UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of November, 2013
COMMISSION FILE NO. 000-29338
CARDIOME PHARMA CORP.
(formerly NORTRAN PHARMACEUTICALS INC.)
____________________________________________
(Translation of Registrant’s name into English)
Suite 405, 6190 Agronomy Rd
Vancouver, British Columbia, V6T 1Z3, CANADA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
| Form 20-F T | Form 40-F * |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): *
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): *
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange act of 1934.
| Yes * | No T |
This Form 6-K is hereby filed and incorporated by reference in the registrant’s Registration Statements on Form F-10 (File No. 333-137935), Form F-3 (File No. 333-131912), Form S-8 (333-136696) and Form S-8 (333-125860).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CARDIOME PHARMA CORP. | ||
| Date: November 6, 2013 | /s/ JENNIFER ARCHIBALD | |
| Jennifer Archibald | ||
| Chief Financial Officer | ||
EXHIBIT INDEX
| EXHIBIT | DESCRIPTION OF EXHIBIT | |
| 99.1 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 99.2 | Consolidated Financial Statements | |
| 99.3 | Material Change Report dated November 6, 2013 | |
| 99.4 | Certificate of Filing - CEO | |
| 99.5 | Certificate of Filing - CFO | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This management discussion and analysis (“MD&A”) of Cardiome Pharma Corp. (“Cardiome”) for the period ended September 30, 2013 is as of November 5, 2013. We have prepared this MD&A with reference to National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators. This MD&A should be read in conjunction with our interim unaudited consolidated financial statements and notes thereto for the nine months ended September 30, 2013. You should also consider our audited consolidated financial statements and notes thereto and our MD&A for the year ended December 31, 2012, which are included in our 2012 Annual Report on Form 20-F. Our consolidated financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”). All amounts are expressed in U.S. dollars unless otherwise indicated.
The forward-looking statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, as well as marketing plans, future revenues from sales of BRINAVESS™, the expected completion of the transition of global rights to vernakalant to Cardiome by Merck, known as MSD outside the United States and Canada, and other non-historical statements, are based on our current expectations and beliefs, including certain factors and assumptions, as described in our most recent Annual Report on Form 20-F, but are also subject to numerous risks and uncertainties, as described in the “Risk Factors” section of our Annual Report on Form-20F. As a result of these risks and uncertainties, or other unknown risks and uncertainties, our actual results may differ materially from those contained in any forward-looking statements. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We undertake no obligation to update forward-looking statements, except as required by law. Additional information relating to Cardiome Pharma Corp., including our most recent Annual Report on Form 20-F, is available by accessing the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com or the U.S. Securities and Exchange Commission’s (“SEC”) Electronic Document Gathering and Retrieval System (“EDGAR”) website at www.sec.gov/edgar.
OVERVIEW
We are a biopharmaceutical company dedicated to the discovery, development and commercialization of new therapies that will improve the health of patients around the world. We have one product, BRINAVESS™, the trade name of vernakalant intravenous (IV), approved for marketing in Europe and other territories for the rapid conversion of recent onset atrial fibrillation to sinus rhythm in adults: for non-surgery patients with atrial fibrillation of seven days duration or less and for post-cardiac surgery patients with atrial fibrillation of three days duration or less. Atrial fibrillation is an arrhythmia or abnormal rhythm, of the upper chambers of the heart.
Vernakalant
Exclusive global rights to the intravenous and oral formulations of vernakalant hydrochloride (“vernakalant (IV) and vernakalant (oral)” respectively) were held by Merck Sharp and Dohme Corp. (Merck), known as MSD outside the United States and Canada, were shared by Merck and Cardiome pursuant to two collaboration and license agreements (the “Collaboration Agreements”). On September 25, 2012, Merck gave notice to us of its termination of both collaboration and license agreements. The transfer to Cardiome of the exclusive global rights to vernakalant (IV) and vernakalant (oral) and responsibilities (as described below) in connection with those terminations are ongoing.
On April 24, 2013, we entered into a Transition Agreement with Merck (the “Transition Agreement”) to amend and supplement the provisions of the Collaboration Agreements governing their rights and responsibilities in connection with the termination of the Collaboration Agreements and transfer of rights to, and responsibilities for, vernakalant to us. Pursuant to the Transition Agreement, we took responsibility for worldwide sales, marketing, and promotion of vernakalant (IV) on April 24, 2013. Regulatory product rights and product distribution responsibility are expected to transfer to us upon transfer of the marketing authorization in the relevant countries.
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On June 27, 2013, the European Commission approved the transfer of the centrally-approved marketing authorization for BRINAVESS from Merck to us. We are now the new marketing authorization holder for BRINAVESS in the member states of the European Union (EU). With the completion of this transfer, commencing July 1, 2013, royalties on sales and the promotional services fee we previously received from Merck ceased and we began benefiting from all sales of BRINAVESS throughout the world.
On September 16, 2013, we announced the completion of the transfer from Merck to us of commercialization responsibility for BRINAVESS in the EU and the transfer of responsibility to complete the post-marketing study for BRINAVESS. We are now supplying BRINAVESS under our own trade dress in the EU.
The transition to us of Merck’s rights and responsibilities under the Collaboration Agreements is a multi-step process and transition activities are ongoing. We expect these activities to continue throughout the remainder of 2013 and potentially into early 2014.
Rest of World (Outside North America)
In Q2-2009, we entered into the Collaboration Agreements for, among other things, the development and exclusive commercialization of vernakalant (IV) outside of North America with Merck. Under the Collaboration Agreements, development efforts and expenses for vernakalant (IV) outside of North America were the responsibility of Merck. In Q3-2009, we received a $15 million milestone payment from Merck upon the filing of a Marketing Authorisation Application (“MAA”) to the European Medicines Agency seeking marketing approval for vernakalant (IV) in the EU.
In Q2-2010, we announced final results from the Phase 3 European Comparator Study (the “AVRO study”) which showed the superiority of vernakalant (IV) over amiodarone in the conversion of atrial fibrillation to sinus rhythm within 90 minutes of the start of drug administration.
In the Asia-Pacific region, Merck initiated a Phase 3 trial in Q3-2010 that is expected to support regulatory applications in additional territories for which marketing approval has not yet been attained. This study has been terminated as part of the transfer of rights and responsibilities under the Collaboration Agreements from Merck to us, and analysis of the study is ongoing.
In Q3-2010, we announced that vernakalant (IV), under the trade name BRINAVESS, was granted marketing approval in the EU, Iceland and Norway for the rapid conversion of recent onset atrial fibrillation to sinus rhythm in adults: for non-surgery patients with atrial fibrillation of seven days duration or less and for post-cardiac surgery patients with atrial fibrillation of three days duration or less. As a result of the European marketing approval, we received a $30 million milestone payment from Merck.
In 2011, BRINAVESS was granted marketing approval in several countries outside of the EU. Also in 2011, Merck initiated SPECTRUM, a post-approval safety study. During Q3-2013, the transfer of this safety study to us was completed.
During Q3-2013, we announced that BRINAVESS was also granted marketing approval in Turkey and South Africa.
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BRINAVESS has been commercially launched by Merck in a number of countries where it is approved for marketing. In Q2-2013, we began establishing a direct sales force in select European markets in support of BRINAVESS. Countries that are covered by our direct sales force include Germany, Spain, Sweden, Norway, Finland, Denmark and Luxembourg. During Q3-2013, we partnered with AOP Orphan Pharmaceutical AG (“AOP Orphan”) to commercialize BRINAVESS in select European markets where we do not currently operate, including Austria. It is expected that AOP Orphan will support us in obtaining product registrations required for the marketing and sale of BRINAVESS in those markets where this is required and will actively call on customers to promote the product. We also entered into commercialization agreements with Tzamal Medical Ltd. and LifePharma (Z.A.M.) Ltd. to sell and distribute BRINAVESS in Israel and Cyprus, respectively. Subsequent to the end of Q3-2013, we announced that we partnered with Biospifar S.A. and Algorithm S.A.L. to sell and distribute BRINAVESS in Colombia and certain Middle Eastern and North African countries, respectively.
