2014 | 38,101 | |
Investment in associate | 4,910 | \u2014 | |
2022 $000s | 2021 $000s | 2020 $000s | |
Revenue | 25,767 | 11,185 | 21,442 |
Loss from continuing operations (100%) | (111,567) | (271,430) | (71,157) |
Total comprehensive loss (100%) | (112,285) | (273,005) | (70,178) |
Group's share in net losses \u2013 limited to net investment amount** | (24,306) | (73,703) | (34,117) |
Group's share of total comprehensive loss \u2013 limited to net investment amount | (24,472) | (73,703) | (33,648) |
*\u00a0\u00a0\u00a0\u00a0Unrecognized equity method losses includes unrecognized other comprehensive loss of $0.7 million for the year ended December 31, 2021.
**\u00a0\u00a0\u00a0\u00a0For the year ended December 31, 2022 includes $4.4 million reversal of equity method losses recorded against Long-Term Interest (LTI) due to the decrease in fair value of\u00a0such\u00a0LTI.
Subsequent to balance sheet date, on April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH.
In addition, in April 2023 (subsequent to balance sheet date) PureTech submitted a non-binding proposal to acquire all of the outstanding equity of Gelesis. Negotiations related to the proposal and any potential deal remain ongoing and are subject to, among other things, approval of any definitive transaction by independent committees of the boards of both Gelesis and PureTech.
Total operating expenses were as follows:
For the years ending December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
General and administrative | 60,991 | 57,199 | 49,440 |
Research and development | 152,433 | 110,471 | 81,859 |
Total operating expenses | 213,425 | 167,671 | 131,299 |
The average number of persons employed by the Group during the year, analyzed by category, was as follows:
For the years ending December 31, | 2022 | 2021 | 2020 |
General and administrative | 57 | 52 | 43 |
Research and development | 144 | 119 | 95 |
Total | 201 | 171 | 138 |
The aggregate payroll costs of these persons were as follows:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ending December 31, | |||
General and administrative | 25,322 | 26,438 | 22,943 |
Research and development | 36,321 | 28,950 | 20,674 |
Total | 61,643 | 55,388 | 43,616 |
Detailed operating expenses were as follows:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ending December 31, | |||
Salaries and wages | 41,750 | 36,792 | 29,403 |
Healthcare benefits | 2,908 | 2,563 | 1,866 |
Payroll taxes | 2,286 | 2,084 | 1,629 |
Share-based payments | 14,699 | 13,950 | 10,718 |
Total payroll costs | 61,643 | 55,388 | 43,616 |
Other general and administrative expenses | 35,669 | 30,761 | 26,497 |
Other research and development expenses | 116,113 | 81,521 | 61,186 |
Total other operating expenses | 151,782 | 112,282 | 87,683 |
Total operating expenses | 213,425 | 167,671 | 131,299 |
Auditor's remuneration:
For the years ending December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
Audit of these financial statements | 1,716 | 1,183 | 1,145 |
Audit of the financial statements of subsidiaries | 132 | 312 | 291 |
Audit of the financial statements of associate** | 814 | 571 | 350 |
Audit-related assurance services* | 1,157 | 1,868 | 490 |
Non-audit related services | \u2014 | \u2014 | 173 |
Total | 3,819 | 3,934 | 2,449 |
*\u00a0\u00a0\u00a0\u00a02021 \u2013 $468.2 thousand represents prepaid expenses related to an expected initial public offering of a subsidiary.
**\u00a0\u00a0\u00a0\u00a0Audit fees of $720.0 thousand, $500.0 thousand and $350.0 thousand in respect of financial statements of associates for the years ended\u00a0December 31, 2022, 2021, and 2020\u00a0respectively, are not included within the consolidated financial statements. Fees related to the audit of the financial statements of associates have been disclosed in respect of 2022, 2021, and 2020 as these fees went towards supporting the audit opinion on the Group accounts. Such amounts were not previously disclosed in the 2020\u00a0financial statements.
Share-based payments includes stock options, restricted stock units (\u201cRSUs\u201d) and performance-based RSUs in which the expense is recognized based on the grant date fair value of these awards, except for performance based RSUs to executives that are treated as liability awards where expense is recognized based on reporting date fair value up until settlement date.
Share-based Payment Expense
The Group share-based payment expense for the years ended\u00a0December 31, 2022, 2021 and 2020, were comprised of charges related to the PureTech Health plc incentive stock and stock option issuances and subsidiary stock plans.
The following table provides the classification of the Group\u2019s consolidated share-based payment expense as reflected in the Consolidated Statement of Income/(Loss):
Year ended\u00a0December 31, | 2022 $000s | 2021 $000s | 2020 $000s |
General and administrative | 8,862 | 9,310 | 7,650 |
Research and development | 5,837 | 4,640 | 3,068 |
Total | 14,699 | 13,950 | 10,718 |
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan (\u201cPSP\u201d). Under the PSP and subsequent amendments, awards of ordinary shares may be made to the Directors, senior managers and employees of, and other individuals providing services to the Company and its subsidiaries up to a maximum authorized amount of 10.0 percent of the total ordinary shares outstanding. The shares have various vesting terms over a period of service between two and four years, provided the recipient remains continuously engaged as a service provider.
The share-based awards granted under the PSP are generally equity settled (see cash settlements below) and expire 10 years from the grant date. As of December 31, 2022, the Company had issued share-based awards to purchase an aggregate of 24,889,462 shares under this plan.
RSUs
RSU activity for the years ended\u00a0December 31, 2022, 2021 and 2020 is detailed as follows:
Number of Shares/Units | Wtd Avg Grant Date Fair Value (GBP)* | |
Outstanding (Non-vested) at January 1, 2020 | 4,636,347 | 2.08 |
RSUs Granted in Period | 1,759,011 | 1.80 |
Vested | (2,781,687) | 1.54 |
Forfeited | (191,089) | 2.37 |
Outstanding (Non-vested) at December 31, 2020 and January 1, 2021 | 3,422,582 | 2.46 |
RSUs Granted in Period | 2,195,133 | 2.15 |
Vested | (1,176,695) | 2.93 |
Forfeited | (808,305) | 2.25 |
Outstanding (Non-vested) at December 31, 2021 and January 1, 2022 | 3,632,715 | 1.91 |
RSUs Granted in Period | 4,309,883 | 1.76 |
Vested | (696,398) | 2.80 |
Forfeited | (1,155,420) | 2.67 |
Outstanding (Non-vested) at December 31, 2022 | 6,090,780 | 1.74 |
*\u00a0\u00a0\u00a0\u00a02021 \u2013 for liability awards based on fair value at reporting date.
Each RSU entitles the holder to one ordinary share on vesting and the RSU awards are generally based on a cliff vesting schedule over a one to three-year requisite service period in which the Company recognizes compensation expense for the RSUs. Following vesting, each recipient will be required to make a payment of one pence per ordinary share on settlement of the RSUs. Vesting of the majority of the RSUs is subject to the satisfaction of performance and market conditions. The grant date fair value of market condition awards that were treated as equity settled awards were measured to reflect such conditions and there was no true-up for differences between expected and actual outcomes. For liability settled awards, see below.
The Company recognizes the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon its determination of whether it is probable that the performance targets will be achieved. The Company assesses the probability of achieving the performance targets at each reporting period. Cumulative adjustments, if any, are recorded to reflect subsequent changes in the estimated outcome of performance-related conditions.
The fair value of the market and performance-based awards is based on the Monte Carlo simulation analysis utilizing a Geometric Brownian Motion process with 100,000 simulations to value those shares. The model considers share price volatility, risk-free rate and other covariance of comparable public companies and other market data to predict distribution of relative share performance.
The performance and market conditions attached to the RSU awards are based on the achievement of total shareholder return\u00a0(\u201cTSR\u201d), based on the achievement of absolute TSR targets, and to a lesser extent based on TSR as compared to the FTSE 250 Index, and the MSCI Europe Health Care Index. The remaining portion is based on the achievement of strategic targets. The RSU award performance criteria have changed over time as the criteria is continually evaluated by the Group\u2019s Remuneration Committee.
In 2017, the Company granted certain executives RSUs that vested based on the service, market and performance conditions, as described above. The vesting of all RSUs was achieved by December 31, 2019 where all service, market and performance conditions were met. The remuneration committee of PureTech's Board of Directors approved the achievement of the vesting conditions as of December 31, 2019 and reached the decision during the year ended December 31, 2020 to cash settle the 2017 RSUs. The settlement value was determined based on the 3 day average closing price of the shares. The settlement value was $12.5\u00a0million\u00a0(which after deducting tax withheld on behalf of recipients amounted to $7.2\u00a0million). The settlement value did not exceed the fair value at settlement date and as such the cash settlement was treated as an equity transaction in the financial statements for the year ended December 31, 2020, whereby the full repurchase cash settlement amount was charged to equity in Other reserves.
Similarly in 2018, the Company granted certain executives RSUs that vested based on service, market and performance conditions, as described above. The vesting of all RSUs was achieved by December 31, 2020 where all service, market and performance conditions were met. In February 2021 the remuneration committee of PureTech's board of directors approved the achievement of the vesting conditions as of December 31, 2020 and on May 28, 2021 reached the decision to cash settle RSUs to certain employees while others were issued shares. The settlement value was determined based on the three day average closing price of the shares. The settlement value was $10.7 million (which after deducting tax withheld on behalf of recipients amounted to $6.4 million). The settlement value did not exceed the fair value at settlement date and as such the cash settlement was treated as an equity transaction, whereby the full repurchase cash settlement amount was charged to equity in Other reserves in the financial statements as of and for the year ended December 31, 2021.
Following the different cash settlements, the Company concluded that although the remaining RSUs are to be settled by shares according to their respective agreements, and any cash settlement is at the Company's discretion, due to past practice of cash settlement to multiple employees, some for multiple years, these RSUs to the company executives should be treated as liability awards and as such adjusted to fair value at every reporting date with changes in fair value recorded in earnings as stock based compensation expense.
Consequently, the Company reclassified during the year ended December 31, 2021 $1.9\u00a0million from equity to other non-current liabilities and $4.8 million from equity to other payables equal to the fair value of the awards at the date of reclassification. The Company treated the excess of the fair value at the reclassification date over the grant date fair value of the RSUs (for the portion of the vesting period that has already elapsed) in the amount of $2.9 million as an equity transaction. Therefore the full amount of the liability at reclassification was recorded as a charge to equity. The changes in fair value of the liability from reclassification date to balance sheet date or settlement date are recorded as stock-based compensation expense in the Consolidated Statement of Comprehensive Income (loss).
The Company incurred share-based payment expenses for performance, market and service based RSUs of $1.6 million (including $1.1 million expense in respect of RSU liability awards), $1.5 million (including $0.6 million expense in respect of RSU liability awards), and $5.7 million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. The decrease in the share based compensation expense in respect of the RSUs for the year ended December 31, 2021, as compared to the year ended December 31, 2020 is due to reduction in the fair value of the liability awards as compared to their value at the date the awards were reclassified from equity awards to liability awards, as well as forfeitures of certain awards due to unexpected terminations of RSU holders.
As of December 31, 2022, the carrying amount of the RSU liability awards was $5.9 million, $1.8 million current; $4.1 million non current, out of which $1.8 million related to awards that have met all their performance and market conditions.
