Description of Business
PureTech Health plc (the \u201cParent\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 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom.
The Parent and its subsidiaries are together referred to as the \u201cGroup\u201d. The Parent company financial statements present financial information about the Parent as a separate entity and not about its Group.
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
Basis of Measurement
The Consolidated Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments held at fair value, investments in notes from associates and liabilities classified as fair value through the profit or loss.
Use of Judgments and Estimates
In preparing the 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:
\u2014Financial instruments valuations (see Note 18. Financial Instruments): In accordance with IFRS 9, the Group carries certain financial assets and financial liabilities at fair value, with changes in fair value through profit and loss (\"FVTPL\"). Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, appropriate discount rate, volatility, and term to exit.
Significant judgement is also applied in determining the following:
\u2014Whether financial instruments should be classified as liability or equity (see Note 16. Subsidiary Preferred Shares.). The judgement includes an assessment of whether the financial instruments 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 those obligations could be settled by the Group 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.
\u2014Whether the power to control investees exists (see Note 5. Investments Held at Fair Value and Note 6. Investments in Associates and accounting policy with regard to Subsidiaries below). The judgement includes an assessment of whether the Group 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 its own returns. The Group 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 Group, etc. If the power to control the investee exists, it consolidates the financial statements of such investee in the Consolidated Financial Statements of the Group. Upon issuance of new shares in an investee 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, revised 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. On March 1 2023 Vedanta was deconsolidated. Although the Group holds 47% of the voting rights and the other shareholders are widely dispersed, the Group does not have de facto control because the investor rights agreement stipulates that the relevant activities of Vedanta are directed by Vedanta's Board and the Group does not control Vedanta's Board decision making. Voting rights are not the dominant factor for directing Vedanta's relevant activities.
\u2014Whether the Group has significant influence over financial and operating policies of investees in order to determine if the Group should account for its investment as an associate based on IAS 28 or a financial instrument based on IFRS 9.\u00a0 (refer to Note 5. Investments Held at Fair Value and Note 6. Investments in Associates ). This judgement includes, among others, an assessment whether the Group has representation on the board of directors of the investee, whether the Group 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 Group and the investee.
\u2014Upon determining that the Group does have significant influence over the financial and operating policies of an investee, if the Group 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. This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Group and whether such financial instrument provides access to returns underlying an ownership interest.
\u2014When the Group 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 (\"LTI\") for the purposes of IAS 28. 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. After considering 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, the Group concluded that such investment was considered a long term interest.
\u2014In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement (refer to Note 17. Sale of Future Royalties Liability).
As of December 31, 2023, the Group had cash and cash equivalents of $191,081 and short-term investments of $136,062. Considering the Group\u2019s financial position as of December 31, 2023, and its principal risks and opportunities, the Group prepared a going concern analysis covering a period of 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 continues to maintain sufficient liquidity headroom and continues to comply with all financial obligations. The Board of Directors believe the Group and the Parent 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 Board of 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 Statements as of December 31, 2023 and 2022, and for each of the years ended\u00a0December 31, 2023, 2022 and 2021, comprises PureTech Health plc and its consolidated subsidiaries. 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. 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 board of directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
A list of all current and former subsidiaries organized with respect to classification as of December 31, 2023, and the Group\u2019s total voting percentage, based on outstanding voting common and preferred shares as of December 31, 2023, 2022 and 2021, 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 | ||||||||
2023 | 2022 | 2021 | ||||||
Subsidiary | Common | Preferred | Common | Preferred | Common | Preferred | ||
Subsidiary operating companies | ||||||||
Alivio Therapeutics, Inc.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
Entrega, Inc. (indirectly held through Enlight)2 | \u2014 | 77.3 | \u2014 | 77.3 | \u2014 | 77.3 | ||
PureTech LYT, Inc. (formerly Ariya Therapeutics, Inc.)2\u00a0 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 | ||
PureTech LYT 100, Inc.2 | \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 | ||
Deconsolidated former subsidiary operating\u00a0companies | ||||||||
Sonde Health, Inc.2,5 | \u2014 | 40.2 | \u2014 | 40.2 | \u2014 | 51.8 | ||
Akili Interactive Labs, Inc.2,6 | 14.6 | \u2014 | 14.7 | \u2014 | \u2014 | 26.7 | ||
Gelesis, Inc.1,2 | \u2014 | \u2014 | 22.8 | \u2014 | 4.8 | 19.7 | ||
Karuna Therapeutics, Inc.2,6 | 2.3 | \u2014 | 3.1 | \u2014 | 5.6 | \u2014 | ||
Vedanta Biosciences, Inc.2, 4 | \u2014 | 47.0 | \u2014 | 47.0 | \u2014 | 48.6 | ||
Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)2, 4 | \u2014 | 47.0 | \u2014 | 47.0 | \u2014 | 48.6 | ||
Vor Biopharma Inc.2,6 | 3.9 | \u2014 | 4.1 | \u2014 | 8.6 | \u2014 | ||
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)2 | 57.7 | 28.3 | 57.7 | 28.3 | 57.7 | 28.3 | ||
Follica, LLC 2 | 28.7 | 56.7 | 28.7 | 56.7 | 28.7 | 56.7 | ||
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.2 | \u2014 | 100.0 | \u2014 | 100.0 | \u2014 | 100.0 |
1\u00a0\u00a0\u00a0\u00a0On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under the United States bankruptcy code. See Note 6. Investments in Associates for details.
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\u00a0On March 1, 2023, the Group lost control over Vedanta and Vedanta was deconsolidated from the Group\u2019s financial statements, resulting in only the profits and losses generated by Vedanta through the deconsolidation date being included in the Group\u2019s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5. Investments Held at Fair Value for further details about the accounting for the investments in Vedanta subsequent to deconsolidation.
5\u00a0\u00a0\u00a0\u00a0On May 25, 2022, the Group 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. Investments Held at Fair Value and 6. Investments in Associates for further details about the accounting for the investments in Sonde subsequent to deconsolidation.
6\u00a0\u00a0\u00a0\u00a0See Notes 5. Investments Held at Fair Value and 6. Investments in Associates\u00a0 for additional discussion on the Group's investment held in Akili, Karuna and Vor.
7\u00a0\u00a0\u00a0\u00a0Follica became inactive during 2023.
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 resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The Group evaluates if it maintains significant influence over associates by assessing if the Group has the power to participate in the financial and operating policy decisions of the associate.
Application of the Equity Method to Associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated Financial Statements include the Group\u2019s share of the total comprehensive income or loss 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 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 adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 when equity method losses are applied against long-term interests. 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 long-term interests presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Sale of Future Royalties Liability
The Group accounts for the sale of future royalties liability as a financial liability, as it continues to hold the rights under the royalty bearing licensing agreement and has a contractual obligation to deliver cash to an investor for a portion of the royalty it receives. Interest on the sale of future royalties liability is recognized using the effective interest rate over the life of the related royalty stream.
The sale of future royalties liability and the related interest expense are based on the Group\u2019s current estimates of future royalties expected to be paid over the life of the arrangement. Forecasts are updated periodically as new data is obtained. Any increases, decreases or a shift in timing of estimated cash flows require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future contractual cash flows that are discounted at the liability\u2019s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
\u2014Those to be measured subsequently at fair value either through other comprehensive income \"FVOCI\", or through profit or loss \"FVTPL\", and
\u2014Those 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.
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. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments that are not providing access to returns underlying ownership interests and are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date.\u00a0 The\u00a0 Group 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. Investments Held at Fair Value.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statement 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, are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Cash and cash equivalents consist of demand deposits with banks and other financial institutions and highly liquid instruments with original maturities of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates their fair value.
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 interest 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 record any such expected lifetime losses related to the outstanding trade and other receivable balances. 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 primarily consist of trade and other payables, and preferred shares.
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 Statement of Comprehensive Income/(Loss) as applicable.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.
The majority of the Group\u2019s contract revenue is generated from licenses and services, some of which are part of collaboration arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group 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:
\u2014Identify 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 payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer\u2019s intent and ability to pay the promised consideration.
\u2014Identify 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.
\u2014Determine 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.
\u2014Allocate 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.
\u2014Recognize 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 Group\u2019s performance as the Group performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Group 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 when the license of intellectual property is the predominant item in the arrangement 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 Group classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Revenue
The Group recognizes grants from governmental agencies as grant revenue 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 Group will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Group evaluates the conditions of each grant as of each reporting date to ensure that the Group has reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant payment will be received as a result of meeting the necessary conditions.
The\u00a0 Group submits qualifying expenses for reimbursement after the Group has incurred the research and development expense. The Group records an unbilled receivable upon incurring such expenses. In cases in which the grant revenue 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 revenue is recognized in the Consolidated Statement of Comprehensive Income/(Loss) at the time in which the Group recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
The Consolidated Financial Statements are presented in United States dollars (\u201cUS dollars\u201d). The functional currency of all members of the Group is the U.S. dollar.\u00a0 The Group's share in foreign exchange differences in associates were reported in other comprehensive income/(loss).
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on remeasurement are recognized in the Consolidated Statement of Comprehensive Income/(Loss). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
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 Group's own equity shares.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.\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.\u00a0
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). The cost of IPR&D represents upfront payments as well as additional contingent payments based on development, regulatory and sales milestones related to certain license agreement where the Group licenses IP from a third party. These milestones are capitalized as the milestone is triggered. See Note 25. Commitments and Contingencies. 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 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 Group\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at least annually.
An impairment loss is recognized when an asset\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 Statement 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 Group 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. Investments in Associates 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.
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.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statement 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 Statement of Comprehensive Income/(Loss). As of balance sheet date, the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate for use in operations. These leases have lease terms of approximately 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. Right-of-use (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:
\u2014Leases with a term of 12 months or less and containing no purchase options; and
\u2014Leases 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.
Finance Income and Finance Costs
Finance income consists of interest income on funds invested in money market funds and U.S. treasuries. Finance income is recognized as it is earned. Finance costs consist mainly of loan, notes and lease liability interest expenses, interest expense due to accretion of and adjustment to sale of future royalties liability as well as 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 Statement 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 utilized. 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:
\u2014Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2014Level 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).
\u2014Level 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 Statement of Financial Position approximates their fair value because of the short maturities of these instruments.\u00a0
Operating Segments
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
Basis of Measurement
Use of Judgments and Estimates
In preparing the 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:
\u2014Financial instruments valuations (see Note 18. Financial Instruments): In accordance with IFRS 9, the Group carries certain financial assets and financial liabilities at fair value, with changes in fair value through profit and loss (\"FVTPL\"). Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, appropriate discount rate, volatility, and term to exit.
Significant judgement is also applied in determining the following:
\u2014Whether financial instruments should be classified as liability or equity (see Note 16. Subsidiary Preferred Shares.). The judgement includes an assessment of whether the financial instruments 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 those obligations could be settled by the Group 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.
\u2014Whether the power to control investees exists (see Note 5. Investments Held at Fair Value and Note 6. Investments in Associates and accounting policy with regard to Subsidiaries below). The judgement includes an assessment of whether the Group 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 its own returns. The Group 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 Group, etc. If the power to control the investee exists, it consolidates the financial statements of such investee in the Consolidated Financial Statements of the Group. Upon issuance of new shares in an investee 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, revised 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. On March 1 2023 Vedanta was deconsolidated. Although the Group holds 47% of the voting rights and the other shareholders are widely dispersed, the Group does not have de facto control because the investor rights agreement stipulates that the relevant activities of Vedanta are directed by Vedanta's Board and the Group does not control Vedanta's Board decision making. Voting rights are not the dominant factor for directing Vedanta's relevant activities.
\u2014Whether the Group has significant influence over financial and operating policies of investees in order to determine if the Group should account for its investment as an associate based on IAS 28 or a financial instrument based on IFRS 9.\u00a0 (refer to Note 5. Investments Held at Fair Value and Note 6. Investments in Associates ). This judgement includes, among others, an assessment whether the Group has representation on the board of directors of the investee, whether the Group 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 Group and the investee.
\u2014Upon determining that the Group does have significant influence over the financial and operating policies of an investee, if the Group 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. This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Group and whether such financial instrument provides access to returns underlying an ownership interest.
\u2014When the Group 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 (\"LTI\") for the purposes of IAS 28. 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. After considering 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, the Group concluded that such investment was considered a long term interest.
\u2014In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement (refer to Note 17. Sale of Future Royalties Liability).
Basis of consolidation
The Consolidated Financial Statements as of December 31, 2023 and 2022, and for each of the years ended\u00a0December 31, 2023, 2022 and 2021, comprises PureTech Health plc and its consolidated subsidiaries. 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. 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 board of directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
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 resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss).
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 resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The Group evaluates if it maintains significant influence over associates by assessing if the Group has the power to participate in the financial and operating policy decisions of the associate.
Application of the Equity Method to Associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated Financial Statements include the Group\u2019s share of the total comprehensive income or loss 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 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 adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 when equity method losses are applied against long-term interests. 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 long-term interests presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Application of the Equity Method to Associates
To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument 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 adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 when equity method losses are applied against long-term interests. 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 long-term interests 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:
\u2014Those to be measured subsequently at fair value either through other comprehensive income \"FVOCI\", or through profit or loss \"FVTPL\", and
\u2014Those 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.
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. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments that are not providing access to returns underlying ownership interests and are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date.\u00a0 The\u00a0 Group 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. Investments Held at Fair Value.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statement 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, are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Cash and cash equivalents consist of demand deposits with banks and other financial institutions and highly liquid instruments with original maturities of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates their fair value.
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 interest 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 record any such expected lifetime losses related to the outstanding trade and other receivable balances. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
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 record any such expected lifetime losses related to the outstanding trade and other receivable balances. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
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 record any such expected lifetime losses related to the outstanding trade and other receivable balances. 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 primarily consist of trade and other payables, and preferred shares.
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 arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group 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:
\u2014Identify 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 payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer\u2019s intent and ability to pay the promised consideration.
