40-F

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 40-F

(Check One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2020 Commission File Number: 001-39034

BELLUS HEALTH INC.
(Exact name of Registrant as specified in its charter)

Canada
(Province or other jurisdiction of incorporation or organization)

2834
(Primary Standard Industrial Classification Code Number (if applicable))

Not Applicable
(I.R.S. Employer Identification Number (if applicable))

275 Armand-Frappier Blvd.

Laval, Quebec H7V 4A7, Canada

Telephone: (450) 680-4525
(Address and telephone number of Registrant’s principal executive offices)

C T Corporation System

1015 15th Street, NW, Suite 1000

Washington, District of Columbia 20005

Telephone: (202) 572-3111
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	BLU	The NASDAQ Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None
(Title of Class)

For annual reports, indicate by check mark the information filed with this Form:

x Annual Information Form x Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 78,337,361

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company x

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

 

EXPLANATORY NOTE

BELLUS Health Inc. (the “Registrant”) is a Canadian corporation eligible to file its Annual Report pursuant to Section 13(a) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F. The Registrant is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Registrant are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 thereunder.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 40-F are forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”). Additionally, the safe harbor provided in Section 21E of the Exchange Act and Section 27A of the Securities Act applies to any forward-looking information provided pursuant to “Off-Balance Sheet Arrangements” and “Disclosure of Contractual Obligations” in this Annual Report on Form 40-F. Please see “Forward-Looking Statements” beginning on page 1 of the Management Discussion and Analysis for the fiscal year ended December 31, 2020 of the Registrant, attached as Exhibit 99.3 to this Annual Report on Form 40-F, and “Forward-Looking Statements” beginning on page 1 of the Annual Information Form for the fiscal year ended December 31, 2020 of the Registrant, attached as Exhibit 99.1 to this Annual Report on Form 40-F.

NOTE TO UNITED STATES READERS – DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Annual Report on Form 40-F in accordance with Canadian disclosure requirements, which are different from those of the United States.

The Registrant prepares its consolidated financial statements, which are filed with this Annual Report on Form 40-F, in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”). IFRS differ in some significant respects from United States generally accepted accounting principles (“U.S. GAAP”), and thus the Registrant’s financial statements may not be comparable to the financial statements of United States companies. These differences between IFRS and U.S. GAAP might be material to the financial information presented in this Annual Report on Form 40-F. In addition, differences may arise in subsequent periods related to changes in IFRS or U.S. GAAP or due to new transactions that the Registrant enters into. The Registrant is not required to prepare a reconciliation of its consolidated financial statements and related footnote disclosures between IFRS and U.S. GAAP and has not quantified such differences.

Unless otherwise indicated, all dollar amounts in this Annual Report on Form 40-F are in United States dollars. The exchange rate of Canadian dollars into United States dollars, on December 31, 2020, based upon the Bank of Canada published daily exchange rate, was U.S.$1.00 = CDN$1.2736.

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this Annual Report on Form 40-F.

PRINCIPAL DOCUMENTS

Annual Information Form

The Registrant’s Annual Information Form for the fiscal year ended December 31, 2020 is filed as Exhibit 99.1 and incorporated by reference in this Annual Report on Form 40-F.

Audited Annual Financial Statements

The audited consolidated financial statements of the Registrant for the fiscal year ended December 31, 2020 and 2019, including the Report of Independent Registered Public Accounting Firm with respect thereto, are filed as Exhibit 99.2 and incorporated by reference in this Annual Report on Form 40-F.

Management Discussion and Analysis

The Registrant’s Management Discussion and Analysis for the fiscal year ended December 31, 2020 is filed as Exhibit 99.3 and incorporated by reference in this Annual Report on Form 40-F.

CONTROLS AND PROCEDURES

Certifications

The required certifications are included in Exhibits 99.4, 99.5, 99.6 and 99.7 of this Annual Report on Form 40-F.

Disclosure Controls and Procedures

At the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Registrant’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) under the Exchange Act) was carried out by the Registrant’s principal executive officer and principal financial officer. Based upon that evaluation, the Registrant’s principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, the design and operation of the Registrant’s disclosure controls and procedures are effective to ensure that (i) information required to be disclosed in reports that the Registrant files or submits to regulatory authorities is recorded, processed, summarized and reported within the time periods specified by regulation, and (ii) is accumulated and communicated to management, including the Registrant’s principal executive officer (the “CEO”) and principal financial officer (the “CFO”), to allow timely decisions regarding required disclosure.

It should be noted that while the Registrant’s CEO and CFO believe that the Registrant’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Registrant’s disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Management Report on Internal Control Over Financial Reporting

Management, with the participation of the Registrant’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Registrant’s financial reporting. The Registrant's internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including: that all transactions and dispositions are accurately and fairly recorded; that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; and unauthorized acquisitions, uses or dispositions of the Registrant's assets are prevented or timely detected.

Management has assessed the effectiveness of The Registrant’s internal control over financial reporting as at December 31, 2020. In making its assessment, management used the Committee of Sponsoring Organizations of the Treadway Commission framework in Internal Control - Integrated Framework (2013) to evaluate the effectiveness of the Registrant’s internal control over financial reporting. Based on this assessment, management has concluded that the Registrant’s internal control over financial reporting was effective as of December 31, 2020.

Attestation Report of Independent Auditor

In accordance with the United States Jumpstart Our Business Startup Act (the “JOBS Act”) enacted on April 5, 2012, the Registrant qualifies as an “emerging growth company” (an “EGC”), which entitles the Registrant to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. Specifically, the JOBS Act defers the requirement to have the Registrant’s independent auditor assess the Registrant’s internal controls over financial reporting under Section 404(b) of the United States Sarbanes-Oxley Act of 2002. As such, the Registrant is exempted from the requirement to include an auditor attestation report in this Form 40-F for so long as the Registrant remains an EGC, which may be for as long as five years following its initial registration in the United States.

Changes in Internal Control over Financial Reporting

During the year ended December 31, 2020, there were no changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

There were no notices required by Rule 104 of Regulation BTR that the Registrant sent during the year ended December 31, 2020 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

Audit Committee

The Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act for the purpose of overseeing the accounting and financial reporting processes of the Registrant and audits of the Registrant’s annual financial statements. As of the date of this Annual Report on Form 40-F, the members of the Audit Committee are Pierre Larochelle (as Chairperson), Franklin M. Berger and Joseph Rus.

The Board of Directors of the Registrant has determined that all members of the Audit Committee are “independent,” as such term is defined under the rules of The NASDAQ Stock Market LLC (“NASDAQ”). Further, the Registrant has determined that all members of the Audit Committee are financially literate, meaning that they must be able to read and understand fundamental financial statements.

Audit Committee Financial Expert

The Board of Directors of the Registrant has determined that Franklin M. Berger is an “audit committee financial expert,” as defined in General Instruction B(8)(b) of Form 40-F. The U.S. Securities and Exchange Commission (the “Commission”) has indicated that the designation of Franklin M. Berger as an audit committee financial expert does not make him an “expert” for any purpose, impose any duties, obligations or liability on him that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee.

CODE OF ETHICS

The Registrant has adopted a written code of ethics for its directors, officers and employees entitled “BELLUS Health Inc. Code of Ethics” (the “Code”) that complies with Section 406 of the Sarbanes-Oxley Act of 2002 and with NASDAQ Listing Rule 5610. The Code includes, among other things, written standards for the Registrant’s principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions, which are required by the Commission for a code of ethics applicable to such officers. A copy of the Code is posted on the Registrant’s website at www.bellushealth.com under the Investors & Media tab and under the Corporate Governance tab under the Documents & Charters tab (titled “Code of Ethics”).

No substantive amendments to the Code were adopted during the year ended December 31, 2020. No “waiver” or “implicit waiver,” as such terms are defined in Note 6 to General Instruction B(9) of Form 40-F, was granted relating to any provision of the Code during the year ended December 31, 2020.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP has served as the Registrant’s auditing firm since 1995. Aggregate fees billed to the Registrant for professional services rendered by KPMG LLP and its affiliates during the fiscal years ended December 31, 2020 and December 31, 2019 are detailed below (stated in Canadian dollars):

		Fiscal 2020		Fiscal 2019
Audit Fees	$	324,754	$	264,500
Audit-Related Fees	$	29,211	$	20,150
Tax Fees	$	20,490	$	8,500
All Other Fees	$	Nil	$	Nil
Total Fees	$	374,446	$	293,150

The nature of each category of fees is as follows:

Audit Fees

Audit fees were paid for professional services rendered by the auditors for the annual audit of the Registrant’s consolidated financial statements, quarterly reviews of the Registrant’s interim financial statements, services provided in connection with statutory and regulatory filings, and work in connection with registration statements filed in the United States and prospectuses filed in Canada.

Audit-Related Fees

Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Registrant’s financial statements and are not reported under the Audit Fees item above. This category is comprised of fees billed for the provision of French translation services.

Tax Fees

Tax fees include fees billed for tax compliance.

All Other Fees

All Other Fees include the aggregate fees billed for products and services provided by the auditors, other than the services reported above.

Pre-Approval Policies and Procedures

All audit and non-audit services performed by the Registrant’s auditor must be pre-approved by the Audit Committee of the Registrant. For the fiscal year ended December 31, 2020, all audit and non-audit services performed by the Registrant’s auditor were pre-approved by the Audit Committee of the Registrant, pursuant to Rule 2-01(c)(7)(i) of Regulation S-X.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2020, the Registrant does not have any “off-balance sheet arrangements” (as that term is defined in paragraph 11(ii) of General Instruction B to Form 40-F) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table lists, as of December 31, 2020, information with respect to the Registrant’s known contractual obligations:

	Payments Due by Period (All amounts in thousands of dollars)
Contractual Obligations		Less than 1 year	1-3 years	3-5 years	More than 5 years	Total
Long-Term Debt Obligations		Nil	Nil	Nil	Nil	Nil
Lease Liabilities		184	368	Nil	Nil	552
Purchase Obligations		34,621	2,038	Nil	Nil	36,659
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet		Nil	Nil	Nil	Nil	Nil
Total		34,805	2,406	Nil	Nil	37,211

INTERACTIVE DATA FILE

The Registrant is submitting as Exhibit 101 to this Annual Report on Form 40-F its Interactive Data File.

MINE SAFETY DISCLOSURE

Not applicable.

CORPORATE GOVERNANCE

The Registrant is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act and its common shares are listed on NASDAQ. NASDAQ Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practices in lieu of certain requirements in the NASDAQ Listing Rules. A foreign private issuer that follows home country practices in lieu of certain corporate governance provisions of the NASDAQ Listing Rules must disclose each NASDAQ corporate governance requirement that it does not follow and include a brief statement of the home country practice the issuer follows in lieu of the NASDAQ corporate governance requirement(s), either on its website or in its annual filings with the Commission. A description of the significant ways in which the Registrant’s corporate governance practices differ from those followed by domestic companies pursuant to the applicable NASDAQ Listing Rules is disclosed on the Registrant’s website at www.bellushealth.com under the Investors & Media tab and under the Corporate Governance tab under the Documents & Charters tab (titled “Nasdaq Statements of Governance Differences”).

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an Annual Report on Form 40-F arises; or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Registrant filed an Appointment of Agent for Service of Process and Undertaking on Form F-X with the Commission with respect to the class of securities in relation to which the obligation to file this Annual Report on Form 40-F arises.

Any change to the name or address of the Registrant’s agent for service of process shall be communicated promptly to the Commission by an amendment to the Form F-X referencing the file number of the Registrant.

EXHIBIT INDEX

Exhibit No.	Title of Exhibit
99.1	Annual Information Form of the Registrant for the year ended December 31, 2020
99.2	Audited Consolidated Financial Statements of the Registrant for the year ended December 31, 2020 and 2019, together with the Auditors’ Report thereon
99.3	Management Discussion and Analysis of the Registrant for the year ended December 31, 2020
99.4	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the United States Securities Exchange Act of 1934
99.5	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the United States Securities Exchange Act of 1934
99.6	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the United States Sarbanes Oxley Act of 2002
99.7	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the United States Sarbanes Oxley Act of 2002
99.8	Consent of Independent Registered Public Accounting Firm – KPMG LLP
101	XBRL Document

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BELLUS Health Inc.
By:	/s/ Roberto Bellini
	Name: Roberto Bellini
	Title: President and Chief Executive Officer

Date: February 25, 2021

EX-99.1

Exhibit 99.1

 

BELLUS HEALTH INC.

ANNUAL INFORMATION FORM

Fiscal year ended December 31, 2020

February 25, 2021

TABLE OF CONTENTS  

CORPORATE STRUCTURE	4
Name, Address and incorporation	4
Intercorporate Relationships	4
BUSINESS	4
Overview	4
2020 Highlights	5
Our Strategy	6
Our Pipeline	6
Intellectual Property	21
Human Resources	23
Facilities	23
RISK FACTORS	23
DIVIDENDS	42
DESCRIPTION OF CAPITAL STRUCTURE	42
MARKET FOR SECURITIES NTD: DAVIES TO PROVIDE INFO	43
PRIOR SALES	43
DIRECTORS AND OFFICERS	44
LEGAL PROCEEDINGS AND REGULATORY ACTIONS	46
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS	46
AUDIT COMMITTEE AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES	46
TRANSFER AGENT AND REGISTRAR	47
INTEREST OF EXPERTS	48
ADDITIONAL INFORMATION	48
SCHEDULE A AUDIT COMMITTEE CHARTER	49

As used in this annual information form, unless the context otherwise requires, the terms “we”, “us”, “our”, “BELLUS Health” or the “Company” mean or refer to BELLUS Health Inc. and its subsidiaries and its Affiliates (as such term is defined in this annual information form). All currency figures reported in this document are in US dollars, unless otherwise specified.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document may constitute “forward-looking information” within the meaning of applicable securities laws in Canada and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended (collectively, “forward-looking statements”), which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, objectives and strategies to achieve those objectives, as well as statements with respect to our beliefs, targets, expectations, anticipations, estimates or intentions. In some cases, you can identify forward-looking statements by terminology such as “believe”, “may”, “estimate”, “continue”, “anticipate”, “intend”, “should”, “plan”, “expect”, “predict”, “potential”, “could”, “assume”, “project”, “guidance” or the negative of these terms or other similar expressions, although not all forward- looking statements include such words. These statements reflect current expectations of management regarding future events and operating performance and speak only as of the date of this document. The statements we make regarding the following matters are forward- looking by their nature and are based on certain of the assumptions noted below:

• our aim to develop and commercialize BLU-5937 for the treatment of hypersensitization disorders, including chronic cough and chronic pruritus;

• our aim to complete additional preclinical studies on BLU-5937;

• our aim to complete additional clinical Phase 1 trials with BLU-5937;

• our expectations to release topline results in the fourth quarter of 2021 for our Phase 2b SOOTHE clinical trial of BLU-5937 for the treatment of patients with refractory chronic cough and conduct an interim analysis in mid-2021, the results of which we may use to initiate planning activities for Phase 3 clinical trials;

• our expectations to release topline results in the fourth quarter of 2021 for our Phase 2 BLUEPRINT clinical trial of BLU-5937 for the treatment of patients with chronic pruritus associated with atopic dermatitis;

• our aim to further explore the potential of BLU-5937 for the treatment of other afferent hypersensitization-related conditions;

• our expectations with respect to the timing and cost of the research and development activities of BLU-5937;

• the function, potential benefits, tolerability profile, effectiveness and safety of our product candidates, including BLU-5937, including with respect to patient population, pricing and labeling, and the impact of our enrichment strategy on labeling;

• our expectations with respect to pre-commercialization activities related to the commercial launch of BLU-5937;

• our expectations regarding the potential once-daily dosing with extended release formulation for BLU-5937 and our aim to begin prototype development of the BLU-5937 once-daily formulation in 2021;

• our expectations regarding our ability to arrange for and scale up the manufacturing of BLU-5937 to reach commercial scale;

• our estimates and assessment of the potential markets (including size) for our product candidates;

• our expectations regarding pricing and acceptance of our product candidates by the market;

• our estimates and projections regarding potential pricing for BLU-5937 and how such pricing compares to other P2X3 inhibitors;

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• our estimates and projections regarding the size of the total addressable global refractory chronic cough market and associated P2X3 revenue potential;

• the benefits and risks of our product candidates as compared to others;

• our aim to obtain regulatory approvals to market our product candidates;

• our expectations with respect to the cost of preclinical studies and clinical trials and commercialization of our product candidates, including BLU-5937;

• our expectation of the continued listing of the common shares on the TSX and Nasdaq;

• our current and future capital requirements and anticipated sources of financing or revenue;

• our expectations regarding the COVID-19 pandemic and its impact on our business;

• our expectations regarding the protection of our intellectual property;

• our business strategy; and

• our development and partnership plans and objectives.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements.

Conclusions, forecasts and projections set out in forward-looking information are based on our current objectives and strategies and on expectations and estimates and other factors and assumptions that we believe to be reasonable at the time applied but may prove to be incorrect. These include, but are not limited to:

• the function, potential benefits, effectiveness and safety of BLU-5937;

• the benefits and risks of our product candidates as compared to others;

• the accuracy of our belief that selective P2X3 inhibitors have an improved tolerability profile compared to the most advanced P2X3 receptor inhibitor in development, Merck & Co.’s gefapixant;

• progress, timing and costs related to the development, completion and potential commercialization of our product candidate;

• estimates and projections regarding our industry;

• market acceptance of our product candidate;

• future success of current research and development activities;

• achievement of development and commercial milestones, including forecasted preclinical study and clinical trial milestones within the anticipated timeframe;

• our reliance on third parties to conduct preclinical studies and clinical trials for BLU-5937;

• that the timeline and costs for our preclinical and clinical programs are not incorrectly estimated or affected by unforeseen circumstances;

• the successful development of once daily dosing with extended release formulation for BLU-5937;

• our ability to achieve intended order of market entry of BLU-5937 relative to other P2X3 inhibitors;

• accuracy of our findings of statistically significant interaction between baseline cough frequency and treatment benefit, and realization of the intended benefits of our enrichment strategy;

• accuracy of our estimates and projections regarding potential pricing for BLU-5937, including parity to other P2X3 inhibitors;

• accuracy of our estimates and projections regarding the size of the total addressable global refractory chronic cough market and associated P2X3 revenue potential;

2

• the capacity of our primary supply chain to produce the required clinical supplies to support a Phase 3 program in refractory chronic cough within the anticipated timeframe;

• absence of interruption or delays in the operations of our suppliers of components or raw materials, contract research organizations or other third parties with whom we engage, whether as a result of disruptions caused by the COVID-19 pandemic or otherwise;

• accuracy of our expectations regarding label indication for BLU-5937 in refractory chronic cough and the potential to expand the use of P2X3 inhibitors on all refractory chronic cough patients;

• absence of material deterioration in general business and economic conditions, including the impact on the economy and financial markets of the COVID-19 pandemic and other health risks;

• the effectiveness of COVID-19 containment efforts, including the implementation of vaccination programs and gradual recovery of global environment and global economic conditions;

• the receipt of regulatory and governmental approvals for research and development projects and timing thereof;

• the availability of tax credits and financing for research and development projects, and the availability of financing on favorable terms;

• our expectations regarding our status as a passive foreign investment company;

• the accuracy of our estimates regarding future financing and capital requirements and expenditures;

• the achievement of our forecasted cash burn rate;

• the sufficiency and validity of our intellectual property rights;

• our ability to secure, maintain and protect our intellectual property rights, and to operate without infringing on the proprietary rights of others or having third parties circumvent the rights owned or licensed by us;

• our ability to source and maintain licenses from third-party owners on acceptable terms and conditions;

• absence of significant changes in Canadian dollar-U.S. dollar and other foreign exchange rates or significant variability in interest rates;

• the absence of material changes in market competition and accuracy of our assumptions and projections regarding profile and market dynamic amongst more selective agents;

• our ability to attract and retain skilled staff;

• our ability to maintain ongoing relations with employees and business partners, suppliers and other third parties;

• the accuracy of the market research, third-party industry data and forecasts relied upon by us; and

• the absence of adverse changes in relevant laws or regulations.