Stock Options
Stock option activity for the years ended\u00a0December 31, 2022, 2021 and 2020, is detailed as follows:
Number of Options | Wtd Average Exercise Price (GBP) | Wtd Average of | Wtd Average Stock Price at Exercise (GBP) | |
Outstanding at January 1, 2020 | 8,472,827 | 1.16 | 8.55 | |
Granted | 4,076,982 | 3.14 | ||
Exercised | (514,410) | 1.52 | 2.88 | |
Forfeited and expired | (1,119,313) | 1.88 | ||
Options Exercisable at December 31, 2020 and January 1, 2021 | 5,447,405 | 0.98 | 7.46 | |
Outstanding at December 31, 2020 and January 1, 2021 | 10,916,086 | 1.81 | 8.38 | |
Granted | 5,424,000 | 3.34 | ||
Exercised | (2,238,187) | 0.70 | 3.63 | |
Forfeited and expired | (687,781) | 2.53 | ||
Options Exercisable at December 31, 2021 and January 1, 2022 | 4,773,873 | 1.42 | 6.50 | |
Outstanding at December 31, 2021 and January 1, 2022 | 13,414,118 | 2.58 | 8.29 | |
Granted | 8,881,000 | 2.04 | ||
Exercised | (577,022) | 0.50 | 2.43 | |
Forfeited and expired | (3,924,215) | 2.89 | ||
Options Exercisable at December 31, 2022 | 6,185,216 | 2.03 | 6.21 | |
Outstanding at December 31, 2022 | 17,793,881 | 2.31 | 8.03 |
The fair value of the stock options awarded by the Company was estimated at the grant date using the Black-Scholes option valuation model, considering the terms and conditions upon which options were granted, with the following weighted-average\u00a0assumptions:
At December 31, | 2022 | 2021 | 2020 |
Expected volatility | 41.70% | 41.05% | 41.25% |
Expected terms (in years) | 6.11 | 6.16 | 6.11 |
Risk-free interest rate | 2.13% | 1.06% | 0.53% |
Expected dividend yield | \u2014 | \u2014 | \u2014 |
Grant date fair value | $1.15 | $1.87 | $1.72 |
The Company incurred share-based payment expense for the stock options of $8.4 million, $6.2 million and $2.1 million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. The increase in expense for the year ended\u00a0December 31, 2022, as compared to the year ended\u00a0December 31, 2021, is due to the new grants granted in 2022. The increase in expense\u00a0for the year ended\u00a0December 31, 2021, as compared to the year ended\u00a0December 31, 2020, is due to new grants granted in 2021.
For shares outstanding as of December 31, 2022, the range of exercise prices is detailed as follows:
Range of Exercise Prices (GBP) | Options | Wtd | Wtd Average of |
0.01 | 439,490 | \u2014 | 6.76 |
1.00 to 2.00 | 6,276,391 | 1.58 | 7.00 |
2.00 to 3.00 | 5,375,750 | 2.26 | 8.92 |
3.00 to 4.00 | 5,702,250 | 3.34 | 8.40 |
Total | 17,793,881 | 2.31 | 8.03 |
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option plans. A summary of stock option activity by number of shares in\u00a0these subsidiaries is presented in the following table:
Outstanding as of January 1, 2022 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2022 | |
Entrega | 349,500 | 45,000 | \u2014 | (50,000) | \u2014 | \u2014 | 344,500 |
Follica | 2,686,120 | 90,000 | \u2014 | \u2014 | \u2014 | \u2014 | 2,776,120 |
Sonde | 2,049,004 | \u2014 | \u2014 | \u2014 | \u2014 | (2,049,004) | \u2014 |
Vedanta | 1,991,637 | 490,506 | (400,000) | (65,235) | (192,332) | \u2014 | 1,824,576 |
Outstanding as of January 1, 2021 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2021 | |
Alivio | 3,888,168 | 197,398 | (2,373,750) | (506,260) | (1,205,556) | \u2014 | \u2014 |
Entrega | 962,000 | \u2014 | (525,000) | (87,500) | \u2014 | \u2014 | 349,500 |
Follica | 1,309,040 | 1,383,080 | \u2014 | (6,000) | \u2014 | \u2014 | 2,686,120 |
Sonde | 2,192,834 | \u2014 | \u2014 | (51,507) | (92,323) | \u2014 | 2,049,004 |
Vedanta | 1,741,888 | 451,532 | (52,938) | (76,491) | (72,354) | \u2014 | 1,991,637 |
Outstanding as of January 1, 2020 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2020 | |
Alivio | 3,698,244 | 189,924 | \u2014 | \u2014 | \u2014 | \u2014 | 3,888,168 |
Entrega | 972,000 | \u2014 | \u2014 | \u2014 | (10,000) | \u2014 | 962,000 |
Follica | 1,309,040 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 1,309,040 |
Sonde | 1,829,004 | 363,830 | \u2014 | \u2014 | \u2014 | \u2014 | 2,192,834 |
Vedanta | 1,450,100 | 493,951 | (813) | \u2014 | (201,350) | \u2014 | 1,741,888 |
The weighted-average exercise prices and remaining contractual life for the options outstanding as of December 31, 2022, were as\u00a0follows:
Outstanding at December 31, 2022 | Number of options | Weighted-average exercise price $ | Weighted-average contractual life outstanding |
Entrega | 344,500 | 1.91 | 4.92 |
Follica | 2,776,120 | 1.41 | 6.38 |
Vedanta | 1,824,576 | 15.89 | 6.88 |
The weighted average exercise prices for the options granted for the years ended\u00a0December 31, 2022, 2021 and 2020, were as\u00a0follows:
For the years ended December 31, | 2022 $ | 2021 $ | 2020 $ |
Alivio | \u2014 | \u2014 | 0.47 |
Entrega | 0.02 | \u2014 | \u2014 |
Follica | 1.86 | 1.86 | \u2014 |
Sonde | \u2014 | \u2014 | 0.18 |
Vedanta | 14.94 | 19.69 | 19.59 |
The weighted average exercise prices for options forfeited during the year ended\u00a0December 31, 2022, were as follows:
Forfeited during the year ended December 31, 2022 | Number of options | Weighted-average exercise price $ |
Vedanta | 192,332 | 19.64 |
The weighted average exercise prices for options exercised during the year ended\u00a0December 31, 2022, were as follows:
Exercised during the year ended December 31, 2022 | Number of options | Weighted-average exercise price |
Vedanta | 400,000 | 0.02 |
The weighted average exercise prices for options exercisable as of December 31, 2022, were as follows:
Exercisable at December 31, 2022 | Number of Options | Weighted-average exercise price $ | Exercise Price Range |
Entrega | 344,500 | 1.91 | 0.02-2.36 |
Follica | 2,776,120 | 1.41 | 0.03-1.86 |
Vedanta | 1,824,576 | 15.89 | 0.02-21.35 |
Significant Subsidiary Plans
Vedanta 2020 Stock Incentive Plan
On June 2, 2020, the Company\u2019s Board of Directors approved the 2020 Stock Incentive Plan, or 2020 Plan, which replaced the 2010 Stock Incentive Plan, or 2010 Plan, which was set to expire in December 2020. All authorized and issued shares under the 2010 Plan were transferred to the 2020 Plan. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and nonemployees of the Company up to an aggregate of 2,145,867 shares of the Company's common stock. In March 2021, the Company\u2019s Board of Directors approved an increase in the authorized shares of 151,188 for a total of 2,297,055. In July 2021, the Company\u2019s Board of Directors approved an increase in the authorized shares of 500,000 for a total of 2,797,055. Under the 2020 Plan, 914,331 shares remained available for issuance as of December 31, 2022.
The options granted under the 2020 Plan are equity settled and expire 10 years\u00a0from the grant date. Typically, the awards vest in four years but vesting conditions can vary based on the discretion of Vedanta\u2019s Board of Directors.
Options granted under the 2020 Plan are exercisable at a price per share not less than the fair market value of the underlying ordinary shares on the date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the options\u2019 vesting period.
The fair value of the stock option grants has been estimated at the date of grant using the Black-Scholes option pricing model with the following range of assumptions:
Assumption/Input | 2022 | 2021 | 2020 |
Expected award life (in years) | 6.00-8.33 | 6.00-7.11 | 6.00-10.00 |
Expected award price volatility | 88.22%-89.68% | 88.05%-88.59% | 89.24%-95.46% |
Risk free interest rate | 1.67%-3.13% | 0.96%-1.32% | 0.32%-0.87% |
Expected dividend yield | \u2014 | \u2014 | \u2014 |
Grant date fair value | $10.51-$15.14 | $13.84-$16.23 | $13.09-$16.54 |
Share price at grant date | $14.00-$18.84 | $19.00-$21.35 | $19.59 |
Vedanta incurred share-based compensation expense of $4.3 million, $5.4 million and $2.4\u00a0million for the years ended\u00a0December 31, 2022, 2021 and 2020, respectively.
Other Plans
The following table shows the breakdown of finance income and costs:
2022 $000s | 2021 $000s | 2020 $000s | |
For the years ended\u00a0December 31, | |||
Finance income | |||
Interest income from financial assets | 5,799 | 214 | 1,183 |
Total finance income | 5,799 | 214 | 1,183 |
Finance costs | |||
Contractual interest expense on notes payable | (212) | (1,031) | (96) |
Interest expense on other borrowings | (1,759) | (1,502) | (496) |
Interest expense on lease liability | (1,982) | (2,181) | (2,354) |
Gain/(loss) on foreign currency exchange | 14 | (56) | \u2014 |
Total finance cost \u2013 contractual | (3,939) | (4,771) | (2,946) |
Gain/(loss) from change in fair value of warrant liability | 6,740 | 1,419 | (117) |
Gain/(loss) from change in fair value of preferred shares | 130,825 | 8,362 | (4,234) |
Gain/(loss) from change in fair value of convertible debt | (502) | (175) | \u2014 |
Total finance income/(costs) \u2013 fair value accounting | 137,063 | 9,606 | (4,351) |
Finance income/(costs), net | 138,924 | 5,050 | (6,115) |
The basic and diluted income/(loss) per share has been calculated by dividing the income/(loss) for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the years ended\u00a0December 31, 2022, 2021 and 2020, respectively. During the years ended\u00a0December 31, 2022\u00a0and 2021 the Company incurred a net loss and therefore all outstanding potential securities were considered anti-dilutive. The amount of potential securities that were excluded from the calculation amounted to 3,134,131\u00a0 and 6,553,905 shares, respectively.