\u2014Identify 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.
\u2014Determine 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.
\u2014Allocate 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.
\u2014Recognize 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 Group\u2019s performance as the Group performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Group 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 when the license of intellectual property is the predominant item in the arrangement 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 Group classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
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 arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group 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:
\u2014Identify 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 payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer\u2019s intent and ability to pay the promised consideration.
\u2014Identify 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.
\u2014Determine 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.
\u2014Allocate 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.
\u2014Recognize 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 Group\u2019s performance as the Group performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Group 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 when the license of intellectual property is the predominant item in the arrangement 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 Group classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Revenue
The Group recognizes grants from governmental agencies as grant revenue 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 Group will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Group evaluates the conditions of each grant as of each reporting date to ensure that the Group has reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant payment will be received as a result of meeting the necessary conditions.
The\u00a0 Group submits qualifying expenses for reimbursement after the Group has incurred the research and development expense. The Group records an unbilled receivable upon incurring such expenses. In cases in which the grant revenue 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 revenue is recognized in the Consolidated Statement of Comprehensive Income/(Loss) at the time in which the Group recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
The Consolidated Financial Statements are presented in United States dollars (\u201cUS dollars\u201d). The functional currency of all members of the Group is the U.S. dollar.\u00a0 The Group's share in foreign exchange differences in associates were reported in other comprehensive income/(loss).
Foreign Currency
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 Group's own equity shares.
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 Group's own equity shares.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.\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.
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.
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.\u00a0
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). The cost of IPR&D represents upfront payments as well as additional contingent payments based on development, regulatory and sales milestones related to certain license agreement where the Group licenses IP from a third party. These milestones are capitalized as the milestone is triggered. See Note 25. Commitments and Contingencies. 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 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 Group\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at least annually.
An impairment loss is recognized when an asset\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 Statement of Comprehensive Income/(Loss).
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 Group\u2019s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at least annually.
An impairment loss is recognized when an asset\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 Statement of Comprehensive Income/(Loss).
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
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.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statement 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 Statement of Comprehensive Income/(Loss). As of balance sheet date, the Group has not capitalized any development costs.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statement 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 Statement of Comprehensive Income/(Loss). As of balance sheet date, the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate for use in operations. These leases have lease terms of approximately 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. Right-of-use (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:
\u2014Leases with a term of 12 months or less and containing no purchase options; and
\u2014Leases where the underlying asset has a value of less than $5,000.
Finance Income and Finance Costs
Finance income consists of interest income on funds invested in money market funds and U.S. treasuries. Finance income is recognized as it is earned. Finance costs consist mainly of loan, notes and lease liability interest expenses, interest expense due to accretion of and adjustment to sale of future royalties liability as well as 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 Statement 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 utilized. 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.
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 utilized. 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:
\u2014Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2014Level 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).
\u2014Level 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.
Operating Segments
The Group has applied the following amendments for the first time for its annual reporting period commencing January 1, 2023:
\u2014IFRS 17 Insurance Contracts\u00a0
\u2014Definition of Accounting Estimates (Amendments to IAS 8)
\u2014Deferred Tax related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)
The amendments listed above did not have any impact on the amounts recognized in prior and current periods and are not expected to significantly affect the future periods.
Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss) consists of the following:
For the years ended\u00a0December 31, | 2023 $ | 2022 $ | 2021 $ |
Contract revenue | 750 | 2,090 | 9,979 |
Grant revenue | 2,580 | 13,528 | 7,409 |
Total revenue | 3,330 | 15,618 | 17,388 |
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, | 2023 $ | 2022 $ | 2021 $ |
Transferred at a point in time \u2013 Licensing Income | \u2014 | 527 | 6,809 |
Transferred over time | 750 | 1,563 | 3,171 |
750 | 2,090 | 9,979 |
Customers over 10% of revenue | 2023 $ | 2022 $ | 2021 $ |
Customer A | 750 | 1,500 | 1,500 |
Customer B | \u2014 | \u2014 | 7,250 |
Customer C | \u2014 | 509 | \u2014 |
750 | 2,009 | 8,750 |
The Group has retroactively recast its fiscal year 2022 and 2021 results on the new basis for comparability.
The Wholly-Owned Programs segment is advancing Wholly-Owned Programs which are focused on treatments for patients with devastating diseases. The Wholly-Owned Programs segment is comprised of the technologies that are wholly-owned and will be advanced through with either the Group's funding or non-dilutive sources of financing. The operational management of the Wholly-Owned Programs segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development.
Controlled Founded Entities
The Controlled Founded Entities segment is comprised of the Group\u2019s consolidated operational subsidiaries as of December 31, 2023 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 entity.
The Group\u2019s entities that were determined not to meet the definition of an operating segment are included in the Parent Company and Other column to reconcile the information in this footnote to the financial statements. This column captures activities not directly attributable to the Group's operating segments and includes the activities of the Parent, corporate support functions and certain research and development support functions that are not directly attributable to a strategic business segment as well as the elimination of intercompany transactions. This column also captures the operating results for the deconsolidated entities through the date of deconsolidation (e.g. Vedanta in 2023 and Sonde in 2022) and accounting for the Group's holdings in Founded Entities for which control has been lost, which primarily represents: the activity associated with deconsolidating an entity when the Group no longer controls the entity (e.g. Vedanta in 2023 and Sonde in 2022), the gain or loss on the Group's investments accounted for at fair value (e.g. the Group's ownership stakes in Karuna, Vor and Akili) and the Group's net income or loss of associates accounted for using the equity method.
(The term \"Founded Entities\" refers to entities which the Company incorporated and announced the incorporation as a Founded Entity externally. It includes certain of the Company\u2019s wholly-owned subsidiaries which have been announced by the Company as Founded Entities, Controlled Founded Entities and deconsolidated Founded Entities.)
For the year ended December 31, 2023 | ||||
Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |
Contract revenue | \u2014 | 750 | \u2014 | 750 |
Grant revenue | 853 | \u2014 | 1,727 | 2,580 |
Total revenue | 853 | 750 | 1,727 | 3,330 |
General and administrative expenses | (14,020) | (562) | (38,713) | (53,295) |
Research and development expenses | (89,495) | (672) | (6,068) | (96,235) |
Total operating expense | (103,516) | (1,233) | (44,781) | (149,530) |
Operating income/(loss) | (102,662) | (483) | (43,054) | (146,199) |
Income/expenses not allocated to segments | ||||
Other income/(expense): | ||||
Gain on deconsolidation of subsidiary | 61,787 | |||
Gain/(loss) on investment held at fair value | 77,945 | |||
Realized loss on sale of investments | (122) | |||
Gain/(loss) on investment in notes from associates | (27,630) | |||
Other income/(expense) | (908) | |||
Total other income/(expense) | 111,072 | |||
Net finance income/(costs) | 5,078 | |||
Share of net income/(loss) of associates accounted for using the equity method | (6,055) | |||
Income/(loss) before taxes | (36,103) | |||
As of December 31,\u00a02023 | ||||
Available Funds | ||||
Cash and cash equivalents | 2,140 | 675 | 188,266 | 191,081 |
Short-term Investments | \u2014 | \u2014 | 136,062 | 136,062 |
Consolidated cash, cash equivalents and short-term investments | 2,140 | 675 | 324,328 | 327,143 |
For the year ended December 31, 2022 | ||||
Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |
Contract revenue | \u2014 | 1,500 | 590 | 2,090 |
Grant revenue | 2,826 | \u2014 | 10,702 | 13,528 |
Total revenue | 2,826 | 1,500 | 11,292 | 15,618 |
General and administrative expenses | (8,301) | (419) | (52,272) | (60,991) |
Research and development expenses | (116,054) | (1,051) | (35,328) | (152,433) |
Total Operating expenses | (124,355) | (1,470) | (87,600) | (213,425) |
Operating income/(loss) | (121,529) | 30 | (76,308) | (197,807) |
Income/expenses not allocated to segments | ||||
Other income/(expense): | ||||
Gain on deconsolidation | 27,251 | |||
Gain/(loss) on investment held at fair value | (32,060) | |||
Realized loss on sale of investments | (29,303) | |||
Other income/(expense) | 8,131 | |||
Total other income/(expense) | (25,981) | |||
Net finance income/(costs) | 138,924 | |||
Share of net income/(loss) of associate accounted for using the equity method | (27,749) | |||
Gain on dilution of ownership interest in associate | 28,220 | |||
Impairment of investment in associates | (8,390) | |||
Income/(loss) before taxes | (92,783) | |||
As of December 31, 2022 | ||||
Available Funds | ||||
Cash and cash equivalents | 7,306 | 823 | 141,737 | 149,866 |
Short-term Investments | \u2014 | \u2014 | 200,229 | 200,229 |
Consolidated cash, cash equivalents and short-term investments | 7,306 | 823 | 341,966 | 350,095 |
For the year ended December 31, 2021 | ||||
Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |
Contract revenue | 8,129 | 1,500 | 350 | 9,979 |
Grant revenue | 1,253 | \u2014 | 6,156 | 7,409 |
Total revenue | 9,382 | 1,500 | 6,506 | 17,388 |
General and administrative expenses | (8,673) | (365) | (48,161) | (57,199) |
Research and development expenses | (65,444) | (918) | (44,108) | (110,471) |
Total operating expense | (74,118) | (1,284) | (92,269) | (167,671) |
Operating income/(loss) | (64,736) | 216 | (85,763) | (150,282) |
Income/expenses not allocated to segments | ||||
Other income/(expense): | ||||
Gain/(loss) on investment held at fair value | 179,316 | |||
Realized loss on sale of investments | (20,925) | |||
Other income/(expense) | 1,592 | |||
Other income/(expense) | 159,983 | |||
Net finance income/(costs) | 5,050 | |||
Share of net income/(loss) of associate accounted for using the equity method | (73,703) | |||
Income/(loss) before taxes | (58,953) |
Investments held at fair value include both unlisted and listed securities held by the Group. These investments, which include interests in Akili, Vor, Karuna, Sonde, Vedanta, Gelesis 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. Activities related to such investments during the periods are shown below:
Investments held at fair value | $ |
Balance as of January 1, 2022 | 493,888 |
Investment in Sonde preferred shares - Sonde deconsolidation | 11,168 |
Sale of Karuna and Vor shares | (118,710) |
Loss realised on sale of investments as a result of written call option | (29,303) |
Investment in Akili common shares | 5,000 |
Gelesis Earn-out Shares received in the 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 and January 1, 2023 | 251,892 |
Investment in Vedanta preferred shares \u2013 Vedanta deconsolidation | 20,456 |
Investment in Gelesis 2023 Warrants | 1,121 |
Sale of Karuna shares | (33,309) |
Loss realised on sale of investments | (265) |
Gain \u2013 change in fair value through profit and loss | 77,945 |
Balance as of December 31, 2023\u00a0 | 317,841 |
On March 1, 2023, Vedanta issued convertible debt to a syndicate of investors. The Group did not participate in this round of financing. As part of the issuance of the debt, the convertible debt holders were granted representation on Vedanta's Board of Directors and the Group lost control over the Vedanta Board of Directors and the power to direct the relevant Vedanta activities. Consequently, Vedanta was deconsolidated on March 1, 2023 and its results of operations are included in the Consolidated Financial Statements through the date of deconsolidation.
Following deconsolidation, the Group has significant influence over Vedanta through its voting interest in Vedanta and its remaining representation on Vedanta's Board of Directors. However, the Group only holds convertible preferred shares in Vedanta that do not provide their holders 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. Under IFRS 9, the preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
Upon deconsolidation, the Group derecognized its assets, liabilities and non-controlling interest in respect of Vedanta and recorded its aforementioned investment in Vedanta at fair value. The deconsolidation resulted in a gain of $61,787. As of the date of deconsolidation, the investment in Vedanta convertible preferred shares held at fair value amounted to $20,456.
During the year ended December 31, 2023, the Group recognized a loss of $6,303 for the changes in the fair value of the investment in Vedanta that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Vedanta is $14,153 as of December 31, 2023.
Karuna
Karuna was deconsolidated in March 2019. During 2019, Karuna completed its IPO and the Group lost its significant influence in Karuna. The shares held in Karuna are accounted for as an investment held at fair value under IFRS 9.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118,000. On November 9, 2021, the Group sold an additional 750,000 common shares of Karuna for $100,125. As a result of the aforementioned sales, the Group recorded a loss of $20,925, attributable to blockage discount included in the sales price, in realized gain/(loss) on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss).
2022
On August 8, 2022, the Group sold 125,000 shares of Karuna common stock. In addition, the Group 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 Group from all aforementioned transactions amounted to\u00a0 $115,457, net of transaction fees. As a result of the aforementioned sales, the Group recorded a loss of $29,303, attributable to the exercise of the aforementioned call options, in\u00a0realized gain/(loss) on sale of investment within the Consolidated Statement of Comprehensive Income/(Loss).
2023
During the three months ended December 31, 2023, the Group sold 167,579 shares of Karuna common stock with aggregate proceeds of $33,309, net of transaction fees.
During the years ended\u00a0December 31, 2023, 2022, and 2021 the Group recorded gains of $107,079, $134,952, $109,987, respectively for the changes in the fair value of the Karuna investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2023, the Group held\u00a0 886,885 shares or 2.3 percent of total outstanding Karuna common stock. In December 2023, Karuna entered into a definitive merger agreement with Bristol Myers Squibb (\"BMS\") under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024. See Note 28. Subsequent Events. The fair value of the Group\u2019s investment in Karuna is $280,708 as of December 31, 2023.\u00a0
Vor
Vor was deconsolidated in February 2019. As the Group did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group 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).
2021
On January 8, 2021, the Group participated in the second closing of Vor\u2019s Series B preferred share financing. For consideration of $500, the Group received an additional 961,538 Series B preferred shares.