North America
We have previously announced positive results for two pivotal Phase 3 atrial fibrillation trials, ACT 1 and ACT 3, respectively, for vernakalant (IV). We have also announced positive results from an additional Phase 3 study, ACT 2, evaluating patients with post-operative atrial arrhythmia and have completed an open-label safety study, ACT 4.
In 2003, we entered into a collaboration and license agreement for the co-development and exclusive commercialization of vernakalant (IV) in North America with Astellas US LLC (“Astellas”). In July 2011, we consented to the transfer of rights to develop and commercialize vernakalant (IV) in North America from Astellas to Merck. Pursuant to this transfer agreement, we were responsible for 25 percent of the development costs for vernakalant (IV) in North America, while Merck was responsible for 75 percent of the development costs and future commercialization costs for vernakalant (IV) in North America. In Q3-2012, we announced Merck would return the global marketing and development rights for vernakalant (IV), discussed further under the heading “vernakalant”, above.
In 2006, Astellas submitted a New Drug Application (“NDA”) for vernakalant (IV) to the United States Food and Drug Administration (“FDA”) seeking approval to market vernakalant (IV) in the United States for the conversion of atrial fibrillation. In Q3-2008, Astellas received an action letter from the FDA informing Astellas that the FDA had completed its review of the NDA for vernakalant (IV) and that the application was approvable. In Q3-2009, following extended discussions with the FDA, Astellas began a single confirmatory additional Phase 3 clinical trial under a Special Protocol Agreement (“SPA”), called ACT 5, which began patient enrolment in Q4-2009. In Q4-2010, Astellas suspended patient enrolment in the ACT 5 trial pending FDA review of a single serious adverse event of cardiogenic shock experienced by a patient with atrial fibrillation who received vernakalant (IV). The trial’s independent Data Safety Monitoring Board reviewed the case and recommended the trial continue; however, the FDA requested that full data regarding this case from the South American clinical site be provided for their review prior to determining what steps, if any, are needed to restart the study. After the transfer of rights from Astellas to Merck, Merck and the FDA terminated the ACT 5 trial.
In May 2013, we announced the completion of the transfer of sponsorship of the U.S. Investigational NDAs for vernakalant (IV), the transfer of the U.S. NDA for vernakalant (IV), and, the transfer of sponsorship of all vernakalant Canadian Clinical Trial Applications from Merck to us. Merck had begun discussions with the FDA to determine the next steps for the development of vernakalant (IV) in the United States. We intend to continue these discussions to determine potential pathways forward for vernakalant.
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Vernakalant (oral)
In 2006, we announced positive results from a Phase 2a pilot study. A Phase 2b clinical study for vernakalant (oral) was initiated in Q1-2007 and we announced positive final results from the completed study in Q3-2008.
In Q2-2009, we entered into the Collaboration Agreements for the development and commercialization of vernakalant (oral), providing a Merck affiliate with exclusive rights to vernakalant (oral) globally. Pursuant to the Collaboration Agreement, all development efforts and expenses for vernakalant (oral) are the responsibility of Merck. In Q4-2010, we announced that Merck’s current review of vernakalant (oral) was completed, and that Merck had confirmed its plans for the clinical development of vernakalant (oral) beginning in 2011. In November 2011, we announced that Merck completed an additional multiple rising-dose Phase 1 study to explore the safety, tolerability, pharmacokinetics and pharmacodynamics of higher doses of vernakalant (oral) than previously studied in healthy subjects and that in this study, vernakalant (oral) was well-tolerated at increased exposures. We also announced that an additional Phase 1 trial assessing the safety and tolerability of vernakalant (oral) when dosed for a more extended period of time at higher exposures was initiated in 2011. This trial was successfully completed in February 2012.
In Q1-2012, Merck communicated to us its decision to discontinue further development of vernakalant (oral). In Q3-2012, we announced Merck will return the global marketing and development rights for vernakalant (oral) in connection with Merck’s termination of the Collaboration Agreements. In May 2013, we completed the transfer of sponsorship of the U.S. Investigational NDAs for vernakalant (oral) from Merck to us. We are continuing to assess the appropriate development plan for vernakalant (oral).
Pre-clinical
We continue to support pre-clinical research and development work externally through collaborations. The focus of the technology is on modulating cellular proteins (ion channels) that gate the movement of ions across the cell membrane to control a variety of essential functions ranging from the contraction of muscles, to the secretion from glands, and even responses to foreign bodies and inflammation. The wide variety of such proteins provides a broad area for the development of therapeutics useful in a large number of human disorders.
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The following table summarizes the current status of our programs:
| Program | Stage of Development | Current Status |
| Vernakalant (IV) | FDA New Drug Application (NDA) | Approvable letter received in 2008 |
| European Marketing Authorisation Application (MAA) | Marketing approval received in September 2010 under trade name BRINAVESS | |
| European Comparator (AVRO) Study | Final results released in Q2-2010 | |
| Phase 3 Asia Pacific study | Patient enrollment initiated in Q3-2010 Study terminated as part of Merck’s termination of the Collaboration Agreements | |
| Phase 3 ACT 5 study | Analysis of data ongoing | |
| Post approval study | SPECTRUM (post approval safety study) initiated in 2011 Study continuing | |
| Vernakalant (oral) | Phase 2b Clinical Trial | Final results released in Q3-2008 |
| Pharmacokinetic/ pharmacodynamics studies | Phase 1 PK/PD studies completed | |
| Other | Pre-clinical | Pre-clinical studies |
CORPORATE UPDATE
Establishment of European presence
During Q1-2013, we appointed Steen Juul-Möller, M.D., Ph.D./DMSc., FESC as our European Medical Director to oversee our clinical and medical affairs activities. We also began establishing a small, direct sales force in Europe to promote BRINAVESS. During Q2-2013, Jürgen Polifka, Ph.D. joined our management team as General Manager, Sales and Marketing Europe to oversee our commercialization activities in Europe. During Q3-2013, we continued to build our direct sales force in Europe as well as the necessary infrastructure to support it. We continually seek ways to accelerate the build out of our infrastructure including opportunities through business development.
Long-term debt settlement
On February 28, 2013, the debt settlement agreement dated December 10, 2012, and amended on December 31, 2012, between us and Merck (the “Debt Settlement Agreement”), was further amended allowing us to pay the balance of the debt settlement amount prior to March 31, 2013. On March 1, 2013, we paid the remaining $13 million of the $20 million agreed-upon debt settlement payment, extinguishing all outstanding debt obligations to Merck. We recorded a gain on debt settlement of $20.8 million during Q1-2013. With this final payment, all outstanding debt obligations are extinguished and Merck has released and discharged the collateral security taken in respect of the advances under the line of credit.
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Share consolidation
On April 3, 2013, our shareholders approved the consolidation of our issued and outstanding common shares on the basis of one (1) post-consolidation common share for every five (5) pre-consolidation common shares. Our common shares began trading on a post-consolidation basis on the NASDAQ and TSX on April 12, 2013. All share and per share information in this document gives effect to the share consolidation on a retroactive basis, unless otherwise indicated.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting that occurred during the nine months ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Our interim consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. We believe that the estimates and assumptions upon which we rely are reasonable based upon information available at the time that these estimates and assumptions were made. Actual results may differ from these estimates under different assumptions or conditions. Significant areas requiring management estimates include the assessment of net recoverable value and amortization period of intangible assets, clinical trial accounting, revenue recognition, and stock-based compensation expense.
There were no material changes to our critical accounting estimates during the past two financial years.
The significant accounting policies that we believe are the most critical in fully understanding and evaluating our reported financial results include revenue recognition, and clinical trial accounting. These and other significant accounting policies are described more fully in Note 2 of our annual consolidated financial statements for the year ended December 31, 2012. There have been no material changes to these accounting policies during the nine months ended September 30, 2013, except as described below.