Earnings/(Loss) Attributable to Owners of the Company:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Income/(loss) for the year, attributable to the owners of the Company | (50,354) | (50,354) | (60,558) | (60,558) | 5,985 | 5,985 | ||
Income/(loss) attributable to ordinary shareholders | (50,354) | (50,354) | (60,558) | (60,558) | 5,985 | 5,985 |
Weighted-Average Number of Ordinary Shares:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Issued ordinary shares at January 1, | 287,796,585 | 287,796,585 | 285,885,025 | 285,885,025 | 285,370,619 | 285,370,619 | ||
Effect of shares issued | 690,772 | 690,772 | 705,958 | 705,958 | 233,048 | 233,048 | ||
Effect of dilutive shares (please refer to Note 8) | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 7,252,246 | ||
Effect of treasury shares purchased | (3,727,922) | (3,727,922) | \u2014 | \u2014 | \u2014 | \u2014 | ||
Weighted average number of ordinary shares at December 31, | 284,759,435 | 284,759,435 | 286,590,983 | 286,590,983 | 285,603,667 | 292,855,913 |
Earnings/(Loss) per Share:
2022 | 2021 | 2020 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Basic and diluted earnings/(loss) per share | (0.18) | (0.18) | (0.21) | (0.21) | 0.02 | 0.02 |
Cost | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of January 1, 2021 | 8,420 | 1,452 | 1,519 | 18,054 | 3,852 | 33,297 |
Additions, net of transfers | 1,424 | \u2014 | 92 | 183 | 6,723 | 8,422 |
Disposals | (323) | \u2014 | (282) | \u2014 | \u2014 | (605) |
Reclassifications | 2,211 | \u2014 | \u2014 | 248 | (2,459) | \u2014 |
Balance as of December 31, 2021 | 11,733 | 1,452 | 1,329 | 18,485 | 8,116 | 41,115 |
Additions, net of transfers | 390 | \u2014 | 11 | 412 | 1,362 | 2,176 |
Disposals | (118) | \u2014 | \u2014 | \u2014 | (77) | (195) |
Deconsolidation of subsidiaries | \u2014 | \u2014 | (58) | \u2014 | \u2014 | (58) |
Reclassifications | 1,336 | 58 | 137 | 5,067 | (6,598) | \u2014 |
Balance as of December 31, 2022 | 13,341 | 1,510 | 1,419 | 23,964 | 2,803 | 43,037 |
Accumulated depreciation and impairment\u00a0loss | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of January 1, 2021 | (3,965) | (454) | (1,287) | (4,815) | \u2014 | (10,520) |
Depreciation | (1,973) | (208) | (174) | (1,991) | \u2014 | (4,346) |
Disposals | 251 | \u2014 | 271 | \u2014 | \u2014 | 522 |
Balance as of December 31, 2021 | (5,686) | (663) | (1,190) | (6,806) | \u2014 | (14,344) |
Depreciation | (2,082) | (212) | (107) | (3,444) | \u2014 | (5,845) |
Disposals | 57 | \u2014 | \u2014 | \u2014 | \u2014 | 57 |
Deconsolidation of subsidiaries | \u2014 | \u2014 | 53 | \u2014 | \u2014 | 53 |
Balance as of December 31, 2022 | (7,711) | (875) | (1,244) | (10,250) | \u2014 | (20,080) |
Property and Equipment, net | Laboratory and Manufacturing Equipment | Furniture and | Computer Equipment and | Leasehold Improvements | Construction in | Total |
Balance as of December 31, 2021 | 6,047 | 790 | 139 | 11,679 | 8,116 | 26,771 |
Balance as of December 31, 2022 | 5,630 | 635 | 174 | 13,714 | 2,803 | 22,957 |
Intangible assets consist of licenses of intellectual property acquired by the Group through various agreements with third parties and are recorded at the value of the consideration transferred. Information regarding the cost and accumulated amortization of intangible assets is as follows:
Cost | Licenses |
Balance as of January 1, 2021 | 900 |
Additions | 90 |
Balance as of December 31, 2021 | 990 |
Additions | 25 |
Write-off | (163) |
Deconsolidation of subsidiaries | (21) |
Balance as of December 31, 2022 | 831 |
Accumulated amortization | Licenses |
Balance as of January 1, 2021 | (1) |
Amortization | (2) |
Balance as of December 31, 2021 | (3) |
Amortization | (1) |
Deconsolidation of subsidiary | 4 |
Balance as of December 31, 2022 | \u2014 |
Intangible assets, net | Licenses |
Balance as of December 31, 2021 | 987 |
Balance as of December 31, 2022 | 831 |
The Company tested all other such intangible assets for impairment as of balance sheet date and concluded that none of such assets were impaired.
During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated and as such $17.5 thousand in net assets were derecognised.
Other financial assets consist of restricted cash held, which represents amounts that are reserved as collateral against letters of credit with a bank that are issued for the benefit of a landlord in lieu of a security deposit for office space leased by the Group. Information regarding restricted cash was as follows:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Restricted cash | 2,124 | 2,124 |
Total other financial assets | 2,124 | 2,124 |
Total equity for PureTech as of December 31, 2022, and 2021, was as follows:
December 31, 2022 $000s | December 31, 2021 $000s | |
Equity | ||
Share capital, \u00a30.01 par value, issued and paid 278,566,306 and 287,796,585 as of December\u00a031, 2022 and 2021, respectively | 5,455 | 5,444 |
Merger Reserve | 138,506 | 138,506 |
Share premium | 289,624 | 289,303 |
Treasury shares, 10,595,347 and zero as of December 31, 2022 and 2021, respectively | (26,492) | \u2014 |
Translation reserve | 89 | 469 |
Other reserves | (14,478) | (40,077) |
Retained earnings/(accumulated deficit) | 149,516 | 199,871 |
Equity attributable to owners of the Group | 542,220 | 593,515 |
Non-controlling interests | 5,369 | (9,368) |
Total equity | 547,589 | 584,147 |
Changes in share capital and share premium relate primarily to incentive options exercises during the period.
Shareholders are entitled to vote on all matters submitted to shareholders for a vote. Each ordinary share is entitled to one vote. Each ordinary share is entitled to receive dividends when and if declared by the Company\u2019s Directors. The Company has not declared any dividends in the past.
On June 18, 2015, the Company acquired the entire issued share capital of PureTech LLC in return for 159,648,387 Ordinary Shares. This was accounted for as a common control transaction at cost. It was deemed that the share capital was issued in line with movements in share capital as shown prior to the transaction taking place. In addition, the merger reserve records amounts previously recorded as share premium.
Other reserves comprise the cumulative credit to share-based payment reserves corresponding to share-based payment expenses recognized through Consolidated Statements of Comprehensive Income/(Loss), settlements of vested share based payment awards as well as other additions that flow directly through equity such as the excess or deficit from changes in ownership of subsidiaries while control is maintained by the Group.
On May 9, 2022, the Company announced the commencement of a $50.0 million share repurchase program the (\"Program\") of its ordinary shares of one pence each (\u201cOrdinary Shares\u201d). The Company is executing the Program in two equal tranches. In respect of the two tranches, PureTech entered into an irrevocable (see below) non-discretionary instruction with Jefferies International Limited (\u201cJefferies\u201d) in relation to the purchase by Jefferies of Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25.0 million for each tranche and the simultaneous on-sale of such Ordinary Shares by Jefferies to PureTech, subject to certain volume and price restrictions. Jefferies makes its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Company. Purchases may continue during any close period to which the Company is subject. The instruction to Jeffries may be amended or withdrawn so long as the Company is not in a\u00a0close period or otherwise in possession of inside information.
Any purchases of Ordinary Shares under the Program were carried out on the London Stock Exchange and could be carried out on any other UK recognized investment exchange which may be agreed, in accordance with pre-set parameters and in accordance with, and subject to limits, including those limits related to daily volume and price, prescribed by the Company\u2019s general authority to repurchase Ordinary Shares granted by its shareholders at its annual general meeting on May 27, 2021, and relevant Rules and Regulations. All Ordinary Shares repurchased under the Program are held in treasury.
Preferred shares issued by subsidiaries often contain redemption and conversion features that are assessed under IFRS\u00a09 in conjunction with the host preferred share instrument. This balance represents subsidiary preferred shares issued to third\u00a0parties.
The subsidiary preferred shares are redeemable upon the occurrence of a contingent event, other than full liquidation of the Company, that is not considered to be within the control of the Company. Therefore these subsidiary preferred shares are classified as liabilities. These liabilities are measured at fair value through profit and loss. The preferred shares are convertible into ordinary shares of the subsidiaries at the option of the holder and mandatorily convertible into ordinary shares upon a subsidiary listing in a public market at a price above that specified in the subsidiary\u2019s charter or upon the vote of the holders of subsidiary preferred shares specified in the charter. Under certain scenarios the number of ordinary shares receivable on conversion will change and therefore, the number of shares that will be issued is not fixed. As such the conversion feature is considered to be an embedded derivative that normally would require bifurcation. However, since the preferred share liabilities are measured at fair value through profit and loss, as mentioned above, no bifurcation is required.
The preferred shares are entitled to vote with holders of common shares on an as converted basis.
The Group recognized the preferred share balance upon the receipt of cash financing or upon the conversion of notes into preferred shares at the amount received or carrying balance of any notes converted into preferred shares.
The balance as of December 31, 2022 and December 31, 2021, represents the fair value of the instruments for all subsidiary preferred shares. The following summarizes the subsidiary preferred share balance:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Entrega | 169 | 669 |
Follica | 350 | 11,191 |
Sonde | \u2014 | 13,362 |
Vedanta Biosciences | 26,820 | 148,796 |
Total subsidiary preferred share balance | 27,339 | 174,017 |
As is customary, in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, the holders of subsidiary preferred shares which are outstanding shall be entitled to be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. A merger, acquisition, sale of voting control or other transaction of a subsidiary in which the shareholders of the subsidiary immediately before the transaction do\u00a0not own a majority of the outstanding shares of the surviving company shall be deemed to be a liquidation event. Additionally, a sale, lease, transfer or other disposition of all or substantially all of the assets of the subsidiary shall also be deemed a liquidation event.
As of December 31, 2022 and December 31, 2021, the minimum liquidation preference reflects the amounts that would be payable to the subsidiary preferred holders upon a liquidation event of the subsidiaries, which is as follows:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Entrega | 2,216 | 2,216 |
Follica | 6,405 | 6,405 |
Sonde | \u2014 | 12,000 |
Vedanta Biosciences | 149,568 | 149,568 |
Total minimum liquidation preference | 158,189 | 170,189 |
$000s | |
Balance as of January 1, 2021 | 118,972 |
Issuance of new preferred shares \u2013 financing cash flow | 37,610 |
Conversion of convertible notes | 25,797 |
Decrease in value of preferred shares measured at fair value \u2013 finance costs (income) | (8,362) |
Balance as of January 1, 2022 | 174,017 |
Decrease in value of preferred shares measured at fair value \u2013 finance costs (income) | (130,825) |
Deconsolidation of subsidiary \u2013 (Sonde) | (15,853) |
Balance as of December 31, 2022 | 27,339 |
During the year ended December 31, 2022 there were no issuances of new preferred shares.
2021
The Group\u2019s financial instruments consist of financial liabilities, including preferred shares, convertible notes, warrants and loans payable, as well as financial assets. Many of these financial instruments are presented at fair value with fair value changes recorded through profit and loss.
Fair Value Process
For financial instruments measured at fair value under IFRS 9, the change in the fair value is reflected through profit and loss. Using the guidance in IFRS 13, the total business enterprise value and allocable equity of each entity being valued was determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market PWERM approach, discounted cash flow income approach, or hybrid approaches. The approaches, in order of strongest fair value evidence, are detailed as\u00a0follows:
Valuation Method | Description |
Market \u2013 Backsolve | The market backsolve approach benchmarks the original issue price (OIP) of the company\u2019s latest funding transaction as current value. |
Market/Asset \u2013 PWERM | Under a PWERM, the company value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise. An asset approach may be included as an expected future outcome within the PWERM method. Possible future outcomes can include IPO scenarios, potential SPAC transactions, merger and acquisition transactions as well as other similar exit transactions of the investee. |
Income Based \u2013 DCF | The income approach is used to estimate fair value based on the income streams, such as cash flows or earnings, that an asset or business can be expected to generate. |
As of December 31, 2022 and 2021, at each measurement date, the fair value of preferred shares and warrant liabilities, including embedded conversion rights that are not bifurcated, as well as investments held at fair value (that are not publicly traded), were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), Probability-Weighted Expected Return Method (\"PWERM\"), or Hybrid allocation framework.\u00a0The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\u2019s equity value, with exercise prices based on the liquidation preferences of the preferred stock.\u00a0 |
PWERM | Under a PWERM, share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise, as well as the rights of each share class. |
Hybrid | The hybrid method (\u201cHM\u201d) is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenarios occurrence, similar\u00a0to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more\u00a0of the scenarios. |
Valuation policies and procedures are regularly monitored by the Company\u2019s finance group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed on their issuance date and then on an annual basis for reasonableness and compliance with the fair value measurements guidance under IFRS. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument\u2019s valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable, reasonable and robust, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed.