On February 9, 2021, Vor closed its initial public offering (the \"IPO\") of 9,828,017 shares of its common stock at a price of $18.00 per share. Subsequent to the closing, the Group held 3,207,200 shares of Vor common stock, representing 8.6 percent of Vor common stock.
2022
In August and December 2022, the Group sold an aggregate of 535,400 shares of Vor common stock for aggregate proceeds of $3,253.
During the years ended\u00a0December 31, 2023,\u00a0 2022 and 2021, the Group recognized a loss of $11,756, a loss of $16,247, and a gain of $3,903, respectively, for the changes in the fair value of the investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Vor is $6,012 as of December 31, 2023.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis was accounted for under the equity method, while the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, with changes to the fair value of the instruments recorded through the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 6. Investments in Associates for information regarding the Group's investment in Gelesis as an associate.
2021
During the year ended December 31, 2021, as the equity method based investment in Gelesis was reduced to zero previously, the Group allocated a portion of its share in the net loss in Gelesis of $73,703, 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 the Group, 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 \"Gelesis Earn-out Shares\"). In addition, the Group invested $15,000 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 $4,961, as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6. Investments in Associates). 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 and warrants through the date of the exchange upon which the preferred shares and warrants were derecognized and recorded as an additional investment in Gelesis equity interest. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value were reclassified to include within the equity method investment in Gelesis and were offset against the gain on dilution of interest.
As part of the aforementioned exchange, the Group received 4,526,622 Gelesis Earn-out Shares, which were valued on the date of the exchange at $14,214. The Group accounted for such Gelesis Earn-out Shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss.
2023
In February and May 2023, as part of Gelesis' issuance of senior secured promissory notes to the Group, Gelesis also issued to the Group (i) warrants to purchase 23,688,047 shares of Gelesis common stock with an exercise price of $0.2744 per share\u00a0 (ii) warrants to purchase 192,307,692 shares of Gelesis common stock at an exercise price of $0.0182 per share and (iii) warrants to purchase 43,133,803 shares of Gelesis common stock at an exercise price of $0.0142 per share. These warrants expire five years after issuance and are collectively referred to as the Gelesis 2023 Warrants.
The Gelesis 2023 Warrants were recorded at their initial fair value of $1,121 and then subsequently re-measured to fair value through the profit and loss. As of December 31, 2023, the fair value of the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023.\u00a0
During the years ended\u00a0December 31, 2023,\u00a0 2022 and 2021, the Group recognized a loss of $1,264, a loss of\u00a0 $18,476 and a gain of $34,566, respectively, related to the change in the fair value of these instruments that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing, which resulted in the Group losing control over Sonde and the deconsolidation of Sonde. Therefore, the results of operations of Sonde are included in the Consolidated Financial Statements through the date of deconsolidation.
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 $27,251. As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11,168.
Following deconsolidation, the Group had significant influence in Sonde through its 48.2% 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 have the same terms as common stock and 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 convertible Preferred A-2 and B shares 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. Under IFRS 9, the A-2 and B preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
During the years ended December 31, 2023 and 2022, the Group recognized a loss of $994, and a gain of $235, respectively, for the changes in the fair value of the investment in Sonde that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Sonde is $10,408 as of December 31, 2023.
Akili
Akili was deconsolidated in 2018. At time of deconsolidation, as the Group did not hold common shares in Akili and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and changes to the fair value of the preferred shares were recorded through the Consolidated Statement of Comprehensive Income/(Loss), in accordance with IFRS 9.
On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110,000 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.
On August 19, 2022, Akili Interactive merged with Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company.\u00a0 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 Group 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 Group purchased 500,000 shares for a total consideration of $5,000. Following the closing of the aforementioned transactions, the Group holds 12,527,477 shares of the combined entity and 1,433,914 Akili Earn-out Shares, with fair value amounted to $6,422 as of December 31, 2023.
Investments held at fair value include both unlisted and listed securities held by the Group. These investments, which include interests in Akili, Vor, Karuna, Sonde, Vedanta, Gelesis 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. Activities related to such investments during the periods are shown below:
Investments held at fair value | $ |
Balance as of January 1, 2022 | 493,888 |
Investment in Sonde preferred shares - Sonde deconsolidation | 11,168 |
Sale of Karuna and Vor shares | (118,710) |
Loss realised on sale of investments as a result of written call option | (29,303) |
Investment in Akili common shares | 5,000 |
Gelesis Earn-out Shares received in the 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 and January 1, 2023 | 251,892 |
Investment in Vedanta preferred shares \u2013 Vedanta deconsolidation | 20,456 |
Investment in Gelesis 2023 Warrants | 1,121 |
Sale of Karuna shares | (33,309) |
Loss realised on sale of investments | (265) |
Gain \u2013 change in fair value through profit and loss | 77,945 |
Balance as of December 31, 2023\u00a0 | 317,841 |
On March 1, 2023, Vedanta issued convertible debt to a syndicate of investors. The Group did not participate in this round of financing. As part of the issuance of the debt, the convertible debt holders were granted representation on Vedanta's Board of Directors and the Group lost control over the Vedanta Board of Directors and the power to direct the relevant Vedanta activities. Consequently, Vedanta was deconsolidated on March 1, 2023 and its results of operations are included in the Consolidated Financial Statements through the date of deconsolidation.
Following deconsolidation, the Group has significant influence over Vedanta through its voting interest in Vedanta and its remaining representation on Vedanta's Board of Directors. However, the Group only holds convertible preferred shares in Vedanta that do not provide their holders 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. Under IFRS 9, the preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
Upon deconsolidation, the Group derecognized its assets, liabilities and non-controlling interest in respect of Vedanta and recorded its aforementioned investment in Vedanta at fair value. The deconsolidation resulted in a gain of $61,787. As of the date of deconsolidation, the investment in Vedanta convertible preferred shares held at fair value amounted to $20,456.
During the year ended December 31, 2023, the Group recognized a loss of $6,303 for the changes in the fair value of the investment in Vedanta that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Vedanta is $14,153 as of December 31, 2023.
Karuna
Karuna was deconsolidated in March 2019. During 2019, Karuna completed its IPO and the Group lost its significant influence in Karuna. The shares held in Karuna are accounted for as an investment held at fair value under IFRS 9.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118,000. On November 9, 2021, the Group sold an additional 750,000 common shares of Karuna for $100,125. As a result of the aforementioned sales, the Group recorded a loss of $20,925, attributable to blockage discount included in the sales price, in realized gain/(loss) on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss).
2022
On August 8, 2022, the Group sold 125,000 shares of Karuna common stock. In addition, the Group 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 Group from all aforementioned transactions amounted to\u00a0 $115,457, net of transaction fees. As a result of the aforementioned sales, the Group recorded a loss of $29,303, attributable to the exercise of the aforementioned call options, in\u00a0realized gain/(loss) on sale of investment within the Consolidated Statement of Comprehensive Income/(Loss).
2023
During the three months ended December 31, 2023, the Group sold 167,579 shares of Karuna common stock with aggregate proceeds of $33,309, net of transaction fees.
During the years ended\u00a0December 31, 2023, 2022, and 2021 the Group recorded gains of $107,079, $134,952, $109,987, respectively for the changes in the fair value of the Karuna investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2023, the Group held\u00a0 886,885 shares or 2.3 percent of total outstanding Karuna common stock. In December 2023, Karuna entered into a definitive merger agreement with Bristol Myers Squibb (\"BMS\") under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024. See Note 28. Subsequent Events. The fair value of the Group\u2019s investment in Karuna is $280,708 as of December 31, 2023.\u00a0
Vor
Vor was deconsolidated in February 2019. As the Group did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group 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).
2021
On January 8, 2021, the Group participated in the second closing of Vor\u2019s Series B preferred share financing. For consideration of $500, the Group received an additional 961,538 Series B preferred shares.
On February 9, 2021, Vor closed its initial public offering (the \"IPO\") of 9,828,017 shares of its common stock at a price of $18.00 per share. Subsequent to the closing, the Group held 3,207,200 shares of Vor common stock, representing 8.6 percent of Vor common stock.
2022
In August and December 2022, the Group sold an aggregate of 535,400 shares of Vor common stock for aggregate proceeds of $3,253.
During the years ended\u00a0December 31, 2023,\u00a0 2022 and 2021, the Group recognized a loss of $11,756, a loss of $16,247, and a gain of $3,903, respectively, for the changes in the fair value of the investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Vor is $6,012 as of December 31, 2023.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis was accounted for under the equity method, while the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, with changes to the fair value of the instruments recorded through the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 6. Investments in Associates for information regarding the Group's investment in Gelesis as an associate.
2021
During the year ended December 31, 2021, as the equity method based investment in Gelesis was reduced to zero previously, the Group allocated a portion of its share in the net loss in Gelesis of $73,703, 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 the Group, 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 \"Gelesis Earn-out Shares\"). In addition, the Group invested $15,000 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 $4,961, as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6. Investments in Associates). 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 and warrants through the date of the exchange upon which the preferred shares and warrants were derecognized and recorded as an additional investment in Gelesis equity interest. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value were reclassified to include within the equity method investment in Gelesis and were offset against the gain on dilution of interest.
As part of the aforementioned exchange, the Group received 4,526,622 Gelesis Earn-out Shares, which were valued on the date of the exchange at $14,214. The Group accounted for such Gelesis Earn-out Shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss.
2023
In February and May 2023, as part of Gelesis' issuance of senior secured promissory notes to the Group, Gelesis also issued to the Group (i) warrants to purchase 23,688,047 shares of Gelesis common stock with an exercise price of $0.2744 per share\u00a0 (ii) warrants to purchase 192,307,692 shares of Gelesis common stock at an exercise price of $0.0182 per share and (iii) warrants to purchase 43,133,803 shares of Gelesis common stock at an exercise price of $0.0142 per share. These warrants expire five years after issuance and are collectively referred to as the Gelesis 2023 Warrants.
The Gelesis 2023 Warrants were recorded at their initial fair value of $1,121 and then subsequently re-measured to fair value through the profit and loss. As of December 31, 2023, the fair value of the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023.\u00a0
During the years ended\u00a0December 31, 2023,\u00a0 2022 and 2021, the Group recognized a loss of $1,264, a loss of\u00a0 $18,476 and a gain of $34,566, respectively, related to the change in the fair value of these instruments that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing, which resulted in the Group losing control over Sonde and the deconsolidation of Sonde. Therefore, the results of operations of Sonde are included in the Consolidated Financial Statements through the date of deconsolidation.
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 $27,251. As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11,168.
Following deconsolidation, the Group had significant influence in Sonde through its 48.2% 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 have the same terms as common stock and 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 convertible Preferred A-2 and B shares 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. Under IFRS 9, the A-2 and B preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
During the years ended December 31, 2023 and 2022, the Group recognized a loss of $994, and a gain of $235, respectively, for the changes in the fair value of the investment in Sonde that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group\u2019s investment in Sonde is $10,408 as of December 31, 2023.
Akili
Akili was deconsolidated in 2018. At time of deconsolidation, as the Group did not hold common shares in Akili and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and changes to the fair value of the preferred shares were recorded through the Consolidated Statement of Comprehensive Income/(Loss), in accordance with IFRS 9.
On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110,000 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.
On August 19, 2022, Akili Interactive merged with Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company.\u00a0 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 Group 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 Group purchased 500,000 shares for a total consideration of $5,000. Following the closing of the aforementioned transactions, the Group holds 12,527,477 shares of the combined entity and 1,433,914 Akili Earn-out Shares, with fair value amounted to $6,422 as of December 31, 2023.
Gelesis
Gelesis was founded by the Group 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. Upon deconsolidation, the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 Financial Instruments and were treated as financial assets held at fair value and the investment in common shares of Gelesis was subject to IAS 28 Investment in Associates as the Group had significant influence over Gelesis.
2021
Due to the Group's share in the losses of Gelesis, in 2020, the Group's investment in Gelesis 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 Group 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, 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 $38,101, which included $709 of unrecognized other comprehensive loss.
During 2021, due to exercise of stock options into common shares in Gelesis, the Group's equity interest in Gelesis was reduced from 47.9 percent at December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting from the issuance of shares to third parties and the resulting reduction in the Group's share in the accumulated deficit of Gelesis under the equity method was fully offset by the unrecognized equity method losses.
Backstop agreement \u2013 2022 and 2021
On December 30, 2021, the Group signed a Backstop agreement with Capstar and had committed to acquire Capstar class A common shares at $10 per share immediately prior to the closing of the business combination between Gelesis and Capstar, in case, the Available Funds, as defined in the agreement, were less than $15,000. According to the Backstop agreement, if the Group had to acquire any shares under the agreement, the Group would receive an additional 1,322,500 class A common shares of Capstar at no additional consideration.
The Group 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 $11,200 and transaction price of zero on the effective date of the Backstop agreement and as such was initially recorded at zero. The deferred gain was amortized 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 $10,400 and $800, respectively, for the amortization of the deferred gain. During the year ended December 31, 2022, the Group recognized a loss of $2,776 in respect of the decrease in the fair value of the derivative until the settlement date, resulting in a net gain of $7,624 recorded during the year ended December 31, 2022 in respect of the Backstop agreement. The gain was included in other Income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the derivative on the settlement date in the amount of $8,424 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 $4,961 and received an additional 1,322,500 class A common shares of Capstar for no additional consideration.
2022
Share exchange \u2013 Capstar
On January 13, 2022, Gelesis completed its business combination with Capstar. As\u00a0part of the business combination, all shares in Gelesis, common and preferred, including the shares held by the Group, 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 (the \"Gelesis Earn-out Shares\"). In addition, the Group invested $15,000 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 $4,961, 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, the Group 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 the Group's significant equity holding and voting interest in Gelesis, the Group continued to maintain significant influence in Gelesis and as such continued 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), the earn-out shares received in Gelesis (see Note 5. Investments Held at Fair Value) and the offset of previously unrecognized equity method losses, the net gain recorded on the dilution of interest amounted to $28,255.