Changes in or Adoption of Significant Accounting Policies
FASB Amendments:
In February 2013, the Financial Accounting Standards Board (“FASB”) issued amendments to the accounting guidance for presentation of comprehensive income, requiring an entity to provide additional information about reclassification of accumulated other comprehensive income. The amendments, which are effective prospectively for reporting periods beginning after December 15, 2012, do not change the current requirements for reporting net income or other comprehensive income. On January 1, 2013, we prospectively adopted the amendments. The adoption of these amendments did not have a material impact on the presentation of our results of operations for the periods presented.
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Inventories:
In June 2013, pursuant to the Debt Settlement Agreement and the Transition Agreement between us and Merck, we purchased $2.8 million of work in process inventories including unlabeled vials and active pharmaceutical ingredients for vernakalant (IV). As a result, we adopted a new accounting policy for measuring these inventories.
Inventories consist of finished goods and unfinished product (work in process) and are valued at the lower of cost and net realizable value, determined on a first-in-first-out basis, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Revenue recognition:
Product revenues
On September 16, 2013, the transfer of commercialization responsibility from Merck to us was completed in the EU and we began supplying BRINAVESS under our own trade dress. As a result, we adopted new accounting policies for recognizing revenues from product sales and providing for amounts uncollectible from customers.
Revenue from sales of products is recognized upon the later of transfer of title or upon shipment of the product to the customer, so long as persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectability is reasonably assured and title and delivery has occurred. Provisions for discounts and sales returns are provided for in the same period the related sales are recorded.
Allowance for doubtful accounts receivable:
An allowance for doubtful accounts receivable is estimated primarily based on the credit worthiness of customers, aging of receivable balances and general economic conditions. Amounts later determined and specifically identified to be uncollectible are charged against this allowance.
Impact of Accounting Pronouncements Affecting Future Periods
In March 2013, the FASB issued amendments on foreign currency matters related to parent’s accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The amendments clarify the applicable guidance for the release of the cumulative translation adjustment (CTA) under current U.S. GAAP. These amendments will be effective prospectively for reporting periods beginning after December 15, 2013. We do not expect the adoption of the amendments to have a material impact on our financial position or results of operations.
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RESULTS OF OPERATIONS
Third Quarter Overview
The higher net loss in Q3-2013 compared to Q2-2013 was mainly due to an increase in selling, general and administrative costs of $1.0 million as a result of our transition activities with Merck, worldwide sales and marketing efforts, as well as other related costs required to support the commercialization of BRINAVESS. The higher expenses in Q3-2013 were partially offset by an increase of $0.4 million in revenues, primarily due to the recognition of the full benefit of all BRINAVESS sales worldwide this quarter.
Three and Nine Months Ended September 30, 2013 Compared to Three and Nine Months Ended September 30, 2012
We recorded a net loss of $3.6 million ($0.29 per share) for the three months ended September 30, 2013 (Q3-2013), compared to a net loss of $13.4 million ($1.10 per share) for the three months ended September 30, 2012 (Q3-2012). On a year-to-date basis, we recorded net income of $12.0 million ($0.96 per share) for the nine months ended September 30, 2013, compared to a net loss of $26.1 million ($2.13 per share) for the nine months ended September 30, 2012.
The net loss for Q3-2013 was primarily due to ongoing operating costs. The net income for the nine months ended September 30, 2013 was primarily due to the recognition of a $20.8 million gain on the settlement of debt owed to Merck. The lower losses in fiscal 2013, compared to the comparable period in 2012, are mainly a result of lower employee and facility lease expenses as a result of restructuring efforts in fiscal 2012.
For the remainder of the year, our expenses are expected to be greater than our revenues from the sale of BRINAVESS and any licensing and other fees we may earn.
Revenue
Revenue for Q3-2013 was $0.5 million. This is an increase of $0.4 million from $0.1 million in Q3-2012 and can be primarily attributable to the recognition of the full benefit of all BRINAVESS sales worldwide this quarter. Prior to Q3-2013, we benefitted from the sale of BRINAVESS in the form of royalties and promotional fees in connection with the Collaboration Agreements with Merck. On a year-to-date basis, revenue for the nine months ended September 30, 2013 and 2012 was $0.6 million and $0.7 million, respectively.
In 2013, revenue has been comprised of product revenue and licensing and other fees we received from our collaborative partners. In 2012, revenue consisted of licensing and other fees and research collaborative fees from Merck.
Product revenues comprise of sales of BRINAVESS. Licensing and other fees in 2012, as well as those in the first two quarters of 2013, represent royalties from our collaborative partners. For Q3-2013, licensing and other fees represent the full benefit of worldwide product sales up to the transfer of commercialization responsibility from Merck to us on September 16, 2013. After September 16, 2013, licensing and other fees represent the full benefit of sales in countries where the marketing authorization has not yet been transferred from Merck to us.
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Sales of BRINAVESS dropped significantly since Merck announced the termination of the Collaborative Agreements, hitting an all-time low in Q1-2013. With the signing of the transition agreement with Merck, our sales force began promoting BRINAVESS in Q2. Even without the ability to control discounting or the promotional message, total sales of BRINAVESS increased by 14% in Q2-2013 as compared to Q1-2013. Despite the third quarter historically being the weakest quarter for BRINAVESS sales in Europe, total sales in Q3-2013 increased by 17% compared to Q2-2013. Although we now have the ability to implement our marketing strategy with the completion of commercialization responsibility for BRINAVESS in the EU, we do not expect to see a significant impact on sales in Q4 as we complete the transition process for regulatory product rights and product distribution responsibility for BRINAVESS. In accordance with our plans, we expect to be fully selling in all EU markets by the start of 2014.
Research collaborative fees are comprised of contract research fees and project management fees from our collaborative partners. We did not earn any research collaborative fees for the nine months ended September 30, 2013 as a result of the termination of the Collaboration Agreements with Merck, and we do not expect to earn such fees in the future.
Cost of Goods Sold
Cost of goods sold relating to the sale of BRINAVESS for Q3-2013 as well as on a year to date basis was $0.05 million. We did not have any cost of goods sold in 2012.
Cost of goods sold is comprised primarily of expenditures incurred in acquiring inventories, production or conversion costs and quality control and monitoring costs.
Research and Development Expenditures
Research and development (“R&D”) expenditures were insignificant for Q3-2013 as compared to $0.4 million for Q3-2012. We incurred total R&D expenditures of $0.4 million for the nine months ended September 30, 2013, compared to $5.6 million for the same period in 2012.
R&D expenditures primarily consist of costs related to contract service and research agreements and consulting fees. Prior to Q3-2012, R&D expenditures also included wages and benefits (including stock-based compensation) of our employees performing research functions, as well as materials and lab supplies used in these activities.
The decrease in R&D expenditures for the nine months ended September 30, 2013, compared to the same period in 2012, was primarily due to the restructuring initiatives in Q3-2012 which eliminated our internal research activities.
For the remainder of the year, we expect to continue to support pre-clinical research and development work externally through collaborations. These costs are expected to be insignificant.
Selling, General and Administration Expenditures
Selling, general and administration (“SG&A”) expenditures primarily consist of wages and benefits (including stock-based compensation), office costs, corporate costs, business development costs, consulting fees and professional fees. Commencing Q1-2013, they also include costs incurred to support the commercialization of BRINAVESS.
SG&A expenditures for Q3-2013 were $4.0 million compared to $2.5 million for Q3-2012. On a year-to-date basis, we incurred total SG&A expenditures of $9.2 million for the nine months ended September 30, 2013, compared to $7.3 million for the same period in 2012. The increase in SG&A expenditures was primarily due to an increase in costs associated with our sales and marketing efforts to support the commercialization of BRINAVESS.
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For the remainder of 2013, we expect our overall SG&A expenditures to increase as compared to 2012 as a result of our worldwide sales and marketing efforts, continuing transition activities with Merck, as well as, other related costs required to support the commercialization of BRINAVESS.
Restructuring
Restructuring consists of employee termination benefits, idle-use expense, asset impairments, and other charges.