Subsidiary Preferred Shares Liability and Subsidiary Convertible Notes
The following table summarizes the changes in the Group\u2019s subsidiary preferred shares and convertible note liabilities measured at fair value, which were categorized as Level 3 in the fair value hierarchy:
Subsidiary Preferred Shares | Subsidiary Convertible | |
Balance at January 1, 2020 | 100,989 | \u2014 |
Value at issuance | 13,750 | 25,000 |
Change in fair value | 4,233 | \u2014 |
Balance at December 31, 2020 and January 1, 2021 | 118,972 | 25,000 |
Value at issuance | 37,610 | 2,215 |
Conversion to subsidiary preferred shares | 25,797 | (25,797) |
Accrued interest \u2013 contractual | \u2014 | 867 |
Change in fair value | (8,362) | 175 |
Balance at December 31, 2021 and January 1, 2022 | 174,017 | 2,461 |
Value at issuance | \u2014 | 393 |
Accrued interest \u2013 contractual | \u2014 | 48 |
Change in fair value | (130,825) | 502 |
Deconsolidation \u2013 Sonde | (15,853) | (3,403) |
Balance at December 31, 2022 | 27,339 | \u2014 |
The change in fair value of preferred shares and convertible notes are recorded in Finance income/(costs) \u2013 fair value accounting in the Consolidated Statements of Comprehensive Income/(Loss).
The table below sets out information about the significant unobservable inputs used at December 31, 2022, in the fair value measurement of the Group\u2019s material subsidiary preferred shares liabilities categorized as Level 3 in the fair value hierarchy:
Fair Value at December 31, 2022 | Valuation Technique | Unobservable Inputs | Weighted Average | Sensitivity to Decrease\u00a0in\u00a0Input |
26,820 | PWERM based on pro forma backsolve approach that leverages a Monte Carlo simulation | Estimated Time to Exit | 2.14 | Fair value decrease |
Equity Discount Rate | 30% | Fair value increase | ||
Debt Discount Rate | 15% | Fair value decrease | ||
Volatility | 95% | Fair value decrease |
Subsidiary Preferred Shares Sensitivity
The following summarizes the sensitivity from the assumptions made by the Company with respect to the significant unobservable inputs which are categorized as Level 3 in the fair value hierarchy and used in the fair value measurement of the Group\u2019s subsidiary preferred shares liabilities (Please refer to Note 15):
Input | Subsidiary Preferred Share Liability | |
As of December 31, 2022 | Sensitivity Range | Financial Liability Increase/(Decrease) |
Time to Liquidity | - 6 Months | (1,322) |
+ 6 Months | 856 | |
Volatility | (10)% | (1,133) |
+10% | 1,200 | |
Discount Rate | (5)% | (2,035) |
+5% | 1,922 |
Financial Assets Held at Fair Value
Karuna, Vor and Akili Valuation
Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq: AKLI) and additional immaterial investments are listed entities on an active exchange and as such the fair value as of December 31, 2022, was calculated utilizing the quoted common share price. Please refer to Note 5 for further details.
Akili, Gelesis and Sonde
In accordance with IFRS 9, the Company accounted for its preferred share investments in Akili (until the exchange of such shares to common stock traded on Nasdaq) and Gelesis (until the exchange of such shares to common stock) and accounts for its investment in Sonde (investment in Preferred A-2 and B shares, subsequent to the date of deconsolidation) as financial assets held at fair value through the profit and loss. In addition, the Company accounts for its investment in Gelesis Earn-out shares and Akili Earn-out shares (see Note 5) as investments held at fair value. All the valuations of the aforementioned investments are categorized as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs to value such assets. During the year ended\u00a0December 31, 2022, the Company recorded such investments at fair value and recognized the change in fair value of the investments as a loss of $30.0\u00a0million that was recorded to the Consolidated Statements of Comprehensive Income/(Loss) in the line item Gain/(loss) on investments held at fair\u00a0value.
The following table summarizes the changes in all the Group\u2019s investments held at fair value, which were categorized as Level 3 in the fair value hierarchy:
$'000s | |
Balance at January 1, 2020 | 154,445 |
Cash purchase of Gelesis preferred shares (please refer to Note 6) | 10,000 |
Cash purchase of Vor preferred shares | 1,150 |
Gain/(Loss) on changes in fair value | 41,297 |
Balance at December 31, 2020 and January 1, 2021 | 206,892 |
Cash purchase of Vor preferred shares | 500 |
Reclassification of Vor from level 3 to level 1 | (33,365) |
Gain/(Loss) on changes in fair value | 65,505 |
Balance at January 1, 2022 before allocation of associate loss to long-term interest | 239,533 |
Deconsolidation of Sonde | 11,168 |
Gelesis \u2013 New Investment \u2013 Earn out Shares | 14,214 |
Exchange of Gelesis preferred shares to Gelesis common shares | (92,303) |
Reclassification of Akili to level 1 investment | (128,764) |
Change in fair value | (31,253) |
Balance as of December 31, 2022 | 12,593 |
The change in fair value of investments held at fair value are recorded in Gain/(loss) on investments held at fair value in the Consolidated Statements of Comprehensive Income/(Loss).
The table below sets out information about the significant unobservable inputs used at December 31, 2022, in the fair value measurement of the Group\u2019s material preferred share investments held at fair value categorized as Level 3 in the fair value hierarchy:
Fair Value at December 31, 2022 | Valuation Technique | Unobservable Inputs | Weighted Average | Sensitivity to Decrease in Input |
11,403 | Market Backsolve & OPM | Estimated time to exit | 2.00 | Fair value decrease |
Volatility | 55% | Fair value decrease |
As the material investments held at fair value categorized as level 3 in the fair value hierarchy are based on a market backsolve approach using a recent arm's length transaction the change in unobservable inputs in reasonably possible scenarios has an immaterial impact on the financial statements.
Warrants
Warrants issued by subsidiaries within the Group are classified as liabilities, as they will be settled in a variable number of preferred shares. The following table summarizes the changes in the Group\u2019s subsidiary warrant liabilities, which were categorized as Level 3 in the fair value hierarchy:
Subsidiary Warrant Liability | |
Balance at January 1, 2020 | 7,997 |
Warrant Issuance | 92 |
Change in fair value \u2013 finance costs (income) | 117 |
Balance at December 31, 2020 and January 1, 2021 | 8,206 |
Change in fair value \u2013 finance costs (income) | (1,419) |
Balance at December 31, 2021 and January 1, 2022 | 6,787 |
Change in fair value \u2013 finance costs (income) | (6,740) |
Balance at December 31, 2022 | 47 |
The change in fair value of warrants are recorded in Finance income/(costs) \u2013 fair value accounting in the Consolidated Statements of Comprehensive Income/(Loss).
In connection with various amendments to its 2010 Loan and Security Agreement, Follica issued Series A-1 preferred share warrants at various dates in 2013 and 2014. In 2017, in conjunction with the issuance of convertible notes, the exercise price of\u00a0the warrants was adjusted to $0.07 per share.
In connection with the September 2, 2021 Oxford Finance LLC loan issuance, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030.
The fair value of the warrant liabilities was immaterial as of December 31, 2022 due to the decline in the fair value of the underlying preferred shares in the Follica warrant. See also Note 15 for the fair value of Follica preferred share liabilities.
Short-term Note from Associate
On December 7, 2021, Gelesis issued PureTech a $15.0\u00a0million note to be repaid the earlier of three business days after the closing of the business combination of Gelesis with Capstar Special Acquisition Corp (\"Capstar\"), or 30 days following the termination of such business combination. In the event of the business combination termination, the Company, who represented the majority of the note holders, could have elected to convert the note at the next equity financing at a discount of 25% from the financing price. The note bore interest at a rate of 10% per annum.
The note was repaid by Gelesis in January 2022 due to the closing of the business combination between Gelesis and Capstar on January 13, 2022.
Note from Associate
On July 27, 2022, PureTech, as a lender, entered into an unsecured Short Term Promissory Note (\"Note\") with Gelesis (GLS), as a borrower, in the amount of\u00a0$15.0\u00a0million. The Note bears an annual interest rate of 15% per annum and accrues until the note is repaid. The term of the Note is the earlier of December 31, 2023 or five business days following the consummation of a\u00a0qualified financing by Gelesis.
In case of default, PureTech will be issued a warrant which shall entitle PureTech to purchase at an exercise price per share of $0.01 a number of shares of Gelesis common Stock equal to (i) (A) 0.2 multiplied by (B) the amount of outstanding principal and accrued interest under the Note as of the date of conversion described below, divided by (ii) the volume weighted average price of each share of Common Stock, as reported by the New York Stock Exchange, for the last five (5) trading days (\"the \u201cCommon Stock VWAP\u201d) occurring immediately prior to the date of exercise. In addition, PureTech will have the option to convert the amount of outstanding principal and accrued interest under the Note into a number of shares of Gelesis Common Stock (the \u201cConversion Securities\u201d) equal to (i) the amount of outstanding principal and accrued interest under the Note as of the date of such conversion, divided by (ii) the lesser of the price per share of (A) the Gelesis common Stock, as reported by the New York Stock Exchange, as of 4:00 P.M. Eastern Time on the date of the conversion notice or (B) the Common Stock VWAP as of the day prior to the date of the conversion notice.
Based on the terms of the note, the note is required to be measured at fair value with changes in fair value recorded through profit and loss. The fair value of the note as of December 31, 2022 was $16.5\u00a0million. During the year ended December 31, 2022 the Group recorded $963\u00a0thousand of interest income and a gain of $539\u00a0thousand for the change in the fair value of the note. The change in the fair value of the note was recorded in the line item Other Income/(expense) in the Consolidated Statements of Comprehensive Income/(Loss).
The note was valued using a discounted cash flow approach of the probability weighted future returns on the note, using a discount rate of 28.9%. Increasing or decreasing the discount rate by 5.0% will decrease or increase the value, respectively, by approximately $0.4\u00a0million. Also, increasing the estimated term to a qualified financing by 6 months (estimated as 3 months from December 31, 2022) will decrease the fair value by approximately $0.9\u00a0million.
Subsequent to balance sheet date, on April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH. See Note 26 for additional details, including information related to an additional note issued by Gelesis to the Group after balance sheet date.
Fair Value Measurement and Classification
The fair value of financial instruments by category at December 31, 2022 and 2021:
2022 | |||||||
Carrying Amount | Fair Value | ||||||
Financial Assets | Financial Liabilities | Level 1 | Level 2 | Level 3 | Total | ||
Financial assets: | |||||||
Money Markets1,2 | 95,249 | \u2014 | 95,249 | \u2014 | \u2014 | 95,249 | |
Short-term investments1 | 200,229 | \u2014 | 200,229 | \u2014 | \u2014 | 200,229 | |
Note from associate | 16,501 | \u2014 | \u2014 | \u2014 | 16,501 | 16,501 | |
Investments held at fair value | 251,892 | \u2014 | 239,299 | \u2014 | 12,593 | 251,892 | |
Trade and other receivables3 | 11,867 | \u2014 | \u2014 | 11,867 | \u2014 | 11,867 | |
Total financial assets | 575,738 | \u2014 | 534,777 | 11,867 | 29,094 | 575,738 | |
Financial liabilities: | |||||||
Subsidiary warrant liability | \u2014 | 47 | \u2014 | \u2014 | 47 | 47 | |
Subsidiary preferred shares | \u2014 | 27,339 | \u2014 | \u2014 | 27,339 | 27,339 | |
Subsidiary notes payable | \u2014 | 2,345 | \u2014 | 2,097 | 248 | 2,345 | |
Share based liability awards | \u2014 | 5,932 | 4,396 | \u2014 | 1,537 | 5,932 | |
Total financial liabilities | \u2014 | 35,664 | 4,396 | 2,097 | 29,171 | 35,664 |
1\u00a0\u00a0\u00a0\u00a0Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade.