There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. See “Risk Factors” section in this document. Should one or more of the risks, uncertainties or other factors outlined in this document materialize, our objectives, strategies or intentions change, or any of the factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans and targets could vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans or targets. All of the forward-looking information in this document is qualified by the cautionary statements herein.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this document, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

3

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this document, to conform these statements to actual results or to changes in our expectations.

Unless otherwise noted, all information in this annual information form is presented as at December 31, 2020.

CORPORATE STRUCTURE

Name, Address and Incorporation

The company was incorporated on April 12, 2012 under the Canada Business Corporations Act and is the successor of BELLUS Health Inc., a company incorporated on June 17, 1993 (known as Neurochem Inc. prior to April 15, 2008).

Our outstanding common shares are listed on the Toronto Stock Exchange (“TSX”) and on the Nasdaq Capital Market (“NASDAQ”) under the symbol “BLU”.

Our head office is located at 275 Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, Canada.

Intercorporate Relationships

As at February 25, 2021, we have two wholly-owned subsidiaries, BELLUS Health Cough Inc., also incorporated under the Canada Business Corporations Act, and BELLUS Health Corp., incorporated under the laws of the State of Delaware.

BUSINESS

Overview

We are a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization disorders. Our lead product candidate, BLU-5937, is an investigational product that is a highly selective antagonist of the P2X3 receptor, a target linked to hypersensitivity. We are developing BLU-5937 for the treatment of chronic cough and chronic pruritus, or chronic itch. We believe these hypersensitization-related disorders, which share a common pathophysiology that is mediated through the P2X3 receptor, represent areas of significant unmet medical need and potentially large market opportunities. We believe BLU-5937’s characteristics observed in our preclinical studies and Phase 1 and 2 clinical trials position it for development as a potential competitive treatment option in the P2X3 antagonist class.

We initiated two trials in the fourth quarter of 2020 including SOOTHE, a Phase 2b trial evaluating the efficacy and safety of BLU-5937 in refractory chronic cough (“RCC”) patients and BLUEPRINT, a Phase 2 proof-of-concept trial evaluating the efficacy and safety of BLU-5937 in patients with chronic pruritus associated with atopic dermatitis (“AD”).

Chronic cough, our lead indication for BLU-5937, is a cough lasting more than eight weeks, and may have a significant adverse impact on patients’ quality of life. We estimate 10% of the adult population in developed countries suffer from chronic cough including the United States, nations in the European Union, the United Kingdom and Japan. This represents approximately 26 million patients with chronic cough in the United States alone. We estimate that approximately 30% of chronic cough patients, or approximately nine million patients in the U.S., are uncontrolled or have RCC, which is the expected addressable patient population for BLU-5937. Many patients report that their condition has a marked effect on their quality of life including sleep disruption, tiredness, incontinence, and disrupting social interactions. Currently, there is no therapy approved specifically for the treatment of RCC. Available treatment options are limited and may have inadequate benefit and/or significant safety and tolerability issues, including significant taste alteration or loss.

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Chronic pruritus, the second indication for BLU-5937, is commonly known as chronic itch, and is an irritating sensation that leads to scratching and persists for longer than six weeks, which can be debilitating and can significantly impact quality of life. It is a hallmark of many inflammatory skin diseases, including AD. It is estimated that AD affects approximately 5% of adults in the United States. Despite currently available treatments targeting AD, there continues to be a lack of options targeting the burden of pruritus in AD patients.

2020 Highlights

Initiated the Phase 2b SOOTHE clinical trial of BLU-5937 in patients with RCC in December 2020.

• Topline results from the SOOTHE trial are expected in the fourth quarter of 2021.

• An interim analysis using a predefined efficacy and probability threshold is expected to be performed in mid-2021, once 50% of participants have completed the study.

• Phase 2b SOOTHE trial population enriched for participants with cough frequency above 25 coughs/h at baseline.

Initiated the Phase 2 BLUEPRINT clinical trial of BLU-5937 in patients with chronic pruritus associated with AD in December 2020.

• Topline results from the BLUEPRINT trial are expected in the fourth quarter of 2021.

Announced topline results from the Phase 2 RELIEF clinical trial of BLU-5937 in patients with RCC in July 2020.

• The RELIEF trial achieved proof-of-concept in reducing cough frequency in RCC patients including statistically significant and clinically meaningful reductions in two pre-specified sub-group analyses of participants with baseline awake cough frequency of ≥20 coughs/hour (80% of trial participants) and ≥32 coughs/hour (50% of trial participants).

• Numerical differences in favor of BLU-5937 were also observed in the whole study (intention-to-treat) population; however the trial did not meet its primary endpoint in this population.

• BLU-5937 was well tolerated and showed an adverse event profile comparable to placebo. The taste disturbance adverse events were limited to 10% or less, confirming the hypothesis that BLU-5937 has a favorable adverse event profile compared to the first generation P2X3 antagonist. Additionally, no complete loss of taste was observed at any dose, no severe taste adverse event was reported and no dropouts due to taste disturbance occurred.

Completed a $40.3 million offering in October 2020.

• In October 2020, we completed an offering of our common shares resulting in gross proceeds to BELLUS Health of $40.3 million.

Acquired full ownership of the intellectual property rights to BLU-5937 and related P2X3 antagonists in March 2020.

• In March 2020, we acquired all of the remaining BLU-5937 and related P2X3 antagonists intellectual property rights from adMare BioInnovations’ NEOMED Institute and now own 100% of BLU-5937 and related P2X3 antagonists intellectual property with no future payments due.

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Appointed Ramzi Benamar as Chief Financial Officer.

• In December 2020, we appointed Ramzi Benamar to the role of Chief Financial Officer. Mr. Benamar brings to BELLUS Health extensive experience in corporate strategy, finance and operations.

Ended the year with cash, cash equivalents and short-term investments totaling $98.3 million.

Our Strategy

We are focused on the development and commercialization of BLU-5937 as a potential differentiated treatment option for RCC patients, as well as for the treatment of chronic pruritus associated with AD and other hypersensitization-related disorders. The key elements of our strategy are:

• Advance the development of BLU-5937 in the treatment of chronic cough, our lead indication. We are focused on efficiently developing BLU-5937 to treat patients with chronic cough. We are conducting the Phase 2b SOOTHE clinical trial to evaluate the efficacy, safety, and tolerability of BLU-5937 in RCC patients at three doses (12.5 mg, 50 mg and 200 mg BID) in 300 patients. We enrolled the first patient in the SOOTHE trial in December 2020. An administrative interim analysis is expected to be conducted by an independent statistical team once 50% of patients have completed the main study and is anticipated in mid-2021. Topline data are expected in the fourth quarter of 2021. If our Phase 2b SOOTHE clinical trial is successful, we expect to initiate Phase 3 clinical trials to support the submission of a new drug application (“NDA”) to the FDA and a marketing authorization application (“MAA”) to the European Medicines Agency (“EMA”) for BLU-5937 in chronic cough.

• Advance the development of BLU-5937 in the treatment of chronic pruritus, our second indication. We are conducting the Phase 2 BLUEPRINT clinical trial to evaluate the efficacy, safety and tolerability of BLU-5937 in patients with chronic pruritus associated with AD, a hypersensitization-related disorder, with topline data expected in the fourth quarter of 2021.

• Maximize the value of BLU-5937 by maintaining flexibility to develop and commercialize our product independently or through collaborations.  In March 2020, we acquire all of the remaining BLU-5937 and related P2X3 antagonists intellectual property rights (the “BLU-5937 Assets”) and now own 100% of the BLU-5937 Assets. We may choose to pursue the development and commercialization of BLU-5937 independently or through collaborations with third parties.

• Leverage our proprietary P2X3 antagonist technology platform to pursue other hypersensitization-related conditions.  We are evaluating the potential role of P2X3 inhibition in the treatment of other afferent hypersensitization-related disorders.

Our Pipeline

We are evaluating BLU-5937 in RCC and chronic pruritus associated with AD, as identified in the following pipeline table:

 

We are developing BLU-5937, a potent, highly selective, small molecule antagonist of the P2X3 receptor, as an oral therapy to reduce cough frequency and severity, as well as to improve quality of life in RCC patients.

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In December 2020, we initiated SOOTHE, a Phase 2b trial evaluating the efficacy and safety of BLU-5937 in RCC patients, enriched for higher cough frequency patients.

Following a Type C meeting with the U.S. Food and Drug Administration (“FDA”) in November 2020, we decided to proceed with our planned Phase 2b SOOTHE trial in patients with RCC.

In July 2020, we announced topline results from our Phase 2 RELIEF clinical trial of BLU-5937 that demonstrated proof-of-concept in RCC patients. Numerical differences in favor of BLU-5937 were observed in the primary endpoint of reduction in cough frequency. Clinically meaningful and statistically significant reductions in cough frequency were observed in two pre-specified sub-group analyses including participants with baseline awake cough frequency of ≥20 coughs/hour (80% of trial participants) and ≥32 coughs/hour (50% of trial participants).

Chronic cough, our lead indication for BLU-5937, is a cough lasting more than eight weeks, and may have a significant adverse impact on patients’ quality of life. It is estimated that approximately 26 million adults in the United States suffer from chronic cough of which approximately 9 million patients are identified as having RCC. Many patients report that their condition has a marked effect on their quality of life including sleep disruption, tiredness, incontinence, and disruption of social interactions. Currently, there is no therapy approved specifically for the treatment of RCC. Available treatment options are limited and may have inadequate benefit and/or significant safety and tolerability issues. We believe that BLU-5937, if approved, may be adopted by physicians as an oral cough therapy in patients for whom cough-hypersensitivity is the primary etiology.

We are also developing BLU-5937 as an oral therapy to reduce itch in patients with chronic pruritus associated with AD. On December 14, 2020, we announced that the first patient had been dosed in the Phase 2 BLUEPRINT trial of BLU-5937. We expect to release top-line data in the fourth quarter of 2021.

Chronic pruritus, the second indication for BLU-5937, is commonly known as chronic itch, and is an irritating sensation that leads to scratching and persists for longer than six weeks, which can be debilitating and can significantly impact quality of life. It is a hallmark of many inflammatory skin diseases, including AD. It is estimated that AD affects approximately 5% of adults in the United States. Despite currently available treatments targeting AD, there continues to be a lack of options targeting the burden of pruritus in AD patients.

Chronic Cough

Highly Prevalent Condition

Coughing is a reflex mechanism and the body’s way of clearing irritants or mucus from the airways and can be either acute or chronic in nature. Chronic cough is classified as a cough lasting for more than eight weeks, and is usually associated with an underlying respiratory condition, such as asthma or chronic obstructive pulmonary disease (“COPD”), but can also be caused by other common non-respiratory conditions (e.g. allergic rhinitis or gastroesophageal reflux) or certain medications (e.g. ACE inhibitors). Notably, many cases of RCC have no identifiable cause, a condition often referred to as unexplained chronic cough.

Chronic cough occurs when the nerves involved in the cough response become hypersensitive. For example, the coughing that occurs from a bad cold can sensitize the nerves involved in the cough response. The cough reflex can then become extremely sensitive to the point where coughing itself triggers more coughing. This can continue for an extended period, even after the trigger, such as the cold, has resolved.

Chronic cough can have a significant impact on quality of life, including debilitating physical and psychosocial burden. Fatigue, sleep disturbance, vomiting, chest pains, and incontinence can occur, and patients with chronic cough often experience social embarrassment. A study found that more than half of all chronic cough patients suffer from clinical depression.

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Limitations of Current RCC Therapies

Current treatment options for RCC have demonstrated limited efficacy and/or have safety/tolerability issues. Drug-development within this field has seen minimal advances over the past 60 years, underscoring a substantial unmet medical need. Commonly used cough drugs, such as those incorporating dextromethorphan as their primary active ingredient, offer limited benefit, if any, to chronic cough patients. Benzonatate anesthetizes the stretch receptors in the lungs, but offers only temporary relief and may cause serious side effects if the capsule is crushed. Off-label treatment options, such as gabapentin and pregabalin, have shown variable efficacy and significant central nervous system side effects. The use of opioids, such as low-dose morphine and codeine, have shown some efficacy, but their use is controversial due to the potential for addiction and other serious side effects such as drowsiness, nausea, constipation, respiratory depression and potential for addiction. Speech therapy has also shown some efficacy, especially in combination with pharmacotherapy. Nevertheless, such therapy generally requires patient referral to a limited number of specialized cough clinics with highly-trained medical personnel and a significant effort and time commitment by the patient.

Selective P2X3 Receptor Inhibition: A Promising and Clinically Validated Therapeutic Approach in Chronic Cough

The only clinically validated treatments in development for RCC are molecules that inhibit the P2X3 receptor. P2X3 receptors are ATP-gated ion channels that belong to a family of purinergic receptors. Members of this family assemble as homotrimeric (three subunits of P2X3) or heterotrimeric (two subunits of P2X3 and one subunit of P2X2 (i.e., P2X2/3)) ion channels and are widely expressed in non-excitatory and excitatory cells, such as afferent neurons. Afferent sensory neurons are the primary conduit for sensory information and the primary site that may undergo modulation leading to persistently altered sensation, including hypersensitivity. ATP, acting via P2X3 receptors, is believed to be a key mediator of these changes. The ability to inhibit the binding of ATP to the P2X3 receptor has been shown to be a promising path in the search for therapeutics to treat disorders driven by neuronal hypersensitivity. ATP signaling via these P2X receptors is also necessary for successful transmission of information from taste cells to the sensory neurons that innervate the taste buds. In preclinical studies of double-knock out mice lacking both P2X2 and P2X3 purinoceptors, abolition of taste sensation was observed, whereas single knock-out of either the P2X2 or P2X3 receptor causes only moderate taste disturbance. We, therefore, believe that selective P2X3 antagonists, such as BLU-5937, have the potential to mediate aberrant ATP signaling in conditions like chronic cough, chronic pruritus and other hypersensitization disorders, while limiting or potentially eliminating taste loss and taste alteration observed with gefapixant, a less selective P2X3 antagonist that also inhibits the P2X2/3 receptor.

 

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BLU-5937, Our Highly Selective P2X3 Antagonist Product Candidate

We are developing BLU-5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, as an oral therapy to reduce cough frequency in chronic cough patients. Advances in the understanding of possible mechanisms underlying chronic cough have paved the way for product candidates targeting the P2X3 receptors, such as BLU-5937. To date, several clinical studies have validated the potential of targeting this receptor and ongoing clinical studies seek to further evaluate the efficacy and safety of P2X3-targeting agents in RCC. We believe BLU-5937’s characteristics shown in Phase 1 and 2 clinical trials as well as in preclinical studies position it for development as a potential competitive treatment option in the P2X3 antagonist class. These include:

• BLU-5937 is a potent antagonist of P2X3 that has the potential to significantly alleviate RCC symptoms

The high potency and selectivity of BLU-5937 for P2X3 receptors was shown in vitro by inhibiting ATP-evoked P2X3 receptor activity in cloned human P2X3 channels expressed in mammalian cells. The concentration of BLU-5937 needed to inhibit 50% of the P2X3 activity (IC50) in this assay was established at 25 nM, which was approximately three times more potent than gefapixant.

In vitro, BLU-5937 was observed to block ATP-induced sensitization and firing activity of primary nociceptors in rat dorsal root ganglions through P2X3 receptor inhibition.

In the guinea pig cough model, we observed that BLU-5937 significantly reduced, in a dose-dependent fashion, the histamine or ATP-induced enhancement in number of citric acid-induced coughs. In these validated models of cough, the antitussive effect of BLU-5937 was observed to be comparable to that of gefapixant.

• BLU-5937 is highly selective for P2X3 that has the potential to have minimal taste side effects

We believe that BLU-5937, which has been specifically designed to be a highly selective antagonist of the P2X3 receptor, has the potential to significantly alleviate RCC while maintaining taste function. The high selectivity of BLU-5937 for P2X3 receptors was observed in vitro by inhibiting receptor activity in cloned human P2X3 and P2X2/3 channels expressed in mammalian cells. The BLU-5937 selectivity ratio was observed to be, on average, greater than 1,500 times in favor of P2X3 as compared to P2X2/3, whereas the selectivity ratio for gefapixant was observed to be approximately three to seven fold higher for P2X3 as compared to P2X2/3.

In a rat behavioral taste model, we observed that BLU-5937 did not alter taste perception compared to control animals, whereas gefapixant had a significant inhibitory effect on taste perception. We believe that the lack of effect of BLU-5937 on taste perception, even at high doses, is due to its higher selectivity for the P2X3 versus P2X2/3 receptors on the taste buds.

In a Phase 1 trial with healthy volunteers given BLU-5937, at the anticipated therapeutic doses of 50 mg to 200 mg, no subjects reported loss of taste perception and only one subject out of 40 (2.5%) reported a transient and sporadic taste alteration.

In the Phase 2a RELIEF trial in participants with RCC receiving BLU-5937 at doses of 25, 50, 100 and 200 mg BID, ~10% participants reported taste disturbance events, compared with ~5% of participants receiving placebo. These taste disturbances were mostly mild in nature, and none resulted in discontinuation from the study. No complete taste loss was reported at any dose.

• BLU-5937 is orally bioavailable and has a half-life that supports dosing as a tablet twice daily

The safety, tolerability and pharmacokinetic profile of BLU-5937 was assessed in preclinical studies in which we observed that BLU-5937 exhibited good oral bioavailability, low predicted clearance in humans, no blood-brain barrier permeability and a favorable tolerability profile. The Phase 1 data demonstrated a favorable pharmacokinetic profile for BLU-5937: rapid absorption with maximum plasma concentration achieved within one to two hours post-dose, dose-proportionally plasma concentration increases and a plasma half-life of four to nine hours that supports a twice a day dosing schedule.

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The pharmacokinetic profile from the Phase 1 trial also supported that the drug can be taken without regard to meals, which is convenient for patients and supports compliance. In addition, there was no evidence of significant drug accumulation upon repeated dose administration. Based on achieving targeted receptor inhibition and activity in preclinical studies and on achieving comparative drug blood levels of a clinically validated comparator, after correcting for pharmacokinetic and potency differences, we anticipate that drug levels required for optimal inhibition of cough will be achieved at 25 mg to 50 mg BID.

We believe that BLU-5937, if approved, may be adopted by physicians as an oral cough therapy either as an adjunct to treatments targeting the underlying cause of the chronic cough or as a monotherapy in patients for whom the cough is the primary etiology.

Competitive Landscape

In addition to BELLUS Health, other companies are developing P2X3 antagonist product candidates for the treatment of RCC, including Merck & Co. (“Merck”), Bayer AG (“Bayer”) and Shionogi Inc. (“Shionogi”).

 

¹Limited head to head studies have been conducted; data presented is derived from company specific disclosures. 

²Smith J., Lancet Respir Med 2020: Gefapixant, a P2X3 receptor antagonist, for the treatment of refractory or unexplained chronic cough: a randomised, double- blind, controlled, parallel group, phase 2b trial. 

³Safety and Efficacy of BAY 1817080, a P2X3 Receptor Antagonist, in Patients with Refractory Chronic Cough (RCC), Presenter Q&A – ERS 2020. 

⁴Niimi A, European Respiratory Journal 2019 54: RCT452.

Merck announced in March of 2020 that the 45mg BID dose MK-7264 had reached statistical significance on the primary efficacy endpoint in both the COUGH-1 and COUGH-2 study and that the 15mg BID dose had not achieved statistical significance in either the Cough-1 or Cough-2 study. Pursuant to this announcement, in September 2020 at the European Respiratory Society (ERS) International conference, Merck presented these Phase 3 results. The high dose (45 mg BID) of MK-7264 achieved a statistically significant result in its primary endpoint of placebo-adjusted reduction in 24-hour cough frequency (18% in the 12-week COUGH-1 trial and 16% in the 24-week COUGH-2 trial, respectively), but showed significant rates of taste disturbance adverse events (58% and 69% in COUGH-1 and COUGH-2, respectively). The impact of baseline cough frequency on treatment benefit was not disclosed in the Phase 3 trials, although a statistically significant interaction between baseline cough frequency and treatment benefit was observed in two Phase 2 trials.