Restructuring charges for the nine months ended September 30, 2013 represented a revision to our previous estimate of total restructuring charges, while the amount for the same period in 2012 related primarily to employee termination benefits associated with our 2012 workforce reduction initiatives.
Other Income and Expenses
Other income and expenses consists of sublease income, foreign exchange gains (losses), interest, and gain from settlement of debt.
Other income for Q3-2013 was $0.05 million, compared to other expense of $1.0 million for Q3-2012. For the nine months ended September 30, 2013, other income was $21.2 million, compared to other expense of $2.9 million for the nine months ended September 30, 2012. The decrease in other expense in 2013 related primarily to a decrease in interest expense and the corresponding $20.8 million gain on the settlement of debt owed to Merck
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QUARTERLY FINANCIAL INFORMATION
The following table summarizes selected unaudited consolidated financial data for each of the last eight quarters, prepared in accordance with U.S. GAAP:
| Quarter ended | ||||||||||||||||
| (In thousands of U.S. dollars except per share amounts) | September 30, 2013 | June 30, 2013 | March 31, 2013 | December 31, 2012 | ||||||||||||
| Total revenue | $ | 477 | $ | 107 | $ | 60 | $ | 84 | ||||||||
| Cost of goods sold | 47 | - | - | - | ||||||||||||
| Research and development | 31 | 35 | 370 | 385 | ||||||||||||
| Selling, general and administration(3) | 3,954 | 2,974 | 2,236 | 2,356 | ||||||||||||
| Restructuring | - | (57 | ) | (73 | ) | 35 | ||||||||||
| Gain on settlement of debt | - | - | 20,834 | 11,218 | ||||||||||||
| Net income (loss) | $ | (3,614 | ) | $ | (2,774 | ) | $ | 18,393 | $ | 7,744 | ||||||
| Income (loss) per share | ||||||||||||||||
| Basic and diluted(2) | $ | (0.29 | ) | $ | (0.22 | ) | $ | 1.47 | $ | 0.63 | ||||||
| Quarter ended | ||||||||||||||||
| (In thousands of U.S. dollars except per share amounts) | September 30, 2012 | June 30, 2012 | March 31, 2012 | December 31, 2011 | ||||||||||||
| Total revenue | $ | 63 | $ | 209 | $ | 433 | $ | 401 | ||||||||
| Cost of goods sold | - | - | - | - | ||||||||||||
| Research and development | 449 | 2,255 | (1) | 2,928 | (1) | 3,442 | ||||||||||
| Selling, general and administration(3) | 2,496 | 2,207 | (1) | 2,552 | (1) | 2,095 | ||||||||||
| Restructuring | 9,036 | 165 | (1) | 804 | (1) | - | ||||||||||
| Net income (loss) | $ | (13,412 | ) | $ | (5,677 | ) | $ | (6,970 | ) | $ | (5,898 | ) | ||||
| Income (loss) per share | ||||||||||||||||
| Basic and diluted(2) | $ | (1.10 | ) | $ | (0.46 | ) | $ | (0.57 | ) | $ | (0.48 | ) | ||||
(1) Employee termination benefits relating to the Q1-2012 workforce reduction have been reclassified to restructuring.
(2) Income (loss) per share amounts for the periods presented have been adjusted on a retroactive basis to reflect the April 12, 2013 one-for-five share consolidation.
(3) Effective Q1-2013, SG&A includes costs incurred to support the commercialization of BRINAVESS.
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Variations in our revenue, expenses and net income (loss) for the periods above resulted primarily from the following factors:
Research and development expenditures:
The timing and amount of clinical trials and research work performed resulted in the variations in R&D expenditures. The significant decrease in R&D expenditures starting in the second half of 2012 was due to the elimination of our internal research function.
Selling, general and administration expenditures:
The timing of stock option grants, consulting fees and corporate costs resulted in the variations in SG&A expenditures. The increase in SG&A expenditures in the most recent quarter was due to costs incurred to support the commercialization of BRINAVESS, which was partially offset by cost savings from our 2012 restructuring initiatives.
Restructuring:
The workforce reductions and the idle-use expense in Q2-2012 and Q3-2012 resulted in the variations in restructuring cost.
Gain on settlement of debt:
The debt settlement agreement with Merck in Q4-2012 and the resulting payments of the settlement amounts in Q4-2012 and Q1-2013 resulted in the gains on settlement of debt.
Net income (loss)
The timing of our revenue and expenses discussed above resulted in the variations in net income (loss). Our net income for Q1-2013 and Q4-2012 was also positively affected by the $20.8 million and $11.2 million gain on the settlement of debt owed to Merck.
LIQUIDITY AND CAPITAL RESOURCES
Our operational activities during Q3-2013 were financed mainly by working capital carried forward from the preceding fiscal year. At September 30, 2013, we had working capital of $18.7 million, compared to $6.1 million at December 31, 2012. Included in working capital at December 31, 2012 was a debt obligation to Merck of $32.5 million. On March 1, 2013, we paid the remaining $13 million of the $20 million agreed-upon debt settlement amount to Merck, extinguishing our outstanding debt obligation of $32.5 million. We had available cash reserves comprised of cash and cash equivalents of $17.3 million at September 30, 2013 compared to $41.3 million at December 31, 2012.
We believe that our cash position and expected future cash inflows from the sale of BRINAVESS will be sufficient to finance our operational and capital needs for at least 18 months. In particular, we believe our cash reserves and expected cash inflows from the sale of BRINAVESS will fund the development and commercialization of vernakalant, operational, and strategic activities. However, our future cash requirements may vary materially from those now expected due to a number of factors, including the costs associated with commercialization efforts, clinical trials, and strategic opportunities. As a result, in the future it may be necessary to raise additional funds. These funds may come from sources such as entering into strategic collaboration arrangements, the issuance of shares from treasury, or alternative sources of financing. However, there can be no assurance that we will successfully raise funds to continue the development and commercialization of vernakalant and our operational activities.
| 12 |
Sources and Uses of Cash
| (in thousands of U.S. dollars) | For the Three Months Ended September 30 | For the Nine Months Ended September 30 | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Cash used in operating activities | $ | (2,442 | ) | $ | (7,006 | ) | $ | (10,966 | ) | $ | (19,796 | ) | ||||
| Cash used in investing activities | (29 | ) | (89 | ) | (82 | ) | (314 | ) | ||||||||
| Cash provided by (used in) financing activities | 8 | - | (12,913 | ) | 25,000 | |||||||||||
| Effect of foreign exchange rate on cash and cash equivalents | 39 | 40 | (23 | ) | 87 | |||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | (2,424 | ) | $ | (7,055 | ) | $ | (23,984 | ) | $ | 4,977 | |||||
Cash used in operating activities in Q3-2013 was $2.4 million compared to $7.0 million in Q3-2012. The decrease in cash used was primarily due to $9.0 million in restructuring costs incurred in Q3-2012 which was partially offset by an increase in cash used of $3.4 million due to timing of cash payments of trade payables. Cash used in operating activities for the nine months ended September 30, 2013 was $11.0 million, a decrease of $8.8 million from $19.8 million used in operating activities for the same period in 2012.
Cash used in investing activities was insignificant in Q3-2013 and Q3-2012. Cash used in investing activities for the nine months ended September 30, 2013 was insignificant, while cash used in investing activities during the nine months ended September 30, 2012 related to the purchase of equipment and patent costs.
Cash provided by financing activities was insignificant in Q3-2013 and Q3-2012. On a year-to-date basis, cash used in financing activities for the nine months ended September 30, 2013 was $12.9 million as compared to $25 million of cash provided by financing activities for the same period in 2012. The change was mainly due to the debt settlement payment to Merck of $13.0 million in Q1-2013. In Q1-2012, we received a $25.0 million advance from Merck.