2\u00a0\u00a0\u00a0\u00a0Included within Cash and cash equivalents
3\u00a0\u00a0\u00a0\u00a0Outstanding receivables are owed primarily by government agencies and large corporations, virtually all of which are investment grade.
As of balance sheet date the long term loan book value (see Note 20) approximated its fair value due to its variable rate.
2021 | |||||||
Carrying Amount | Fair Value | ||||||
Financial Assets | Financial Liabilities | Level 1 | Level 2 | Level 3 | Total | ||
Financial assets: | |||||||
Money Markets1 | 432,649 | \u2014 | 432,649 | \u2014 | \u2014 | 432,649 | |
Short-term note from associate | 15,120 | \u2014 | \u2014 | \u2014 | 15,120 | 15,120 | |
Investments held at fair value2 | 493,888 | \u2014 | 254,355 | \u2014 | 239,533 | 493,888 | |
Trade and other receivables3 | 3,174 | \u2014 | \u2014 | 3,174 | \u2014 | 3,174 | |
Total financial assets | 944,832 | \u2014 | 687,005 | 3,174 | 254,653 | 944,832 | |
Financial liabilities: | |||||||
Subsidiary warrant liability | \u2014 | 6,787 | \u2014 | \u2014 | 6,787 | 6,787 | |
Subsidiary preferred shares | \u2014 | 174,017 | \u2014 | \u2014 | 174,017 | 174,017 | |
Subsidiary notes payable | \u2014 | 4,641 | \u2014 | 1,945 | 2,696 | 4,641 | |
Share based liability awards | \u2014 | 7,362 | 6,081 | \u2014 | 1,281 | 7,362 | |
Total financial liabilities | \u2014 | 192,808 | 6,081 | 1,945 | 184,781 | 192,808 |
1\u00a0\u00a0\u00a0\u00a0Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade. Included within Cash and cash equivalents
2\u00a0\u00a0\u00a0\u00a0Balance prior to share of associate loss allocated to long-term interest (please refer to Note 5).
Fair Value Process
For financial instruments measured at fair value under IFRS 9, the change in the fair value is reflected through profit and loss. Using the guidance in IFRS 13, the total business enterprise value and allocable equity of each entity being valued was determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market PWERM approach, discounted cash flow income approach, or hybrid approaches. The approaches, in order of strongest fair value evidence, are detailed as\u00a0follows:
Valuation Method | Description |
Market \u2013 Backsolve | The market backsolve approach benchmarks the original issue price (OIP) of the company\u2019s latest funding transaction as current value. |
Market/Asset \u2013 PWERM | Under a PWERM, the company value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise. An asset approach may be included as an expected future outcome within the PWERM method. Possible future outcomes can include IPO scenarios, potential SPAC transactions, merger and acquisition transactions as well as other similar exit transactions of the investee. |
Income Based \u2013 DCF | The income approach is used to estimate fair value based on the income streams, such as cash flows or earnings, that an asset or business can be expected to generate. |
As of December 31, 2022 and 2021, at each measurement date, the fair value of preferred shares and warrant liabilities, including embedded conversion rights that are not bifurcated, as well as investments held at fair value (that are not publicly traded), were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), Probability-Weighted Expected Return Method (\"PWERM\"), or Hybrid allocation framework.\u00a0The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\u2019s equity value, with exercise prices based on the liquidation preferences of the preferred stock.\u00a0 |
PWERM | Under a PWERM, share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise, as well as the rights of each share class. |
Hybrid | The hybrid method (\u201cHM\u201d) is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenarios occurrence, similar\u00a0to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more\u00a0of the scenarios. |
Valuation policies and procedures are regularly monitored by the Company\u2019s finance group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed on their issuance date and then on an annual basis for reasonableness and compliance with the fair value measurements guidance under IFRS. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument\u2019s valuation. |
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2022 and December 31, 2021, the loan in Follica and the financial instruments for Knode and Appeering did not contain embedded derivatives and therefore these instruments continue to be held at amortized cost. The notes payable consist of the following:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Loans | 2,097 | 1,945 |
Convertible notes | 248 | 2,696 |
Total subsidiary notes payable | 2,345 | 4,641 |
Loans
Convertible Notes outstanding were as follows:
Vedanta $000s | Knode $000s | Appeering $000s | Sonde $000s | Total $000s | |
January 1, 2021 | 25,000 | 89 | 134 | \u2014 | 25,223 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 2,215 | 2,215 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | 797 | 5 | 8 | 70 | 880 |
Conversion to subsidiary preferred shares | (25,797) | \u2014 | \u2014 | \u2014 | (25,797) |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 175 | 175 |
December 31, 2021 and January 1, 2022 | \u2014 | 94 | 141 | 2,461 | 2,696 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 393 | 393 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | \u2014 | 5 | 8 | 48 | 60 |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 502 | 502 |
Deconsolidation | \u2014 | \u2014 | \u2014 | (3,403) | (3,403) |
December 31, 2022 | \u2014 | 99 | 149 | \u2014 | 248 |
On December 30, 2020, Vedanta issued a $25.0\u00a0million convertible promissory note to an investor. The note bore interest at an annual rate of 6.0 percent and its maturity date was the first anniversary of the note. Prepayment of the note was not allowed and there was no conversion discount feature on the note. The note was mandatorily convertible in a Qualified equity financing and a Qualified Public Offering at the current price of the financing or offering, all as defined in the note purchase agreement. In addition, the note allowed for optional conversion immediately prior to a Non Qualified public offering, Non Qualified Equity financing, or a Corporate transaction and for a pay-out in the case of a change of control transaction. On July 19, 2021, upon the occurrence of Vedanta's Series D preferred share issuance that was considered to be a Qualified Equity Financing, the entire outstanding amount of the note, principal and interest, was converted into Series D preferred shares of Vedanta at the current price of the financing. For further details, please see Note 15.
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4.3 million, of which $2.2 million were issued to third party shareholders (and $2.1\u00a0million were issued to the Company and eliminated in consolidation). In addition, in March 2022 Sonde issued an additional amount of $0.9 million, of which $0.4 million were issued to third parties (and $0.5 million issued to PureTech and eliminated in consolidation). The notes bore interest at an annual rate of 6.0 percent and were to mature on the second anniversary of the issuance. The notes were to mandatorily convert in a Qualified Financing, as defined in the note purchase agreement, at a discount of 20.0 percent from the price per share in the Qualified Financing. In addition, the notes allowed for optional conversion concurrently with a discount of 20.0 percent from the price per share in the Non Qualified Equity Financing. Upon the completion of the Preferred B round of financing in Sonde on May 25, 2022, the Group lost control in Sonde and all convertible notes were derecognized as part of the deconsolidation \u2013 See Note 5.
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2022 and December 31, 2021, the loan in Follica and the financial instruments for Knode and Appeering did not contain embedded derivatives and therefore these instruments continue to be held at amortized cost. The notes payable consist of the following:
2022 $000s | 2021 $000s | |
As of December 31, | ||
Loans | 2,097 | 1,945 |
Convertible notes | 248 | 2,696 |
Total subsidiary notes payable | 2,345 | 4,641 |
Loans
Convertible Notes outstanding were as follows:
Vedanta $000s | Knode $000s | Appeering $000s | Sonde $000s | Total $000s | |
January 1, 2021 | 25,000 | 89 | 134 | \u2014 | 25,223 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 2,215 | 2,215 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | 797 | 5 | 8 | 70 | 880 |
Conversion to subsidiary preferred shares | (25,797) | \u2014 | \u2014 | \u2014 | (25,797) |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 175 | 175 |
December 31, 2021 and January 1, 2022 | \u2014 | 94 | 141 | 2,461 | 2,696 |
Gross principal \u2013 issuance of notes \u2013 financing\u00a0activity | \u2014 | \u2014 | \u2014 | 393 | 393 |
Accrued interest on convertible notes \u2013 finance\u00a0costs | \u2014 | 5 | 8 | 48 | 60 |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | \u2014 | 502 | 502 |
Deconsolidation | \u2014 | \u2014 | \u2014 | (3,403) | (3,403) |
December 31, 2022 | \u2014 | 99 | 149 | \u2014 | 248 |
On December 30, 2020, Vedanta issued a $25.0\u00a0million convertible promissory note to an investor. The note bore interest at an annual rate of 6.0 percent and its maturity date was the first anniversary of the note. Prepayment of the note was not allowed and there was no conversion discount feature on the note. The note was mandatorily convertible in a Qualified equity financing and a Qualified Public Offering at the current price of the financing or offering, all as defined in the note purchase agreement. In addition, the note allowed for optional conversion immediately prior to a Non Qualified public offering, Non Qualified Equity financing, or a Corporate transaction and for a pay-out in the case of a change of control transaction. On July 19, 2021, upon the occurrence of Vedanta's Series D preferred share issuance that was considered to be a Qualified Equity Financing, the entire outstanding amount of the note, principal and interest, was converted into Series D preferred shares of Vedanta at the current price of the financing. For further details, please see Note 15.
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4.3 million, of which $2.2 million were issued to third party shareholders (and $2.1\u00a0million were issued to the Company and eliminated in consolidation). In addition, in March 2022 Sonde issued an additional amount of $0.9 million, of which $0.4 million were issued to third parties (and $0.5 million issued to PureTech and eliminated in consolidation). The notes bore interest at an annual rate of 6.0 percent and were to mature on the second anniversary of the issuance. The notes were to mandatorily convert in a Qualified Financing, as defined in the note purchase agreement, at a discount of 20.0 percent from the price per share in the Qualified Financing. In addition, the notes allowed for optional conversion concurrently with a discount of 20.0 percent from the price per share in the Non Qualified Equity Financing. Upon the completion of the Preferred B round of financing in Sonde on May 25, 2022, the Group lost control in Sonde and all convertible notes were derecognized as part of the deconsolidation \u2013 See Note 5.
In September 2020, Vedanta entered into a $15.0\u00a0million loan and security agreement with Oxford Finance LLC. The loan is secured by Vedanta's assets, including equipment, inventory and intellectual property. The loan bears a floating interest rate of 7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.17 percent. The loan matures September 2025 and requires interest only payments prior to 2023. The loan also carries a final fee upon full repayment of 7.0 percent of the original principal, or $1.1\u00a0million. As part of the loan agreement, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030. The outstanding loan balance totaled approximately $15.4 million as of December 31, 2022.