Shionogi announced top-line results of its Phase 2a trial of S-600918 in patients with RCC at the European Respiratory Society (ERS) International Congress in October 2019, which included a placebo-adjusted reduction in 24-hour cough frequency of 32% (p=0.055) and rate of 6.5% of taste disturbance adverse events. The average cough per hour frequency at baseline was 56. At the 2020 ERS International Congress, Shionogi reported that they observed an interaction between baseline cough frequency and treatment effect in their Phase 2a trial; this prompted the utilization of a minimal cough frequency threshold as an inclusion criterion in the Phase 2b trial of S-600918. Moreover, Shionogi stratified participants by baseline cough frequency to balance trial arms.

In April 2020, Bayer announced top-line results of its Phase 2a trial evaluating BAY 1817080 at the American Thoracic Society International Conference, which demonstrated that higher doses of Bayer’s P2X3 antagonist significantly reduced 24-hour cough counts in patients with RCC (ranging from 15% to 25% cough reduction compared to placebo) and cough severity. Taste disturbance adverse events were reported by 5% to 21% of participants receiving BAY 1817080 and were dose-dependent. In October 2020, Bayer initiated a Phase 2b trial evaluating three doses of BAY1817080 in 236 RCC participants.

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Market Opportunity in Chronic Cough

We estimate 10% of the adult population in developed countries suffer from chronic cough including the United States, nations in the European Union, the United Kingdom and Japan. This represents approximately 26 million patients with chronic cough in the United States alone.

We estimate that approximately 30% of chronic cough patients, or approximately nine million patients in the U.S., are uncontrolled or have RCC, which is the expected addressable patient population for BLU-5937. These RCC patients continue to cough despite treatment for potential underlying causes triggering the cough or their cough is unexplained. We estimate that approximately one-third, or approximately three million, of these RCC patients in the U.S. have been coughing for over a year, a key inclusion criteria in current RCC trials, including the Phase 2 RELIEF trial of BLU-5937. RCC patients can also be segmented by severity, with about 45% of patients having moderate to severe disease and 55% having mild disease. Severely affected patients have a debilitating disease, moderately affected patients have important impacts on their quality of life, and mildly affected patients have fewer but still relevant impact from their disease.

As for potential pricing considerations for BLU-5937, comparable analogue drugs on the U.S. market have a monthly wholesale acquisition cost that ranges from $300 to $600. These analogues include, but are not limited to, comparable chronic use drugs for Asthma and COPD, CIC and IBS-C, Chronic Constipation, Migraine, and High Cholesterol.

Ongoing Phase 2b SOOTHE Clinical Trial

On December 8, 2020, we announced that the first participant has been dosed in the Phase 2b SOOTHE trial of BLU-5937. Topline data from SOOTHE is expected in the fourth quarter of 2021. An interim analysis is expected to be performed in mid-2021, once 50% of participant have completed the study.

The SOOTHE trial is a multicenter, randomized, double-blind, four-week, parallel-arm, placebo- controlled Phase 2b trial evaluating the efficacy and safety of three doses of BLU-5937 (12.5 mg, 50 mg and 200 mg BID) in 300 participants. Two hundred and forty participants with a baseline awake cough frequency of ≥25 coughs per hour are expected to be randomized across four arms (1:1:1:1) evaluating the three active doses and placebo in the main study. Treatment arms will be stratified to balance the number of participants per treatment group with baseline awake cough frequency ≥45 coughs per hour. The primary efficacy endpoint will be the placebo-adjusted change in the 24-hour cough frequency from baseline to day 28 collected with a cough recorder. An exploratory group of an additional 60 participants with a baseline awake cough frequency of ≥10 and <25 coughs per hour are expected to be randomized across two arms (1:1) evaluating one active dose (200 mg BID) and placebo to further investigate the effect of BLU-5937 in patients with lower cough frequency.

The interim analysis is expected to be conducted by an independent statistical team once 50% of participants have completed the main study and is anticipated in mid-2021. Using a predefined probability of efficacy hurdle, results from the interim analysis may be used to initiate planning activities for Phase 3. The SOOTHE trial will continue to completion regardless of the results of the interim analysis; futility will not be assessed at the interim analysis.

The trial is expected to enroll participants in approximately 120 sites of which approximately 50% are in the United States.

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Phase 2 RELIEF Clinical Trial

The RELIEF trial established proof-of-concept for BLU-5937 in the treatment of RCC patients. The RELIEF trial did not achieve statistical significance for the primary endpoint of reduction in placebo-adjusted awake cough frequency at any dose tested in the Intent to Treat Population (n=67); however, pre-specified analyses regarding the impact of baseline cough frequency on treatment effect, including subgroup analyses in participants with baseline awake cough frequency of ≥ 20 coughs/hour (“coughs/h”) and ≥ 32 coughs/h (median), revealed statistically significant and clinically meaningful reductions in cough frequency relative to placebo:

• Participants with ≥20 coughs/h (representing 80% of total trial participants) at baseline saw placebo-adjusted reductions in awake cough frequency of 20% (p=0.001), 18% (p=0.02), 19% (p=0.03) and 27% (p=0.003) at doses of 25, 50, 100 and 200 mg twice daily (BID) respectively.

• Participants with cough frequencies at or above the baseline median of 32 coughs/h at baseline (representing 50% of total trial Participants) saw placebo-adjusted reductions in awake cough frequency of 28%, 28%, 30% and 32% (all p<0.0015) at doses of 25, 50, 100 and 200 mg BID, respectively.

• A statistically significant interaction (p=0.0258) was observed between average awake cough frequency at baseline and treatment effect, linking higher baseline cough frequency with improved treatment benefit.

Top-line results

All patients — Intent to Treat Patients Population (n=67)

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-11%	p=0.14
50 mg BID	-6%	p=0.46
100 mg BID	-8%	p=0.41
200 mg BID	-17%	p=0.09

Pre-specified subgroup — Patients with awake cough frequency at >20 coughs/h (n=54)

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-20%	p=0.0010
50 mg BID	-18%	p=0.0186
100 mg BID	-19%	p=0.0320
200 mg BID	-27%	p=0.0026

Pre-specified Subgroup — Patients with awake cough frequency at or above baseline median

(>32.4 cough/h; n=34) 

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-28%	p=0.0005
50 mg BID	-28%	p=0.0003
100 mg BID	-30%	p=0.0014
200 mg BID	-32%	p=0.0006

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BLU-5937 was observed to be well tolerated with the most common (≥5%) treatment-emergent adverse events being headache (9.8%), back pain (8.2%), dysgeusia (8.2%), diarrhea (6.6%), upper respiratory tract infection (6.6%), dizziness (6.6%), and oropharyngeal pain (4.9%). No treatment-related serious adverse events and no withdrawals due to treatment-related adverse events were reported at any dose.

Incidence of Most Frequent Adverse Events (>5% Incidence)

¹ One participant diagnosed with non-treatment-related colorectal cancer following trial completion

Taste disturbance adverse events, including taste alteration and partial taste loss, were reported at all dose levels (6.5%, 9.8%, 10% and 8.6% at 25, 50, 100 and 200 mg BID, respectively, versus 4.9% on placebo) and were mostly mild in nature. No participant reported complete taste loss. There were no clinically meaningful changes in vital signs, electrocardiogram or clinical laboratory values.

Incidence of Taste Disturbance Adverse Events (Safety Population) 

 

¹One subject reported both taste disturbance and partial taste loss during the same period at all dose levels of BLU-5937 but is counted only once in the total taste adverse events

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RELIEF enrolled participants in 16 sites (8 in the United Kingdom and 8 in the United States) and randomized a total of 68 RCC participants; 67 were included in the Intent to Treat population. 52 participants completed both treatment periods and 16 participants dropped out in total, including 13 as a result of risk considerations related to the COVID-19 pandemic or the sponsor’s early termination of the trial. There were three additional non-drug related discontinuations.

Learnings from RELIEF Phase 2 Data

Based on the RELIEF trial results, we believe cough frequency at baseline is a key indicator of potential treatment benefit, with subgroup analysis of participants having baseline awake cough frequencies ≥20 coughs/h and ≥32 coughs/h demonstrating statistically significant and clinically meaningful benefit at all doses. Based on these analyses and the participant patient level data of participants with baseline awake cough frequency of ≥20 coughs/h and <32 coughs/h, we have selected a baseline cough frequency of 25 coughs/h as an inclusion criterion for the Phase 2b trial.

No dose response was observed in the Phase 2 RELIEF trial, including based on an analysis of within-participant dose response curves. Plasma concentrations achieved in RELIEF are also consistent with achieving receptor occupancies in the 75-95+% range. Based on this information, doses of 12.5 mg BID, 50 mg BID and 200 mg BID were selected for the Phase 2b SOOTHE trial.

BLU-5937 Regulatory Pathway in Chronic Cough

If the results of the SOOTHE trial are positive, we expect to meet with the FDA and European regulatory authorities to discuss the registration pathway for BLU-5937 in chronic cough patients and the design of the next trials, including the target population, dose, duration and primary efficacy endpoint. We expect to initiate Phase 3 clinical trials to support the submission of a new drug application (“NDA”) to the FDA and a marketing authorization application (“MAA”) to the European Medicines Agency (“EMA”) for BLU-5937 in chronic cough. If the results of these trials are positive, we would plan to seek approval for BLU-5937 for RCC which, if successful, would lead to the marketing and sale of BLU-5937. See “Risk Factors”.

Supporting Preclinical and Clinical Development Activities

Preclinical and clinical development activities to support an anticipated Phase 3 RCC program start are ongoing or expected to be initiated in 2021, including: chronic toxicity studies in rats and dogs, a 2-year carcinogenicity study in the rat, a drug-drug interaction clinical trial in combination with an inhibitor of CYP3A4; an absorption, metabolism and excretion clinical trial, a Phase 1 clinical trial to assess the potential effect of BLU-5937 on cardiac repolarization as measured by QT/QTc interval; and a pharmacokinetic study in Asian population.

Chemistry, Manufacturing, and Controls (“CMC”)

We have a primary supply chain in place with the capacity to produce the required clinical supplies to support a Phase 3 program in RCC. Activities related to manufacturing process optimization and upscaling to support a potential commercialization are ongoing.

Development of a Once-Daily (“QD”) Formulation

We have initiated activities in preparation for the development of a QD formulation for BLU-5937 using an extended-release tablet formulation. We are developing a QD formulation since BLU-5937 exhibits favorable physical-chemical and pharmacokinetic characteristics, including high solubility and permeability, good absorption in the small and large intestine, linear pharmacokinetic profile, no interaction with food observed to date and a low predicted therapeutic dose. A pharmacokinetic pharmacology-based modelization study has been completed and we plan to initiate the development of a BLU-5937 QD formulation prototype after the completion of the Phase 2b RCC trial.

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BLU-5937 in Chronic Pruritus

A Burdensome Condition Effecting Quality of Life

Chronic pruritus, defined as itching lasting longer than six weeks, can be as burdensome as chronic pain in negatively impacting a patient’s quality of life. The urge to scratch can be unbearable, and the act of scratching can remove layers of skin and break the skin barrier leading to bleeding, scarring and greatly increasing the risk of infection. Similar to chronic pain, severe chronic pruritus causes a number of physical and psychological issues that substantially impact patients’ day-to-day wellbeing. Chronic pruritus can lead to trouble sleeping, resulting in loss of work productivity and increased anxiety and depression.

Chronic pruritus is a hallmark of many conditions, including atopic dermatitis. It is estimated that there are 16.9 million adults in the United States who have atopic dermatitis, a chronic, inflammatory skin disease that is most commonly first diagnosed in childhood. Atopic dermatitis is characterized by skin barrier disruption and immune dysregulation. Patients with atopic dermatitis may have chronically inflamed skin lesions and often have persistent pruritus. Physicians and patients report pruritus as the primary patient complaint associated with this disease. Of the total population of adults affected by atopic dermatitis in the United States, it is estimated that three million of those are actually diagnosed with the disease, and of those diagnosed, it is estimated that 2.25 million of these patients are actively being treated by a physician.

For people suffering with atopic dermatitis, the quality of life impact of the disease is multifaceted and can be constant. Much of this impact is related to its major symptom, itch, its effect on sleep, its outward visibility and the expense and time-consuming nature of prescription and topical treatments. Atopic dermatitis affects social, sexual, academic and occupational functioning and is also associated with increased rates of depression and anxiety.

Creams and ointments and topical corticosteroids or other topical or systemic anti-inflammatory agents are routinely used to manage skin health and to reduce skin inflammation in patients with atopic dermatitis. However, despite currently available treatments, an estimated 40-50% of atopic dermatitis patients report having inadequate relief of their pruritus and are in need of new, efficacious pruritus therapies.

BLU-5937: A Promising Potential Therapy for Chronic Pruritus

Based on similarities between the manifestation of the symptoms between cough and itch, we believe that BLU-5937 may be a promising, novel therapeutic modality for chronic pruritus associated with atopic dermatitis. Neuronal terminals in the skin are known to express P2X3 receptors and the hypersensitization of afferent neurons expressing P2X3 receptors may also be involved in chronic pruritus. We believe that increased release of ATP in atopic dermatitis leads to hyperexcitability of afferent pruriceptive neurons mediated by P2X3 receptors leading to pruritus. We believe BLU-5937, a potent and selective P2X3 antagonist, therefore has the potential to address chronic pruritus associated with atopic dermatitis.

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Mechanistic Similarities Between Cough and Itch  

 

Preclinical studies conducted by us provided evidence that the ATP-induced hypersensitization mediated by P2X3 receptors in cutaneous C-fibers plays a key role in pruritus. In multiple animal models of pruritus, we observed that treatment with BLU-5937 resulted in significant anti-pruritic effect. As shown in the figure below, BLU-5937 was evaluated in the calcipotriol-induced murine model of atopic dermatitis where it was observed to result in potent, statistically-significant and dose-dependent reductions of spontaneous scratching compared to placebo. These studies formed the basis for our clinical development plan in chronic pruritus.

Atopic Dermatitis Mouse Model

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Ongoing Phase 2 BLUEPRINT Clinical Trial

On December 14, 2020, we announced that the first participant has been dosed in the Phase 2 BLUEPRINT trial of BLU-5937. We expect to release top-line data in the fourth quarter of 2021.

The BLUEPRINT trial is a multicenter, randomized, double-blind, placebo-controlled, parallel design Phase 2 trial evaluating the efficacy, safety, and tolerability of BLU-5937 in approximately 128 adults with moderate to severe chronic pruritus associated with mild to moderate AD. Participants are randomized into one of two treatment arms (1:1) and will receive either 200 mg BID of BLU-5937 or placebo for a four-week treatment period. The primary efficacy endpoint is the change from baseline in weekly mean Worst Itch-Numeric Rating Scale (WI-NRS) score at week four. A key secondary endpoint is a responder-rate analysis of at least a four-point WI-NRS improvement from baseline at week four.

The BLUEPRINT trial is being conducted at approximately 30 centers located in Canada and the United States.

BLU-5937 in Other P2X3 Hypersensitization-Related Disorders

In addition to chronic cough and chronic pruritus, BLU-5937 may potentially have clinical benefit in other afferent hypersensitization-related disorders. We are exploring how P2X3 activation can contribute to irritation and pain, and whether inhibition of P2X3 receptors can help treat these afferent hypersensitization- related disorders.

Merck, Bayer and Shionogi are currently developing P2X3 antagonists for other afferent hypersensitization-related disorders, with Phase 2 trials ongoing or planned in four non-cough P2X3 indications: overactive bladder, neuropathic pain, endometriosis pain and sleep apnea.

P2X3 Sensitization Contributes to Irritation and Pain  

 

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BLU-5937 Phase 1 Trial

In November 2018, we reported positive results from our Phase 1 clinical trial in 90 healthy volunteers, in which we observed that BLU-5937 had a favorable tolerability and safety profile at all doses tested. At doses of 50 mg to 100 mg, there was only one subject out of 40 (2.5%) who reported taste alteration, which was transient and sporadic. No subjects (0%) reported total loss of taste. We believe that doses of 12.5 mg to 200 mg will provide efficacy ranging from sub-optimal to maximal. In contrast, gefapixant was reported to cause taste alteration and/or taste loss in up to 80% of patients at the therapeutically relevant dose of 50 mg BID in a Phase 2 clinical trial, as well as 58% and 69% of patients at 45 mg BID in two Phase 3 clinical trials.

Trial Data

In November 2018, we completed a Phase 1 trial for BLU-5937 in 90 healthy adult volunteers, in which we observed that BLU-5937 is well tolerated, with a favorable pharmacokinetic profile. BLU-5937 was observed to be rapidly absorbed, achieving maximum plasma concentration within one to two hours. Plasma half-life was established at four to nine hours, supporting BID dosing. Based on preclinical efficacy studies and comparison with drug levels achieved with a clinically validated comparator, after correcting for pharmacokinetic and potency differences, we anticipate that drug levels required for optimal inhibition of cough will be achieved between 25 and 50 mg BID. As shown in the graphs below, we observed that BLU-5937 plasma concentration (Cmax and AUC) increased dose-proportionally and was not affected by food, supporting BLU-5937 administration without regard to meals.

Phase I Pharmacokinetic Profile and Dosing   

 

The overall incidence of adverse events was comparable between placebo (50%) and BLU-5937 (44%). No subjects who were administered BLU-5937 reported any loss of taste perception and only one subject out of 40 (2.5%) reported transient and sporadic taste alteration. No subject reported total loss of taste at any dose levels. This taste effect was reported only on the first day out of seven days of dosing by a subject receiving 100 mg BID. No subject out of 16 reported any taste loss or taste alteration at 200 mg.

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Incidence of Most Frequent Adverse Events (>5% Incidence) in All Cohorts (SAD + MAD)  

 

At supra-therapeutic doses (200 mg to 1200 mg), two subjects out of 48 (4%) reported transient and sporadic partial loss of taste, and 13 subjects out of 48 (27%) reported transient and sporadic taste alteration. All taste-related events were transitory and sporadic in nature; one was rated moderate and all others were rated mild. The other most frequent adverse events reported in the Phase 1 trial (>5%) were: headache (11%), hypoaesthesia (11%), nausea (8%), dizziness (6%) and dyspepsia (6%).

Incidence of Taste AEs (All SAD and MAD Cohorts)

 

There were no serious adverse events and no healthy volunteers withdrew prematurely due to an adverse event during the trial. No significant trends of mean changes in vital signs, electrocardiogram (ECG) and clinical laboratory values have been observed in the Phase 1 trial of BLU-5937. One subject had a mild elevation of liver enzymes at 400 mg BID that normalized at follow up visit. This increase in liver enzyme levels was not associated with any signs of liver toxicity (e.g., no increase in bilirubin and no clinical symptoms of liver toxicity). There was also a slight increase in bilirubin in some subjects dosed at 400 mg BID. This elevation in bilirubin was not associated with any concomitant increases in liver enzyme levels and returned to baseline value two days after drug discontinuation, which suggests that it is most likely benign and due to an interaction between BLU-5937 and bilirubin hepatic disposition through inhibition of OATP.

Trial Design

The clinical Phase 1 trial was a randomized, double-blind, placebo-controlled trial of orally administered BLU-5937 in 90 healthy adult subjects. The primary objectives of this trial were to assess the safety, tolerability (including taste perception) and pharmacokinetic profile of BLU-5937 in healthy subjects. The trial was divided in two parts:

Part 1.  A single ascending dose (SAD) trial was conducted in 60 healthy subjects. Subjects were randomized into six cohorts of 10 subjects (8 BLU-5937: 2 placebo). The trial evaluated single oral doses of BLU-5937 from 50 to 1200 mg.

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Part 2.  A multiple ascending dose (MAD) trial was conducted in 30 healthy subjects. Subjects were randomized into three cohorts of 10 subjects (8 BLU-5937: 2 placebo). The trial evaluated multiple oral doses of BLU-5937 of 100, 200 and 400 mg administered twice-a-day (BID) for seven consecutive days.