Contractual Obligations
As of September 30, 2013, in the normal course of business we have the following obligations to make future payments, representing contracts and other commitments that are known and committed.
| Contractual Obligations | Payment due by period | |||||||||||||||||||||||||||
| (In thousands of U.S. dollars) | 2013 | 2014 | 2015 | 2016 | 2017 | There- after | Total | |||||||||||||||||||||
| Commitments for clinical and other agreements | 1,552 | 2,083 | 1,442 | 5 | Nil | Nil | 5,082 | |||||||||||||||||||||
| Operating lease obligations and other | 152 | 218 | 17 | 3 | Nil | Nil | 390 | |||||||||||||||||||||
| Total | $ | 1,704 | $ | 2,301 | $ | 1,459 | $ | 8 | Nil | Nil | $ | 5,472 | ||||||||||||||||
| 13 |
Outstanding Share Capital
As at November 5, 2013, there were 12,470,335 common shares issued and outstanding, and 1,102,709 common shares issuable upon the exercise of outstanding stock options (of which 653,720 were exercisable) at a weighted average exercise price of CAD $7.83 per share. These amounts have been adjusted on a retroactive basis to reflect the April 12, 2013 one-for-five share consolidation.
RELATED PARTY TRANSACTIONS
We did not enter into any material related party transactions during the three or nine months ended September 30, 2013.
OFF-BALANCE SHEET ARRANGEMENTS
We have no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have, a current or future effect on our results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources that is material to investors.
FINANCIAL INSTRUMENTS AND RISKS
We are exposed to credit risks and market risks related to changes in interest rates and foreign currency exchange rates, each of which could affect the value of our current assets and liabilities. We invest our cash reserves in fixed rate, highly liquid and highly rated financial instruments such as treasury bills, commercial papers and banker’s acceptances. At September 30, 2013, our cash and cash equivalents were primarily held as cash, the majority of which was denominated in U.S. dollars. We do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio, due to the relative short-term nature of the investments and our current ability to hold fixed income investments to maturity. We have not entered into any forward currency contracts or other financial derivatives to hedge foreign exchange risk. We are subject to foreign exchange rate fluctuations that could have a material effect on our future operating results or cash flows.
| 14 |
Consolidated Financial Statements
(Expressed in thousands of United States (U.S.) dollars)
(Prepared in accordance with generally accepted accounting principles used in the United States of America (U.S. GAAP))
CARDIOME PHARMA CORP.
Periods ended September 30, 2013 and 2012
(Unaudited)
CARDIOME PHARMA CORP.
Consolidated Balance Sheets
(Unaudited)
(Expressed in thousands of U.S. dollars, except share amounts)
| (Prepared in accordance with U.S. GAAP) |
| September 30, 2013 | December 31, 2012 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents (note 6) | $ | 17,283 | $ | 41,267 | ||||
| Accounts receivable | 1,190 | 978 | ||||||
| Inventories (note 7) | 2,819 | - | ||||||
| Prepaid expenses and other assets | 710 | 771 | ||||||
| 22,002 | 43,016 | |||||||
| Property and equipment | 220 | 271 | ||||||
| Intangible assets | 1,315 | 1,506 | ||||||
| $ | 23,537 | $ | 44,793 | |||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities (note 8) | $ | 3,346 | $ | 4,434 | ||||
| Current portion of long-term debt (note 9) | - | 32,500 | ||||||
| 3,346 | 36,934 | |||||||
| Stockholders’ equity: | ||||||||
| Common stock | 262,439 | 262,439 | ||||||
| Authorized - unlimited number with no par value | ||||||||
| Issued and outstanding – 12,470,335 (2012 - 12,470,335) (note 10) | ||||||||
| Additional paid-in capital | 33,081 | 32,754 | ||||||
| Deficit | (293,514 | ) | (305,519 | ) | ||||
| Accumulated other comprehensive income | 18,185 | 18,185 | ||||||
| 20,191 | 7,859 | |||||||
| $ | 23,537 | $ | 44,793 | |||||
Related party transactions (note 13)
Contingencies (note 14)
See accompanying notes to the consolidated financial statements.
CARDIOME PHARMA CORP.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(Expressed in thousands of U.S. dollars, except share and per share amounts)
| (Prepared in accordance with U.S. GAAP) |
| Three months ended | Nine months ended | |||||||||||||||
| September 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | |||||||||||||
| Revenue: | ||||||||||||||||
| Product revenues | $ | 81 | $ | - | $ | 81 | $ | - | ||||||||
| Licensing and other fees | 396 | 60 | 563 | 379 | ||||||||||||
| Research collaborative fees | - | 3 | - | 326 | ||||||||||||
| 477 | 63 | 644 | 705 | |||||||||||||
| Cost of goods sold | 47 | - | 47 | - | ||||||||||||
| 430 | 63 | 597 | 705 | |||||||||||||
| Expenses: | ||||||||||||||||
| Research and development | 31 | 449 | 436 | 5,632 | ||||||||||||
| Selling, general and administration | 3,954 | 2,496 | 9,164 | 7,255 | ||||||||||||
| Restructuring (note 12) | - | 9,036 | (130 | ) | 10,005 | |||||||||||
| Amortization | 108 | 507 | 324 | 980 | ||||||||||||
| 4,093 | 12,488 | 9,794 | 23,872 | |||||||||||||
| Operating loss | (3,663 | ) | (12,425 | ) | (9,197 | ) | (23,167 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income (expense) | 7 | (1,154 | ) | 34 | (3,383 | ) | ||||||||||
| Gain on settlement of debt (note 9) | - | - | 20,834 | - | ||||||||||||
| Other income | 163 | 181 | 491 | 489 | ||||||||||||
| Foreign exchange gain (loss) | (121 | ) | (14 | ) | (157 | ) | 2 | |||||||||
| 49 | (987 | ) | 21,202 | (2,892 | ) | |||||||||||
| Net income (loss) and comprehensive income (loss) for the period | $ | (3,614 | ) | $ | (13,412 | ) | $ | 12,005 | $ | (26,059 | ) | |||||
| Income (loss) per common share(1) | ||||||||||||||||
| Basic | $ | (0.29 | ) | $ | (1.10 | ) | $ | 0.96 | $ | (2.13 | ) | |||||
| Diluted | (0.29 | ) | (1.10 | ) | 0.96 | (2.13 | ) | |||||||||
| Weighted average common shares outstanding(1) | ||||||||||||||||
| Basic | 12,470,335 | 12,225,818 | 12,470,335 | 12,225,818 | ||||||||||||
| Diluted | 12,470,335 | 12,225,818 | 12,527,346 | 12,225,818 | ||||||||||||
| (1) | Basic and diluted income (loss) per common share is based on the weighted average number of common shares outstanding during the period, which has been adjusted retroactively to reflect the effects of the one-for-five share consolidation (note 10). |
See accompanying notes to the consolidated financial statements.
CARDIOME PHARMA CORP.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(Expressed in thousands of U.S. dollars)
(Prepared in accordance with U.S. GAAP)
| For the nine months ended September 30, 2013 | Common stock | Additional paid-in capital | Deficit | Accumulated other comprehensive income | Total stockholders’ equity | |||||||||||||||
| Balance at December 31, 2012 | $ | 262,439 | $ | 32,754 | $ | (305,519 | ) | $ | 18,185 | $ | 7,859 | |||||||||
| Net Income | - | - | 12,005 | - | 12,005 | |||||||||||||||
| Stock-based compensation expense recognized | - | 327 | - | - | 327 | |||||||||||||||
| Balance at September 30, 2013 | $ | 262,439 | $ | 33,081 | $ | (293,514 | ) | $ | 18,185 | $ | 20,191 | |||||||||
| For the nine months ended September 30, 2012 | Common stock | Additional paid-in capital | Deficit | Accumulated other comprehensive income | Total stockholders’ equity | |||||||||||||||
| Balance at December 31, 2011 | $ | 262,097 | $ | 32,208 | $ | (287,204 | ) | $ | 18,185 | $ | 25,286 | |||||||||
| Net loss | - | - | (26,059 | ) | - | (26,059 | ) | |||||||||||||
| Stock-based compensation expense recognized | - | 465 | - | - | 465 | |||||||||||||||
| Balance at September 30, 2012 | $ | 262,097 | $ | 32,673 | $ | (313,263 | ) | $ | 18,185 | $ | (308 | ) | ||||||||
See accompanying notes to the consolidated financial statements.