The following table summarizes long-term loan activity for the years ended\u00a0December 31, 2022 and 2021:
Long-term loan | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 15,118 | 14,818 |
Accrued interest | 1,755 | 1,502 |
Interest paid | (1,436) | (1,201) |
Other | (38) | \u2014 |
Balance at December 31, | 15,400 | 15,118 |
The following table summarizes Vedanta's future principal payments for the long-term loan as of December 31, 2022:
Balance Type | 2023 | 2024 | 2025 | Total |
Principal | 5,156 | 5,625 | 4,219 | 15,000 |
Balance of accreted premium net of unamortized issuance costs | 400 | |||
Total | 15,400 |
The long-term loan is presented as follows in the Statement of Financial Position as of December 31, 2022 and 2021:\u00a0
Long-term loan | ||
2022 $000s | 2021 $000s | |
Current portion of Long-term loan | 5,156 | 857 |
Long-term loan | 10,244 | 14,261 |
Total Long-term loan | 15,400 | 15,118 |
During the year ended December 31, 2022, Sonde Health, Inc was deconsolidated and therefore transferred retroactively to\u00a0the Non-Controlled Founded Entity segment. See Note 5. Investments Held at Fair Value.
The Company has revised in the 2022 financial statements the prior period financial information related to the segmentation of NCI, to conform to the presentation as of and for the year ending December 31, 2022. Please refer to Note 4 \u201cSegment Information\u201d for further details regarding reportable segments.
The following table summarizes the changes in the equity classified non-controlling ownership interest in subsidiaries by\u00a0reportable segment:
Internal $000s | Controlled Founded Entities $000s | Non-Controlled Founded $000s | Parent Company & Other | Total | |
Balance at January 1, 2020 * | (8,682) | 1,465 | (11,016) | 593 | (17,639) |
Share of comprehensive loss | (191) | (905) | (306) | (15) | (1,417) |
Equity settled share-based payments | 305 | 2,395 | 122 | \u2014 | 2,822 |
Other | \u2014 | 11 | 19 | (6) | 24 |
Balance at December 31, 2020 and January 1, 2021 * | (8,567) | 2,966 | (11,181) | 574 | (16,209) |
Share of comprehensive loss | (96) | (1,634) | (436) | 15 | (2,151) |
NCI exercise of share-based awards in subsidiaries \u2013 change in NCI interest | \u2014 | (5,922) | \u2014 | \u2014 | (5,922) |
Equity settled share-based payments | (4) | 6,224 | 32 | \u2014 | 6,252 |
Acquisition of a subsidiary non controlling interest | 8,668 | \u2014 | \u2014 | \u2014 | 8,668 |
Other | \u2014 | \u2014 | \u2014 | (6) | (6) |
Balance at December 31, 2021 and January 1, 2022 | \u2014 | 1,634 | (11,585) | 583 | (9,368) |
Share of comprehensive income (loss) | \u2014 | 13,604 | (330) | 15 | 13,290 |
NCI exercise of share-based awards | \u2014 | (15,164) | \u2014 | \u2014 | (15,164) |
Deconsolidation of subsidiaries | \u2014 | \u2014 | 11,904 | \u2014 | 11,904 |
Equity settled share-based payments | \u2014 | 4,703 | 8 | \u2014 | 4,711 |
Other | \u2014 | \u2014 | 2 | (6) | (4) |
Balance as of December 31, 2022 | \u2014 | 4,778 | \u2014 | 592 | 5,369 |
*\u00a0\u00a0\u00a0\u00a0Revised to reclassify Sonde to the Non-controlled Founded Entities segment to comply with current period classification. See Note 4.
The following tables summarize the financial information related to the Group\u2019s subsidiaries with material non-controlling interests, aggregated for interests in similar entities, and before and after intra group eliminations.
2022 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations $000s | Total $000s |
Statement of Comprehensive Loss | ||||
Total revenue | \u2014 | 12,202 | \u2014 | 12,202 |
Income/(loss) for the year | \u2014 | 98,633 | 1,003 | 99,636 |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | \u2014 | 98,633 | 1,003 | 99,636 |
Statement of Financial Position | ||||
Total assets | \u2014 | 35,341 | (100) | 35,241 |
Total liabilities | \u2014 | 76,635 | (11,057) | 65,578 |
Net assets/(liabilities) | \u2014 | (41,294) | 10,957 | (30,336) |
As of December 31, 2022, Controlled Founded Entities with non-controlling interests primarily include Follica Incorporated, Entrega Inc., and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Follica Incorporated, Entrega Inc., and Vedanta Biosciences, Inc are 19.9 percent, 11.7 percent, and 12.2 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
2021 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations $000s | Total $000s |
Statement of Comprehensive Loss | ||||
Total revenue | \u2014 | 7,771 | \u2014 | 7,771 |
Income/(loss) for the year | \u2014 | (50,436) | 792 | (49,644) |
Other comprehensive income/(loss) | \u2014 | \u2014 | \u2014 | \u2014 |
Total comprehensive income/(loss) for the year | \u2014 | (50,436) | 792 | (49,644) |
Statement of Financial Position | ||||
Total assets | \u2014 | 66,279 | (161) | 66,118 |
Total liabilities | \u2014 | 228,856 | (10,755) | 218,101 |
Net assets/(liabilities) | \u2014 | (162,576) | 10,594 | (151,982) |
As of December 31, 2021, Controlled Founded Entities with non-controlling interests primarily include, Follica Incorporated, Sonde Health Inc., Entrega Inc. and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc are 19.9 percent, 11.7 percent, 6.2 percent and 3.7 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
2020 | ||||
For the year ended December 31 | Internal | Controlled Founded Entities | Intra-group eliminations | Total |
Statement of Comprehensive Loss | ||||
Total revenue | 3,267 | 1,957 | \u2014 | 5,224 |
Income/(loss) for the year | (2,407) | (53,535) | 1,073 | (54,869) |
Total comprehensive income/(loss) for the year | (2,407) | (53,535) | 1,073 | (54,869) |
As of December 31, 2020, Internal segment with non-controlling interests includes Alivio, Controlled Founded Entities with non-controlling interests primarily include, Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc. Ownership interests of the non-controlling interests in Alivio Therapeutics, Inc., Follica Incorporated, Sonde Health Inc., and Vedanta Biosciences, Inc are 8.1 percent, 19.9 percent, 4.5 percent and 0.4 percent, respectively. In addition, Non-controlling interests include the amounts recorded for subsidiary stock options, with the vast majority comprising of Vedanta stock options.
On June 11, 2021, PureTech acquired the remaining 17.1 percent of the minority non-controlling interests of Alivio (after exercise of all in the money stock options) increasing its ownership to 100.0 percent of Alivio. The consideration for such non controlling interests amounted to $1.2 million, to be paid in three equal installments, with the first installment of $0.4\u00a0million paid at the effective date of the transaction and two additional installment to be paid upon the occurrence of certain contingent events. The Group recorded a contingent consideration liability of $0.6 million at fair value for the two additional installments, resulting in a total acquisition cost of $1.0 million. The excess of the consideration paid over the book value of the non-controlling interest of approximately $9.6 million was recorded directly as a charge to shareholders\u2019 equity. The second installment of $0.4 million was paid in July 2021, upon the occurrence of the contingent event specified in the agreement. The contingent consideration liability is adjusted to fair value at the end of each reporting period with changes in fair value recorded in earnings. Changes in fair value of the aforementioned contingent consideration liability were not material. As of December 31, 2022, the remaining contingent liability was reduced to zero as the second contingent event did not occur.
On December 1, 2021, options holders in Entrega exercised options into shares of common stock, increasing the NCI interest\u00a0held from 0.2 percent to 11.7 percent. During 2021 option holders in Vedanta exercised options and increased the NCI interest to 3.7 percent. The exercise of the options resulted in an increase in the NCI share in Entrega's and Vedanta's shareholder's deficit of $5.9 million. The consideration paid by NCI ($0.1\u00a0million) together with the increase in NCI share in\u00a0Entrega's and Vedanta's shareholder deficit ( $5.9 million) amounted to $6.0 million and was recorded as a gain directly in\u00a0shareholders' equity.
Information regarding Trade and other payables was as follows:
As of December 31, | 2022 $000s | 2021 $000s |
Trade payables | 26,504 | 11,346 |
Accrued expenses | 24,518 | 17,309 |
Income tax payable | 57 | 57 |
Liability settled share based awards | 1,805 | 4,703 |
Other | 1,957 | 2,403 |
Total trade and other payables | 54,840 | 35,817 |
The activity related to the Group\u2019s right of use asset and lease liability for the years ended\u00a0December 31, 2022 and 2021\u00a0is\u00a0as\u00a0follows:
Right of use asset, net | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 17,166 | 20,098 |
Additions | 163 | 739 |
Tenant improvement \u2013 lease incentive | \u2014 | (733) |
Depreciation | (3,047) | (2,938) |
Balance at December 31, | 14,281 | 17,166 |
Total lease liability | ||
2022 $000s | 2021 $000s | |
Balance at January 1, | 32,990 | 35,348 |
Additions | 163 | 1,016 |
Cash paid for rent \u2013 principal \u2013 financing cash flow | (4,025) | (3,375) |
Cash paid for rent \u2013 interest | (1,982) | (2,181) |
Interest expense | 1,982 | 2,181 |
Balance at December 31, | 29,128 | 32,990 |
Depreciation of the right-of-use assets, which virtually all consist of leased real estate, is included in the General and administrative expenses and Research and development expenses line items in the Consolidated Statements of Comprehensive Income/(Loss). The Company recorded depreciation expense of $3.0 million, $2.9 million and $2.7 million for\u00a0the years ended\u00a0December 31, 2022, 2021 and 2020 respectively.
The following details the short term and long-term portion of the lease liability as of December 31, 2022 and 2021:
Total lease liability | ||
2022 $000s | 2021 $000s | |
Short-term Portion of Lease Liability | 4,972 | 3,950 |
Long-term Portion of Lease Liability | 24,155 | 29,040 |
Total Lease Liability | 29,128 | 32,990 |
2022 $000s | |
Less than one year | 6,673 |
One to two years | 6,763 |
Two to three years | 5,168 |
Three to four years | 4,419 |
Four to five years | 4,551 |
More than five years | 7,483 |
Total undiscounted lease maturities | 35,056 |
Interest | 5,928 |
Total lease liability | 29,128 |
Total lease receivable $000s | |
Short-term Portion of Lease Receivable | 450 |
Long-term Portion of Lease Receivable | 835 |
Total Lease Receivable | 1,285 |
2022 $000s | |
Less than one year | 513 |
One to two years | 523 |
Two to three years | 353 |
Total undiscounted lease receivable | 1,389 |
Unearned Finance income | 103 |
Net investment in the lease | 1,285 |
Capital Risk Management
The Group's capital and financial risk management policy is to maintain a strong capital base so as to support its strategic priorities, maintain investor, creditor and market confidence as well as sustain the future development of the business. The Group\u2019s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Group may issue new shares or incur new debt. The Group has some external debt and no material externally imposed capital requirements. The Group\u2019s share capital is clearly set out in Note 14.
Management continuously monitors the level of capital deployed and available for deployment in the Internal segment and at the corporate level as well as at Controlled Founded Entities. The Directors seek to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position.
The Group\u2019s Directors have overall responsibility for establishment and oversight of the Group's capital and risk management framework. The Group is exposed to certain risks through its normal course of operations. The Group\u2019s main objective in using financial instruments is to promote the development and commercialization of intellectual property through the raising and investing of funds for this purpose. The Group\u2019s policies in calculating the nature, amount and timing of investments are determined by planned future investment activity. Due to the nature of activities and with the aim to maintain the investors\u2019 funds as secure and protected, the Group\u2019s policy is to hold any excess funds in highly liquid and readily available financial instruments and maintain insignificant exposure to other financial risks.