Drug-drug Interaction Clinical Trial

We completed in December 2019 a clinical Phase 1 drug-drug interaction (DDI) trial in 28 healthy adult subjects to study potential interactions of BLU-5937 (200 mg BID for 10 days) with CYP3A4, OATP1B1 and BCRP. This trial revealed that BLU-5937 is not a CYP3A4 inducer. BLU-5937 was shown to be a weak inhibitor of OATP1B1 and a very weak inhibitor of BCRP, which is not considered clinically meaningful at the predicted therapeutic doses studied in the Phase 2b SOOTHE trial. These results indicate that the administration of BLU-5937 should not affect the elimination of other drugs that are substrates of these enzymes/transporters.  Furthermore, the weak inhibition of OATP1B1 is consistent with the hypothesis that BLU-5937 is affecting bilirubin disposition at predicted supra-therapeutic doses. BLU-5937 was found to be safe and generally well tolerated in the trial. No serious adverse events were reported. Three subjects were discontinued from the study due to adverse events (two subjects had mild rash and one subject had elevated liver enzymes). Only two subjects out of 28 (7%) reported a mild taste alteration, only on the first day of dosing.

BLU-5937 Preclinical Studies

BLU-5937’s Reduction in Cough Frequency Comparable to the Leading P2X3 Antagonist, Gefapixant

The antitussive effect of BLU-5937 was compared to that of gefapixant in a guinea pig cough model. Treatments (control, BLU-5937 (0.3, 3 and 30 mg/kg) or gefapixant (0.3, 3 or 30 mg/kg)) were administered orally in seven groups of six animals two hours prior to tussive agent exposure (citric acid and histamine) and the number of coughs were counted for a period of 15 minutes. Both treatments showed comparable dose-dependent reduction in cough frequency as compared to the control. The reduction in cough was statistically significant at 3 mg/kg (39% vs. control) and 30 mg/kg (52% vs. control) with BLU-5937, and at 30 mg/kg (45% vs. control) with gefapixant.

Guinea Pig Cough Inhibition Study

 

BLU-5937’s Duration of Effect also Comparable to Gefapixant

Using the same guinea pig cough model, a time course study was conducted to assess the duration of the antitussive effect of BLU-5937 and gefapixant following the administration of a single oral 30 mg/kg dose. In this study, animals in groups of six were exposed to tussive agents (citric acid and histamine) at various times after the administration of the study drugs (two, four, six, eight and twelve hours post-dose for BLU-5937 and two and eight hours post-dose for gefapixant) and the number of coughs were measured for 15 minutes. The reduction in cough frequency compared to control was observed to be statistically significant at two, four and six hours post-dose with BLU-5937, and at two hours post-dose with gefapixant. The antitussive effect was no longer significant at eight hours post-dose for both agents.

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BLU-5937 Was not Associated with Taste Loss, Whereas Gefapixant Showed Significant Taste Loss in a Rat Taste Model

A rat taste model was used to compare BLU-5937’s effect on taste perception with that of gefapixant. Animals were water-fasted overnight and presented with one bottle of water and one bottle of (bitter-tasting) quinine at the time corresponding to the maximum plasma concentration of study drugs. The volume of liquid consumed from each bottle was measured for 15 minutes. Treatments (control, BLU-5937 (10 or 20 mg/kg) or gefapixant (10 or 20 mg/kg)) were administered intraperitoneally in two groups of 10 rats. Animals treated with BLU-5937 did not drink more quinine than the control animals, while those treated with gefapixant drank significantly (approximately four to five times) more quinine than the control at the two doses tested. These results indicate that BLU-5937 was not associated with taste loss whereas gefapixant led to significant taste loss.

Intellectual Property

Our BLU-5937 program is protected by a comprehensive patent estate comprised of issued and allowed patents, as well as pending patent applications. We have secured composition of matter patent protection for BLU-5937 in all major pharmaceutical markets, including the United States of America, Europe, Japan and China, all with an expiration date of 2034. Under certain circumstances, such patent term may be extended for up to five years in certain jurisdictions such as the United States, Europe and Japan. In addition, we have secured methods of use patent protection in the United States for avoiding loss of taste response while treating a chronic cough patient through treatment with BLU-5937, expiring in 2038. Patent applications with similarly broad claims are currently pending in other industrialized nations.

Our commercial success depends in part on our ability to obtain and maintain proprietary protection for BLU-5937 and its therapeutic applications, in order to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how and continuing technological innovation to further develop and maintain our proprietary position.

Composition of matter patent coverage for BLU-5937 has been secured in all major pharmaceutical markets: the United States of America, Europe, Japan and China. Patents issued have claims covering the composition of matter of BLU-5937 and related imidazopyridine compounds and uses thereof. The patents have an expiration date of 2034, excluding any potential patent term extension. Patent applications with similarly broad claims are currently pending in other industrialized nations.

In addition, the USPTO has issued patent No. 10,111,883 granting claims for the use of BLU-5937 for the treatment of chronic cough without affecting taste response. More generally, this patent claims the use of imidazopyridine compounds, including BLU-5937, that are selective for the P2X3 receptor as a means of minimizing taste perturbation in patients treated for chronic cough. Patent No. 10,111,883 has an expiration date of 2038, excluding any potential patent term extension. This new U.S. patent extends the patent protection of BLU-5937 by an additional four years, to 2038.

In addition to patent protection granting claims to composition of matter, our patent estate also includes patents and patent applications associated with the use of BLU-5937 and related compounds as a treatment for various hypersensitization disorders, including chronic cough and chronic pruritus.

The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a nonprovisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the “Hatch-Waxman Act”, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. We cannot provide any assurance that any patent term extension with respect to any U.S. patent will be obtained and, if obtained, the duration of such extension.

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Similar provisions are available in the European Union and certain other non-U.S. jurisdictions to extend the term of a patent that covers an approved drug. In the future, if BLU-5937 receives approval from the FDA or non-U.S. regulatory authorities, we expect to apply for patent term extensions on issued patents covering BLU-5937, depending upon the length of the clinical trials for BLU-5937 and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us. However, we cannot provide any assurances that any such patent term extension of a non-U.S. patent will be obtained and, if obtained, the duration of such extension.

We also protect our proprietary technology and processes, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants, scientific advisors or other contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Our commercial success will also depend in part on not infringing the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, alter our processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize BLU-5937 or any future product candidate may have a material adverse impact on us. If third parties prepare and file patent applications that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings to determine priority of invention.

Acquisition of the Complete Ownership of BLU-5937 Intellectual Property Rights

On March 25, 2020, we closed an asset purchase and sale agreement to acquire all of the remaining BLU-5937 and related P2X3 antagonists intellectual property assets (the “BLU-5937 Assets”) from adMare BioInnovations’ NEOMED Institute (“adMare”). We now own 100% of the BLU-5937 Assets. . The license agreement entered into in February 2017 pursuant to which we had exclusive rights to develop and commercialize the BLU-5937 Assets was terminated as part of this transaction. In consideration of the forgoing, we issued to adMare and AstraZeneca AB (“AstraZeneca”) an aggregate of 4,770,000 common shares from treasury, representing 7.3% of BELLUS Health’s fully diluted equity at that time. In addition, we paid a cash consideration to adMare of $352,000 (CA $500,000). We no longer have any obligations to adMare, or any other third party, in respect to tiered royalty obligations and revenue share that would have been otherwise owed to adMare under and subject to the February 2017 license agreement.

In February 2017, we entered into an agreement with NEOMED Institute a not-for-profit organization originally spun out of AstraZeneca, for the exclusive, worldwide license to develop and commercialize the BLU-5937 Assets.. The P2X3 antagonist program was initiated by AstraZeneca and assigned to NEOMED in October 2012. Under the terms of the agreement, we paid NEOMED an upfront fee of $3.2 million, consisting of $1.7 million in cash and $1.5 million in equity with the issuance of 5,802,177 of our common shares.

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Appointment of a Chief Financial Officer

In December 2020, we appointed Ramzi Benamar to the role of CFO. Mr. Benamar brings to BELLUS Health extensive experience developing corporate strategy for clinical-stage and commercial biopharma companies, combined with a proven track record in financial leadership. He earned a M.B.A. and B.B.A. in Marketing and Finance as well as a Master of Healthcare and Pharmaceutical Business Administration.

Prior to joining BELLUS Health, Mr. Benamar served as Chief Financial Officer of DBV Technologies, where he was responsible for all matters related to the strategic, operating, financial and accounting undertakings. During his time at DBV, Mr. Benamar was instrumental in capitalizing the company, strengthening the balance sheet and managing capital deployment. Previously, he was Vice President and Head of Financial Planning and Analysis for Spark Therapeutics until the acquisition of the company by Roche Holding. He provided financial leadership across the entire company, strengthened the finance organization and contributed to the transition to a commercial-stage organization. Earlier in his career, Mr. Benamar held numerous positions of increasing responsibilities spanning from R&D and global finance to strategy and operations at Merck, Johnson & Johnson, Shire Plc. and Purdue Pharma.

Human Resources

As at February 25, 2021, we employed 32 people.

Facilities

We leases office space in facilities located in the Parc Scientifique de la Haute Technologie in Laval, Quebec, Canada, pursuant to a lease entered into in September 2020.

RISK FACTORS

Investing in our common shares involves a significant amount of risk. You should carefully consider the risks described below. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially adversely affected. These are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also materially and adversely affect us. In such an event, the trading price of our common shares could decline and you may lose part or all of your investment in our securities. Any reference in this section to our “products” or “product candidates” includes a reference to BELLUS Health’s product candidate and future products or product candidates that may be developed.

Risks Related to Our Business

We may not be able to maintain our operations and research and development without additional funding, and we may not have access to sufficient capital.

To date, we have financed our operations primarily through public offerings of common shares, private placements, the issuance of convertible notes and research tax credits. We have incurred significant operating losses and negative cash flows from operations since inception. As at December 31, 2020 we had available cash, cash equivalents and short-term investments totaling $98.3 million. Based on management’s estimate and current level of operations, we believe that our current liquidity position is sufficient to finance our operations into the foreseeable future. We will need to raise additional capital to fund our operations and to develop BLU-5937. Our future capital requirements will be substantial and may increase beyond current expectations depending on many factors, such as the duration, scope, rate of progress, results and costs of any preclinical studies and clinical trials for our current or any future product candidates; unexpected delays or developments in seeking regulatory approvals and the outcome thereof; the time and cost in preparing, filing, prosecuting, maintaining, and enforcing patent claims; other unexpected developments encountered in implementing our business development and commercialization strategies; the outcome of any litigation; and arrangements with collaborators. Further, changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We have based the foregoing estimates on assumptions that may prove to be wrong, and we could utilize our available financial resources sooner than we currently expect.

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We may seek to raise additional funds through public or private equity or debt financing, collaborations agreements with other companies and/or from other sources. We have no committed source of additional capital and additional funding may not be available on terms that are acceptable to us, or at all. If adequate funding is not available on reasonable terms, we may need to obtain funds on terms less favorable than we would otherwise accept. Our ATM is not an assured source of raising capital as it is subject to terms and conditions and market demand. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to our shareholders. Moreover, the incurrence of debt financing could result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on operations. This could render us more vulnerable to competitive pressures and economic downturns. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of BLU-5937 or other future product candidates or other research and development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. If we are unable to obtain sufficient funds in a timely manner, we may be forced to scale back our operating plan; delay or discontinue one of our research and development programs; be unable to expand our organization to support our programs; and/or be unable to capitalize on business opportunities as planned. This may negatively impact our business and ability to execute our plan.

No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to us. The failure to obtain additional financing on favorable terms, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.

We have a history of losses and have not generated any product sales revenue to date. We may never achieve or maintain profitability.

Our product candidate, BLU-5937, is still only in development, and as a result, we have not generated any revenues from product sales to date. We have incurred substantial expenses in our efforts to develop BLU-5937, and consequently, have generated operating losses each year since our inception. For the years ended December 31, 2020 and 2019, we incurred net losses of $31.8 million and $26.0, respectively. As of December 31, 2020, we had an accumulated deficit of US$468.8 million. Our losses have adversely affected, and will continue to adversely impact, working capital, total assets, and shareholders’ equity. We do not expect to generate any revenues from product sales in the immediate future. We may never successfully commercialize any products. Even if we succeed in developing commercial products, we expect to incur additional operating losses for at least the next several years. If we do not ultimately commercialize products and achieve or maintain profitability, an investment in our shares could result in a significant or total loss. Our prospects currently depend heavily on the success and market acceptance of BLU-5937, which is still in clinical development. We currently have no products for sale and may never be able to successfully develop products for sale. We currently believe that our growth and future prospects are mainly dependent on the successful development, regulatory approval and commercialization of our product candidate BLU-5937, which may never occur. We are focusing our efforts and resources into the development of BLU-5937. Our business thus depends on the successful preclinical and clinical development, regulatory approval and commercialization of BLU-5937, for which we must conduct additional preclinical studies and clinical trials, undergo further development activities and seek and receive regulatory approval prior to commercial launch. Further development of BLU-5937 will require substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales, if approved.

We anticipate that our ability to generate revenues will depend on the commercial success of BLU-5937, which will depend upon its market acceptance by purchasers in the pharmaceutical market and the future market demand and medical need for products and research utilizing BLU-5937. Most prescription drug candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. If we are unable to successfully commercialize BLU-5937, we may never generate revenues. There is also the risk that the actual market size or opportunity for BLU-5937 is not certain, particularly with respect to the addressable market for the selected population of high frequency cough patients. For instance, we are not aware of any data that segregates the RCC patient population by cough frequency. Accordingly, while we estimate that there are approximately nine million chronic cough patients in the U.S. who are uncontrolled or have RCC, we are unable to estimate what percentage of this population has a baseline awake cough frequency of ≥25 coughs per hour, an inclusion criterion in our Phase 2b SOOTHE clinical trial. If BLU-5937 reaches commercialization and there is low market demand for BLU-5937 or the market for BLU-5937 develops less rapidly than we anticipate, we may not have the ability to shift our resources to the development of alternative products. Failure to gain market acceptance of BLU-5937 or an incorrect estimate in the nature and size of our market could have a material adverse effect on us.

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We rely on third parties to conduct preclinical studies and clinical trials for BLU-5937, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for BLU-5937.

We have designed the clinical trials for BLU-5937. However, we rely on contract research organizations and other third parties to assist in managing, monitoring and otherwise carrying out these trials. We likewise rely on third parties to conduct preclinical studies. We compete with many other companies for the resources of these third parties. The third parties on whom we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of our product candidate. The U.S. Food and Drug Administration (the “FDA”), and comparable foreign regulatory authorities require compliance with regulations and standards for designing, conducting, monitoring, recording, analyzing, and reporting the results of preclinical studies and clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our preclinical studies and clinical trials, they are not our employees, and we are responsible for ensuring that each of these preclinical studies and clinical trials is conducted in accordance with our general investigational plan, protocol and other requirements. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to preclinical studies or clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with preclinical studies or clinical trial protocols or meet expected deadlines, the preclinical studies or clinical trials of BLU-5937 may not meet regulatory requirements. If preclinical studies or clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of BLU-5937 on a timely basis or at all.

We rely completely on one third-party contract manufacturer to manufacture the active pharmaceutical ingredient (“API”), for BLU-5937 and another third-party contract manufacturer to manufacture the final drug product, and we intend to rely on third parties to produce non-clinical, clinical and commercial supplies of BLU-5937 and any other future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinical drug supply of BLU-5937, or any other product candidates we may develop in the future, for use in the conduct of our research and development activities, preclinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. We currently have the API for BLU-5937 manufactured by one third-party contract manufacturer and final drug product supplied by another contract manufacturer, and do not currently have backup manufacturing capacity.

We plan to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, preclinical studies, clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance with applicable government regulations. While we intend to contract for the commercial manufacture of our product candidates, we may not be able to identify and qualify contractors or obtain favorable contracting terms.

If any of the third parties with whom we engage, including the China-based third-party contract manufacturer that supplies the API for BLU-5937, contract research organizations or other third parties experience shutdowns or other business disruptions, including staffing shortages, production slowdowns or stoppages, or other similar disruptions related to the COVID-19 pandemic or otherwise, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.

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If our current or future third-party manufacturers do not perform as agreed, experience business disruptions as previously described, or breach or terminate their agreements with us, significant additional time and costs would be required to effect a transition to a new contract manufacturer. If we are unable to retain our current contractors, or are unable to secure arrangements with new contractors to provide manufacturing services in a timely manner and on acceptable terms as needed, it will delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or any other future product candidates we may develop, and have a negative effect on our operations and financial condition. Moreover, if a replacement to our current or future contract manufacturers is required, the ability to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture drug products and the need for regulatory compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production delays and additional costs.

Manufacturing of API and final drug products is complex and requires significant expertise. Difficulties could be encountered in production, particularly in scaling up and validating production. There can be no assurance that contract manufacturers will be successful at scaling up and producing BLU-5937 with the required quality and in the quantities and timelines that will be needed for clinical and/or commercial purposes. So far, we have only produced small quantities of BLU-5937 at kilogram scale for use in preclinical studies and clinical trials.

Our reliance on these contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

We rely on third-party contract manufacturers that are located outside of Canada. As a result, our operations are subject to customary risks related to the import of goods, including fluctuations in the value of currencies, changes in import duties, exchange controls, trade restrictions, work stoppages and general political and economic conditions in foreign countries. The countries from which we import pharmaceutical ingredients may, from time to time, impose new duties, tariffs or other restrictions or adjust presently prevailing duties or tariffs, which could adversely impact our ability to purchase such pharmaceutical ingredients or significantly increase the cost of doing so. The occurrence of any of these risks could delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or of any other future product candidates we may develop, and have a negative effect on our operations and financial condition.

The clinical safety and effectiveness of BLU-5937 have not yet been fully established.

The preclinical toxicology studies and the Phase 1 clinical trials completed to date showed that BLU-5937 has a favorable tolerability profile, and we believe that the Phase 2 clinical data announced in July 2020 support further evaluation of BLU-5937 in additional clinical trials, including our SOOTHE Phase 2b clinical trial. However, the long-term clinical safety and effectiveness of BLU-5937 have to be demonstrated through further preclinical studies and clinical trials. The additional preclinical studies that are ongoing or planned include: chronic toxicity studies in rats and dogs, carcinogenicity and toxicity on reproduction organs. The additional clinical Phase 1 trials planned include: a drug-drug interaction clinical trial in combination with an inhibitor of CYP3A4; an absorption, metabolism and excretion clinical trial; a clinical trial to assess the potential effect of BLU-5937 on cardiac repolarization as measured by QT/QTc interval; and a pharmacokinetic study in Asian population. The results of these preclinical/clinical studies may have an impact on the product labeling and/or approval of BLU-5937. If these preclinical/clinical studies or additional future studies call into question the safety or efficacy of BLU-5937 or any other product candidates we may develop in the future, our business, financial condition, results of operations or prospects could be adversely affected. Even if BLU-5937 or any other product candidates we may develop in the future successfully complete the clinical trials and receive the regulatory approval necessary to market the product candidates to the public, there is also the risk of unknown side effects, which may not appear until the product candidates are on the market and may result in delay or denial of additional regulatory approval or withdrawal of previous approvals, product recalls or other adverse events, which could materially adversely affect us.

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Our clinical trials may not yield results that will enable us to obtain regulatory approval for our current or future product candidates.

We will only receive regulatory approval for a product candidate if we can demonstrate in carefully designed and conducted clinical trials that the product candidate is safe and effective. We do not know whether our current or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or if they will result in marketable products.

Clinical trials are lengthy, complex, costly, and uncertain processes. It takes several years to complete testing, and failure can occur at any stage of testing. The early stage of our product candidate involves risks related to safety, efficacy, drug metabolism, pharmacokinetic profile, tolerability, manufacturing, formulation and distribution, among others. Results attained in preclinical testing and early clinical studies or trials may not be indicative of results that are obtained in later studies. We have suffered, and may suffer further, significant setbacks in advanced clinical trials, even after promising results in earlier studies. For instance, in June 2016, we announced that KIACTA (eprodisate) did not meet the primary efficacy endpoint in a Phase 3 clinical trial. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue the development of a product candidate. Furthermore, actual results may vary once the final and quality-controlled verification of data and analyses has been completed. The FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, and we may receive feedback from regulatory authorities that requires us to modify the design of our ongoing or planned clinical trials or conduct additional clinical trials. If we fail to adequately demonstrate the safety and efficacy of BLU-5937, we will not be able to obtain the required regulatory approvals to commercialize that product candidate.

Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards or ethics committees, and must meet the requirements of these authorities; must meet requirements for informed consent; and must meet requirements for good clinical practices. We may not be able to comply with these requirements.

We rely on third parties, including contract research organizations and outside consultants, to assist in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failing to complete, these trials if one or more third parties fail to perform with the speed and level of competence expected. If clinical trials for a product candidate are unsuccessful, we will be unable to commercialize such product candidate. If one or more of the clinical trials is delayed, we will be unable to meet our anticipated development or commercialization timelines. Either circumstance could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we encounter difficulties enrolling participants in clinical trials, the trials could be delayed or otherwise adversely affected.

Clinical trials for product candidates require us or third parties we contract with to identify and enroll a large number of participants with the disorder under investigation. We or the third parties we contract with may not be able to enroll a sufficient number of participants to complete clinical trials in a timely manner. Participant enrollment is a function of many factors, including the following: design of the protocol, size of the patient population, eligibility criteria for the trial in question, perceived risks and benefits of the drug under study, availability of competing therapies, clinical trials for other investigational products that seek to enroll the same participants, efforts to facilitate timely enrollment in clinical trials, patient referral practices of physicians, and availability of clinical trial sites. If we or the third parties we contract with have difficulty enrolling a sufficient number of participants to conduct our clinical trials as planned, we may need to delay or terminate ongoing clinical trials.

The outcome of preclinical studies and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials.

The outcome of preclinical testing and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials. BLU-5937 and any other product candidates we may develop may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. Numerous companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials, and we cannot be certain that we will not face similar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Furthermore, the failure of any product candidate to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of any other product candidates then under development and/or cause applicable regulatory authorities to require additional testing before approving any other product candidates.

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Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more participant data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

From time to time, we may publish interim topline or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as participant enrollment continues and more participant data become available. Preliminary or topline results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common shares to fluctuate significantly.

Even if we or any future partners obtain regulatory approvals for our product candidates, we will be subject to ongoing government regulation.

Even if regulatory authorities approve BLU-5937 or any future product candidate we may develop, the manufacturing, marketing, and sale of such products will be subject to strict and ongoing regulation. Compliance with such regulation may be costly and consume substantial financial and management resources. For example, an approval for a product may be conditioned on conducting costly post-marketing follow-up studies. In addition, if, based on these studies, a regulatory authority does not believe that the drug demonstrates a benefit to patients, such authority could limit the indications for which the product may be sold or revoke the product’s regulatory approval. Similarly, even if we successfully complete clinical trials, regulatory authorities might approve a more restrictive label than we expect, which may limit the commercial opportunity of our product candidates. For instance, our Phase 2b SOOTHE clinical trial will have an inclusion criterion of a baseline awake cough frequency of ≥25 coughs per hour, and, even if this clinical trial and future clinical trials are successful, as a result of this enrichment strategy, regulatory authorities may limit the breadth of our label.

We and our contract manufacturers are required to comply with applicable current Good Manufacturing Practice regulations for the manufacture of product candidates. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of records and documentation. Manufacturing facilities must be inspected before they can be used in the commercial manufacturing of products and are subject to subsequent periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further regulatory review and approval.

If we or any future marketing collaborators or contract manufacturers fail to comply with applicable regulatory requirements, we may be subject to sanctions, including fines, drug recalls or seizures, injunctions, total or partial suspension of production, civil penalties, withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties could delay or prevent the promotion, marketing, or sale of our products.

In addition, we are currently or will in the future be subject to healthcare regulation and enforcement by the federal government and the states in which we will conduct our business once our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s restrictions on marketing of pharmaceutical products, the healthcare laws and regulations that may affect our ability to operate include: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and federal transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways, thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.

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Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States, could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We may not achieve our projected development goals in the announced and expected time frames.

From time to time, we set goals for and make public statements regarding the expectations for and timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials, expected results, anticipated regulatory submission and approval dates, and timing of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving manufacturing or marketing arrangements sufficient to commercialize products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned, or that we will be able to adhere to our current schedule for the launch of BLU-5937 or any other future product candidates we may develop. If we fail to achieve one or more of these milestones as planned, the price of our common shares would likely be adversely affected.

If we or our partners fail to obtain acceptable prices, coverage or adequate reimbursement for our products, our ability to generate revenues will be diminished.

Patients in the United States and elsewhere generally rely on third-party payors to reimburse part or all of the costs associated with their prescription drugs. Accordingly, our ability to successfully commercialize our products would depend significantly on the ability to obtain acceptable prices and the availability of coverage and adequate reimbursement from third-party payors, such as government and private insurance plans. Coverage and reimbursement policies for drug products can differ significantly among payors as there is no uniform policy of coverage and reimbursement for drug products among U.S. third-party payors. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time-consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. While we have not commenced discussions with any such parties, these third-party payors frequently require companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us to sell our products on a competitive basis. Even if we obtain coverage for a given product candidate, the associated reimbursement rate may not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments that patients find unacceptably high. In addition, the continuing efforts of third-party payors to contain or reduce the costs of healthcare through various means may limit our commercial opportunity and reduce any associated revenue and profits. We expect proposals to implement similar government controls to continue.

In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost-control initiatives could decrease the price that we or any current or potential collaborators could receive for any of the products and could adversely affect profitability. In addition, in Canada and in many other countries, where significant healthcare reforms are currently under discussion, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government control. In the United States, there have been and continue to be a number of healthcare-related legislative initiatives that have significantly affected the pharmaceutical industry. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, (collectively, the “Affordable Care Act”), was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the pharmaceutical industry. Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. Various portions of the Affordable Care Act are currently undergoing legal and constitutional challenges in the U.S. Supreme Court and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the Affordable Care Act. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business. There also has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. If we fail to obtain acceptable prices, coverages or an adequate level of reimbursement for our products, the sales of the products would be adversely affected or there may be no commercially viable market for our products.

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Competition in the biopharmaceutical industry is intense, and development by other companies could render our product candidate or any future product candidates or technologies non-competitive.

The biopharmaceutical industry is intensely competitive and is subject to rapid and significant change. We face potential competition from many sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies. We consider our primary competitors to be those companies that are developing products specifically to treat RCC and pruritus related atopic dermatitis and those companies that develop products that, when approved, could be used off label to treat RCC and pruritus related to atopic dermatitis. We are aware of other companies targeting RCC as the primary outcome measure in clinical studies of products. There are multiple companies developing products at varying stages of development specifically intended to treat RCC including Merck & Co., Bayer AG, Shionogi Inc. and NeRRe Therapeutics Ltd, some of which have substantially greater product development capabilities and financial, scientific, marketing, and human resources than us. Of these companies, Merck, Bayer and Shionogi are developing P2X3 antagonists for RCC that could compete directly with BLU-5937. Certain of these companies have announced top-line data in mid- to late-stage clinical trials of their product candidates, and such product candidates may be more advanced in development than BLU-5937 or have shown or show in the future comparable or superior efficacy, safety and/or tolerability data as compared to BLU-5937. Even if BLU-5937 successfully completes clinical trials and is approved by regulatory authorities, it may not be able to achieve a degree of market acceptance necessary for commercial success if other treatments demonstrate superior efficacy, safety, tolerability, ease of administration and/or cost-effectiveness. Moreover, there are multiple companies developing therapeutic treatments for atopic dermatitis specifically, or various other forms of pruritus which could also have a therapeutic effect on atopic dermatitis itch including Sanofi S.A., Bayer AG, Pfizer Inc., Novartis International AG, LEO Pharma Inc., VYNE Therapeutics Inc., Vanda Pharmaceuticals Inc., Trevi Therapeutics Inc., Galderma S.A., Sienna Biopharmaceuticals, Inc., Tioga Pharmaceuticals, Inc. and Cara Therapeutics Inc.

We may not obtain adequate protection for our products through our intellectual property. Our success depends, in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks, and other intellectual property rights.

Our success, competitive position and future revenues with respect to these product candidates will depend, in part, on our ability to protect our intellectual property. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by maintaining trade secrets and by filing U.S. and foreign patent applications related to our licensed technology, inventions and improvements that are important to the development of our business. Our failure to do so may adversely affect our business and competitive position.

The patent positions of pharmaceutical and biopharmaceutical firms, including ours, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. The patents issued or to be issued to us may not provide us with any competitive advantage. We may not be able to protect our intellectual property rights throughout the world. Our patents may be challenged by third parties in patent litigation. In addition, it is possible that third parties with drugs that are very similar to ours will circumvent our patents by means of alternate designs or processes. We may have to rely on method of use protection for our compounds in development and any resulting drugs, which may not confer the same level of protection as protection of our compounds per se. We may be required to disclaim part of the term of certain patents. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or drug would be found by a court to infringe our patents.

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Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Patent applications relating to or affecting our business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents, or patent applications, and such conflict could reduce the scope of patent protection that we could otherwise obtain. We could become involved in interference proceedings in the United States in connection with one or more of our patents or patent applications to determine priority of invention. Our granted patents could also be challenged and revoked in opposition proceedings in certain countries outside of the United States. In addition to patents, we rely on trade secrets and proprietary know-how to protect our intellectual property. We generally require employees, consultants, outside scientific collaborators, and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all of the technology that is conceived by the individual during the course of employment is our exclusive property. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of proprietary information. In addition, it is possible that third parties could independently develop proprietary information and techniques substantially similar to ours or otherwise gain access to our trade secrets.

We may obtain the right to use certain technology under license agreements with third parties. Our failure to comply with the requirements of material license agreements could result in the termination of such agreements, which could cause us to terminate the related development program and cause a complete loss of investment in that program. As a result of the foregoing factors, we may not be able to rely on our intellectual property to protect our products in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

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We may infringe the intellectual property rights of others.

Our commercial success depends significantly on our ability to operate without infringing on the patents and other intellectual property rights of third parties. There could be issued patents of which we are not aware that our products infringe or patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are, in some cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our drug infringes.

The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. We believe that BLU-5937 does not infringe any valid claim of these patents, although there can be no assurances of this. In the event of an infringement or violation of another party’s patent, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of drugs or lead to prohibition of the manufacture or sale of drugs by us.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Third parties may assert patent or other intellectual property infringement claims against us or our other licensors arising from the manufacture, use, or sale of our current or future product candidates. An unfavorable outcome could result in loss of patent rights and require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may become involved in lawsuits or other proceedings to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, (“USPTO”), or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. The validity of our current or future patents or patent applications or those of our licensors may also be challenged in interference or derivation proceedings, opposition, post grant review, inter partes review, or other similar enforcement and revocation proceedings, provoked by third parties or brought by us. Our patents could be found invalid, unenforceable, or their scope significantly reduced.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.

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Patent litigation is costly and time consuming and may subject us to liabilities.

Our involvement in any patent litigation, interference, post-grant proceedings such as inter partes review or opposition, or other administrative proceedings will likely cause us to incur substantial expenses, and the efforts of technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject us to significant liabilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares. We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor.

For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

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The market price of our common shares experiences a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally and the short-term effect of a number of possible events.

We are a public growth company in the biotechnology sector. As frequently occurs among these companies, the market price for our common shares may experience a high level of volatility. During the 12-month period ended on the date of this document, our common shares traded between CAD$2.70 and CAD$16.68 per share on the TSX and between US$2.01 and US$12.03 per share on Nasdaq.

Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares, including, among other things, the following: (1) clinical and regulatory developments regarding our product candidate and those of our competitors; (2) arrangements or strategic partnerships by our competitors; (3) other announcements by us or our competitors regarding technological, drug development, sales, or other matters; (4) patent or other intellectual property achievements or adverse developments; (5) arrivals or departures of key personnel; (6) changes in financial estimates and recommendations by securities analysts; (7) government regulatory action affecting our product candidate and our competitors’ products in the United States, Canada, and foreign countries; (8) actual or anticipated fluctuations in revenues or expenses; (9) general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; (10) failure to enter into favorable third-party manufacturing agreements; (11) events related to threatened, new, or existing litigation; (12) economic conditions in the United States, Canada, or abroad; (13) purchases or sales of blocks of our securities; (14) difficulties in our ability to obtain additional financing; and (15) the spread of infectious disease, including the ongoing COVID-19 pandemic.

The listing of our common shares on Nasdaq may increase share price volatility due to various factors, including that the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our common shares, regardless of our operating performance. In addition, sales of substantial amounts of our common shares in the public market after any offering, or the perception that those sales may occur, could cause the market price of our common shares to be adversely affected.

As at the date hereof, our Major Shareholders (as defined below) together own, directly or indirectly, an aggregate of approximately 12.1% of our outstanding common shares. A decision by one or more of our Major Shareholders or any other significant shareholder to sell a substantial amount of our common shares could cause the trading price of our common shares to be adversely affected. Furthermore, shareholders may initiate securities class action lawsuits if the market price of our common shares drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

These factors, among others, could depress the trading price of our securities. Because we may experience high volatility in our common shares, individuals or entities should not invest in our common shares unless prepared to absorb a significant loss of capital. At any given time, investors may not be able to sell their shares at a price that is acceptable or at all. The market liquidity for our stock is low. While a more active trading market may develop in the future, the limited market liquidity for our common shares may affect an investor’s ability to sell at a price that is satisfactory to them or at all.

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We do not expect to pay any cash dividends for the foreseeable future.

Investors should not rely on an investment in our common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common shares.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover our company downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

We would not be able to successfully commercialize product candidates if we are unable to create sales, marketing, and distribution capabilities or make adequate arrangements with third parties, including entering into collaborations with partners, for such purposes.

In order to commercialize our product candidates successfully, we could, on a product-by-product basis, either develop internal sales, marketing, and distribution capabilities or make arrangements with third parties, including entering into collaborations with partners, to perform some or all of these services. We currently have no marketing capabilities and sales force. To the extent that we internally develop a sales force, the cost of establishing and maintaining a sales force would be substantial and may exceed our cost effectiveness. In addition, in marketing our drugs, we would likely compete with many companies that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, we may be unable to compete successfully against these companies. We may not be able to do so on favorable terms. We could rely on third parties to market and sell our products in certain territories, rather than establishing an internal sales force. When we contract with third parties, including entering into collaborations with partners, for the sale and marketing of our products, revenues depend upon the efforts of these third parties, which may not be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, our business, financial condition, results of operations and prospects will be materially adversely affected. To date, we have never marketed or sold pharmaceutical products.

We are subject to intense competition for skilled personnel. The loss of key personnel or the inability to attract additional personnel could impair our ability to conduct operations.

We are highly dependent on our management and staff; the loss of whose services might adversely impact our ability to achieve our objectives. Recruiting and retaining qualified management and other personnel is critical to our success. Competition for skilled personnel is intense, and the ability to attract and retain qualified personnel may be affected by such competition. We do not maintain “key person” insurance for any of our key personnel.

We are subject to the risk of product liability claims, for which we may not have, or may not be able to obtain, adequate insurance coverage. We may also be subject to legal and administrative proceedings and litigations other than product liability lawsuits which could materially harm our business and ability to conduct our clinical trials and fund our operations.

Human therapeutic products involve the risk of product liability claims and associated adverse publicity. Currently, our principal risks relate to participants in the clinical trials who may suffer unintended consequences. Claims might be made directly by consumers, patients, healthcare providers, or pharmaceutical companies or others selling or consuming any of our products, if approved. We may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal expenses. Without sufficient coverage, any claim brought against us could have a materially adverse effect on our business, financial condition, results of operations or prospects. We may also be subject to legal and administrative proceedings and litigations other than product liability lawsuits which could materially harm our business and ability to conduct our clinical trials and fund our operations.

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Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future, and we may make, or may be required to make, changes in our accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for companies like us, and insurance costs are increasing as a result of this uncertainty.

We may incur losses associated with foreign currency fluctuations.

Effective January 1, 2020, we adopted the United States dollar as our functional and reporting currency. Prior to that date, our functional and reporting currency was the Canadian dollar. Our operations are, in some instances, conducted in currencies other than the U.S. dollar (principally in Canadian dollars) and a portion of our net monetary assets is denominated in other currencies (principally in Canadian dollars). Fluctuations in the value of foreign currencies relative to the U.S. dollar could cause us to incur currency exchange losses.

We may incur losses due to adverse decisions by tax authorities.

Our income tax reporting is subject to audit by tax authorities. The effective tax rate may change from year to year based on the mix of income; non-deductible expenses; changes in tax law; and changes in the estimated values of future income tax assets and liabilities. We may enter into transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments in determining our consolidated tax provision. In addition, we apply for numerous tax credits that play an important role in our financial planning and we are not certain that the tax authorities will grant them. The final outcome of any audits by taxation authorities may differ from estimates and assumptions used in determining the consolidated tax provisions and accruals. This could result in a material effect on our consolidated research tax credits, income tax provision, financial position and the net income/loss for the period in which such determinations are made.

We are subject to taxation in Canada and were subject to taxation in certain foreign jurisdictions prior to the corporate reorganization. Our effective tax rate and tax liability are determined by a number of factors, including the amount of taxable income in particular jurisdictions, the tax rates in these jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds to and repatriate funds from our subsidiaries and future changes in laws. An adverse interpretation or ruling by one of the taxing authorities in a jurisdiction in which we operate or a change in law could increase our tax liability or result in the imposition of penalty payments, which could adversely impact our operating results.

Our Major Shareholders have influence over our business and corporate matters, including those requiring shareholder approval. This could delay or prevent a change in control. Sales of common shares by our largest shareholders could have an impact on the market price of our common shares.

Power Sustainable Capital Investments Inc. (“PSCI”), a subsidiary of Power Corporation of Canada, and Rocabe Investments Inc., a company in which Mr. Roberto Bellini has a 50% equity interest (“Rocabe” and, together with PSCI, the “Major Shareholders”), together own, directly or indirectly, an aggregate of approximately 12.1% of our outstanding common shares as at the date hereof.

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Pursuant to board representation agreements dated April 16, 2009, between us and each of PSCI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of PSCI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. Despite their rights, each of PSCI and Rocabe has only nominated one candidate. PSCI’s and Rocabe’s right to two nominees each shall terminate on the date each of PSCI, on the one hand, and Rocabe, the FMRC Family Trust (“FMRC”) and 1324286 Alberta Limited, a wholly-owned subsidiary of FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of our issued and outstanding common shares. Therefore, PSCI, FMRC, Rocabe and certain persons related to such entities have the ability to exercise a significant degree of influence over our business and the outcome of various corporate matters, including those requiring shareholder approval. In particular, this concentration of ownership may have the effect of delaying or deferring a change in control of the Company and may adversely affect the price of our common shares.

If we are a passive foreign investment company, (“PFIC”), for U.S. federal income tax purposes, the consequences to U.S. holders of our common shares may be adverse.

Under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), we will be classified as a PFIC in respect of any taxable year in which either (i) 75% or more of our gross income consists of certain types of “passive income” or (ii) 50% or more of the average quarterly value of our assets is attributable to “passive assets” (assets that produce or are held for the production of passive income). For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, if we directly or indirectly own at least 25% by value of the shares of another corporation, we will be treated as if we held our proportionate share of the assets and received directly our proportionate share of the income of such other corporation. PFIC status is a factual determination that needs to be made annually after the close of each taxable year, on the basis of the composition of our income, the relative value of our active and passive assets, and our market capitalization. For this purpose, our PFIC status depends in part on the application of complex rules, which may be subject to differing interpretations, relating to the classification of our income and assets. Based on our interpretation of the law, our recent financial statements, and taking into account expectations about our income, assets and activities, we believe that we were a PFIC for the taxable year ended December 31, 2020 and expect that we will be a PFIC for the current taxable year.

If we are a PFIC for any taxable year during which a U.S. holder holds our common shares, we will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years during which the U.S. holder owns the common shares, regardless of whether we continue to meet the PFIC test described above, unless the U.S. holder makes a specified election once we cease to be a PFIC. If we are classified as a PFIC for any taxable year during which a U.S. holder holds our common shares, the U.S. holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. In certain circumstances, a U.S. holder may alleviate some of the adverse tax consequences attributable to PFIC status by making either a “qualified electing fund” (“QEF”) election (subject to the provision of certain information necessary for U.S. holders to make a QEF Election) or a mark- to-market election (if our common shares constitute “marketable” securities under the Code).