CARDIOME PHARMA CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in thousands of U.S. dollars)
| (Prepared in accordance with U.S. GAAP) |
| Three months ended | Nine months ended | |||||||||||||||
| September 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net income (loss) for the period | $ | (3,614 | ) | $ | (13,412 | ) | $ | 12,005 | $ | (26,059 | ) | |||||
| Items not affecting cash: | ||||||||||||||||
| Amortization | 108 | 507 | 324 | 980 | ||||||||||||
| Stock-based compensation | 111 | 160 | 327 | 465 | ||||||||||||
| Deferred leasehold inducement | - | (504 | ) | - | (561 | ) | ||||||||||
| Gain on settlement of debt (note 9) | - | - | (20,834 | ) | - | |||||||||||
| Unrealized foreign exchange loss (gain) | 127 | (38 | ) | 151 | (77 | ) | ||||||||||
| Impairment of property and equipment | - | 711 | - | 716 | ||||||||||||
| Other | (10 | ) | - | (22 | ) | - | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | (663 | ) | 809 | (210 | ) | 551 | ||||||||||
| Inventories | (19 | ) | - | (2,819 | ) | - | ||||||||||
| Prepaid expenses and other assets | 114 | (84 | ) | (4 | ) | 153 | ||||||||||
| Accounts payable and accrued liabilities | 1,404 | 4,845 | 116 | 4,036 | ||||||||||||
| Net cash used in operating activities | (2,442 | ) | (7,006 | ) | (10,966 | ) | (19,796 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (13 | ) | (21 | ) | (26 | ) | (111 | ) | ||||||||
| Purchase of intangible assets | (16 | ) | (68 | ) | (56 | ) | (203 | ) | ||||||||
| Net cash used in investing activities | (29 | ) | (89 | ) | (82 | ) | (314 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from sale of property and equipment | 8 | - | 87 | - | ||||||||||||
| Proceeds from draws of long-term debt | - | - | - | 25,000 | ||||||||||||
| Repayment of long-term debt (note 9) | - | - | (13,000 | ) | - | |||||||||||
| Net cash provided by (used in) financing activities | 8 | - | (12,913 | ) | 25,000 | |||||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 39 | 40 | (23 | ) | 87 | |||||||||||
| Increase (decrease) in cash and cash equivalents during the period | (2,424 | ) | (7,055 | ) | (23,984 | ) | 4,977 | |||||||||
| Cash and cash equivalents, beginning of period | 19,707 | 60,676 | 41,267 | 48,644 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 17,283 | $ | 53,621 | $ | 17,283 | $ | 53,621 | ||||||||
| Supplemental cash flow information: | ||||||||||||||||
| Interest paid | $ | - | $ | 1 | $ | - | $ | 2,238 | ||||||||
| Interest received | 7 | 6 | 34 | 13 | ||||||||||||
See accompanying notes to the consolidated financial statements.
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 1. | Basis of presentation: |
These unaudited interim consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (U.S. GAAP) and are presented in U.S. dollars. They include all adjustments consisting solely of normal, reoccurring adjustments necessary for fair presentation of the periods presented. These unaudited interim consolidated financial statements do not include all note disclosures required by U.S. GAAP on an annual basis, and therefore should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2012 filed with the appropriate securities commissions. The results of operations for the three and nine month periods ended September 30, 2013 and 2012 are not necessarily indicative of the results for the full year.
The Company has financed its cash requirements primarily from share issuances, payments from research collaborators, licensing fees and draws from a credit facility that was available under the Company’s collaborative agreements (note 9). The Company’s ability to realize the carrying value of its assets is dependent on successfully bringing its technologies to market and achieving future profitable operations, the outcome of which cannot be predicted at this time. As a result, in the future it may be necessary for the Company to raise additional funds. These funds may come from sources such as entering into strategic collaboration arrangements, the issuance of shares from treasury, or alternative sources of financing. However, there can be no assurance that the Company will successfully raise funds to continue the development and commercialization of vernakalant and our operational activities.
| 2. | Changes in or adoption of significant accounting policies: |
(a) FASB Amendments
In February 2013, the Financial Accounting Standards Board (FASB) issued amendments to the accounting guidance for presentation of comprehensive income, requiring an entity to provide additional information about reclassifications of accumulated other comprehensive income. The amendments, which are effective prospectively for reporting periods beginning after December 15, 2012, do not change the current requirements for reporting net income or other comprehensive income. On January 1, 2013, the Company prospectively adopted the amendments. The adoption of these amendments did not have a material impact on the presentation of the Company’s result of operations for the periods presented.
(b) Inventories
In June 2013, pursuant to the Debt Settlement Agreement (note 9) and the Transition Agreement (note 11) with Merck, the Company purchased $2.8 million of work in process inventories including unlabeled vials and active pharmaceutical ingredients for vernakalant (IV). As a result, the Company adopted a new accounting policy for measuring these inventories.
| 2 |
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 2. | Changes in or adoption of significant accounting policies (continued): |
(b) Inventories (continued)
Inventories consist of finished goods and unfinished product (work in process) and are valued at the lower of cost and net realizable value, determined on a first-in-first-out basis, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(c) Revenue recognition
Product revenues
On September 16, 2013, the transfer of commercialization responsibility from Merck to the Company was completed in the European Union (EU) and the Company began supplying BRINAVESS™ under its own trade dress (note 11). As a result, the Company adopted new accounting policies for recognizing revenues from product sales and providing for amounts uncollectible from customers.
Revenue from sales of products is recognized upon the later of transfer of title or upon shipment of the product to the customer, so long as persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectability is reasonably assured and title and delivery has occurred. Provisions for discounts and sales returns are provided for in the same period the related sales are recorded.
(d) Allowance for doubtful accounts receivable
The Company estimates an allowance for doubtful accounts receivable primarily based on the credit worthiness of customers, aging of receivable balances and general economic conditions. Amounts later determined and specifically identified to be uncollectible are charged against this allowance.
| 3. | Future changes in accounting policies: |
In March 2013, the FASB issued amendments on foreign currency matters relating to a parent’s accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The amendments clarify the applicable guidance for the release of the cumulative translation adjustment (CTA) under current U.S. GAAP. These amendments will be effective prospectively for reporting periods beginning after December 15, 2013. The Company does not expect the adoption of the amendments to have a material impact on the Company’s financial position or results of operations.
| 3 |
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 4. | Financial instruments: |
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The fair values of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate carrying values because of their short-term nature.
| 5. | Impairment of long-lived assets: |
During the three and nine months ended September 30, 2013, the Company did not record any impairment charges as part of restructuring expenses (note 12). Amounts recorded for the three and nine months ended September 30, 2012 were $711 and $716, respectively.
| 6. | Cash and cash equivalents: |
At September 30, 2013, cash equivalents included approximately $205 (December 31, 2012 -$264) of restricted cash relating to term deposits which are pledged as collaterals for a bank guarantee for value-added tax liabilities and the corporate credit card facility. Average interest rates on these term deposits range from 0.01% to 1.10%.
| 7. | Inventories: |
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Finished goods | $ | 71 | $ | - | ||||
| Work in process | 2,748 | - | ||||||
| $ | 2,819 | $ | - | |||||
In June 2013, pursuant to the Debt Settlement Agreement between the Company and Merck Sharp and Dohme Corp. (formerly Merck & Co, Inc.) (Merck) (note 9), the Company purchased $2.8 million of work in process inventories including unlabeled vials and active pharmaceutical ingredients for vernakalant (IV).