The Group has exposure to the following risks arising from financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short term investments, and trade and other receivables. The Group held the following balances (not including the income tax receivable resulting from overpayment of income taxes, see Note 25):
2022 $000s | 2021 $000s | |
As of December 31 | ||
Cash and cash equivalents | 149,866 | 465,708 |
Short-term investments | 200,229 | \u2014 |
Trade and other receivables | 11,867 | 3,174 |
Total | 361,961 | 468,882 |
The Group invests its excess cash in U.S. Treasury Bills (presented as short-term investments), and money market accounts, which the Group believes are of high credit quality. Further the Group's cash and cash equivalents and short-term investments are held at diverse, investment-grade financial institutions.
The Group assesses the credit quality of customers on an ongoing basis. The credit quality of financial assets is assessed by historical and recent payment history, counterparty financial position, reference to credit ratings (if available) or to historical information about counterparty default rates. The Group does not have expected credit losses owing largely to a small number of counterparties and the high credit quality of most counterparties (primarily the US government and large funds with respect to grant income and large high credit quality corporations).
The aging of trade and other receivables that were not impaired at December 31 is as follows:
As of December 31 | 2022 $000s | 2021 $000s |
Not impaired | 11,867 | 3,174 |
Total | 11,867 | 3,174 |
With regard to the Note from associate, such note is presented at fair value which incorporates, among other factors, the credit risk of the counterparty. See Note 16 for details.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group actively manages its risk of a funds shortage by closely monitoring the maturity of its financial assets and liabilities and projected cash flows from operations, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group\u2019s reputation. Due to the nature of these financial liabilities, the funds are available on demand to provide optimal financial flexibility.
The table below summarizes the maturity profile of the Group\u2019s financial liabilities, including subsidiary preferred shares that have customary liquidation preferences, as of December 31, 2022 and 2021, based on contractual undiscounted payments:
As of December 31 | 2022 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total $000s* | |
Long-term loan (non-current + current) | 15,400 | 1,838 | 5,281 | 11,413 | 18,531 |
Subsidiary notes payable | 2,345 | 2,345 | \u2014 | \u2014 | 2,345 |
Trade and other payables | 54,840 | 54,840 | \u2014 | \u2014 | 54,840 |
Warrants2 | 47 | 47 | \u2014 | \u2014 | 47 |
Subsidiary preferred shares (Note 15)1 | 27,339 | 27,339 | \u2014 | \u2014 | 27,339 |
Total | 99,971 | 86,409 | 5,281 | 11,413 | 103,103 |
As of December 31 | 2021 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total $000s* | |
Long-term loan | 15,118 | 296 | 2,182 | 16,274 | 18,752 |
Subsidiary notes payable | 4,641 | 4,641 | \u2014 | \u2014 | 4,641 |
Trade and other payables | 35,817 | 35,817 | \u2014 | \u2014 | 35,817 |
Warrants2 | 6,787 | 6,787 | \u2014 | \u2014 | 6,787 |
Subsidiary preferred shares (Note 15)1 | 174,017 | 174,017 | \u2014 | \u2014 | 174,017 |
Total | 236,381 | 221,559 | 2,182 | 16,274 | 240,015 |
1\u00a0\u00a0\u00a0\u00a0Redeemable only upon a liquidation or Deemed liquidation event, as defined in the applicable shareholder documents.
2\u00a0\u00a0\u00a0\u00a0Warrants issued by subsidiaries to third parties to purchase preferred shares.
*\u00a0\u00a0\u00a0\u00a0Does not include payments in respect of lease obligations. For the contractual future payments related to lease obligations, see Note 21.
Interest Rate Sensitivity
As of December 31, 2022, the Group had cash and cash equivalents of $149.9\u00a0million, and short term investments of $200.2\u00a0million. The Group's exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. The Group has not entered into investments for trading or speculative purposes. Due to the conservative nature of the Group's investment portfolio, which is predicated on capital preservation and investments in short duration, high-quality U.S. Treasury Bills and related money market accounts, a change in interest rates would not have a material effect on the fair market value of the Group's portfolio, and therefore the Group does not expect operating results or cash flows to be significantly affected by changes in market interest rates.
Controlled Founded Entity Investments
The Group maintains investments in certain Controlled Founded Entities. The Group\u2019s investments in Controlled Founded Entities are eliminated as intercompany transactions upon financial consolidation. The Group is however exposed to a preferred share liability owing to the terms of existing preferred shares and the ownership of Controlled Founded Entities preferred shares by third parties. As discussed in Note 15, certain of the Group\u2019s subsidiaries have issued preferred shares that include the right to receive a payment in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, including in the event of \"deemed liquidation\" as defined in the incorporation documents of the entities, which shall be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. The liability of preferred shares is maintained at fair value through the profit and loss. The Group\u2019s strong cash position, budgeting and forecasting processes, as well as decision making and risk mitigation framework enable the Group to robustly monitor and support the business activities of the Controlled Founded Entities to ensure no exposure to dissolution or liquidation. Accordingly, the Group views exposure to 3rd party preferred share liability as low.
Non-Controlled Founded Entity Investments
The Group maintains certain investments in Non-Controlled Founded Entities which are deemed either as investments and accounted for as investments held at fair value or associates and accounted for under the equity method (please refer to Note 1). The Group's exposure to investments held at fair value is $251.9\u00a0million as of December 31, 2022, and the Group may or may not be able to realize the value in the future. Accordingly, the Group views the risk as high. The Group\u2019s exposure to investments in associates is limited to the carrying amount of the investment in an Associate. The Group is not exposed to further contractual obligations or contingent liabilities beyond the value of the investments. Accordingly, the Group does not view this as a high risk. As of December 31, 2022, Gelesis and Sonde are the only associates. The carrying amount of the investment in Gelesis and Sonde as associates was $9.1 million. Please refer to Notes 5, 6 and 16 for further information regarding the Group's exposure to Non-Controlled Founded Entity Investments.
Equity Price Risk
As of December 31, 2022, the Group held 1,054,464 common shares of Karuna, 2,671,800 common shares of Vor and 12,527,477 common shares of Akili. The fair value of these investments in Karuna, Vor and Akili was $239.0\u00a0million.
The investments in Karuna, Vor and Akili are exposed to fluctuations in the market price of these common shares. The effect of a 10.0 percent adverse change in the market price of Karuna, Vor and Akili common shares as of December 31, 2022, would have been a loss of approximately\u00a0$23.9\u00a0million, that would have been recognized as a component of Other income (expense) in the Consolidated Statements of Comprehensive Income/(Loss).
Foreign Exchange Risk
The Group maintains consolidated financial statements in the Group's functional currency, which is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.\u00a0Non-monetary\u00a0assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Such foreign currency gains or losses were not material for all reported periods. See Note 9.
Related Party Subleases and royalties
During 2019, PureTech executed a sublease agreement with a related party, Gelesis. Please refer to Note 21 for further details regarding the sublease.
The Group receives royalties from Gelesis on its product sales. Such royalties amounted to $509\u00a0thousand and $231\u00a0thousand for the years ended\u00a0December 31, 2022 and 2021, respectively and are presented in Contract revenue in the Consolidated Statements of Comprehensive Income/(Loss).
Key Management Personnel Compensation
Key management includes executive directors and members of the executive management team of the Group (not including compensation provided to non-executive directors). The key management personnel compensation of the Group was as follows for the years ended\u00a0December 31:
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Short-term employee benefits | 4,369 | 4,666 | 4,833 |
Share-based payment expense | 2,741 | 4,045 | 5,822 |
Total | 7,109 | 8,711 | 10,656 |
Short-term employee benefits include salaries, health care and other non-cash benefits. Share-based payments are generally subject to vesting terms over future periods.
For cash settlements of share based awards \u2013 see Note 8.
In addition the Company paid remuneration to non-executive directors in the amounts of $655\u00a0thousand, $605\u00a0thousand and $690\u00a0thousand for the years ended\u00a0December 31, 2022, 2021, and 2020, respectively. Also, the Company incurred $365 thousand and $161 thousand of stock based compensation expense for such non-executive directors for the years ended\u00a0December 31, 2022 and 2021, respectively. There is no stock based compensation expense for such non-executive directors for the year ended December 31, 2020.
During the years ended\u00a0December 31, 2022 and 2021, the Company incurred $51\u00a0thousand, and $181\u00a0thousand, respectively of expenses paid to related parties.
Convertible Notes Issued to Directors
Certain related parties of the Group have invested in convertible notes issued by the Group\u2019s subsidiaries. As of December 31, 2022 and 2021, the outstanding related party notes payable totaled $99\u00a0thousand and $94\u00a0thousand respectively, including principal and interest.
The notes issued to related parties bear interest rates, maturity dates, discounts and other contractual terms that are the same as those issued to outside investors during the same issuances, as described in Note 17.
Directors\u2019 and Senior Managers\u2019 Shareholdings and Share Incentive Awards
The Directors and senior managers hold beneficial interests in shares in the following businesses and sourcing companies as\u00a0at\u00a0December 31, 2022:
Business Name (Share Class) | Number of shares held as of December 31, 2022 | Number of options held as of December 31, 2022 | Number of RSUs held as of December 31, 2022 | Ownership | |
Directors: | |||||
Ms Daphne Zohar\u00b2 | Gelesis (Common) | 465,121 | 3,303,306 | 1,349,697 | 4.45% |
Dr Robert Langer | Entrega (Common) | 250,000 | 82,500 | \u2014 | 4.09% |
Dr Raju Kucherlapati | Enlight (Class B Common) | \u2014 | 30,000 | \u2014 | 3.00% |
Gelesis (Common) | 139,625 | \u2014 | 50,639 | 0.12% | |
Dr John LaMattina3 | Akili (Common) | 56,554 | \u2014 | \u2014 | 0.07% |
Gelesis (Common)3 | 395,035 | 37,129 | \u2014 | 0.38% | |
Vedanta Biosciences (Common) | 25,000 | \u2014 | \u2014 | 0.17% | |
Senior Managers: | |||||
Dr Bharatt Chowrira | Karuna (Common) | 5,000 | \u2014 | \u2014 | 0.01% |
Dr Joseph Bolen | Vor (Common) | \u2014 | 9,191 | \u2014 | 0.01% |
1\u00a0\u00a0\u00a0\u00a0Ownership interests as of December 31, 2022 are calculated on a diluted basis, including issued and outstanding shares, warrants and options (and written commitments to issue options) but excluding unallocated shares authorized to be issued pursuant to equity incentive plans and any shares issuable upon conversion of outstanding convertible promissory notes.
2\u00a0\u00a0\u00a0\u00a0Common shares, RSUs and options held by Yishai Zohar, who is the husband of Ms. Zohar. Ms. Zohar does not have any direct interest in the share capital of Gelesis. Ms. Zohar recuses herself from any and all material decisions with regard to Gelesis.
3\u00a0\u00a0\u00a0\u00a0Dr John and Ms Mary LaMattina hold 345,035 shares of common shares in Gelesis. Individually, Dr LaMattina holds 50,000 shares of Gelesis and convertible notes issued by\u00a0Appeering in the aggregate principal amount o $50,000.
Directors and senior managers hold 25,371,839 ordinary shares and 9.1 percent voting rights of the Company as of December 31, 2022. This amount excludes options to purchase 2,350,000 ordinary shares. This amount also excludes 6,448,899 shares, which are issuable based on the terms of performance based RSU awards granted to certain senior managers covering the financial years 2022, 2021 and 2020, and 172,056 shares, which are issuable to directors immediately prior to the Company's 2023 Annual General Meeting of Stockholders based on the terms of the RSU awards granted to non-executive directors in 2022. Such shares will be issued to such senior managers and non executive directors in future periods provided that performance and/or service conditions are met and certain of the shares will be withheld for payment of customary withholding\u00a0taxes.