If a United States person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a U.S. holder is treated as owning, directly, indirectly or constructively, at least 10% of the value or voting power of our common shares, such U.S. holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group, if any. Our group currently includes one U.S. subsidiary and, therefore, under current law our current non-U.S. subsidiary and any future newly formed or acquired non-U.S. subsidiaries will be treated as controlled foreign corporations, regardless of whether we are treated as a controlled foreign corporation. A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with controlled foreign corporation reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any United States shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the controlled foreign corporation rules of the Code. U.S. holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares.

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We are an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenue of US$1.07 billion or more; (ii) December 31, 2024 (the last day of the fiscal year ending after the fifth anniversary of the date of the completion of the first sales of its common equity pursuant to an effective registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”)); (iii) the date on which we have issued more than US$1.0 billion in non-convertible debt securities during the prior three-year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares held by non-affiliates exceeds US$700 million as of the last business day of its most recently completed second fiscal quarter after we have been a reporting company in the United States for at least 12 months. For so long as we remain an emerging growth company, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act Sarbanes-Oxley Act (2002), as amended (the “Sarbanes-Oxley Act”).

We may take advantage of some, but not all, of the available exemptions available to emerging growth companies. For example, our auditors have not been engaged to attest on our internal controls over financial reporting. We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

The COVID-19 pandemic could adversely impact our business and operations, including clinical trials.

In December 2019, a novel strain of coronavirus known as “COVID-19” surfaced in Wuhan, China and rapidly spread to multiple countries around the world. In March 2020, COVID-19 was declared a global pandemic by the World Health Organization.

The Phase 2 RELIEF clinical trial of BLU-5937 for the treatment of RCC was prematurely completed due to the disruptions caused by COVID-19 and particularly the impact of COVID-19 on conducting clinical trial activities and performing site visits. As a result, 13 participants discontinued the trial due to COVID-19 with 52 participants having completed dosing out of 68 randomized participants. Three participants discontinued the trial due to reasons that are not related to COVID-19 nor BLU-5937.

Furthermore, as a result of the COVID-19 pandemic, the extent and length of which is uncertain, we have developed and implemented additional clinical study policies and procedures designed to help protect study participants from the COVID-19 virus while maintaining study integrity and execution such as following public health recommendations at all study sites, remote monitoring of participants and clinical sites, and measures to ensure that data from clinical studies that may be disrupted as a result of the pandemic are collected pursuant to the study protocol and consistent with good clinical practices. Missed scheduled site visits, interruption in study drug supply, or other factors that may result in incomplete data being generated during a study as a result of the pandemic will be adequately documented and justified. 

Since we are considered an “essential service”, our operations in Quebec have not been subject to mandated business closures and, accordingly, disruptions to our business as a result of COVID-19 have been limited thus far. However, the COVID-19 pandemic continues to rapidly evolve and the extent to which it may impact our business will depend on future developments that are highly uncertain, such as the geographic spread and duration of the outbreak, travel restrictions and other public health measures, business closures or business disruptions, and the availability and effectiveness of treatments for the disease.

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We cannot presently predict the scope and severity of any potential business shutdowns or disruptions related to COVID-19 nor the impact of the vaccines that are now accessible or will be made accessible in Canada, the United States and in other countries, but if we or any of the third parties with whom we engage, including the suppliers, regulators, contract research organizations and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. If the COVID-19 outbreak continues or increases in severity and results in expanded or prolonged travel, commercial or other similar restrictions, we could experience supply, logistics or other disruptions, which could have a negative impact on our ability to conduct research and development (including clinical trials) or commercialize products. As a result of the COVID-19 pandemic, we may experience disruptions that could severely impact our business and clinical trials, including:

• delays or difficulties enrolling and retaining participants in clinical trials, which may be exacerbated by the fact that coughing, a hallmark of RCC, and taste disturbance, a potential side effect of P2X3 antagonists, are both common COVID-19 symptoms;

• delays or difficulties in clinical site initiation, including difficulties in recruiting clinical staff and clinical site investigators;

• interruption of key clinical trial activities, such as clinical trial site data monitoring, or interruption of clinical trial procedures; which may impact the integrity of our clinical data, interim analysis and clinical study endpoints;

• diversion of healthcare resources at our clinical trial sites, which may cause significant delay in completing clinical trials;

• limitations on the quality, completeness and interpretability of data that we are able to collect from clinical trial sites;

• interruption or delays in the operations of regulatory authorities, which may in turn impact approval timelines;

• interruption or delays in the operations of our suppliers of components or raw materials, such as our China-based third-party contract manufacturer that supplies the API for BLU-5937, contract research organizations and other third parties as a result of staffing shortages, production slowdowns or stoppages, or other similar disruptions caused by the pandemic;

• ability to raise additional capital to finance our business plans on attractive terms due to market conditions and volatility;

• limitations in resources, including our employees, that may be restricted due to sickness, requirements to avoid contact with large groups of people or limitations on movement or access to our facility as a result of government-imposed “shelter in place” or other reasons affecting access and ability to work;

• changes in local regulations related to responses to the COVID-19 pandemic may require us to change the way we conduct ongoing clinical trials, which may result in additional costs or disruptions to our clinical trials; and

• Refusal of the FDA to accept clinical trial data from clinical trials affected by COVID-19.

Depending on its duration and severity, the COVID-19 pandemic may also impact other risks described in the “Risk Factors” section of this document.

Depending on its duration and severity, the COVID-19 pandemic may also have the effect of heightening other risks described in the “Risk Factors” section of this document.

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Brexit may continue to create volatility in markets and uncertainty regarding future laws and regulations in the United Kingdom and the rest of Europe.

Our business is subject to risks associated with the exit of the United Kingdom from the European Union, commonly referred to as “Brexit”, following the outcome of the British referendum held on June 23, 2016. On January 31, 2020, under the terms of the agreement on the withdrawal of the United Kingdom and Northern Ireland from the European Union and the European Atomic Energy Community, the United Kingdom withdrew from the European Union, beginning a transition period which ended on December 31, 2020. On December 24, 2020, the United Kingdom from the European Union announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues. We are currently in the process of evaluating our own risks and uncertainty related to ascertain what financial, trade, regulatory and legal implications this new Brexit trade deal could have on our operations, if any. While we have not experienced any direct material financial impact since the 2016 referendum, we cannot predict its future implications. As such, Brexit and its related effects may have a material adverse effect on global economic conditions and or on the stability of global financial markets, and may affect our ability to carry out our plans with respect to the development of BLU-5937, which in turn could have a material adverse effect on our business and financial condition.

Our internal computer systems, or those used by our contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our third parties on which we rely, are vulnerable to damage from computer viruses and unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. While we have not experienced any such material system failure or security breach to our knowledge to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product candidates could be delayed.

The biopharmaceutical industry is subject to rapid technological change, which could affect the commercial viability of our products.

The biopharmaceutical industry is subject to rapid and significant technological change. Research, discoveries or inventions by others may result in medical insights or breakthroughs which render our products less competitive or even obsolete. Furthermore, there may be breakthroughs of new biopharmaceutical technologies which may become superior to ours that may result in the loss of our commercial advantage. Our future success will, in part, depend on our ability to, among others:

■ develop or license new technologies that address the changing needs of the medical community; and

■ respond to technological advances and changing industry standards and practices in a cost-effective and timely manner.

Developing technology entails significant technical and business risks and substantial costs. We cannot assure you that we will be able to utilize new technologies effectively or that we will be able to adapt our existing technologies to changing industry standards in a timely or cost-effective manner, or at all. If we are unable to keep up with advancements in technology, our business, financial conditions and results of operations could be materially adversely affected.

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We incur increased costs as a result of operating as a public company in the United States and our management will be required to devote substantial time to new compliance initiatives.

As a public company listed on the NASDAQ, we incur significant legal, accounting and other expenses. The potential future loss of our “emerging growth company” status may increase these expenses. In addition, the Sarbanes-Oxley Act, SEC and NASDAQ rules impose various requirements that we must comply with in the United States.

Pursuant to Section 404, our management is required to provide a report on our internal control over financial reporting (“ICFR”), and, if we lose our “emerging growth company” status, we would be required to provide an attestation report on ICFR issued by our independent registered public accounting firm. To continue to comply with Section 404, we have documented and evaluated our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and continue to assess and document the adequacy of our compliance with the ICFR requirements. Additionally, we will continue to improve our control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that neither us nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to loss of confidence in the reliability of our consolidated financial statements.

Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities required for public company more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Being a public company listed on the NASDAQ and complying with applicable rules and regulations require us to obtain director and officer liability insurance, which is expensive, can be difficult to obtain and can impact our ability to attract and retain qualified executive officers and board members.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

As a foreign private issuer under applicable U.S. federal securities laws, we are not required to comply with all of the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and related rules and regulations. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell securities of BELLUS Health as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, we are exempt from the proxy rules under the Exchange Act.

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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to BELLUS Health.

In order to maintain our current status as a foreign private issuer, a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States unless we also satisfy one of the additional requirements necessary to preserve this status. We may in the future lose our foreign private issuer status if a majority of the common shares are owned of record in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a Canadian foreign private issuer eligible to use MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from Nasdaq corporate governance requirements that are available to foreign private issuers.

dividends

We have not declared any dividends on common shares since our incorporation. Any future determination to pay dividends on our common shares will remain at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.

description of capital structure

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series.

As at February 25, 2021, we had 78,337,361 common shares issued and outstanding, all of which are fully paid and non-assessable, and 86,033,527 common shares on a fully diluted basis, including 7,696,166 stock options granted under the stock option plan.

Common Shares

Voting Rights.  Each of our common shares entitles its holder to notice of, and to one vote at, all meetings of our shareholders. Holders of our common shares are not entitled to cumulative voting.

Dividend Rights.  Each of our common shares carries an entitlement to receive dividends if, as and when declared by the Board. In the event of the liquidation, dissolution or winding-up of BELLUS Health, our net assets available for distribution to our shareholders will be distributed ratably among the holders of our common shares.

Applicable Limitations on Non-resident or Foreign Owners.  There are no applicable limitations on the right of non-resident or foreign owners to hold or vote our common shares imposed by foreign law or by our charter or other constituent documents.

Preferred Shares

No preferred shares are currently issued; however, they may be issued from time to time in one or more series, the terms of each series, including the number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations, to be determined at the time of creation of each such series by the Board without shareholder approval, provided that all preferred shares will rank, with respect to dividends and return of capital in the event of liquidation, dissolution, winding-up or other distribution of our assets for the purpose of winding-up its affairs, pari passu among themselves and in priority to all common shares or shares of any class ranking junior to the preferred shares. Except as provided for in our articles of incorporation (as amended), the holders of preferred shares shall not be entitled to receive notice of meetings of our shareholders nor to attend thereat and shall not be entitled to vote at any such meeting.

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MARKET FOR SECURITIES

Our common shares are listed and posted for trading on the TSX and on NASDAQ. The following table sets forth, for the periods indicated, the reported high and low sales prices and the aggregate volume of trading of our common shares on the TSX and on NASDAQ..

	TSX
Period	High	Low	Volume
January 2020	12.58	9.90	874,140
February 2020	14.54	10.71	2,114,689
March 2020	16.30	7.64	4,373,730
April 2020	16.68	12.08	1,812,424
May 2020	16.67	12.71	3,262,193
June 2020	15.17	12.93	1,980,242
July 2020	16.44	3.15	10,395,371
August 2020	3.73	3.22	2,948,501
September 2020	3.49	2.70	2,567,980
October 2020	3.31	2.95	1,587,282
November 2020	4.36	3.04	5,435,573
December 2020	4.47	3.50	5,689,059

	NASDAQ
Period *	High	Low	Volume
January 2020	9.60	7.64	4,894,873
February 2020	10.95	8.03	4,156,900
March 2020	11.35	5.45	11,023,733
April 2020	11.68	8.46	6,055,361
May 2020	11.85	9.05	6,183,377
June 2020	11.30	9.43	11,804,762
July 2020	12.03	2.30	231,355,581
August 2020	2.81	2.44	31,827,529
September 2020	2.65	2.01	26,849,316
October 2020	2.52	2.20	12,354,102
November 2020	3.35	2.30	51,623,157
December 2020	3.49	2.75	27,504,474

*

PRIOR SALES

No securities of the Company that are outstanding but not listed or quoted on a marketplace were issued during the financial year ended December 31, 2020.

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DIRECTORS AND OFFICERS

As of February 25, 2021, the directors and executive officers, as a group, beneficially owned or exercised control or direction over an aggregate of 7,384,955 of the common shares representing 9.4% of the issued and outstanding common shares as at such date.

The following table states the names of all BELLUS Health’s directors and executive officers as at February 25, 2021, their municipality, province or state and country of residence, their age, their principal occupation during the past five years, their position and office held with the Company and the period during which each director has served as a director of the Company. All members of the Board of Directors will hold their positions until the next annual meeting of shareholders of the Company.

Name and Municipality of Residence	Age  (at February 25, 2021)	Principal Occupation During Past Five Years	Office	Period during which served as a Director
Dr. Francesco Bellini, O.C. (1) Montreal, Quebec, Canada	73	Chairman of the Board of Picchio International Inc. (a management and holding company)	Chairman of the Board	2002-2021
Mr. Roberto Bellini (1) Montreal, Quebec, Canada	41	President and Chief Executive Officer of the Company	Director	2009-2021
Dr. Youssef L. Bennani (2), (3), (4) Lorraine, Quebec, Canada	60	CEO of Find Therapeutics Inc. (3)	Director	2017-2021
Mr. Franklin M. Berger, CFA (3), (5) New York, New York, United States	71	Consultant	Director	2010-2021
Dr. Clarissa Desjardins (3), (4), (6) Montreal, Quebec, Canada	54	Director (5)	Director	2017-2021
Mr. Pierre Larochelle (1), (4),(5) Montreal, Quebec, Canada	49	President and CEO, of Power Energy Corporation	Director	2009-2021
Mr. Joseph Rus (4), (5) Toronto, Ontario, Canada	75	Consultant	Director	2009-2021
Mr. Ramzi Benamar (7)  Gwynedd Valley, Pennsylvania, United States	48	Chief Financial Officer of the Company	Chief Financial Officer	—
Catherine M. Bonuccelli, MD (8) Wilmington, Delaware, United States	63	Chief Medical Officer of the Company	Chief Medical Officer	—
Mr. François Desjardins, CPA, CA Montreal, Quebec, Canada	58	Vice President, Finance of the Company	Vice President, Finance	—
Dr. Denis Garceau Montreal, Quebec, Canada	64	Senior Vice President, Drug Development of the Company	Senior Vice President, Drug Development	—
Mr. Tony Matzouranis Montreal, Quebec, Canada	48	Vice President, Business Development of the Company	Vice President, Business Development	—
Mr. Sébastien Roy Montreal, Quebec, Canada	45	Partner, Davies Ward Phillips & Vineberg LLP (a law firm)	Corporate Secretary	—

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NOTES:

(1) Pursuant to board representation agreements dated April 16, 2009 between the Company and each of Victoria Square Ventures Inc. (“VSVI”) and a predecessor to Rocabe Investments Inc. (“Rocabe”) (the “2009 Board Representation Agreements”), each of VSVI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. VSVI’s and Rocabe’ right to two nominees each shall terminate on the date each of VSVI, on the one hand, and Rocabe, FMRC Family Trust (“FMRC”), a trust of which Dr. Francesco Bellini, Chairman of the Board of the Company, and Mr. Roberto Bellini, President and Chief Executive Officer of the Company, are beneficiaries and 1324286 Alberta Limited (“AlbertaCo”), a wholly-owned subsidiary of the FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of the issued and outstanding common shares. Despite their rights, VSVI has only nominated one candidate, being Mr. Larochelle, and Rocabe has only nominated one candidate, being Dr. Bellini.

(2) From 2013 to 2017, Dr. Bennani was Site Head and Vice-President of R&D at Vertex Pharmaceuticals Canada Inc., a research and development company. Dr. Bennani was appointed as venture partner in 2019 and Chief Scientific Officer in 2020 of adMare BioInnovations, the sole member of the Neomed Institute. In 2020, Dr. Bennani was appointed CEO of Find Therapeutics Inc.

(3) Member of the Nominating and Corporate Governance Committee.

(4) Member of the Compensation Committee

(5) Member of the Audit Committee.

(6) From 2012 to 2019, Dr. Desjardins was Chief Executive Officer of Clementia Pharmaceuticals, Inc.

(7) Mr. Benamar was appointed Chief Financial Officer on December 7, 2020. He was Chief Financial Officer of DBV Technologies S.A. from January to December 2020, Vice President and Head of Financial Planning and Analysis of Spark Therapeutics, Inc. from 2017 to 2020 and Head of R&D and G&A Finance for Purdue Pharmaceuticals, L.P. from 2015 to 2017.

(8) Dr. Bonuccelli was appointed Chief Medical Officer on August 26, 2019. From 2015 to 2019, she was US Medical Affairs Respiratory Therapeutic Area Head for GSK.

Committees of the Board

The following is a description of the current committees of the Board:

Audit Committee

The mandate of the Audit Committee includes assisting the Board in its oversight of (i) the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls over financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with, legal and regulatory requirements so far as they may relate to matters of financial reporting, (iii) the independent auditors’ qualifications, independence and performance, and (iv) the performance of the Company’s internal audit function (if any). The current members of the Audit Committee are Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus.

Compensation Committee

The mandate of the Compensation Committee includes reviewing the compensation arrangements for the Company’s employees, including executive officers and directors, and making recommendations to the Board with respect to such compensation arrangements, as well as making recommendations to the Board with respect to the Company’s incentive compensation plans and equity-based plans, and overseeing succession planning. The members of the Compensation Committee are Mr. Joseph Rus (Chair), Dr. Youssef L. Bennani, Dr. Clarissa Desjardins and Mr. Pierre Larochelle.

Nominating and Corporate Governance Committee

The mandate of the Nominating and Corporate Governance Committee is to develop and make recommendations to the Board with respect to corporate governance matters, including preparing and reviewing the Company’s disclosure with respect to corporate governance before such disclosure is submitted to the Board for approval. The Nominating and Corporate Governance Committee is also responsible for the review and periodic update of the Company’s corporate governance mandates, charters, policies and procedures, including its Code of Ethics, which governs the conduct of the Company’s directors, officers and other employees. Moreover, the Nominating and Corporate Governance Committee is mandated to examine, on an annual basis, the size and composition of the Board and, if appropriate, make recommendations in that regard in order to ensure the composition of the Board facilitates effective decision-making.

In addition, the Nominating and Corporate Governance Committee’s mandate includes identifying individuals qualified to become members of the Board and making recommendations to the Board with respect to nominees to be put before shareholders at each annual meeting, as well as recommendations with respect to the process for board, committee and director assessment. In identifying potential candidates, the Committee seeks to put forward individuals it believes represent potentially suitable candidates and also solicits names of other potentially suitable candidates from the other members of the Board of Directors and from members of management. The Committee then considers the qualifications and qualities of each individual in light of the needs of the Board and of the Company and makes a recommendation to the Board on that basis.

45

The members of the Nominating and Corporate Governance Committee are Mr. Franklin Berger (Chair), Dr. Youssef L. Bennani and Dr. Clarissa Desjardins.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

From time to time during the normal course of business, we become party to legal proceedings. At the date hereof, we are not a party to proceedings that alone or in aggregate represent claims that could, in the judgment of management, be material to us on a consolidated basis. In addition, during the year ended December 31, 2020, we were not subject to: any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority; any penalties or sanctions imposed by a court or regulatory body that would be considered important by a reasonable investor; or any settlement agreements relating to securities legislation or with a securities regulatory authority.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Consulting and Service Agreement

We have entered into a Consulting and Service Agreement with effect from January 1, 2010 with Picchio International providing for strategic advice on matters pertaining to the development and commercialization of pharmaceutical products to provide health solutions to address critical unmet needs. Under the terms of that agreement, Picchio International has assigned primary responsibility for providing such services to Dr. Francesco Bellini. For the services, a monthly retainer of $16,358 (CA$20,833) is paid and Picchio International is reimbursed for its reasonable expenses incurred in the proper conduct of the services. During the fiscal period ended December 31, 2020, Picchio International received $284,000 (CA$381,000) under the Consulting and Service Agreement.