Impairment
Following Gelesis\u2019 decline in its market price in 2022 and its lack of liquidity, the Group recorded an impairment loss of $8,390 as of December 31, 2022 in respect of its investment in Gelesis. The recoverable amount of the investment in Gelesis was\u00a0$4,910 as of December 31, 2022, which was determined based on fair value less costs to sell (which 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 associates.
2023
During the year ended December 31, 2023, the Group entered into agreements with Gelesis to purchase senior secured convertible promissory notes and warrants for shares of Gelesis common stock\u00a0 (see Note 7. Investment in Notes from Associates). The warrants to purchase shares of Gelesis common stock represented potential voting rights to the Group and it is therefore necessary to consider whether they were substantive. If these potential voting rights were substantive and the Group had the practical ability to exercise the rights and take control of greater than 50% of Gelesis common stock, the Group would be required to consolidate Gelesis under the accounting standards.
In February 2023, the Group obtained warrants to purchase 23,688,047 shares of Gelesis common stock (the \u201cFebruary Warrants\u201d) at an exercise price of $0.2744 per share. The exercise of the February Warrants was subject to the approval of the Gelesis stockholders until May 1, 2023. On May 1, 2023, stockholder approval was no longer required for the Group to exercise the February Warrants. The potential voting rights associated with the February Warrants were not substantive as the exercise price of the February Warrants was at a significant premium to the fair value of the Gelesis common stock.
In May 2023, the Group obtained warrants to purchase 235,441,495 shares of Gelesis common stock (the \u201cMay Warrants\u201d). The May Warrants were exercisable at the option of the Group and had an exercise price of either $0.0182 or $0.0142. The May Warrants were substantive as the Group would have benefited from exercising such warrants since their exercise price was at the money or at an insignificant premium over the fair value of the Gelesis common stock. However, that benefit from exercising the May Warrants only existed for a short period of time because in June 2023, the potential voting rights associated with the May Warrants were impacted by the terms and conditions of the Merger Agreement as described below and were no longer substantive.
In October 2023, the Group terminated the Merger Agreement with Gelesis and the potential voting rights associated with the May Warrants were not substantive. Also, in October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. A Chapter 7 trustee has been appointed by the Bankruptcy Court who has control over the assets and liabilities of Gelesis, effectively eliminating the authority and powers of the Board of Directors of Gelesis and its executive officers to act on behalf of Gelesis. The assets of Gelesis will be liquidated and Gelesis no longer has any officers or employees. The Group ceased accounting for Gelesis as an equity method investment as it no longer had significant influence in Gelesis. During the year ended December 31, 2023, the Group recorded $4,910 as its share in the losses of Gelesis and the Group\u2019s balance in this equity method investment was zero as of December 31, 2023.
Merger Agreement
On June 12, 2023, PureTech Health LLC and Caviar Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of PureTech (\u201cMerger Sub\u201d), entered into an agreement (the \"Merger Agreement\"), pursuant to which Gelesis would merge with and into Merger Sub, with Merger Sub continuing as the surviving company ( the \u201cMerger\u201d). If the Merger had been completed, PureTech would have acquired all issued and outstanding shares of common stock of Gelesis not otherwise held by PureTech, and Gelesis would have become an indirect wholly-owned subsidiary of PureTech.\u00a0 On October 12, 2023, the Group terminated the Merger Agreement.
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.\u00a0
Following deconsolidation, the Group has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group's voting interest at date of deconsolidation and as of December 31, 2022 was 48.2% and 40.17%, respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value.
The fair value of the Preferred A-1 shares on the date of deconsolidation amounted to $7,716, which is the initial value of the equity method investment in Sonde.
During the years ended\u00a0December 31, 2023 and 2022, the Group recorded losses of\u00a0 $1,052\u00a0 and\u00a0 $3,443, respectively, related to Sonde's equity method of accounting.\u00a0 As of December 31, 2023, the Sonde equity method investment has a balance of $3,185.
The following table summarizes the activity related to the investment in associates balance for the years ended\u00a0December 31, 2023 and 2022.
Investment in Associates | $ |
As of January 1, 2022 | \u2014 |
Cash investment in associates | 19,961 |
Additional investment as a result of settling the Backstop agreement (see above) | 8,424 |
Gain on dilution of interest in associate (*) | 13,793 |
Investment in Sonde - deconsolidation | 7,680 |
Share in net loss of associates | (27,749) |
Reversal of equity method losses recorded against LTI (due to decrease in the fair value of such LTI): | (4,406) |
Share in other comprehensive loss of associates | (166) |
Impairment | (8,390) |
As of December 31, 2022 and January 1, 2023 | 9,147 |
Share in net loss of associates | (6,055) |
Share in other comprehensive income of associates | 92 |
As of December 31, 2023 | 3,185 |
*\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 of December 31, 2022 and for the years ended December 31, 2022 and 2021, 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 Group\u2019s interest in Gelesis. As of December 31, 2023, the Group\u2019s investment in Gelesis is $0 and Gelesis does not represent a significant equity method investment.\u00a0 As a result, such a disclosure for Gelesis is not presented for the year ended December 31, 2023.\u00a0
2022 $ | ||
As of and for the year ended December 31, | ||
Percentage ownership interest | 22.5% | |
Non-current assets | 333,040 | |
Current assets | 23,495 | |
Non-current liabilities | (99,053) | |
Current liabilities | (80,010) | |
Non-controlling interests and options issued to third parties | (46,204) | |
Net assets (deficit) attributable to shareholders of Gelesis Inc. | 131,268 | |
Group's share of net assets (net deficit) | 29,504 | |
Goodwill | 3,858 | |
Impairment | (28,452) | |
Investment in associates | 4,910 | |
2022 $ | 2021 $ | |
Revenue | 25,767 | 11,185 |
Loss from continuing operations (100%) | (111,567) | (271,430) |
Total comprehensive loss (100%) | (112,285) | (273,005) |
Group's share in net losses - limited to net investment amount (*) | (24,306) | (73,703) |
Group's share of total comprehensive loss - limited to net investment amount | (24,472) | (73,703) |
Gelesis
Unsecured Promissory Note
On July 27, 2022, the Group, as a lender, entered into an unsecured promissory note (the \"Junior Note\") with Gelesis, as a borrower, in the amount of $15,000. The Junior Note bears an annual interest rate of 15% per annum. The maturity date of the Junior Note is the earlier of December 31, 2023 or five business days following the consummation of a qualified financing by Gelesis. Based on the terms of the Junior Note, due to the option to convert to a variable amount of shares at the time of default, the Junior Note is required to be measured at fair value with changes in fair value recorded through profit and loss.
As of December 31, 2023 and December 31, 2022 the fair value of the Junior Note was $0 and $16,501, respectively. In the year ended December 31, 2023, the Group recorded a loss of $16,501 for the change in the fair value of the Junior Note which was included in gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Junior Note was determined to be $0 as of December 31, 2023 as Gelesis has ceased operations and filed for bankruptcy. In the year ended December 31, 2022, the Group recorded interest income of $963 and a gain of $539 for the change in the fair value of the Junior Note which was included in other income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss).
Senior Secured Convertible Promissory Notes
During the year ended\u00a0December 31, 2023, the Group entered into multiple agreements with Gelesis to purchase for $11,850\u00a0 senior secured convertible promissory notes (the \"Senior Notes\") and warrants for share of Gelesis common stock. The initial fair value of the Senior Notes was determined to be $10,729 while $1,121 was determined to be the initial fair value of the warrants. The Senior Notes represent debt instruments that are presented at fair value through profit and loss as the amounts receivable do not solely represent payments of principal and interest as the Senior Notes are convertible into Gelesis common stock.\u00a0
The Senior Notes are secured by a first-priority lien on substantially all assets of Gelesis and the guarantors (other than the equity interests in, and assets held by Gelesis s.r.l., a subsidiary of Gelesis, and certain other exceptions).
In October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. Therefore, the Group determined that the fair value of the Senior Notes was $0 as of December 31, 2023 and the Group recorded a loss of $10,729\u00a0 for the changes in the fair value of the Senior Notes. The loss was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss).
Vedanta
On April 24, 2023, Vedanta closed the second tranche of its convertible debt for additional proceeds of $18,000, of which $5,000 were invested by the Group. The convertible debt 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. If the convertible debt is not earlier converted or repaid, the entire outstanding amount of the convertible debt shall be due and payable upon the earliest to occur of (a) the later of (x) November 1, 2025 and (y) the date which is sixty (60) days after all amounts owed under, or in connection with, the loan Vedanta received from a certain investor have been paid in full, or (b) the consummation of a Deemed Liquidation Event (as defined in Vedanta\u2019s Amended and Restated Certificate of Incorporation).
Due to the terms of the convertible debt, the investment in such convertible debt is measured at fair value with changes in the fair value recorded through profit and loss. During the years ended\u00a0December 31, 2023, the Group recorded a loss of $400 for the changes in the fair value of the Vedanta convertible debt which was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss).
Following is the activity in respect of investments in notes from associates during the periods. The fair value of the $4,600 note from associate as of December 31, 2023 is determined using unobservable Level 3 inputs. See Note 18. Financial Instruments for additional information.
Investment in notes from associates | $ |
Balance as of January 1, 2022 | \u2014 |
Investment In Gelesis notes | 15,000 |
Changes in the fair value of the notes | 1,501 |
Balance as of December 31, 2022 and January 1, 2023 | 16,501 |
Investment In Gelesis notes | 10,729 |
Investment in Vedanta convertible debt | 5,000 |
Changes in the fair value of the notes and convertible debt | (27,630) |
Balance as of December 31, 2023\u00a0 | 4,600 |
Total operating expenses were as follows:
For the years ending December 31, | 2023 $ | 2022 $ | 2021 $ |
General and administrative | 53,295 | 60,991 | 57,199 |
Research and development | 96,235 | 152,433 | 110,471 |
Total operating expenses | 149,530 | 213,425 | 167,671 |
The average number of persons employed by the Group during the year, analyzed by category, was as follows:
For the years ending December 31, | 2023 | 2022 | 2021 |
General and administrative | 40 | 57 | 52 |
Research and development | 56 | 144 | 119 |
Total | 96 | 201 | 171 |
The aggregate payroll costs of these persons were as follows:
2023 $ | 2022 $ | 2021 $ | |
For the years ending December 31, | |||
General and administrative | 24,586 | 25,322 | 26,438 |
Research and development | 21,102 | 36,321 | 28,950 |
Total | 45,688 | 61,643 | 55,388 |
Detailed operating expenses were as follows:
2023 $ | 2022 $ | 2021 $ | |
For the years ending December 31, | |||
Salaries and wages | 37,084 | 41,750 | 36,792 |
Healthcare and other benefits | 2,599 | 2,908 | 2,563 |
Payroll taxes | 1,590 | 2,286 | 2,084 |
Share-based payments | 4,415 | 14,699 | 13,950 |
Total payroll costs | 45,688 | 61,643 | 55,388 |
Amortization | 1,979 | 3,048 | 2,940 |
Depreciation | 2,955 | 5,845 | 4,347 |
Total amortization and depreciation expenses | 4,933 | 8,893 | 7,287 |
Other general and administrative expenses | 25,180 | 31,600 | 26,714 |
Other research and development expenses | 73,729 | 111,288 | 78,282 |
Total other operating expenses | 98,909 | 142,888 | 104,996 |
Total operating expenses | 149,530 | 213,425 | 167,671 |
For the years ending December 31, | 2023 $ | 2022 $ | 2021 $ |
Audit of these financial statements | 2,241 | 1,716 | 1,183 |
Audit of the financial statements of subsidiaries | \u2014 | 132 | 312 |
Audit of the financial statements of associate** | \u2014 | 814 | 571 |
Audit-related assurance services* | 445 | 1,157 | 1,868 |
Non-audit related services | 9 | \u2014 | \u2014 |
Total | 2,695 | 3,819 | 3,934 |
*\u00a0\u00a0\u00a0\u00a02023 -\u00a0 this amount represents assurance service relating to SOX controls work for purposes of the ICFR audit of Form 20-F; 2021 \u2013 $468 represents prepaid expenses related to an expected initial public offering of a subsidiary.
Total operating expenses were as follows:
For the years ending December 31, | 2023 $ | 2022 $ | 2021 $ |
General and administrative | 53,295 | 60,991 | 57,199 |
Research and development | 96,235 | 152,433 | 110,471 |
Total operating expenses | 149,530 | 213,425 | 167,671 |
The average number of persons employed by the Group during the year, analyzed by category, was as follows:
For the years ending December 31, | 2023 | 2022 | 2021 |
General and administrative | 40 | 57 | 52 |
Research and development | 56 | 144 | 119 |
Total | 96 | 201 | 171 |
The aggregate payroll costs of these persons were as follows:
2023 $ | 2022 $ | 2021 $ | |
For the years ending December 31, | |||
General and administrative | 24,586 | 25,322 | 26,438 |
Research and development | 21,102 | 36,321 | 28,950 |
Total | 45,688 | 61,643 | 55,388 |
Detailed operating expenses were as follows:
2023 $ | 2022 $ | 2021 $ | |
For the years ending December 31, | |||
Salaries and wages | 37,084 | 41,750 | 36,792 |
Healthcare and other benefits | 2,599 | 2,908 | 2,563 |
Payroll taxes | 1,590 | 2,286 | 2,084 |
Share-based payments | 4,415 | 14,699 | 13,950 |
Total payroll costs | 45,688 | 61,643 | 55,388 |
Amortization | 1,979 | 3,048 | 2,940 |
Depreciation | 2,955 | 5,845 | 4,347 |
Total amortization and depreciation expenses | 4,933 | 8,893 | 7,287 |
Other general and administrative expenses | 25,180 | 31,600 | 26,714 |
Other research and development expenses | 73,729 | 111,288 | 78,282 |
Total other operating expenses | 98,909 | 142,888 | 104,996 |
Total operating expenses | 149,530 | 213,425 | 167,671 |
For the years ending December 31, | 2023 $ | 2022 $ | 2021 $ |
Audit of these financial statements | 2,241 | 1,716 | 1,183 |
Audit of the financial statements of subsidiaries | \u2014 | 132 | 312 |
Audit of the financial statements of associate** | \u2014 | 814 | 571 |
Audit-related assurance services* | 445 | 1,157 | 1,868 |
Non-audit related services | 9 | \u2014 | \u2014 |
Total | 2,695 | 3,819 | 3,934 |
*\u00a0\u00a0\u00a0\u00a02023 -\u00a0 this amount represents assurance service relating to SOX controls work for purposes of the ICFR audit of Form 20-F; 2021 \u2013 $468 represents prepaid expenses related to an expected initial public offering of a subsidiary.