Note from Associate
See Note 16 for details on the notes issued by Gelesis to the Company. The Company recognized finance income of 1.6 million with respect to interest and changes in fair value related to the notes.
Tax on the profit or loss for the year comprises current and deferred income tax. Tax is recognized in the Consolidated Statements of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
For the years ended\u00a0December 31, 2022, 2021 and 2020, the Group filed a consolidated U.S. federal income tax return which included all subsidiaries in which the Company owned greater than 80 percent of the vote and value. For the years ended\u00a0December 31, 2022, 2021 and 2020, the Group filed certain consolidated state income tax returns which included all subsidiaries in which the Company owned greater than 50 percent of the vote and value. The remaining subsidiaries file separate U.S. tax returns.
Amounts recognized in Consolidated Statements of Comprehensive Income/(Loss):
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Income/(loss) for the year | (37,065) | (62,709) | 4,568 |
Income tax expense/(benefit) | (55,719) | 3,756 | 14,401 |
Income/(loss) before taxes | (92,783) | (58,953) | 18,969 |
Recognized income tax expense/(benefit):
2022 $000s | 2021 $000s | 2020 $000s | |
As of December 31 | |||
Federal | 13,065 | 22,138 | 21,796 |
Foreign | \u2014 | \u2014 | \u2014 |
State | 1,336 | 109 | \u2014 |
Total current income tax expense/(benefit) | 14,401 | 22,247 | 21,796 |
Federal | (48,240) | (15,416) | (7,349) |
Foreign | \u2014 | \u2014 | \u2014 |
State | (21,880) | (3,075) | (46) |
Total deferred income tax expense/(benefit) | (70,120) | (18,491) | (7,395) |
Total income tax expense/(benefit), recognized | (55,719) | 3,756 | 14,401 |
The tax expense/(benefit) was $(55.7) million, $3.8 million and $14.4 million in 2022, 2021 and 2020 respectively. The increase in tax benefit for the year ended December 31, 2022 is primarily the result of the loss before taxes in entities in the U.S. Federal and Massachusetts consolidated return groups of the Company.
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the U.S. A reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:
2022 | 2021 | 2020 | ||||||
As of December 31 | $000s | % | $000s | % | $000s | % | ||
US federal statutory rate | (19,486) | 21.00 | (12,380) | 21.00 | 3,984 | 21.00 | ||
Effects of state tax rate in U.S. | (8,043) | 8.67 | (4,484) | 7.61 | 1,844 | 9.72 | ||
R&D and orphan drug tax credits | (6,876) | 7.41 | (5,056) | 8.58 | (5,642) | (29.74) | ||
Non deductible share based payment expenses | 788 | (0.85) | 555 | (0.94) | 327 | 1.73 | ||
Finance income/(costs) \u2013 fair value accounting | (28,783) | 31.02 | (2,017) | 3.42 | 919 | 4.84 | ||
Loss with respect to associate for which no deferred tax asset is recognized | 1,413 | (1.52) | 11,542 | (19.58) | \u2014 | \u2014 | ||
Change in blended state rate impact due to state apportionment change | (8,856) | 9.54 | \u2014 | \u2014 | \u2014 | \u2014 | ||
Transaction Costs | \u2014 | \u2014 | 309 | (0.52) | 361 | 1.91 | ||
Interest Expense | 69 | (0.07) | 217 | (0.37) | (2,258) | (11.91) | ||
Executive Compensation | 300 | (0.32) | 746 | (1.27) | 827 | 4.36 | ||
Recognition of deferred tax assets and tax benefits not previously recognized | (184) | 0.20 | (414) | 0.70 | \u2014 | \u2014 | ||
Current year losses for which no deferred tax asset is recognized | 17,287 | (18.63) | 14,375 | (24.38) | 13,948 | 73.53 | ||
Sonde Deconsolidation | (3,572) | 3.85 | \u2014 | \u2014 | \u2014 | \u2014 | ||
Other | 224 | (0.25) | 363 | (0.62) | 91 | 0.48 | ||
(55,719) | 60.05 | 3,756 | (6.37) | 14,401 | 75.92 |
The Company is also subject to taxation in the UK but to date no taxable income has been generated in the UK. Changes in corporate tax rates can change both the current tax expense (benefit) as well as the deferred tax expense (benefit).
Deferred Tax Assets and Liabilities
Deferred tax assets have been recognized in the U.S. jurisdiction in respect of the following items:
2022 $000s | 2021 $000s | |
As of December 31 | ||
Operating tax losses | 48,317 | 46,982 |
Tax credits | 11,101 | 10,673 |
Share-based payments | 8,423 | 7,265 |
Capitalized Research & Experimental Expenditures | 36,084 | \u2014 |
Investment in Associates | 13,036 | 11,542 |
Lease Liability | 7,143 | 8,969 |
Other temporary differences | 2,957 | 2,665 |
Deferred tax assets | 127,061 | 88,096 |
Investments held at fair value | (47,877) | (96,804) |
ROU asset | (3,519) | (4,667) |
Fixed assets | (2,348) | (3,547) |
Deferred tax liabilities | (53,744) | (105,018) |
Deferred tax assets (liabilities), net | 73,317 | (16,922) |
Deferred tax liabilities, net, recognized | (19,645) | (89,765) |
Deferred tax assets (liabilities), net, not recognized | 92,962 | 72,843 |
We have recognized deferred tax assets related to entities in the U.S. Federal and Massachusetts consolidated return groups due to future reversals of existing taxable temporary differences that will be sufficient to recover the net deferred tax assets. Our unrecognized deferred tax assets of $93.0 million are primarily related to tax credit, loss carryforwards and deductible temporary differences in subsidiaries outside the U.S. Federal and Massachusetts consolidated return groups. Such deferred tax assets have not been recognized because it is not probable that future taxable profits will be available to support their realizability. The unrecognized deferred tax assets, to a lesser extent, also relate to unrecognized deferred tax assets with respect to a portion of Section 174 capitalized research & experimental expenditures which became effective in 2022 under the Tax Cuts and Jobs Act and an investment in an associate since the Group does not believe it is probable that such tax benefits will be realized in the foreseeable future.
There was movement in deferred tax recognized, which impacted income tax expense by approximately $70.1 million benefit, primarily related to changes in the value of investments and Section 174 capitalized research & experimental expenditures. The Company sold a portion of its stock in Karuna and VOR during 2022 resulting in net taxable income and current tax expense of $14.4 million.
Unrecognized Deferred Tax Assets
Deferred tax assets have not been recognized in respect of the following carryforward losses, credits and temporary differences, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.
2022 $000s | 2021 $000s | ||||
As of December 31 | |||||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Deductible Temporary Difference | 132,145 | 33,544 | 59,925 | 16,224 | |
Tax Losses | 219,466 | 48,317 | 215,425 | 46,982 | |
Tax Credits | 11,101 | 11,101 | 9,636 | 9,636 | |
Total | 362,712 | 92,962 | 284,986 | 72,843 |
Tax Losses and tax credits carryforwards
Tax losses and tax credits for which no deferred tax asset was recognized
As of December 31 | 2022 $000s | 2021 $000s | |||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Tax losses expiring: | |||||
Within 10 years | 23,930 | 5,387 | 19,735 | 4,343 | |
More than 10 years | 42,822 | 10,509 | 47,937 | 11,611 | |
Available Indefinitely | 152,714 | 32,421 | 147,753 | 31,028 | |
Total | 219,466 | 48,317 | 215,425 | 46,982 | |
Tax credits expiring: | |||||
Within 10 years | 43 | 43 | 4 | 4 | |
More than 10 years | 11,058 | 11,058 | 9,632 | 9,632 | |
Available indefinitely | \u2014 | \u2014 | \u2014 | \u2014 | |
Total | 11,101 | 11,101 | 9,636 | 9,636 |
The Group had U.S. federal net operating losses carry forwards (\u201cNOLs\u201d) of approximately $219.5 million, $215.4 million and $169.7 million as of December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxable income. These NOLs expire through 2037 with the exception of $152.7 million which is not subject to expiration. The Group had U.S. Federal research and development tax credits of approximately $4.5 million, $3.9 million and $3.9 million as of December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxes that expire at various dates through 2042. The Group also had Federal Orphan Drug credits of approximately $6.1 million and $5.7 million as of December 31, 2022, and 2021, which are available to offset future taxes that expire at various dates through 2042. A portion of these Federal NOLs and credits can only be used to offset the profits from the Company\u2019s subsidiaries who file separate Federal tax returns. These\u00a0NOLs and credits are subject to review and possible adjustment by the Internal Revenue Service.
The Group had state net operating losses carry forwards (\u201cNOLs\u201d) of approximately $71.7 million, $27.9 million and $67.4\u00a0million for the years ended December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxable\u00a0income. These NOLs expire at various dates beginning in 2030. The Group had Massachusetts research and development tax credits of approximately $0.6 million, $1.3 million and $2.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, which are available to offset future taxes and expire at various dates through 2037. These NOLs and credits are subject to review and possible adjustment by the Massachusetts Department of Revenue.
Utilization of the NOLs and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company notes that a 382 analysis was performed through December 31, 2022. The results of this analysis concluded that certain net operating losses were subject to limitation under Section 382 of the Internal Revenue Code. None of the Company\u2019s tax attributes which are subject to a restrictive Section 382 limitation have been recognized in the financial statements.
Tax Balances
The current tax related balances are presented in the Statement of Financial Position as follows:
As of December 31 | 2022 $000s | 2021 $000s |
Income tax receivable \u2013 current | 10,040 | 4,514 |
Trade and Other Payables | (57) | (57) |
Uncertain Tax Positions
The Company has evaluated subsequent events after December 31, 2022, the date of issuance of the Consolidated Financial Statements, and has not identified any recordable or disclosable events not otherwise reported in these Consolidated Financial Statements or notes thereto, except for the following:
On March 1, 2023 Vedanta issued convertible debt to a syndicate of investors. The initial close of the debt was for proceeds of approximately $88.5 million. The note carries an interest rate of 9 percent per annum. The debt has various conversion triggers and the conversion price is established at the lower of 80% of the equity price of the last financing round, or a certain pre-money valuation cap established in the agreement. As part of the issuance of the debt, the convertible debt holders were granted representation in Vedanta's Board of Directors and PureTech lost control over Vedanta. On April 24, 2023, Vedanta closed the second tranche of the convertible debt for additional proceeds of $18.0 million, of which $5.0 million were invested by the Company.
On March 22, 2023, the Company entered into an agreement with Royalty Pharma according to which Royalty Pharma acquired an interset in the Group's royalty from Karuna's KarXT, with $100.0 million in cash up-front, and up to $400.0 million in\u00a0additional cash consideration, contingent on the achievement of certain regulatory and commercial milestones.
Gelesis
On February 21, 2023, the Company entered into a Note and Warrant Purchase agreement with Gelesis for $5.0 million cash consideration. As part of the agreement, the Company received a short term convertible senior secured note of $5.0 million and warrants to purchase additional shares of Gelesis' common stock. The note carries an interest rate of 12 percent per annum and holds an initial maturity date of July 31, 2023 unless the note is earlier converted or redeemed by the issuer.
On April 10, 2023, the NYSE commenced proceedings to delist the common stock of Gelesis from the NYSE due to Gelesis ceasing to meet certain conditions to trade on such stock exchange. Trading in the Gelesis\u2019s common stock was suspended immediately, and it was subsequently delisted from the NYSE. The common stock of Gelesis is currently available for trading in\u00a0the over-the-counter (\u201cOTC\u201d) market under the symbol GLSH.