AUDIT COMMITTEE AND PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Charter of the Audit Committee

The Charter of the Audit Committee is attached hereto as Schedule A.

Composition of the Audit Committee

Until the next annual meeting of shareholders of the Company, the Audit Committee is composed of Mr. Pierre Larochelle (Chair), Mr. Franklin M. Berger and Mr. Joseph Rus. Each of the members of the Audit Committee is financially literate and independent.

Relevant Education and Experience

Mr. Pierre Larochelle has an MBA from INSEAD and has experience in finance and finance-related matters through his work in banking and in a venture capital company specializing in biopharmaceutical and healthcare investments and his roles as President and Chief Executive Officer of Adaltis Inc., a publicly listed biotechnology company and as Vice President, Investments at Power Corporation of Canada, a diversified management and holding company. Mr. Franklin M. Berger, CFA, is a biotechnology industry analyst with over 25 years of experience in capital markets and financial analysis. He holds an M.B.A. from the Harvard Graduate School of Business Administration and an M.A. in International Economics and a B.A. in International Relations both from Johns Hopkins University. Mr. Joseph Rus has broad experience in the pharmaceutical industry as he held senior management positions in global pharmaceutical companies. He is a graduate of the Executive Marketing Program at the University of Western Ontario (Canada), as well as the International Program at the Institute of Management and Development of the University of Lausanne, Switzerland.

46

As such, all members of the Company’s Audit Committee understand the accounting principles the Company uses to prepare its financial statements and have the ability to assess the general application of such accounting principles in connection with the accounting for estimates, accruals and reserves.

Messrs. Larochelle, Berger and Rus have an understanding of internal controls and procedures for financial reporting.

External Auditor Services Fees

We paid KPMG LLP (“KPMG”), our external auditors, the following fees in each of the last two fiscal periods.

Annual Audit Fees

The following sets forth the aggregate fees for each of the last two fiscal periods for professional fees to KPMG for the audit of the annual financial statements, review of interim financial statements and work in connection with registration statements / prospectuses:

Fiscal year ended December 31, 2020	$	324,754
Fiscal year ended December 31, 2019	$	264,500

Audit-Related Fees

The following sets forth additional aggregate fees to those reported under “Audit Fees” in each of the last two fiscal periods for French translation of documents:

Fiscal year ended December 31, 2020	$	29,211
Fiscal year ended December 31, 2019	$	20,150

Tax Fees

The following sets forth the aggregate fees in each of last two fiscal periods for professional services rendered by KPMG for tax compliance:

Fiscal year ended December 31, 2020	$	20,490
Fiscal year ended December 31, 2019	$	8,500

All Other Fees

The following sets forth the aggregate fees in each of the last two fiscal periods for products and services provided by the principal accountant not described above:

Fiscal year ended December 31, 2020	Nil
Fiscal year ended December 31, 2019	Nil

Our Audit Committee pre-approves every engagement by KPMG to render audit or non-audit services. All of the services described above were approved by the Audit Committee.

TRANSFER AGENT AND REGISTRAR

In connection with our common shares, Computershare Investor Services Inc. is the Canadian transfer agent and registrar and Computershare Trust Company NA is the US transfer agent and registrar.

47

INTEREST OF EXPERTS

KPMG LLP has audited the Company’s consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of loss and other comprehensive loss, changes in shareholders’ equity and cash flows for the years ended December 31, 2020 and 2019. KPMG LLP are the auditors of the Company and have confirmed with respect to the Company that they are independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations, and also that they are independent accountants with respect to the Company under all relevant U.S. professional and regulatory standards.

ADDITIONAL INFORMATION

Additional information regarding BELLUS Health may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities, options to purchase securities and interests of informed persons in material transactions, if applicable, is contained in our management information circular for the most recent meeting of shareholders that involved the election of directors. Additional financial information is provided in our consolidated financial statements for the most recently completed financial year.

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Schedule A

AUDIT COMMITTEE CHARTER

BELLUS HEALTH INC.

ESTABLISHMENT OF THE AUDIT COMMITTEE

The establishment of the Audit Committee of the Board of Directors (the “Board”) of BELLUS Health Inc. (the “Company”) is hereby confirmed with the purpose, constitution and responsibilities described below.

The Purpose of THE Audit Committee

The purpose of the Audit Committee is to assist the Board in its oversight of, and recommend appropriate actions with respect to (i) the integrity of the Company’s financial statements, accounting and financial reporting processes, system of internal controls over financial reporting and audit process, (ii) the Company’s compliance with, and process for monitoring compliance with, legal and regulatory requirements so far as they relate to matters of financial reporting, (iii) the independent auditor’s qualifications, independence and performance and (iv) the design, implementation and performance of the Company’s internal audit function.

Management is responsible for (a) the preparation, presentation and integrity of the Company’s financial statements, (b) accounting and financial reporting principles and (c) the Company’s internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations. The Company’s independent auditing firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards.

The Audit Committee members are not necessarily professional accountants or auditors and their functions are not intended to duplicate or to certify the activities of management and the independent auditor. The Audit Committee is not expected to certify that the independent auditor is “independent” under applicable rules. The Audit Committee serves a Board level oversight role where it oversees the relationship with the independent auditor, as set forth in this charter, and provides advice, counsel and general direction, as it deems appropriate, to management and the independent auditor on the basis of the information it receives, discussions with the auditor and the experience of the Audit Committee’s members in business, financial and accounting matters.

Membership

The Audit Committee shall consist of no fewer than three members of the Board, all of whom shall be appointed by the Board upon the recommendation of the Human Resources and Governance Committee. Except as otherwise permitted by applicable law and the rules of the relevant regulatory authorities and stock exchanges, all of the members of the Audit Committee will be “independent directors” as defined under applicable law and the listing standards and applicable policies of The Toronto Stock Exchange (“TSX”) and The Nasdaq Global Market (“Nasdaq”) and such members of the Audit Committee shall meet the independence, experience and expertise requirements under applicable law and the listing standards and applicable policies of TSX and Nasdaq and applicable policies of the Board.

Appointment to the Audit Committee, and the designation of any Audit Committee members as “audit committee financial experts”, shall be made on an annual basis by the full Board upon recommendation of the Human Resources and Governance Committee. At least one member of the Audit Committee shall be a “financial expert”, as such term is defined by the U.S. Securities and Exchange Commission, and have, as determined by the Board, accounting or related financial management expertise.

49

Compensation of AUDIT Committee Members

No member of the Audit Committee may receive any compensation from the Company other than (i) director’s fees, which may be received in cash, common stock, equity-based awards or other in-kind consideration ordinarily available to directors, (ii) a pension or other deferred compensation for prior service that is not contingent on future service, and (iii) any other regular benefits that directors of peer companies may receive, all as determined from time to time by the Human Resources and Governance Committee and the Board of Directors.

AUDIT Committee Structure and CONDUCT

The Board shall designate one member of the Audit Committee as its chairperson (the “Chairperson”). The Audit Committee shall meet at least once during each fiscal quarter, with further meetings to occur, or actions to be taken by unanimous written consent, when deemed necessary or desirable by the Audit Committee or its Chairperson. At least annually, the Audit Committee will also meet separately with the independent auditors and/or the head of internal audit function (or, if applicable, internal audit service providers), without management present.

The Audit Committee shall meet at such times and places as it shall determine. The Audit Committee may invite such members of management, the independent auditor and other persons to its meetings as it may deem desirable or appropriate. Periodically, the Audit Committee shall meet in executive session amongst themselves, with the independent auditor, the internal audit function, if any, and management. The Chairperson of the Audit Committee shall report on Audit Committee activities to the full Board.

Responsibilities

With respect to the independent auditor, the Audit Committee:

1. is directly responsible for the appointment (and recommends to the Company’s Board of Directors and shareholders the appointment/ratification of the appointment of) and replacement, compensation, retention and oversight of the work of the Company’s independent auditor, including the resolution of any disagreement between management and the independent auditor; the independent auditor shall report directly to the Audit Committee.

2. reviews and discusses, at least annually, the formal written statement from the independent auditor concerning any relationship between the independent auditor and the Company or any other relationships that may adversely affect the independence of the auditor, and actively engages in a dialogue with the independent auditors regarding any such disclosed relationships, and, based on such review, assesses the independence of the auditor and takes, or recommends that the Board take, appropriate action where necessary.

3. obtains written confirmation from the independent auditor that it is objective within the meaning of the Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of Chartered Accountants to which it belongs and is an independent public accountant within the meaning of the Independence Standards of the Canadian Institute of Chartered Accountants and as required by applicable law or standards of the Public Company Accounting Oversight Board (the “PCAOB”), or any successor body.

4. reviews and evaluates the qualifications, performance and independence of the independent auditor, and makes recommendation to the Board whether to retain their services.

5. establishes policies and procedures for the review and pre-approval by the Audit Committee of all auditing services and permissible non-audit services (including the fees and terms thereof), as required by applicable law or listing standards, to be performed by the independent auditor, with exceptions provided for de minimis amounts under certain circumstances as described by law.

50

6. reviews and discusses with the independent auditor: (a) its audit plans and audit procedures, including the scope, fees and timing of the audit, and (b) the results of the annual audit examination and accompanying management letters.

7. discusses and reviews with the independent auditor the year-end audited financial statements, the Management’s Discussion and Analysis (the “MD&A”) of operations and financial performance and the related press release.

8. reviews and discusses with the independent auditor on (a) critical accounting policies used by the Company, (b) alternative accounting treatments in accordance with the International Financial Reporting Standards (the “IFRS”) related to material items that have been discussed with management, including the ramifications of the use of the alternative treatments and the treatment preferred by the independent auditor and (c) other material written communications between the independent auditor and management.

9. reviews with the independent auditor its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such matters as are required to be discussed with the Audit Committee under generally accepted auditing standards.

With respect to other matters, the Audit Committee:

10. reviews annually its Charter, prepares and approves a conforming annual work plan to ensure all tasks are duly executed.

11. discusses and reviews with management quarterly financial statements, the year-end audited financial statements, the MD&A and related press release before the Company publicly discloses this information; and recommends to the Board that these documents be approved.

12. reviews and discusses with management the Company’s major risks, including those affecting its financial reporting, information management and information technology as well as the steps management has taken to monitor and control such risks.

13. reviews and has prior-approval authority for related-party transactions (as defined in the relevant TSX and Nasdaq requirements).

14. reviews and discusses with management, the Chief Financial Officer (or that person fulfilling the functions of the Chief Financial Officer) and the internal audit function, if any: (a) the adequacy and effectiveness of selected internal controls (including any significant deficiencies and significant changes in internal controls reported to the Audit Committee by the independent auditor or management), (b) the Company’s internal audit procedures, where applicable, and (c) the adequacy and effectiveness of selected disclosure controls and procedures, and management reports thereon.

15. requires management to prepare accurate financial reports, maintain appropriate internal controls, perform appropriate risk management, develop and apply proper practices and financial policies;

16. reviews and approves the Company’s financial policies.

17. reviews and concurs in the appointment, replacement, reassignment or dismissal of the internal audit function, if any.

18. reviews and approves the internal audit function’s annual audit planning report, reviews its progress reports on a quarterly basis and evaluates its performance annually.

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19. establishes procedures for the receipt, retention and treatment by the Company of complaints regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

20. establishes policies for the hiring of employees/partners and former employees/partners of the present and former independent auditor.

21. when appropriate, designates one or more of its members to perform certain of its duties on its behalf, subject to such reporting to or ratification by the Audit Committee as the Audit Committee shall direct. 22. ensures that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the information described in paragraph 11 above, and must periodically assess the adequacy of those procedures.

23. performs financial analysis as required from time to time by the Board of Directors and provide advice.

24. discusses with management and the independent auditors any other matters required to be communicated to the Audit Committee by the independent auditors under applicable standards of the PCAOB or applicable law or listing standards.

25. consider any other matter which in its judgment should be taken into account in reaching its recommendation to the Board concerning the approval of the financial statements.

PERFORMANCE EVALUATION

The Audit Committee will engage in periodic self-assessments with the goal of continuing improvement, and will report to the Board annually on the performance of the Audit Committee against its mandate; will annually review and reassess the adequacy of its charter, and recommend any changes to the Board, where appropriate.

RESOURCES AVAILABLE TO THE AUDIT COMMITTEE

The Audit Committee shall have the authority to engage independent legal, accounting and other advisers, as it determines necessary to carry out its duties. The Audit Committee shall have sole authority to approve related fees and retention terms.

The Company shall provide funding, as determined appropriate by the Audit Committee and in the Audit Committee’s sole authority, for payment of:

1. Compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for the Company;

2. Compensation to any advisers employed by the Audit Committee, as it determines necessary to carry out its duties; and

3. Ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out the Audit Committee’s duties.

DIRECT COMMUNICATION WITH THE AUDiT COMMITTEE

The Chairperson of the Audit Committee is to be contacted directly by the Chief Financial Officer (or that person fulfilling the functions of the Chief Financial Officer), the internal audit function or the independent auditor: (1) to review items of a sensitive nature that can impact the accuracy of financial reporting, or (2) to discuss significant issues relative to the overall Board’s responsibility that have been communicated to management but, in their judgment, may warrant follow-up by the Audit Committee.

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EX-99.2

Exhibit 99.2

Consolidated Financial Statements of

BELLUS HEALTH INC.

Years ended December 31, 2020 and 2019, and as of January 1, 2019

(In thousands of United States dollars)

KPMG LLP	Telephone	(514) 840-2100
600 de Maisonneuve Blvd., West	Fax	(514) 840-2187
Suite 1500	Internet	www.kpmg.ca
Tour KPMG
Montréal (Québec) H3A 0A3

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of BELLUS Health Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of BELLUS Health Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of loss and other comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the financial performance and its cash flows for the years ended December 31, 2020 and 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Change in Presentation Currency

As discussed in Note 2 c) to the consolidated financial statements, the Company has elected to change its presentation currency to the United States dollar in fiscal 2020 on a retrospective basis, and included the presentation of the statement of financial position as of January 1, 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 1995.

Montréal, Québec
February 25, 2021

Bellus health INC.

Consolidated Financial Statements

Years ended December 31, 2020 and 2019, and as of January 1, 2019

Consolidated Financial Statements
Consolidated Statements of Financial Position	1
Consolidated Statements of Loss and Other Comprehensive Loss	2
Consolidated Statements of Changes in Shareholders’ Equity	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	5

bellus health INC. 

Consolidated Statements of Financial Position

December 31, 2020, December 31, 2019 and January 1, 2019

(In thousands of United States dollars)

	December 31,			December 31,			January 1,
	2020			2019			2019
				(Recast – note 2 (c))			(Recast – note 2 (c))
Assets
Current assets:
Cash and cash equivalents (note 4)	$	48,889		$	18,688		$	10,950
Short-term investments (note 4)		49,371			71,292			24,912
Trade and other receivables		325			241			113
Research tax credit receivable		724			1,036			480
Prepaid expenses and other assets		3,005			2,988			843
Total current assets		102,314			94,245			37,298
Non-current assets:
Right-of-use asset (note 5)		501			204			114
Other assets		198			107			56
In-process research and development asset (note 6)		50,100			1,816			1,730
Total non-current assets		50,799			2,127			1,900
Total Assets	$	153,113		$	96,372		$	39,198
Liabilities and Shareholders’ Equity
Current liabilities:
Trade and other payables (note 7)	$	5,495		$	7,445		$	1,992
Lease liability (note 5)		156			167			114
Total current liabilities		5,651			7,612			2,106
Non-current liabilities:
Lease liability (note 5)		347			21			—
Total non-current liabilities		347			21			—
Total Liabilities		5,998			7,633			2,106
Shareholders’ equity:
Share capital (note 8 (a))		575,286			486,401			405,626
Other equity (notes 8 (b) (i) and (ii))		31,360			26,858			25,682
Deficit		(468,829	)		(433,818	)		(401,087	)
Accumulated other comprehensive income (note 2 (c))		9,298			9,298			6,871
Total Shareholders’ Equity		147,115			88,739			37,092
Commitments and contingencies (note 13)
Total Liabilities and Shareholders’ Equity	$	153,113		$	96,372		$	39,198

See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors by:

(Signed) Pierre Larochelle	(Signed) Franklin M. Berger
Director	Director

1

bellus health INC. 

Consolidated Statements of Loss and Other Comprehensive Income

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data)

	Year ended			Year ended
	December 31,			December 31,
	2020			2019
				(Recast – note 2 (c))
Revenues	$	15		$	27
Expenses:
Research and development		23,729			19,714
Research tax credits		(507	)		(536	)
		23,222			19,178
General and administrative		9,735			6,580
Total operating expenses		32,957			25,758
Loss from operating activities		(32,942	)		(25,731	)
Finance income		1,224			1,146
Finance costs		(39	)		(1,423	)
Net finance income (costs) (note 10)		1,185			(277	)
Net loss for the year	$	(31,757	)	$	(26,008	)
Other comprehensive income:
Currency translation adjustment (note 2 (c))		—			2,427
Other comprehensive income for the year		—			2,427
Total comprehensive loss for the year	$	(31,757	)	$	(23,581	)
Loss per share (note 12)
Basic and diluted	$	(0.54	)	$	(0.55	)

See accompanying notes to consolidated financial statements.

2

bellus health INC.

Consolidated Statements of Changes in Shareholders’ Equity

Years ended December 31, 2020 and 2019

(in thousands of United States dollars)

									Accumulated
									other
	Share		Other						comprehensive
	capital		equity			Deficit			income		Total
	(note 8 (a))
Balance, December 31, 2019 (Recast – note 2 (c))	$	486,401	$	26,858		$	(433,818	)	$	9,298	$	88,739
Total comprehensive loss for the year:
Net loss and comprehensive loss		—		—			(31,757	)		—		(31,757	)
Total comprehensive loss for the year		—		—			(31,757	)		—		(31,757	)
Transactions with shareholders, recorded directly in shareholders’ equity:
Issued in consideration for acquisition of remaining BLU-5937 Assets (note 6)		47,749		—			(301	)		—		47,448
Issued in connection with the 2020 Offering    (note 8 (a))		40,250		—			(2,953	)		—		37,297
Stock-based compensation (note 8 (b) (i))		—		4,791			—			—		4,791
Issued upon stock options exercise (note 8 (b) (i))		334		(158	)		—			—		176
Issued upon broker warrants exercise (note 8 (b) (ii))		552		(131	)		—			—		421
Balance, December 31, 2020	$	575,286	$	31,360		$	(468,829	)	$	9,298	$	147,115

									Accumulated
									other
	Share		Other						comprehensive
	capital		equity			Deficit			income		Total
(Recast – note 2 (c)))		(note 8 (a))
Balance, December 31, 2018 and January 1, 2019	$	405,626	$	25,682		$	(401,087	)	$	6,871	$	37,092
Total comprehensive loss for the year:
Net loss		—		—			(26,008	)		—		(26,008	)
Other comprehensive income		—		—			—			2,427		2,427
Total comprehensive loss for the year		—		—			(26,008	)		2,427		(23,581	)
Transactions with shareholders, recorded directly in shareholders’ equity:
Issued in connection with the 2019 Offering (note 8 (a) (i))		79,374		—			(6,723	)		—		72,651
Issued upon stock option exercise (note 8 (b) (i))		103		(47	)		—			—		56
Issued upon broker warrants exercise (note 8 (b) (ii))		1,298		(387	)		—			—		911
Stock-based compensation (note 8 (b) (i))		—		1,610			—			—		1,610
Balance, December 31, 2019	$	486,401	$	26,858		$	(433,818	)	$	9,298	$	88,739

See accompanying notes to consolidated financial statements.

3

bellus health INC.