Share-based payments includes stock options, time-based 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's share-based payment expense for the years ended\u00a0December 31, 2023, 2022 and 2021, was $4,415,\u00a0$14,699, and $13,950 respectively. 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, | 2023 $ | 2022 $ | 2021 $ |
General and administrative | 3,185 | 8,862 | 9,310 |
Research and development | 1,230 | 5,837 | 4,640 |
Total | 4,415 | 14,699 | 13,950 |
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan (the \u201c2015 PSP\u201d). Under the 2015 PSP and subsequent amendments, awards of ordinary shares may be made to the Directors, senior managers and employees, and other individuals providing services to the Group 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 one and four years, provided the recipient remains continuously engaged as a service provider. The options awards expire 10 years from the grant date.
In June 2023 the Group adopted a new Performance Stock Plan (the \"2023 PSP\") that has the same terms as the 2015 PSP but instituted for all new awards a limit of 10.0 percent of the total ordinary shares outstanding over a five-year period.
The share-based awards granted under the PSPs are generally equity-settled (see cash settlements below). As of December 31, 2023, the Group had issued\u00a027,384,777 units of share-based awards under these plans.
RSUs
RSU activity for the years ended\u00a0December 31, 2023, 2022 and 2021 is detailed as follows:
Number of Shares/Units | Weighted Average Grant Date Fair Value (GBP) (*) | |
Outstanding (Non-vested) at 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 and January 1, 2023 | 6,090,780 | 1.74 |
RSUs Granted in Period | 3,679,669 | 1.28 |
Vested | (716,029) | 2.00 |
Forfeited | (1,880,274) | 1.94 |
Outstanding (Non-vested) at December 31, 2023 | 7,174,146 | 1.10 |
*\u00a0\u00a0\u00a0\u00a0For 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 vesting schedule over a one to three-year requisite service period in which the Group 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.
RSUs granted to the non-executive directors are time-based and equity-settled. The grant date fair value on such RSUs is recognized over the vesting term.
RSUs granted to executives are performance-based and vesting of such RSUs is subject to the satisfaction of both performance and market conditions. The performance condition is based on the achievement of the Group's strategic targets. The market conditions are based on the achievement of the absolute total shareholder return (\u201cTSR\u201d), TSR as compared to the FTSE 250 Index, and TSR as compared to the MSCI Europe Health Care Index. The RSU award performance criteria have changed over time as the criteria are continually evaluated by the Group\u2019s Remuneration Committee.
The Group recognizes the estimated fair value of performance-based awards with non-market conditions 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 Group 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 performance-based awards with market conditions 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.
Liability settled RSUs classification
The RSUs to executives are treated as liability awards as the Group has a historical practice of settling these awards in cash, and as such adjusted to fair value at every reporting date until settlement with changes in fair value recorded in earnings as stock based compensation expense.
The Group incurred share-based payment expenses for RSUs of $827 (including $402 expense in respect of RSU liability awards), $1,637 (including $1,131 expense in respect of RSU liability awards), and $1,540 (including $589 expense in respect of RSU liability awards) for the years ended\u00a0December 31, 2023, 2022 and 2021, respectively. The decrease in the share-based compensation expense in respect of the RSUs for the year ended December 31, 2023, as compared to the year ended December 31, 2022 is due to reduction in the fair value of the liability awards.
As of December 31, 2023, the carrying amount of the RSU liability awards was $4,782, $1,281 current; $3,501 non current, out of which $1,283\u00a0related to awards that have met all their performance and market conditions.
Stock Options
Stock option activity for the years ended\u00a0December 31, 2023, 2022 and 2021, is detailed as follows:
Number of Options | Wtd Average Exercise Price (GBP) | Wtd Average of remaining contractual term (in years) | Wtd Average Stock Price at Exercise (GBP) | |
Outstanding at January 1, 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 and January 1, 2023 | 6,185,216 | 2.03 | 6.21 | |
Outstanding at December 31, 2022 and January 1, 2023 | 17,793,881 | 2.31 | 8.03 | |
Granted | 3,120,975 | 2.22 | ||
Exercised | (534,034) | 1.71 | 2.46 | |
Forfeited and expired | (3,424,232) | 2.40 | ||
Options Exercisable at December 31, 2023 | 9,065,830 | 2.19 | 6.01 | |
Outstanding at December 31, 2023 | 16,956,590 | 2.29 | 7.20 |
The fair value of the stock options awarded by the Group was estimated at the grant date using the Black-Scholes option valuation model, considering the terms and conditions upon which options were granted, with the following weighted-average assumptions:
At December 31, | 2023 | 2022 | 2021 |
Expected volatility | 43.69% | 41.70% | 41.05% |
Expected terms (in years) | 6.16 | 6.11 | 6.16 |
Risk-free interest rate | 4.04% | 2.13% | 1.06% |
Expected dividend yield | \u2014 | \u2014 | \u2014 |
Exercise price (GBP) | 2.22 | 2.04 | 3.34 |
Underlying stock price (GBP) | 2.22 | 2.04 | 3.34 |
These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2023, 2022 and 2021 of $1.37, $1.15 and $1.87, respectively.
The Group incurred share-based payment expense for the stock options of $3,310, $8,351 and $6,158 for the years ended\u00a0December 31, 2023, 2022 and 2021, respectively.
For shares outstanding as of December 31, 2023, the range of exercise prices is detailed as follows:
Range of Exercise Prices (GBP) | Options Outstanding | Wtd Average Exercise Price (GBP) | Wtd Average of remaining contractual term (in years) |
0.01 | 439,490 | \u2014 | 5.76 |
1.00 to 2.00 | 4,989,572 | 1.54 | 5.64 |
2.00 to 3.00 | 6,664,028 | 2.25 | 8.55 |
3.00 to 4.00 | 4,863,500 | 3.33 | 7.10 |
Total | 16,956,590 | 2.29 | 7.20 |
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option plans. A summary of stock option activity by number of shares in these subsidiaries is presented in the following table:
Outstanding as of January 1, 2023 | 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, 2023 | |
Entrega | 344,500 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 344,500 |
Follica | 2,776,120 | \u2014 | \u2014 | (2,170,547) | (605,573) | \u2014 | \u2014 |
Vedanta | 1,824,576 | \u2014 | \u2014 | (1,313) | (29,607) | (1,793,656) | \u2014 |
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 |
The weighted-average exercise prices and remaining contractual life for the options outstanding as of December 31, 2023, were as\u00a0follows:
Outstanding at December 31, 2023 | Number of options | Weighted-average exercise price $ | Weighted-average contractual life outstanding |
Entrega | 344,500 | 1.91 | 3.92 |
There were no grants in 2023 under any of the subsidiary option plans. The weighted average exercise prices for the options granted for the years ended December 31, 2022 and 2021, were as\u00a0follows:
For the years ended December 31, | 2022 $ | 2021 $ |
Entrega | 0.02 | \u2014 |
Follica | 1.86 | 1.86 |
Vedanta | 14.94 | 19.69 |
The weighted average exercise prices for options forfeited during the year ended\u00a0December 31, 2023, were as follows:
Forfeited during the year ended December 31, 2023 | Number of options | Weighted-average exercise price $ |
Follica | 605,573 | 1.86 |
Vedanta | 29,607 | 17.06 |
The weighted average exercise prices for options exercisable as of December 31, 2023, were as follows:
Exercisable at December 31, 2023 | Number of Options | Weighted-average exercise price $ | Exercise Price Range $ |
Entrega | 329,500 | 1.99 | 0.02-2.36 |
There were no subsidiary options exercised during the year ended December 31, 2023.
The following table shows the breakdown of finance income and costs:
2023 $ | 2022 $ | 2021 $ | |
For the years ended\u00a0December 31, | |||
Finance income | |||
Interest income from financial assets | 16,012 | 5,799 | 214 |
Total finance income | 16,012 | 5,799 | 214 |
Finance costs | |||
Contractual interest expense on notes payable | (1,422) | (212) | (1,031) |
Interest expense on other borrowings | (363) | (1,759) | (1,502) |
Interest expense on lease liability | (1,544) | (1,982) | (2,181) |
Gain/(loss) on foreign currency exchange | (94) | 14 | (56) |
Total finance cost\u00a0 \u2013 contractual | (3,424) | (3,939) | (4,771) |
Gain/(loss) from change in fair value of warrant liability | 33 | 6,740 | 1,419 |
Gain/(loss) from change in fair value of preferred shares | 2,617 | 130,825 | 8,362 |
Gain/(loss) from change in fair value of convertible debt | \u2014 | (502) | (175) |
Total finance income/(costs) \u2013 fair value accounting | 2,650 | 137,063 | 9,606 |
Total finance costs \u2013 non cash interest expense related to sale of future royalties | (10,159) | \u2014 | \u2014 |
Finance income/(costs), net | 5,078 | 138,924 | 5,050 |
Basic earnings/(loss) per share is calculated by dividing the Group's net income or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, net of treasury shares.
Diluted EPS is calculated by dividing the Group's net income or loss for the year by the weighted average number of ordinary shares outstanding, net of treasury shares, plus the weighted average number of ordinary shares that would be issued at conversion of all the dilutive potential ordinary shares into ordinary shares. Dilutive effects arise from equity-settled shares from the Group's share-based plans.
For the years ended\u00a0December 31, 2023, 2022 and 2021, the Group incurred a net loss and therefore all outstanding potential securities were considered anti-dilutive. The amount of potential securities that were excluded from the diluted calculation amounted to\u00a01,509,900,\u00a03,134,131 and 6,553,905 shares, respectively.
Earnings/(Loss) Attributable to Owners of the Group:
2023 | 2022 | 2021 | ||||||
Basic $ | Diluted $ | Basic $ | Diluted $ | Basic $ | Diluted $ | |||
Income/(loss) for the year, attributable to the owners of the Group | (65,697) | (65,697) | (50,354) | (50,354) | (60,558) | (60,558) |
Weighted-Average Number of Ordinary Shares:
2023 | 2022 | 2021 | ||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||
Issued ordinary shares at January 1, | 278,566,306 | 278,566,306 | 287,796,585 | 287,796,585 | 285,885,025 | 285,885,025 | ||
Effect of shares issued & treasury shares purchased | (2,263,773) | (2,263,773) | (3,037,150) | (3,037,150) | 705,958 | 705,958 | ||
Weighted average number of ordinary shares at December 31, | 276,302,533 | 276,302,533 | 284,759,435 | 284,759,435 | 286,590,983 | 286,590,983 |
Earnings/(Loss) per Share:
2023 | 2022 | 2021 | ||||||
Basic $ | Diluted $ | Basic $ | Diluted $ | Basic $ | Diluted $ | |||
Basic and diluted earnings/(loss) per share | (0.24) | (0.24) | (0.18) | (0.18) | (0.21) | (0.21) |
Cost | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ |
Balance as of January 1, 2022 | 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 |
Additions, net of transfers | \u2014 | \u2014 | \u2014 | \u2014 | 87 | 87 |
Disposals/Impairment | (2,886) | \u2014 | (137) | \u2014 | \u2014 | (3,023) |
Deconsolidation of subsidiaries | (5,092) | (438) | (365) | (8,799) | (2,871) | (17,565) |
Reclassifications | \u2014 | \u2014 | \u2014 | \u2014 | (18) | (18) |
Balance as of December 31, 2023 | 5,363 | 1,072 | 917 | 15,165 | 1 | 22,518 |
Accumulated depreciation and impairment\u00a0loss | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ |
Balance as of January 1, 2022 | (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) |
Depreciation | (892) | (162) | (45) | (1,856) | \u2014 | (2,955) |
Disposals | 543 | \u2014 | 38 | \u2014 | \u2014 | 581 |
Deconsolidation of subsidiaries | 3,917 | 339 | 357 | 4,858 | \u2014 | 9,472 |
Balance as of December 31, 2023 | (4,142) | (698) | (894) | (7,248) | \u2014 | (12,982) |
Property and Equipment, net | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ |
Balance as of December 31, 2022 | 5,630 | 635 | 174 | 13,714 | 2,803 | 22,957 |
Balance as of December 31, 2023 | 1,221 | 375 | 23 | 7,917 | 1 | 9,536 |
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, 2022 | 990 |
Additions | 25 |
Impairment | (163) |
Deconsolidation of subsidiary | (21) |
Balance as of December 31, 2022 | 831 |
Additions | 200 |
Impairment | (105) |
Deconsolidation of subsidiaries | (19) |
Balance as of December 31, 2023 | 906 |
Accumulated amortization | Licenses $ |
Balance as of January 1, 2022 | (3) |
Amortization | (1) |
Deconsolidation of subsidiary | 4 |
Balance as of December 31, 2022 | \u2014 |
Amortization | \u2014 |
Deconsolidation of subsidiary | \u2014 |
Balance as of December 31, 2023 | \u2014 |
Intangible assets, net | Licenses $ |
Balance as of December 31, 2022 | 831 |
Balance as of December 31, 2023 | 906 |
During the year ended December 31, 2023, Vedanta, Inc. was deconsolidated and as such,\u00a0$19 net in intangible assets were derecognized.