| 4 |
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 8. | Accounts payable and accrued liabilities: |
Accounts payable and accrued liabilities comprise:
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Trade accounts payable | $ | 1,701 | $ | 1,045 | ||||
| Accrued contract research | 148 | 447 | ||||||
| Employee-related accruals | 1,011 | 808 | ||||||
| Restructuring (note 12) | 31 | 567 | ||||||
| Interest payable | - | 1,334 | ||||||
| Other accrued liabilities | 455 | 233 | ||||||
| $ | 3,346 | $ | 4,434 | |||||
| 9. | Long term debt: |
On February 28, 2013, the debt settlement agreement dated December 10, 2012, and amended on December 31, 2012, between the Company and Merck (the “Debt Settlement Agreement”), was further amended allowing the Company to pay the balance of the debt settlement amount prior to March 31, 2013. On March 1, 2013, the Company paid the remaining $13 million of the $20 million agreed-upon debt settlement payment, extinguishing all outstanding debt obligations to Merck. The Company recorded a gain on debt settlement of $20,834 for the three months ended March 31, 2013. With this final payment, all outstanding debt obligations are extinguished and Merck has released and discharged the collateral security taken in respect of the advances under the line of credit.
| 10. | Stockholders’ equity: |
On April 12, 2013, the Company’s common shares were consolidated on a one-for-five basis. All shares and per share amounts in these consolidated financial statements have been adjusted retroactively for all periods presented to reflect the effects of the share consolidation.
| 11. | Collaborative agreements: |
Pursuant to two collaboration and license agreements with Merck (the “Collaboration Agreements”), the Company granted Merck exclusive global rights for the development and commercialization of vernakalant (IV) and vernakalant (oral).
On March 19, 2012, the Company announced Merck’s decision to discontinue further development of vernakalant (oral).
On September 25, 2012, Merck gave notice to the Company of its termination of both collaboration and license agreements.
| 5 |
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 11. | Collaborative agreements (continued): |
On April 24, 2013, the Company entered into a Transition Agreement with Merck (the “Transition Agreement”) to amend and supplement the provisions of the Collaboration Agreements governing their rights and responsibilities in connection with the termination of the Collaboration Agreements and the transfer of rights to, and responsibilities for, vernakalant. Pursuant to the Transition Agreement, the Company took responsibility for worldwide sales, marketing, and promotion of vernakalant (IV) on April 24, 2013 immediately upon signing of the agreement. Regulatory product rights and product distribution responsibility are expected to transfer to the Company upon transfer of the marketing authorization in the relevant countries.
On June 27, 2013, the European Commission approved the transfer of the centrally-approved marketing authorization for BRINAVESS from Merck. The Company is now the new marketing authorization holder for BRINAVESS in the member states of the European Union (EU). With the completion of this transfer, commencing July 1, 2013, royalties on sales and the promotional services fee the Company previously received from Merck ceased and the Company began benefiting from all sales of BRINAVESS throughout the world.
On September 16, 2013, the Company announced the completion of the transfer from Merck to the Company of commercialization responsibility for BRINAVESS in the EU and the transfer of responsibility to complete the post-marketing study for BRINAVESS. The Company is now supplying BRINAVESS under its own trade dress in the EU.
| 12. | Restructuring: |
In March and July of 2012, the Company reduced its workforce, exited redundant leased facilities and terminated certain contracts. The workforce reduction initiative was completed in 2012, with the related liability substantially paid out in the first quarter of 2013. The majority of the liability associated with idle-use expense and other charges, which related to redundant leased facilities, is expected to be settled by the end of the first quarter of 2014.
The following table summarizes the provisions related to the restructuring for the period ended September 30, 2013:
| Employee termination benefits | Idle-use expense and other charges | Total | ||||||||||
| Balance at December 31, 2012 | 320 | 247 | 567 | |||||||||
| Revisions to prior accruals | (12 | ) | (118 | ) | (130 | ) | ||||||
| Payments made | (308 | ) | (31 | ) | (339 | ) | ||||||
| Non-cash items | - | (67 | ) | (67 | ) | |||||||
| Balance at September 30, 2013 | - | 31 | 31 | |||||||||
| 6 |
CARDIOME PHARMA CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of U.S. dollars except share and per share amounts and where otherwise indicated)
(Prepared in accordance with U.S. GAAP)
| As at and for the three and nine months ended September 30, 2013 and 2012 |
| 13. | Related party transactions: |
The Company did not enter into any material related party transactions during the three or nine months ended September 30, 2013.
| 14. | Contingencies: |
| (a) | The Company may, from time to time, be subject to claims and legal proceedings brought against it in the normal course of business. Such matters are subject to many uncertainties. Management believes that adequate provisions have been made in the accounts where required and the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company. |
| (b) | The Company entered into indemnification agreements with all officers and directors. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains appropriate liability insurance that limits the exposure and enables the Company to recover any future amounts paid, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material. |
| (c) | The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnification provisions generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party claims or damages arising from these transactions. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions is unlimited. These indemnification provisions may survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations. |
| 7 |
FORM 51-102F3
MATERIAL CHANGE REPORT
| 1. | Name and Address of Company |
Cardiome Pharma Corp.
6190 Agronomy Rd, Suite 405
Vancouver, BC V6T 1Z3
| 2. | Date of Material Change |
November 6, 2013
| 3. | News Release |
November 6, 2013 - Vancouver, Canada
| 4. | Summary of Material Change |
Cardiome Pharma Corp. reported financial results for the third quarter and nine months ended September 30, 2013. Amounts, unless specified otherwise, are expressed in U.S. dollars and in accordance with generally accepted accounting principles used in the United States (U.S. GAAP). All share and per share amounts reflect the one-for-five share consolidation that occurred on April 12, 2013.
| 5. | Full Description of Material Change |
See attached press release
| 6. | Reliance on Subsection 7.1(2) or (3) of National Instrument 51-102 |
Not Applicable.
| 7. | Omitted Information |
Not Applicable.
| 8. | Executive Officer |
| Name: | Jennifer Archibald |
| Title: | Chief Financial Officer |
| Phone No.: | 604-677-6905 |
| 9. | Date of Report |
November 6, 2013
| Per: | “Jennifer Archibald” | |
| Jennifer Archibald, | ||
| Chief Financial Officer |
SCHEDULE “A” – PRESS RELEASE
Cardiome Reports third Quarter 2013 Financial Results
Cardiome to conduct conference call and webcast today, November 6, at 8:00 a.m. Eastern (5:00 a.m. Pacific)
Vancouver, Canada, November 6, 2013 — Cardiome Pharma Corp. (NASDAQ: CRME / TSX: COM) today reported financial results for the third quarter and nine months ended September 30, 2013. Amounts, unless specified otherwise, are expressed in U.S. dollars and in accordance with generally accepted accounting principles used in the United States (U.S. GAAP). All share and per share amounts reflect the one-for-five share consolidation that occurred on April 12, 2013.
Summary Financial Results
Cardiome reported a net loss of $3.6 million ($0.29 per common share) for the three months ended September 30, 2013 (Q3-2013), compared to a net loss of $13.4 million ($1.10 per common share) for the three months ended September 30, 2012 (Q3-2012).
Revenue for Q3-2013 was $0.5 million. This is an increase of $0.4 million from $0.1 million in Q3-2012 and can be primarily attributable to the recognition of the full benefit of all BRINAVESS™ sales worldwide this quarter. Prior to Q3-2013, Cardiome benefitted from the sale of BRINAVESS in the form of royalties and promotional fees in connection with the collaboration and license agreements with Merck.
Sales of BRINAVESS dropped significantly since Merck announced the termination of the collaborative agreements with Cardiome, hitting an all-time low in Q1-2013. With the signing of the transition agreement with Merck, Cardiome’s sales force began promoting BRINAVESS in Q2. Even without the ability to control discounting or the promotional message, total sales of BRINAVESS increased by 14% in Q2-2013 as compared to Q1-2013. Despite the third quarter historically being the weakest quarter for BRINAVESS sales in Europe, total sales in Q3-2013 increased by 17% compared to Q2-2013. Although Cardiome now has the ability to implement its marketing strategy with the completion of commercialization responsibility for BRINAVESS in the EU, the company does not expect to see a significant impact on sales in Q4 as it completes the transition process for regulatory product rights and product distribution responsibility for BRINAVESS. In accordance with Cardiome’s plans, it expects to be fully selling in all EU markets by the start of 2014.