During\u00a0 the year ended December 31,2022, the Group wrote off one of its research intangible assets for which research was ceased in the amount of $163.
During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated and as such, $18 net intangible assets were derecognized.
The Group tested all intangible assets for impairment as of the balance sheet date and concluded that none of such assets were impaired.
Total equity for the Group as of December 31, 2023, and 2022, was as follows:
December 31, 2023 $ | December 31, 2022 $ | |
Equity | ||
Share capital, \u00a30.01 par value, issued and paid 271,853,731 and 278,566,306 as of December 31, 2023 and 2022, respectively | 5,461 | 5,455 |
Share premium | 290,262 | 289,624 |
Treasury shares, 17,614,428 and 10,595,347 as of December 31, 2023 and 2022, respectively | (44,626) | (26,492) |
Merger Reserve | 138,506 | 138,506 |
Translation reserve | 182 | 89 |
Other reserves | (9,538) | (14,478) |
Retained earnings/(accumulated deficit) | 83,820 | 149,516 |
Equity attributable to owners of the Group | 464,066 | 542,220 |
Non-controlling interests | (5,835) | 5,369 |
Total equity | 458,232 | 547,589 |
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 and is entitled to receive dividends when and if declared by the Group\u2019s Directors.
On June 18, 2015, the Group 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 Statement of Comprehensive Income/(Loss), settlements of vested stock 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 Group announced the commencement of a $50,000 share repurchase program (the \"Program\") of its ordinary shares of one pence each (the \u201cOrdinary Shares\u201d). The Group executed the Program in two equal tranches. The Group entered into an irrevocable non-discretionary instruction with Jefferies International Limited (\u201cJefferies\u201d) in relation to the purchase by Jefferies of the Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25,000 for each tranche, and the simultaneous on-sale of such Ordinary Shares by Jefferies to the Group, subject to certain volume and price restrictions. Jefferies made its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Group. Purchases could continue during any close period to which the Group was subject. The instruction to Jeffries could be amended or withdrawn so long as the Group was not in a close period or otherwise in possession of inside information.
Any purchases of the 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 in accordance with pre-set parameters and subject to limits prescribed by the Group\u2019s general authority to repurchase the 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 and re-issued for settlement of share-based awards. As of December 31, 2023, the Group had repurchased an aggregate of 18,278,873 Ordinary Shares under the share repurchase program with 7,683,526 shares repurchased in 2023. The Program was completed during the month ended February 2024.
Total equity for the Group as of December 31, 2023, and 2022, was as follows:
December 31, 2023 $ | December 31, 2022 $ | |
Equity | ||
Share capital, \u00a30.01 par value, issued and paid 271,853,731 and 278,566,306 as of December 31, 2023 and 2022, respectively | 5,461 | 5,455 |
Share premium | 290,262 | 289,624 |
Treasury shares, 17,614,428 and 10,595,347 as of December 31, 2023 and 2022, respectively | (44,626) | (26,492) |
Merger Reserve | 138,506 | 138,506 |
Translation reserve | 182 | 89 |
Other reserves | (9,538) | (14,478) |
Retained earnings/(accumulated deficit) | 83,820 | 149,516 |
Equity attributable to owners of the Group | 464,066 | 542,220 |
Non-controlling interests | (5,835) | 5,369 |
Total equity | 458,232 | 547,589 |
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 and is entitled to receive dividends when and if declared by the Group\u2019s Directors.
On June 18, 2015, the Group 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 Statement of Comprehensive Income/(Loss), settlements of vested stock 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 Group announced the commencement of a $50,000 share repurchase program (the \"Program\") of its ordinary shares of one pence each (the \u201cOrdinary Shares\u201d). The Group executed the Program in two equal tranches. The Group entered into an irrevocable non-discretionary instruction with Jefferies International Limited (\u201cJefferies\u201d) in relation to the purchase by Jefferies of the Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25,000 for each tranche, and the simultaneous on-sale of such Ordinary Shares by Jefferies to the Group, subject to certain volume and price restrictions. Jefferies made its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Group. Purchases could continue during any close period to which the Group was subject. The instruction to Jeffries could be amended or withdrawn so long as the Group was not in a close period or otherwise in possession of inside information.
Any purchases of the 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 in accordance with pre-set parameters and subject to limits prescribed by the Group\u2019s general authority to repurchase the 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 and re-issued for settlement of share-based awards. As of December 31, 2023, the Group had repurchased an aggregate of 18,278,873 Ordinary Shares under the share repurchase program with 7,683,526 shares repurchased in 2023. The Program was completed during the month ended February 2024.
Preferred shares issued by subsidiaries often contain redemption and conversion features that are assessed under IFRS 9 in conjunction with the host preferred share instrument. This balance represents subsidiary preferred shares issued to third parties.
The subsidiary preferred shares are redeemable upon the occurrence of a contingent event, other than full liquidation of the Group, that is not considered to be within the control of the Group. 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 holders and are mandatorily convertible into ordinary shares under certain circumstances. 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 fair value of all subsidiary preferred shares as of December 31, 2023 and December 31, 2022, is as follows:
2023 $ | 2022 $ | |
As of December 31, | ||
Entrega | 169 | 169 |
Follica | \u2014 | 350 |
Vedanta Biosciences | \u2014 | 26,820 |
Total subsidiary preferred share balance | 169 | 27,339 |
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, 2023 and December 31, 2022, the minimum liquidation preference reflecting the amounts that would be payable to the subsidiary preferred holders upon a liquidation event of the subsidiaries,\u00a0is as follows:
2023 $ | 2022 $ | |
As of December 31, | ||
Entrega | 2,216 | 2,216 |
Follica | 6,405 | 6,405 |
Vedanta Biosciences | \u2014 | 149,568 |
Total minimum liquidation preference | 8,621 | 158,189 |
$ | |
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 |
Decrease in value of preferred shares measured at fair value \u2013 finance costs (income) | (2,617) |
Deconsolidation of subsidiary \u2013 (Vedanta) | (24,554) |
Balance as of December 31, 2023 | 169 |
On March 4, 2011, the Group entered into a license agreement with Karuna Therapeutics, Inc. (\u201cKaruna\u201d) according to which the Group granted Karuna an exclusive license to research, develop and sell KarXT in exchange for a royalty on annual net sales, development and regulatory milestones and a fixed portion of sublicensing income, if any (hereinafter \u201cLicense Agreement\u201d).
On March 22, 2023, the Group signed an agreement with Royalty Pharma\u00a0 (hereinafter \"Royalty Purchase Agreement\"), according to which the Group sold Royalty Pharma a partial right to receive royalty payments made by Karuna in respect of net sales of KarXT, if and when received. According to the Royalty Purchase Agreement, all royalties due to the Group under the License Agreement will be paid to Royalty Pharma up until an annual threshold of $60,000, while all royalties above such annual threshold in a given year will be split 33% to Royalty Pharma and 67% to the Group. Under the terms of the Royalty Purchase Agreement, the Group received a non-refundable initial payment of $100,000 at the execution of the Royalty Purchase Agreement and is eligible to receive additional payments in the aggregate of up to an additional $400,000 based on the achievement of certain regulatory and commercial milestones.
The Group continues to hold the rights under the License Agreement and has a contractual obligation to deliver cash to Royalty Pharma for a portion of the royalties it receives. Therefore, the Group will continue to account for any royalties and regulatory milestones due to the Group under the License Agreement as revenue in its Consolidated\u00a0Statement of Comprehensive Income/(Loss) and record the proceeds from the Royalty Purchase Agreement as a financial liability on its Consolidated Statement of Financial Position. In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement.
The acquisition of Karuna by Bristol Meyers Squibb (NYSE: BMY), which closed on March 18, 2024, had no impact on the Group's rights or obligations under the License Agreement or Royalty Purchase Agreement, each of which remains in full force and effect.
In order to determine the amortized cost of the sale of future royalties liability, management is required to estimate the total amount of future receipts from and payments to Royalty Pharma under the Royalty Purchase Agreement over the life of the agreement. The $100,000 liability, recorded at execution of the Royalty Purchase Agreement, will be accreted to the total of these receipts and payments as interest expense over the life of the Royalty Purchase Agreement. These estimates contain assumptions that impact both the amortized cost of the liability and the interest expense that will be recognized in future periods.
Additional proceeds received from Royalty Pharma will increase the Group\u2019s financial liability. As royalty payments are made to Royalty Pharma, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The estimated timing and amount of royalty payments to and proceeds from Royalty Pharma are likely to change over the life of the Royalty Purchase Agreement. A significant increase or decrease in estimated royalty payments, or a significant shift in the timing of cash flows, will materially impact the sale of future royalties liability, interest expense and the time period for repayment. The Group will periodically assess the expected payments to, or proceeds from, Royalty Pharma, and any such changes in amount or timing of cash flows will require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future cash flows from the Royalty Purchase Agreement that are discounted at the liability\u2019s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense.
The following shows the activity in respect of the sale of future royalties liability:
Sale of future royalties liability | $ |
Balance as of January 1, 2023 | \u2014 |
Amounts received at closing | 100,000 |
Non cash interest expense recognized | 10,159 |
Balance as of December 31, 2023 | 110,159 |
The Group\u2019s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value 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 can be determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method (\"PWERM\") approach, discounted cash flow 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. 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. |
At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), PWERM, or hybrid allocation framework. The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\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 is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. |
Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value Hierarchy\u00a0Level | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, 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 notes\u00a0liabilities measured at fair value, which were categorized as Level 3 in the fair value hierarchy:
Subsidiary Preferred Shares $ | Subsidiary Convertible Notes $ | |
Balance at 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 |
Deconsolidation \u2013 Sonde | (15,853) | (3,403) |
Change in fair value | (130,825) | 502 |
Balance at December 31, 2022 and January 1, 2023 | 27,339 | \u2014 |
Change in fair value | (2,617) | \u2014 |
Deconsolidation \u2013 Vedanta | (24,554) | \u2014 |
Balance at December 31, 2023 | 169 | \u2014 |
The change in fair value of preferred shares and convertible notes liabilities are recorded in finance income/(costs) \u2013 fair value accounting in the Consolidated Statement of Comprehensive Income/(Loss).
Investments 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, 2023, was calculated utilizing the quoted common share price which is categorized as Level 1 in the fair value hierarchy.
Vedanta and Sonde
As of December 31, 2023, the Group accounts for the following investments under IFRS 9 as investments held at fair value with changes in fair value through the profit and loss: Sonde preferred A-2 and B shares and Vedanta convertible preferred shares (subsequent to the date of deconsolidation). The valuation of the aforementioned investments is 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, 2023, the Group recorded such investments at fair value and recognized a loss of\u00a0$7,298\u00a0for the change in fair value of the investments. In addition, the Group determined that the fair value of its investment in the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023.
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:
$ | |
Balance at 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 change in fair value | 65,505 |
Balance at December 31, 2021 | 239,533 |
Deconsolidation of Sonde | 11,168 |
Gelesis Earn-out Shares received in the SPAC exchange | 14,214 |
Exchange of Gelesis preferred shares to Gelesis common shares | (92,303) |
Reclassification of Akili to level 1 investment | (128,764) |
Gain/(loss) on change in fair value | (31,253) |
Balance at December 31, 2022 | 12,593 |
Deconsolidation of Vedanta - new investment in Vedanta preferred shares | 20,456 |
Investment in Gelesis 2023 Warrants | 1,121 |
Gain/(loss) on changes in fair value | (9,299) |
Balance as of December 31, 2023 | 24,872 |
The change in fair value of investments held at fair value is recorded in gain/(loss) on investments held at fair value in the Consolidated Statement of Comprehensive Income/(Loss).
At December 31, 2023, the Group\u2019s material investments held at fair value categorized as Level 3 in the fair value hierarchy include the preferred shares of Sonde and Vedanta, with fair value of $10,408 and $14,153, respectively. The significant unobservable inputs used at December 31, 2023 in the fair value measurement of these investments and the sensitivity of the fair value measurements for these investments to changes to these significant unobservable inputs are summarized in the table below.
As of December 31, 2023 | Investment (Sonde) Measured through Market Backsolve & OPM | ||
Unobservable Inputs | Input Value | Sensitivity Range | Investment Fair Value $ |
Equity Value | 53,242 | -5% | (464) |
+5% | 463 | ||
Time to Liquidity | 2.00 | -6 Months | 39 |
+ 6 Months | (42) | ||
Volatility | 60% | -10% | 19 |
+10% | (35) |
As of December 31, 2023 | Investment (Vedanta)\u00a0 Measured through Market Backsolve that Leverages a Monte Carlo Simulation | ||
Unobservable Inputs | Input Value | Sensitivity Range | Investment Fair Value $ |
Equity Value | 127,883 | -5% | (1,416) |
+5% | 1,069 | ||
Time to Liquidity | 1.23 | - 6 Months | (3,907) |
+ 6 Months | 1,261 | ||
Volatility | 120% | -10% | (954) |
+10% | 474 |
Investments in Notes from Associates
As of December 31, 2022, the investment in notes from associates was $16,501 and represents investments the Group made in convertible promissory notes of Gelesis. During the year ended December 31, 2023, the Group invested $10,729 in convertible promissory notes of Gelesis and $5,000 in a convertible note of Vedanta. The Group recorded a loss of $27,630 for the change in fair value of the notes from associates in the gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/Loss. The loss was driven by a reduction in the fair value of the Gelesis convertible promissory notes of $27,230 as Gelesis filed for bankruptcy in October 2023 and a change in the fair value of the Vedanata convertible note of $400. \u00a0
The convertible debt issued by Vedanta was valued using a market backsolve approach that leverages a Monte Carlo simulation. The significant unobservable inputs categorized as Level 3 in the fair value hierarchy used at December 31, 2023, in the fair value measurement of the convertible debt are the same as the inputs disclosed above for Vedanta preferred shares.
Fair Value Measurement and Classification
The fair value of financial instruments by category as of December 31, 2023 and 2022:
2023 | |||||||
Carrying Amount | Fair Value | ||||||
Financial Assets $ | Financial Liabilities $ | Level 1 $ | Level 2 $ | Level 3 $ | Total $ | ||
Financial assets3: | |||||||
Money Markets1,2 | 156,705 | \u2014 | 156,705 | \u2014 | \u2014 | 156,705 | |
Investment in notes from associates | 4,600 | \u2014 | \u2014 | \u2014 | 4,600 | 4,600 | |
Investments held at fair value | 317,841 | \u2014 | 292,970 | \u2014 | 24,872 | 317,841 | |
Total financial assets | 479,146 | \u2014 | 449,675 | \u2014 | 29,472 | 479,146 | |
Financial liabilities: | |||||||
Subsidiary preferred shares | \u2014 | 169 | \u2014 | \u2014 | 169 | 169 | |
Share-based liability awards | \u2014 | 4,782 | \u2014 | \u2014 | 4,782 | 4,782 | |
Total financial liabilities | \u2014 | 4,951 | \u2014 | \u2014 | 4,951 | 4,951 |
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\u00a0Excluded from the table above are short-term investments of $136,062 that are classified at amortized cost as of December 31, 2023. The cost of these short-term investments approximates current fair value.
The Group has a number of financial instruments that are not measured at fair value in the Consolidated Statement of Financial Position. For these instruments the fair values are not materially different from their carrying amounts.
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.
The Group\u2019s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value 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 can be determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method (\"PWERM\") approach, discounted cash flow 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. 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. |
At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), PWERM, or hybrid allocation framework. The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\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 is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. |
Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value Hierarchy\u00a0Level | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, 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.
The Group\u2019s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value 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 can be determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method (\"PWERM\") approach, discounted cash flow 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. 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. |
At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), PWERM, or hybrid allocation framework. The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\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 is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. |
Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value Hierarchy\u00a0Level | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, 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.
The Group\u2019s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value 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 can be determined using a market backsolve approach through a recent arm\u2019s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method (\"PWERM\") approach, discounted cash flow 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. 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. |
At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (\u201cOPM\u201d), PWERM, or hybrid allocation framework. The methods are detailed as follows:
Allocation Method | Description |
OPM | The OPM model treats preferred stock as call options on the enterprise\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 is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. |
Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Fair Value Hierarchy\u00a0Level | Description |
Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. |
Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. |
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, 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.
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2023 and December 31, 2022, the loan in Follica and the convertible notes 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:
2023 $ | 2022 $ | |
As of December 31, | ||
Loans | 3,439 | 2,097 |
Convertible notes | 260 | 248 |
Total subsidiary notes payable | 3,699 | 2,345 |
Loans
Convertible Notes outstanding were as follows:
Knode $ | Appeering $ | Sonde $ | Total $ | |
January 1, 2022 | 94 | 141 | 2,461 | 2,696 |
Gross principal \u2013 issuance of notes \u2013 financing activity | \u2014 | \u2014 | 393 | 393 |
Accrued interest on convertible notes \u2013 finance costs | 5 | 8 | 48 | 60 |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | 502 | 502 |
Deconsolidation | \u2014 | \u2014 | (3,403) | (3,403) |
December 31, 2022 and January 1, 2023 | 99 | 149 | \u2014 | 248 |
Accrued interest on convertible notes \u2013 finance costs | 5 | 8 | \u2014 | 13 |
December 31, 2023 | 104 | 156 | \u2014 | 260 |
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4,329, of which $2,215 were issued to third-party shareholders (and $2,113 were issued to the Group and eliminated in consolidation). In addition, in March 2022, Sonde issued an additional amount of $921, of which $393 were issued to third parties (and $528 issued to the Group 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. Investments Held at Fair Value.
In September 2020, Vedanta entered into a $15,000 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 $1,050. 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 $15,400 as of December 31, 2022. On March 1, 2023, the Group derecognized the loan in connection with Vedanta's deconsolidation. Refer to Note 5. Investments Held at Fair Value.
The following table summarizes long-term loan activity for the years ended\u00a0December 31, 2023 and 2022:
Long-term loan | ||
2023 $ | 2022 $ | |
Balance at January 1, | 15,400 | 15,118 |
Accrued interest | 363 | 1,755 |
Interest paid | (300) | (1,436) |
Other | (17) | (38) |
Deconsolidation of subsidiary | (15,446) | \u2014 |
Balance at December 31, | \u2014 | 15,400 |
The long-term loan is presented as follows in the Statement of Financial Position as of December 31, 2023 and 2022:
Long-term loan | ||
2023 $ | 2022 $ | |
Current portion of long-term loan | \u2014 | 5,156 |
Long-term loan | \u2014 | 10,244 |
Total Long-term loan | \u2014 | 15,400 |
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2023 and December 31, 2022, the loan in Follica and the convertible notes 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:
2023 $ | 2022 $ | |
As of December 31, | ||
Loans | 3,439 | 2,097 |
Convertible notes | 260 | 248 |
Total subsidiary notes payable | 3,699 | 2,345 |
Loans
Convertible Notes outstanding were as follows:
Knode $ | Appeering $ | Sonde $ | Total $ | |
January 1, 2022 | 94 | 141 | 2,461 | 2,696 |
Gross principal \u2013 issuance of notes \u2013 financing activity | \u2014 | \u2014 | 393 | 393 |
Accrued interest on convertible notes \u2013 finance costs | 5 | 8 | 48 | 60 |
Change in fair value \u2013 finance costs | \u2014 | \u2014 | 502 | 502 |
Deconsolidation | \u2014 | \u2014 | (3,403) | (3,403) |
December 31, 2022 and January 1, 2023 | 99 | 149 | \u2014 | 248 |
Accrued interest on convertible notes \u2013 finance costs | 5 | 8 | \u2014 | 13 |
December 31, 2023 | 104 | 156 | \u2014 | 260 |
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4,329, of which $2,215 were issued to third-party shareholders (and $2,113 were issued to the Group and eliminated in consolidation). In addition, in March 2022, Sonde issued an additional amount of $921, of which $393 were issued to third parties (and $528 issued to the Group 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. Investments Held at Fair Value.
As of December 31, 2023, non-controlling interests include Entrega and Follica. Ownership interests of the non-controlling interests in these entities as of December 31, 2023 were 11.7 percent, and 19.9 percent, respectively. As of December 31, 2022, non-controlling interests include Entrega, Follica, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent , 19.9 percent, and 12.2 percent, respectively. As of December 31, 2021, non-controlling interests include Entrega, Follica, Sonde, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent, 19.9 percent, 6.2 percent and 3.7 percent, respectively. During the year ended December 31, 2023, Vedanta Biosciences, Inc was deconsolidated. During the year ended December 31, 2022, Sonde Health, Inc was deconsolidated. See Note 5. Investments Held at Fair Value.
Non-controlling interests include the amounts recorded for subsidiary stock options.
On June 11, 2021, the Group 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 $1,224, to be paid in three equal installments, with the first installment of $408 paid at the effective date of the transaction and two additional installments to be paid upon the occurrence of certain contingent events. The Group recorded a contingent consideration liability of $560 at fair value for the two additional installments, resulting in a total acquisition cost of $968. The excess of the consideration paid over the book value of the non-controlling interest of approximately $9,636 was recorded directly as a charge to shareholders\u2019 equity. The second installment of $408 was paid in July 2021, upon the occurrence of the contingent event specified in the agreement. The contingent consideration liability was 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, option holders in Entrega exercised options into shares of common stock, increasing the NCI interest held from 0.2 percent to 11.7 percent. During 2021, option holders in Vedanta exercised options and increased the NCI interest to 3.7 percent. The exercise of the options resulted in an increase in the NCI share in Entrega and Vedanta shareholder's deficit of $5,887. The amount together with the consideration paid by NCI ($101) amounted to $5,988 and was recorded as a gain directly in shareholders' equity.
Information regarding Trade and other payables was as follows:
As of December 31, | 2023 $ | 2022 $ |
Trade payables | 14,637 | 26,504 |
Accrued expenses | 28,187 | 24,518 |
Income tax payable | \u2014 | 57 |
Liability for share-based awards | 1,281 | 1,805 |
Other | 3 | 1,957 |
Total trade and other payables | 44,107 | 54,840 |
The activity related to the Group\u2019s right of use asset and lease liability for the years ended\u00a0December 31, 2023 and 2022\u00a0is as follows:
Right of use asset, net | ||
2023 $ | 2022 $ | |
Balance at January 1, | 14,281 | 17,166 |
Additions | \u2014 | 163 |
Depreciation | (1,979) | (3,047) |
Deconsolidated | (2,477) | \u2014 |
Balance at December 31, | 9,825 | 14,281 |
Total lease liability | ||
2023 $ | 2022 $ | |
Balance at\u00a0 January 1, | 29,128 | 32,990 |
Additions | \u2014 | 163 |
Cash paid for rent \u2013 principal \u2013 financing cash flow | (3,338) | (4,025) |
Cash paid for rent \u2013 interest | (1,544) | (1,982) |
Interest expense | 1,544 | 1,982 |
Deconsolidated | (4,146) | \u2014 |
Balance at December 31, | 21,644 | 29,128 |
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\u00a0Statement of Comprehensive Income/(Loss). The Group recorded depreciation expense of $1,979, $3,047 and $2,938 for the years ended\u00a0December 31, 2023, 2022 and 2021, respectively.
The following table details the short-term and long-term portion of the lease liability as of December 31, 2023 and 2022:
Total lease liability | ||
2023 $ | 2022 $ | |
Short-term portion of lease liability | 3,394 | 4,972 |
Long-term portion of lease liability | 18,250 | 24,155 |
Total lease liability | 21,644 | 29,128 |
2023 $ | |
Less than one year | 4,689 |
One to two years | 4,644 |
Two to three years | 4,419 |
Three to four years | 4,551 |
Four to five years | 4,687 |
More than five years | 2,796 |
Total undiscounted lease maturities | 25,785 |
Interest | 4,141 |
Total lease liability | 21,644 |
Capital Risk Management
The Group's capital and financial risk management policy is to maintain a strong capital base 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, 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 no material externally imposed capital requirements. The Group\u2019s share capital is set out in Note 15. Equity.
Management continuously monitors the level of capital deployed and available for deployment in the Wholly-Owned Programs\u00a0 segment and at 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 the 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 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 minimal 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 as of December 31, 2022. See Note 27. Taxation):
2023 $ | 2022 $ | |
As of December 31 | ||
Cash and cash equivalents | 191,081 | 149,866 |
Short-term investments | 136,062 | 200,229 |
Trade and other receivables | 2,376 | 11,867 |
Total | 329,518 | 361,961 |
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, and reference to credit ratings (if available) or to historical information about counterparty default rates. The Group does not have expected credit losses due to the high credit quality or healthy financial conditions of these counterparties. As of December 31, 2023 and 2022, none of the trade and other receivables were impaired.
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 liquidity risk 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, 2023 and 2022, based on contractual undiscounted payments:
As of December 31 | 2023 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total | |
Subsidiary notes payable | 3,699 | 3,699 | \u2014 | \u2014 | 3,699 |
Trade and other payables | 44,107 | 44,107 | \u2014 | \u2014 | 44,107 |
Subsidiary preferred shares (Note 16)1 | 169 | 169 | \u2014 | \u2014 | 169 |
Total | 47,975 | 47,975 | \u2014 | \u2014 | 47,975 |
As of December 31 | 2022 | ||||
Carrying Amount | Within Three Months | Three to Twelve Months | One to Five Years | Total | |
Long-term loan | 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 16)1 | 27,339 | 27,339 | \u2014 | \u2014 | 27,339 |
Total | 99,971 | 86,409 | 5,281 | 11,413 | 103,103 |
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 23. Leases and subleases.
Interest Rate Sensitivity
As of December 31, 2023, the Group had cash and cash equivalents of $191,081, and short-term investments of $136,062. 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 16. Subsidiary Preferred Shares, 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 cash position supports the business activities of the Controlled Founded Entities. Accordingly, the Group views exposure to the third party preferred share liability as low.
Deconsolidated Founded Entity Investments
The Group maintains certain debt or equity holdings in Founded Entities that are deconsolidated. These holdings are deemed either as investments and accounted for as investments held at fair value, or as associates and accounted for under the equity method. The Group's exposure to investments held at fair value is $317,841 as of December 31, 2023, 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 initial investments. Accordingly, the Group does not view this as a high risk. As of December 31, 2023, Sonde is the only associate, and the carrying amount of the investment as associate is $3,185.
Equity Price Risk
As of December 31, 2023, the Group held 886,885 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 $292,831, of which approximately 96% is related to the Karuna common shares.
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 would cause a loss of approximately $29,283 to be recognized as a component of other income (expense) in the Consolidated Statement of Comprehensive Income/(Loss). However, the Group views exposure to equity price risk as low due to the definitive merger agreement Karuna entered into with Bristol Myers Squibb \"BMS\") in December 2023 under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024.
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 exchange rates 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.
Credit Risk
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 liquidity risk 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 Group is a party to certain licensing agreements where the Group is licensing IP from third parties. In consideration for such licenses, the Group has made upfront payments and may be required to make additional contingent payments based on developmental and sales milestones and/or royalty on future sales. As of December 31, 2023, certain milestone events have not yet occurred, and therefore, the Group does not have a present obligation to make the related payments in respect of the licenses. Such milestones are dependent on events that are outside of the control of the Group, and many of these milestone events are remote of occurring. As of December 31, 2023 and December 31, 2022, payments in respect of developmental milestones that are dependent on events that are outside the control of the Group but are reasonably possible to occur amounted to approximately $7,371 and $8,666, respectively. These milestone amounts represent an aggregate of multiple milestone payments depending on different milestone events in multiple agreements. The probability that all such milestone events will occur in the aggregate is remote. Payments made to license IP represent the acquisition cost of intangible assets.\u00a0
The Group was a party to certain sponsored research arrangements and is a party to arrangements with contract manufacturing and contract research organizations, whereby the counterparty provides the Group with research and/or manufacturing services. As of December 31, 2023 and 2022, the noncancellable commitments in respect of such contracts amounted to approximately $16,422 and $11,288, respectively.