Selling, general and administration (SG&A) expenditures for Q3-2013 were $4.0 million compared to $2.5 million for Q3-2012. The increase in SG&A expenditures was primarily due to an increase in costs associated with Cardiome’s sales and marketing efforts to support the commercialization of BRINAVESS. For the remainder of the year, as a result of its worldwide sales and marketing efforts, continuing transition activities with Merck, as well as, other related costs required to support the commercialization of BRINAVESS, Cardiome expects SG&A expenditures to increase as compared to 2012.
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Research and development expenditures were insignificant for Q3-2013 as compared to $0.4 million for Q3-2012. The decrease in R&D expenditures compared to the same period in 2012, was primarily due to the restructuring initiatives in Q3-2012 which eliminated Cardiome’s internal research activities.
Cardiome did not incur any restructuring costs during Q3-2013 compared to $9.0 million incurred in Q3-2012 which were primarily related to employee termination benefits associated with our 2012 workforce reduction initiatives.
Other income for Q3-2013 was $0.05 million, compared to other expense of $1.0 million for Q3-2012. The decrease in other expense in 2013 was primarily due to the elimination of interest expense from the settlement of debt owed to Merck.
Liquidity and Outstanding Share Capital
At September 30, 2013, the company had cash and cash equivalents of $17.3 million. Cardiome believes its cash position and expected future cash inflows from the sale of BRINAVESS will be sufficient to finance its operational and capital needs for at least 18 months. However, future cash requirements may vary materially from those now expected due to a number of factors, including the costs associated with commercialization efforts, clinical trials, and strategic opportunities.
As of November 5, 2013, Cardiome had 12,470,335 common shares issued and outstanding and 1,102,709 common shares issuable upon the exercise of outstanding stock options at a weighted-average exercise price of CAD $7.83 per share.
Corporate Update
During Q3-2013, Cardiome partnered with AOP Orphan Pharmaceutical AG (“AOP Orphan”) to commercialize BRINAVESS in select European markets where Cardiome does not currently operate, including Austria. It is expected that AOP Orphan will support Cardiome in obtaining product registrations required for the marketing and sale of BRINAVESS in those markets where this is required and will actively call on customers to promote the product. Cardiome also entered into commercialization agreements with Tzamal Medical Ltd. and LifePharma (Z.A.M.) Ltd. to sell and distribute BRINAVESS in Israel and Cyprus, respectively. Subsequent to the end of Q3-2013, Cardiome announced that it partnered with Biospifar S.A. and Algorithm S.A.L. to sell and distribute BRINAVESS in Colombia and certain Middle Eastern and North African countries, respectively.
Cardiome also announced in Q3-2013, the approval of BRINAVESS in Turkey by the Turkish Ministry of Health and in South Africa by the Medicines Control Council.
On September 16, 2013, Cardiome announced the completion of the transfer from Merck to Cardiome of commercialization responsibility for BRINAVESS in the EU and the transfer of responsibility to complete the post-marketing study for BRINAVESS. Cardiome is now supplying BRINAVESS under its own trade dress in the EU.
| -3- |
The transition to Cardiome of Merck’s rights and responsibilities under the collaboration and license agreements is a multi-step process and transition activities are ongoing. Cardiome expects these activities to continue throughout the remainder of 2013 and potentially into early 2014.
Conference Call
Cardiome will hold a teleconference and webcast on Wednesday, November 6, 2013 at 8:00 a.m. Eastern (5:00 a.m. Pacific). To access the conference call, please dial 416-764-8688 or 888-390-0546 and use conference ID 22279968. The webcast can be accessed through Cardiome’s website at www.cardiome.com. Webcast and telephone replays of the conference call will be available approximately two hours after the completion of the call through December 4, 2013. Please dial 416-764-8677 or 888-390-0541 and enter code 279968 to access the replay.
About Cardiome Pharma Corp.
Cardiome Pharma Corp. is a biopharmaceutical company dedicated to the discovery, development and commercialization of new therapies that will improve the health of patients around the world. Cardiome has one marketed product, BRINAVESSTM (vernakalant IV), approved in Europe and other territories for the rapid conversion of recent onset atrial fibrillation to sinus rhythm in adults.
Cardiome is traded on the NASDAQ Capital Market (CRME) and the Toronto Stock Exchange (COM). For more information, please visit our web site at www.cardiome.com.
Forward-Looking Statement Disclaimer
Certain statements in this news release contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 or forward-looking information under applicable Canadian securities legislation
that may not be based on historical fact, including without limitation statements containing the words “believe”,
“may”, “plan”, “will”, “estimate”, “continue”, “anticipate”,
“intend”, “expect” and similar expressions. Forward- looking statements may involve, but are not limited
to, comments with respect to our objectives and priorities for the remainder of 2013 and beyond, our strategies or future actions,
our targets, expectations for our financial condition and the results of, or outlook for, our operations, research and development
and product and drug development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, events or developments to be materially different from any future results, events or developments
expressed or implied by such forward-looking statements. Many such known risks, uncertainties and other factors are taken into
account as part of our assumptions underlying these forward-looking statements and include, among others, the following: general
economic and business conditions in the United States, Canada, Europe, and the other regions in which we operate; market demand;
technological changes that could impact our existing products or our ability to develop and commercialize future products; competition;
existing governmental legislation and regulations and changes in, or the failure to comply with, governmental legislation and
regulations; availability of financial reimbursement coverage from governmental and third-party payers for products and related
treatments; adverse results or unexpected delays in pre-clinical and clinical product development processes; adverse findings
related to the safety and/or efficacy of our products or products; decisions, and the timing of decisions, made by health regulatory
agencies regarding approval of our technology and products; the requirement for substantial funding to expand commercialization
activities; and any other factors that may affect our performance. In addition, our business is subject to certain operating risks
that may cause any results expressed or implied by the forward-looking statements in this presentation to differ materially from
our actual results. These operating risks include: our ability to attract and retain qualified personnel; our ability to successfully
complete pre-clinical and clinical development of our products; changes in our business strategy or development plans; intellectual
property matters, including the unenforceability or loss of patent protection resulting from third-party challenges to our patents;
market acceptance of our technology and products; our ability to successfully manufacture, market and sell our products; the availability
of capital to finance our activities; and any other factors described in detail in our filings with the Securities and Exchange
Commission available at www.sec.gov and the Canadian securities regulatory authorities at www.sedar.com. Given these
risks, uncertainties and factors, you are cautioned not to place undue reliance on such forward-looking statements and information,
which are qualified in their entirety by this cautionary statement. All forward-looking statements and information made herein
are based on our current expectations and we undertake no obligation to revise or update such forward-looking statements and information
to reflect subsequent events or circumstances, except as required by law.
| -4- |
For Further Information:
Cardiome Investor Relations
(604) 676-6993 or Toll Free: 1-800-330-9928
Email: ir@cardiome.com
###
| -5- |
Form 52-109F2
Certification of interim filings - full certificate
I, William Hunter, President and Chief Executive Officer of Cardiome Pharma Corp., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cardiome Pharma Corp. (the “issuer”) for the interim period ended September 30, 2013. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework (1992). |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2013 and ended on September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
| Date: November 6, 2013 | |
| William Hunter | |
| William Hunter | |
| President and Chief Executive Officer |
| 2 |
Form 52-109F2
Certification of interim filings - full certificate
I, Jennifer Archibald, Chief Financial Officer of Cardiome Pharma Corp., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cardiome Pharma Corp. (the “issuer”) for the interim period ended September 30, 2013. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework (1992). |
| 5.2 | ICFR – material weakness relating to design: N/A |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2013 and ended on September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
| Date: November 6, 2013 | |
| Jennifer Archibald | |
| Jennifer Archibald | |
| Chief Financial Officer |
| 2 |