In March 2024, a complaint was filed in Massachusetts District Court against the Group alleging breach of contract with respect to certain payments alleged to be owed to a previous employee of a Group subsidiary based on purported terms of a contract between such individual and the Group. The Group intends to defend itself vigorously though the ultimate outcome of this matter and the timing for resolution remains uncertain. No determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable.
Related Party Subleases and Royalties
During 2019, the Group executed a sublease agreement with a related party, Gelesis. As of December 31, 2022, the sublease receivable amounted to $1,285. During 2023, the sublease receivable was written down to $0 as Gelesis ceased operations and filed for bankruptcy.
The Group recorded $23, $89 and $113 of interest income with respect to the sublease during the years ended\u00a0December 31, 2023, 2022, and 2021, respectively, which is presented within finance income in the Consolidated Statement of Comprehensive Income/(Loss).
The Group received royalties from Gelesis on its product sales. The Group recorded zero, $509, and $231 of royalty revenue during the years ended December 31, 2023, 2022, 2021, respectively, which is presented in contract revenue in the Consolidated Statement 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 non-executive directors). The key management personnel compensation of the Group was as follows for the years ended\u00a0December 31:
2023 $ | 2022 $ | 2021 $ | |
As of December 31 | |||
Short-term employee benefits | 9,714 | 4,162 | 4,612 |
Post-employment benefits | 41 | 55 | 54 |
Termination Benefits | 417 | 152 | \u2014 |
Share-based payment expense | 599 | 2,741 | 4,045 |
Total | 10,772 | 7,109 | 8,711 |
Short-term employee benefits include salaries, health care and other non-cash benefits. Post-employment benefits include 401K contributions from the Group. Termination benefits include severance pay. Share-based payments are generally subject to vesting terms over future periods. See Note 9. Share-based Payments. As of 12/31/2023, the payable due to the key management employees was $4,732.
In addition the Group paid remuneration to non-executive directors in the amounts of $475,\u00a0$655 and $605 for the years ended\u00a0December 31, 2023, 2022 and 2021, respectively. Also, the Group incurred\u00a0$373, $365, and $161 of stock based compensation expense for such non-executive directors for the years ended\u00a0December 31, 2023, 2022, and 2021, respectively.
During the years ended\u00a0December 31, 2023 and 2022, the Group incurred\u00a0$46, and $51, 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, 2023 and December 31, 2022, the outstanding related party notes payable totaled $104 and $99, 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.
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 of December 31, 2023:
Business name (share class) | Number of shares held as of December 31, 2023 | Number of options held as of December 31, 2023 | Number of RSUs held as of December 31, 2023 | Ownership interest\u00b9 | |
Directors: | |||||
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% |
Dr John LaMattina2 | Akili (Common) | 56,554 | \u2014 | \u2014 | 0.07% |
Vedanta Biosciences (Common) | 25,000 | 15,000 | \u2014 | 0.24% | |
Senior Managers: | |||||
Dr Bharatt Chowrira | Karuna (Common) | 5,000 | \u2014 | \u2014 | 0.01% |
1\u00a0\u00a0\u00a0\u00a0Ownership interests as of December 31, 2023 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\u00a0Dr John LaMattina holds convertible notes issued by Appeering in the aggregate principal amount of $50,000.
Directors and senior managers hold\u00a023,547,554 ordinary shares and 11.5 percent voting rights of the Group as of December 31, 2023. This amount excludes options to purchase 2,262,500 ordinary shares. This amount also excludes 7,301,547 shares, which are issuable based on the terms of performance based RSU awards granted to certain senior managers covering the financial years 2023, 2022 and 2021, and 102,732\u00a0shares, which are issuable to directors immediately prior to the Group's 2024 Annual General Meeting of Stockholders, based on the terms of the RSU awards granted to non-executive directors in 2023. Such shares will be issued to such senior managers and non-executive directors in future periods provided that performance and/or service conditions are met, and certain of the shares will be withheld for payment of customary withholding taxes.
Other
See Note 7. Investment in Notes from Associates for details on the notes issued by Gelesis and Vedanta to the Group.
As of December 31, 2023, the Group has a receivable from Sonde and Vedanta in the amount of $1,569.
Tax on the profit or loss for the year comprises current and deferred income tax. Tax is recognized in the Consolidated Statement of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
For the years ended\u00a0December 31, 2023, 2022 and 2021, the Group filed a consolidated U.S. federal income tax return which included all subsidiaries in which the Group owned greater than 80 percent of the vote and value. For the years ended\u00a0December 31, 2023, 2022 and 2021, the Group filed certain consolidated state income tax returns which included all subsidiaries in which the Group owned greater than 50 percent of the vote and value. The remaining subsidiaries file separate U.S. tax returns.
Amounts recognized in Consolidated Statement of Comprehensive Income/(Loss):
2023 $ | 2022 $ | 2021 $ | |
For the year ended December 31 | |||
Income/(loss) for the year | (66,628) | (37,065) | (62,709) |
Income tax expense/(benefit) | 30,525 | (55,719) | 3,756 |
Income/(loss) before taxes | (36,103) | (92,783) | (58,953) |
Recognized Income Tax Expense/(Benefit):
2023 $ | 2022 $ | 2021 $ | |
For the year ended December 31 | |||
Federal \u2013 current | (2,246) | 13,065 | 22,138 |
State \u2013 current | (46) | 1,336 | 109 |
Total current income tax expense/(benefit) | (2,292) | 14,401 | 22,247 |
Federal \u2013 deferred | 29,294 | (48,240) | (15,416) |
State \u2013 deferred | 3,523 | (21,880) | (3,075) |
Total deferred income tax expense/(benefit) | 32,817 | (70,120) | (18,491) |
Total income tax expense/(benefit), recognized | 30,525 | (55,719) | 3,756 |
The income tax expense/(benefit) was $30,525, $(55,719) and $3,756 in 2023, 2022 and 2021 respectively. The increase in tax expense for the year ended December 31, 2023 was primarily attributable to a lower pre-tax loss in the tax consolidated U.S. group, the tax in respect of the sale of future royalties to Royalty Pharma and the tax impact of derecognizing previously recognized deferred tax assets that are no longer expected to be utilized.
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:
2023 | 2022 | 2021 | ||||||
For the year ended December 31 | $ | % | $ | % | $ | % | ||
US federal statutory rate | (7,573) | 21.00 | (19,486) | 21.00 | (12,380) | 21.00 | ||
State taxes, net of federal effect | (3,974) | 11.01 | (8,043) | 8.67 | (4,484) | 7.61 | ||
Tax credits | (9,167) | 25.39 | (6,876) | 7.41 | (5,056) | 8.58 | ||
Stock-based compensation | 589 | (1.63) | 788 | (0.85) | 555 | (0.94) | ||
Finance income/(costs) \u2013 fair value accounting | (556) | 1.54 | (28,783) | 31.02 | (2,017) | 3.42 | ||
Loss with respect to associate for which no deferred tax asset is recognized | 249 | (0.69) | 1,413 | (1.52) | 11,542 | (19.58) | ||
Revaluation of deferred due to rate change | \u2014 | 0.00 | (8,856) | 9.54 | \u2014 | \u2014 | ||
Nondeductible compensation | 872 | (2.42) | 300 | (0.32) | 746 | (1.27) | ||
Recognition of deferred tax assets and tax benefits not previously recognized | (433) | 1.20 | (184) | 0.20 | (414) | 0.70 | ||
Unrecognized deferred tax asset | 83,984 | (232.63) | 17,287 | (18.63) | 14,375 | (24.38) | ||
Deconsolidation of subsidiary | (17,506) | 48.49 | (3,572) | 3.85 | \u2014 | \u2014 | ||
Other | 1,321 | (3.65) | 293 | (0.32) | 889 | (1.51) | ||
Worthless stock deduction | (17,281) | 47.87 | \u2014 | \u2014 | \u2014 | \u2014 | ||
30,525 | (84.52) | (55,719) | 60.05 | 3,756 | (6.37) |
The Group 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:
2023 $ | 2022 $ | |
For the year ended December 31 | ||
Operating tax losses | 3,849 | 48,317 |
Tax credits | 2,425 | 11,101 |
Share-based payments | 5,210 | 8,423 |
Capitalized research & development expenditures | 39,422 | 36,084 |
Investment in Associates | \u2014 | 13,036 |
Lease liability | 5,133 | 7,143 |
Sale of future royalties | 35,920 | \u2014 |
Other temporary differences | 1,770 | 2,957 |
Deferred tax assets | 93,729 | 127,061 |
Investments held at fair value | (53,411) | (47,877) |
Right of use assets | (2,330) | (3,519) |
Property and equipment, net | (1,637) | (2,348) |
Investment in Associates | (755) | \u2014 |
Deferred tax liabilities | (58,133) | (53,744) |
Deferred tax assets (liabilities), net | 35,596 | 73,317 |
Deferred tax liabilities, net, recognized | (52,462) | (19,645) |
Deferred tax assets (liabilities), net, not recognized | 88,058 | 92,962 |
The Group has recognized deferred tax assets due to future reversals of existing taxable temporary differences that will be sufficient to recover the deferred tax assets. Our unrecognized deferred tax assets of $88,058 are primarily related to tax credits, capitalized research & development expenditures and deferred tax asset related to the sale of future royalties to Royalty Pharma. The Group does not believe it is probable that future taxable profit will be available to support the realizability of these unrecognized deferred tax assets.
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.
2023 $ | 2022 $ | ||||
For the year ended December 31 | |||||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Deductible temporary difference | 353,323 | 83,741 | 132,145 | 33,544 | |
Tax losses | 13,681 | 3,849 | 219,466 | 48,317 | |
Tax credits | 468 | 468 | 11,101 | 11,101 | |
Total | 367,472 | 88,058 | 362,712 | 92,962 |
Tax Losses and Tax Credits Carryforwards
Tax losses and tax credits for which no deferred tax asset was recognized are presented below:
As of December 31 | 2023 $ | 2022 $ | |||
Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||
Tax losses expiring: | |||||
Within 10 years | 4,741 | 1,284 | 23,930 | 5,387 | |
More than 10 years | 6,635 | 1,455 | 42,822 | 10,509 | |
Available Indefinitely | 2,305 | 1,110 | 152,714 | 32,421 | |
Total | 13,681 | 3,849 | 219,466 | 48,317 | |
Tax credits expiring: | |||||
Within 10 years | 43 | 43 | 43 | 43 | |
More than 10 years | 425 | 425 | 11,058 | 11,058 | |
Available indefinitely | \u2014 | \u2014 | \u2014 | \u2014 | |
Total | 468 | 468 | 11,101 | 11,101 |
The Group had U.S. federal net operating losses carry forwards (\u201cNOLs\u201d) of $13,681, $219,466 and $215,400 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire through 2037 with the exception of $2,305 which is not subject to expiration. The Group had U.S. federal research and development tax credits of approximately $1,396, $4,500 and $3,900 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes that expire at various dates through 2043. The Group also had Federal Orphan Drug credits of approximately $930 and $6,100 as of December 31, 2023, and 2022, which are available to offset future taxes that expire at various dates through 2043. A portion of these federal NOLs and credits can only be used to offset the profits from the Group\u2019s subsidiaries who file separate federal tax returns. These NOLs and credits are subject to review and possible adjustment by the Internal Revenue Service.
The Group had state net operating losses carry forwards (\u201cNOLs\u201d) of approximately $111,446, $71,700 and $27,900 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire at various dates beginning in 2030. The Group had Massachusetts research and development tax credits of approximately $98, $600 and $1,300 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes and expire at various dates through 2038. These NOLs and credits are subject to review and possible adjustment by state taxing authority.
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 Group has performed a Section 382 analysis\u00a0 through December 31, 2023. 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 Group\u2019s net operating losses which are subject to a Section 382 limitation has been recognized in the financial statements.
Tax Balances
The tax related balances presented in the Statement of Financial Position are as follows:
For the year ended December 31 | 2023 $ | 2022 $ |
Income tax receivable \u2013 current | 11,746 | 10,040 |
Trade and other payables | \u2014 | (57) |
Uncertain Tax Positions
The Group has evaluated subsequent events after December 31, 2023, up to the date of issuance, April\u00a025, 2024, 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:
In January 2024, the Group launched two new Founded Entities (Seaport Therapeutics and Gallop Oncology) to advance certain programs from the Wholly-Owned Programs segment. Seaport Therapeutics (\"Seaport\") will advance certain central nervous system programs and relevant Glyph intellectual property.\u00a0 Gallop Oncology will advance LYT-200 and other galectin-9 intellectual property. The financial results of these programs were included in the Wholly-Owned Programs segment in the footnotes to the Consolidated Financial Statements, as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities.
On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program (the \"Program\") of its ordinary shares of one pence each. In February 2024, the Group completed the Program and has repurchased an aggregate of 20,182,863 ordinary shares under the Program. These shares have been held as treasury shares and are being used to settle the vesting of restricted stock units or exercise of options.
In March 2024, Karuna was acquired by Bristol Myers Squibb (\u201cBMS\u201d) in accordance with a definitive merger agreement signed in December 2023. As a result of this transaction, the Group received total proceeds of $292,672 before income tax in exchange for its holding of 886,885 shares of Karuna common stock.
In March 2024, the Group announced a proposed capital return of $100,000 to its shareholders by way of a tender offer (the \"Tender Offer\"). The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. If the full $100,000 is not returned, then the Group intends to return any remainder following the completion of the Tender Offer, by way of a special dividend.
In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised $100,000 in a Series A financing, out of which $32,000 was invested by the Group. Following the Series A financing, the Group holds equity ownership in Seaport of 61.5 percent on a diluted basis.