Consolidated Statements of Cash Flows

Years ended December 31, 2020 and 2019

(in thousands of United States)

	Year ended			Year ended
	December 31,			December 31,
	2020			2019
				(Recast – note 2 (c))
Cash flows from (used in) operating activities:
Net loss for the year	$	(31,757	)	$	(26,008	)
Adjustments for:
Depreciation (note 5)		179			119
Stock-based compensation		4,791			1,610
Loss on lease modification		4			—
Net finance (income) costs		(1,185	)		277
Other items		(76	)		88
Changes in operating assets and liabilities
Trade and other receivables		(84	)		(123	)
Research tax credits receivable		306			(522	)
Prepaid expenses and other assets		(60	)		(1,947	)
Trade and other payables		(1,863	)		5,450
		(29,745	)		(21,056	)
Cash flows from (used in) financing activities:
Issuance of common shares through 2020 Offering, net of share issue costs		37,297			—
Share issue costs related to issuance of common shares to finance acquisition of in-process research and development asset (note 6)		(301	)		—
Issuance of common shares through 2019 Offering, net of share issue costs		—			72,651
Issuance of common shares through 2018 Offering, net of share issue costs		—			(303	)
Issuance of common shares upon stock options exercise		176			56
Issuance of common shares upon broker warrants exercise		421			911
Deferred financing costs		(49	)		(43	)
Lease liability – principal repayments		(187	)		(148	)
Interest paid		(22	)		(10	)
		37,335			73,114
Cash flows from (used in) investing activities:
Purchases of short-term investments		(51,090	)		(70,740	)
Sales of short-term investments		72,771			25,300
Acquisition of in-process research and development asset, including transaction costs (note 6)		(535	)		—
Interest received		1,355			826
		22,501			(44,614	)
Net increase in cash and cash equivalents		30,091			7,444
Cash and cash equivalents, beginning of year		18,688			10,950
Effect of foreign exchange on cash and cash equivalents		110			294
Cash and cash equivalents, end of year	$	48,889		$	18,688
Supplemental cash flow disclosure:
Non-cash transactions:
Initial recognition of right-of-use asset and lease liability (note 5)	$	—		$	114
Additions to right-of-use asset and lease liability (note 5)		—			205
Issuance of common shares in consideration for acquisition of remaining BLU-5937 Assets (note 6)		47,749			—
Share issue costs related to equity offerings, in Trade and other payables		—			117
Deferred financing costs, in Trade and other payables		420			165
Ascribed value related to issuance of common shares upon stock options exercise (note 8 (b) (i))		158			47
Ascribed value related to issuance of common shares upon broker warrants exercise (note 8 (b) (ii))		131			387
Value of DSUs in prepaid expenses and other assets (note 8 (b) (iii))		73			74

See accompanying notes to consolidated financial statements.

4

bellus health INC.

Notes to Consolidated Financial Statements

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

1. Reporting entity:

BELLUS Health Inc. (“BELLUS Health” or the “Company”) is a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization-related disorders. The Company’s product candidate, BLU-5937, is being developed for the treatment of chronic cough and chronic pruritus. The Company is domiciled in Canada. The address of the Company’s registered office is 275 Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7. BELLUS Health’s common shares trade on the Nasdaq Capital Market (“Nasdaq”) and on the Toronto Stock Exchange (“TSX”) both under the symbol BLU.

The Company is subject to a number of risks, including risks associated with the conduct of its product candidate’s development programs and results, the establishment of strategic alliances and the successful development of new product candidates and their marketing. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits, and will require additional financing in the future. The ability of the Company to ultimately achieve future profitable operations is dependent upon the successful development of its product candidates obtaining regulatory approval in various jurisdictions and successful sale or commercialization of the Company’s products and technologies, which is dependent on a number of factors outside of the Company’s control.

2. Basis of preparation:

(a) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements for the year ended December 31, 2020, were approved by the Board of Directors on February 25, 2021.

The financial statements have been prepared on an historical cost basis, except for certain of the Company’s accounting policies and disclosures that require the determination of fair value, namely:

· Liabilities related to cash-settled share-based arrangements and stock-based compensation, which are measured at fair value on grant date pursuant to IFRS 2, Share-based payments.

· Lease liabilities, which are initially measured at the present value of minimum lease payments.

5

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

2. Basis of preparation (continued):

(b) Basis of measurement:

In establishing the fair value, the Company uses a fair value hierarchy based on levels as defined below:

• Level 1: defined as observable inputs such as quoted prices in active markets.

• Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

• Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop their own assumptions.

(c) Functional and presentation currency:

Effective January 1, 2020, the Company adopted the United States dollar (“USD”) as its functional and presentation currency. Prior to these consolidated financial statements, the functional and presentation currency was the Canadian dollar (“CAD”). The change in the functional currency from the CAD to the USD reflects the primary economic environment in which the Company operates in. As a result of the advancement of the Company’s development programs, the Company anticipates higher research and development costs in future periods which will be denominated mainly in USD. In addition, these costs will be financed from proceeds received from the financing in USD, including those that closed in September 2019 and October 2020. The Company also anticipates that potential future sales revenues and financings will be primarily denominated in USD.

As such, these consolidated financial statements are presented in USD. On January 1, 2020, the change in functional currency resulted in the assets and liabilities as of December 31, 2019 being translated in USD using the exchange rate in effect on that date, and equity transactions were translated at historical rates. The change in functional currency is applied prospectively.

The change in presentation currency was applied retrospectively and therefore, these consolidated financial statements are presented in USD, together with the comparative information as at December 31, 2019, for the year ended December 31, 2019, and on the consolidated statement of financial position as at January 1, 2019. For comparative purposes, historical consolidated financial statements were recast in USD by translating assets and liabilities at the closing rate in effect at the end of the respective period, revenues, expenses and cash flows at the average rate in effect for the respective period and equity transactions at historical rates. Any exchange difference resulting from the translation was included in Accumulated other comprehensive income presented in shareholders’ equity

6

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

2. Basis of preparation (continued):

(d) Use of estimates and judgments:

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The reported amounts and note disclosures reflect management’s best estimate of the most probable set of economic conditions and planned course of actions. Actual results may differ from these estimates.

A critical judgment in applying accounting policies that has the most significant effect on the amounts recognized in the consolidated financial statements relates to the use of the going concern basis of preparation of the financial statements. At the end of each reporting period, management assesses the basis of preparation of the financial statements. These financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment is included within the following notes and is described below:

(i) Estimation of accrued expenses:

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel and service providers to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost.

For research and development activities, the majority of service providers invoice the Company in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. There may also be instances in which payments to the service providers will exceed the level of services provided and result in a prepayment of the expense.

The Company estimates its accrued expenses and prepaid expenses as of each statement of financial position date in its financial statements based on facts and circumstances known at that time.

(ii) Estimating the cost of the in-process research and development (“IPR&D”) asset using the fair value of the issued share-based consideration related to the remaining BLU-5937 Assets the Company acquired in March 2020 (refer to note 6).

7

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

2. Basis of preparation (continued):

(d) Use of estimates and judgments (continued):

(ii) Estimating the recoverable amount of the in-process research and development asset related to BLU-5937 for the purpose of the annual impairment test (note 6).

Other areas requiring the use of management estimates and judgements include assessing the recoverability of research tax credits as well as estimating the initial fair value of equity-classified stock-based compensation. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they are made and in future periods affected.

(e) COVID-19 pandemic:

The COVID-19 pandemic continues to cause significant financial market and social dislocation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. Since the Company is considered an “essential service”, its operations in Quebec have not been subject to mandated business closures and, accordingly, disruptions to its business as a result of COVID-19 have been limited thus far. However, the COVID-19 pandemic continues to rapidly evolve and the extent to which it may impact our business will depend on future developments that are highly uncertain. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions related to COVID-19 nor the impact of the vaccines that are now accessible or will be made accessible in Canada, the United States and in other countries, but if the Company or any of the third parties with whom it engages, were to experience shutdowns or other business disruptions, its ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively impacted. The Company will continue to monitor developments of the pandemic and continuously assess its potential further impact on its operations to prevent any disruptions to the conduct of its business and clinical trials. In the event of a prolonged continuation of the pandemic, it is not clear what the potential impact may be on the Company’s business, financial position and financial performance.

8

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies:

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.

(a) Basis of consolidation:

These consolidated financial statements include the accounts of BELLUS Health Inc. and its subsidiaries.

Subsidiaries are entities controlled by BELLUS Health Inc. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intercompany balances and transactions have been eliminated on consolidation.

(b) Cash, cash equivalents and short-term investments:

The Company considers all investments with maturities of three months or less at inception, that are highly liquid and readily convertible into cash, to be cash equivalents. Investments with maturities greater than three months and less than one year are presented as short-term investments in the consolidated statement of financial position.

(c) Revenue recognition:

Revenue from contracts with customers is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. A company recognizes revenue when it transfers control of a product or service to a customer. The Company does not have any revenue from contracts with customers.

Revenue from other contracts may be derived from development and other services provided by the Company. Revenue from contracted services is recognized over time as the contracted services are performed.

Consideration received from other contracts may also include amounts received as licensing fees, costs reimbursements, sales-based royalty payments, upfront payments and regulatory and sales-based milestone payments for specific achievements. Revenue is recognized in income only when conditions and events under the contract have been met or occurred and it is probable that the Company will collect the consideration to which it is entitled.

(d) Research and development:

Research and development costs consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s development programs. Overhead expenses comprise general and administrative support provided to the development programs and involve costs associated with support activities.

9

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(d) Research and development (continued):

Research expenditures undertaken with the prospect of gaining new scientific or technical knowledge are expensed as incurred. Development expenditures are deferred when they meet the criteria for capitalization in accordance with IFRS, and the future benefits could be regarded as being reasonably certain. The criteria to be fulfilled in order to capitalize development costs are if such costs can be measured reliably, if the product or process is technically and commercially feasible, if future economic benefits are probable and if the Company intends to and has sufficient resources to complete the development and to use or sell the asset. As at December 31, 2020 and 2019, no development costs were deferred.

(e) In-process research and development asset:

The in-process research and development (“IPR&D”) asset acquired by the Company in 2017 is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. In March 2020, the IPR&D asset’s carrying value was increased for the additional portion acquired by the Company at that time (refer to note 6). The acquisition cost of this additional portion of the IPR&D asset was estimated using the fair value of the issued share-based consideration paid. Subsequent research and development costs associated with the IPR&D asset are accounted for consistent with the research and development policy in note 3 (d).

The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount.

The asset’s recoverable amount is the greater of its fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount immediately. Impairment losses are recognized in income. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years.

(f) Government assistance:

Government assistance, consisting of research tax credits, is recorded as a reduction of the related expense. Research tax credits are recognized when management determines that there is reasonable assurance that the tax credits will be received. Research tax credits claimed for the current and prior years are subject to government review and approval which could result in adjustments to amounts recognized by the Company. Adjustments from tax authorities, if any, would be recognized in the period of revision.

10

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(g) Foreign exchange:

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction. Income and expenses denominated in foreign currencies are translated at exchange rates in effect at the transaction date. Translation gains and losses are recognized in income.

(h) Income taxes:

Deferred tax is recognized for temporary differences between the financial reporting bases and the income tax bases of the Company’s assets and liabilities and is recorded using the substantively enacted tax rates anticipated to be in effect when the tax differences are expected to reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, 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 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.

(i) Provisions:

A provision is recognized if, as a result of a past event, the Company has a present, legal or constructive obligation that can be estimated reliably, 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 current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(j) Leases:

The Company is a lessee for a number of leases. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

11

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(j) Leases (continued):

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for its leases of property, the Company has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The right-of-use asset is depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made (measured at amortised cost using the effective interest method). It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

(k) Earnings per share:

Basic earnings per share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a manner consistent with basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of dilutive stock options and broker warrants. The number of additional shares is calculated by assuming that outstanding stock options and broker warrants were exercised, and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting period.

12

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(l) Employee benefits:

(i) Short-term employee benefits:

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment arrangements:

The Company follows the fair value-based method to account for stock options granted to employees, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. For the stock options with graded vesting, the fair value of each tranche is recognized over its respective vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date.

When stock options are exercised, the Company issues new shares. The proceeds received, together with the related portion previously recorded in other equity, are credited to share capital.

The Company also grants Deferred Share Units (“DSU”) as compensation for directors and designated employees. Upon termination of service, DSU participants are entitled to receive for each DSU credited to their account the payment in cash on the date of settlement based on the value of a BELLUS Health common share. For DSUs, compensation cost is measured based on the market price of the Company’s common shares from the date of grant through to the settlement date. Any changes in the market value of the Company’s common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income in the same line item as stock-based compensation expense.

13

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(m) Financial instruments:

The Company measures its financial instruments as follows:

Financial assets and Financial liabilities

(i) Recognition and initial measurement:

Trade receivables are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii) Classification and subsequent measurement:

Financial assets - Classification:

On initial recognition, a financial asset is classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) – debt investment, FVOCI – equity investment or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest in the principal amount outstanding.

14

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(m) Financial instruments (continued):

Financial assets and Financial liabilities (continued)

(ii) Classification and subsequent measurement (continued):

Financial assets - Classification (continued):

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment by investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets - Subsequent measurement and gains and losses:

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in income.

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in income. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to income.

Equity investments at FVOCI are subsequently measured at fair value. Dividends are recognized as income in income unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to income.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses are recognized in income.

Financial liabilities - Classification:

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.

15

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

3. Significant accounting policies (continued):

(m) Financial instruments (continued):

Financial assets and Financial liabilities (continued)

(ii) Classification and subsequent measurement (continued):

Financial liabilities - Subsequent measurement and gains and losses:

Financial liabilities at FVTPL are subsequently measured at fair value and net gains and losses, including any interest expense, are recognized in income. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in income. Any gain or loss on derecognition is also recognized in income.

Cash, cash equivalents and short-term investments, trade receivables, amounts receivable under license agreements and other receivables are measured at amortized cost.

Trade and other payables are measured at amortized cost.

Share capital

Common shares and preferred shares that are not redeemable or are redeemable only at the Company’s option are classified as equity. Incremental costs directly attributable to the issue of equity-classified shares are recognized as a deduction from the deficit, net of any tax effects.

16

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

4. Cash, cash equivalents and short-term investments:

Cash, cash equivalents and short-term investments consist of cash balances with banks and short-term investments:

	December 31,		December 31,		January 1,
	2020		2019		2019
Cash balances with banks	$	5,734	$	5,494	$	1,073
Short-term investments with initial maturities of less than three months or that can be withdrawn on demand:
Savings accounts and term deposits, yielding interest at 0.20% to 0.45% as at December 31, 2020 (December 31, 2019 – 1.28% to 1.85%)		43,155		13,194		9,877
Cash and cash equivalents		48,889		18,688		10,950
Short-term investments with initial maturities greater than three months and less than one year:
Term deposits issued in USD, yielding interest as at 0.23% to 0.55% as at December 31, 2020 (December 31, 2019 – 1.80% to 2.15%)		20,021		36,701		10,510
Term deposits issued in CAD (CAD $5,529), yielding interest at 0.85% to 1.27% as at December 31, 2020 (December 31, 2019 – (CAD $15,555), 1.92% to 2.60%)		4,341		11,975		14,402
Bearer deposit notes issued in USD, yielding interest at 0.16% to 0.22% as at December 31, 2020 (December 31, 2019 – yielding interest at 1.76% to 1.83%)		25,009		22,616		—
Short-term investments		49,371		71,292		24,912
Cash, cash equivalents and short-term investments	$	98,260	$	89,980	$	35,862

5. Right-of-use asset and lease liability:

BELLUS Health Inc.’s leases are mainly real estate leases for office space.

The Company leases office space in Laval, Quebec, Canada. Its main property lease was amended in September 2020, effective October 1, 2020 and expiring on September 30, 2023. The amendment caused the previous lease to expire on September 30, 2020 (initial expiry date of January 31, 2021).

17

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

5. Right-of-use asset and lease liability (continued):

Right-of-use asset:

	Carrying
	value
Cost:
Balance as at January 1, 2019	$	114
Additions to right-of-use asset		204
Currency translation adjustment (note 2 (c))		8
Balance as at December 31, 2019		326
Additions to right-of-use asset		535
Derecognition due to lease modification		(59	)
Balance as at December 31, 2020	$	802
Accumulated amortization:
Balance as at January 1, 2019	$	—
Depreciation		(120	)
Currency translation adjustment (note 2 (c))		(2	)
Balance as at December 31, 2019		(122	)
Depreciation		(179	)
Balance as at December 31, 2020	$	(301	)
Net carrying value:
Balance as at January 1, 2019	$	114
Balance as at December 31, 2019		204
Balance as at December 31, 2020		501

18

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

5. Right-of-use asset and lease liability (continued):

Lease liability:

	Carrying
	value
Balance as at January 1, 2019	$	114
Additions to lease liability		204
Interest expense		12
Principal repayment		(146	)
Currency translation adjustment (note 2 (c))		4
Balance as at December 31, 2019	$	188
Addition to lease liability		535
Derecognition due to lease modification		(55	)
Interest expense		17
Principal repayment		(187	)
Foreign exchange loss		5
Balance as at December 31, 2020	$	503
Current portion of lease liability		156
Non-current portion of lease liability	$	347

The remaining weighted average life of the Company’s property lease as of December 31, 2020 is 2.7 years.

Lease payments were discounted using an incremental borrowing rate of 5%.

Minimum annual payments under the non-cancelable leases, undiscounted, are as follows:

Years ending December 31,
2021	$	184
2022		206
2023 and after		162
	$	552

19

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

6. In-process research and development asset:

BELLUS Health acquired the IPR&D asset related to BLU-5937 in February 2017 through the obtention from the NEOMED Institute (“NEOMED”) of an exclusive worldwide license to develop and commercialize BLU-5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated target for chronic cough.

On March 25, 2020, the Company closed an asset purchase and sale agreement to acquire all of the remaining BLU-5937 and related P2X3 antagonists intellectual property assets (the “BLU-5937 Assets”) from adMare BioInnovations’ NEOMED Institute (“adMare”), which is accounted for as an acquisition of assets. The February 2017 license agreement was terminated as part of this transaction.

In consideration of the foregoing, the Company issued to adMare and AstraZeneca AB (“AstraZeneca”) an aggregate of 4,770,000 BELLUS Health common shares from treasury, having an aggregate fair value of $47,749 at the date of the closing of the transaction, calculated using the average of the BELLUS Health’s March 25, 2020 opening and closing share price, plus a cash consideration paid to adMare of $352 (CAD $500). AstraZeneca assigned the BLU-5937 Assets to adMare in 2012.

The total consideration paid for the IPR&D asset related to the remaining BLU-5937 Assets was $48,284, consisting of the shares issued and cash paid referred to above, as well as transaction costs in relation to the acquisition of $183. Transactions costs in relation to the share issuance amounted to $301 and have been charged to the deficit. This acquisition was accounted for as a non-employee share-based payment transaction and measured using the consideration transferred by the Company.

The Company no longer has any obligations to adMare, or any other third party, in respect to tiered royalty obligations and revenue share that would have been otherwise owed to adMare under and subject to the February 2017 license agreement. No amount was payable under this agreement prior to its termination.

As a result of the transaction, the IPR&D asset’s carrying value was increased for the additional portion acquired by the Company. The IPR&D asset is accounted for as an indefinite-lived intangible asset until the project, currently in its clinical phase, is completed or abandoned, at which point it will be amortized or impaired, respectively. As at December 31, 2020, the aggregate carrying value of the IPR&D asset related to BLU-5937 amounted to $50,100 ($1,816 as at December 31, 2019).

20

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

6. In-process research and development asset (continued):

As at December 31, 2020 and 2019, the carrying amount of the IPR&D asset related to BLU-5937 did not exceed its estimated recoverable amount. The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Due to the topline results of its Phase 2 RELIEF trial of BLU-5937 in refractory chronic cough, the Company performed an impairment review of the IPR&D asset as at June 30, 2020. The carrying amount of the IPR&D asset did not exceed its estimated recoverable amount at that date, and at December 31, 2020 as part of the annual impairment review. The recoverability of this asset is dependent on successfully developing this project and achieving the expected future revenues from commercialization.

7. Trade and other payables:

Trade and other payables consist of:

	December 31,		December 31,		January 1,
	2020		2019		2019
Trade payables	$	648	$	3,975	$	407
Other accrued liabilities		4,086		1,698		1,096
DSU liability (note 8 (b) (iii))		761		1,772		489
	$	5,495	$	7,445	$	1,992

8. Shareholders’ equity:

(a) Share capital:

The authorized share capital of the Company consists of:

• an unlimited number of voting common shares with no par value; and

• an unlimited number of non-voting preferred shares, issuable in one or more series, with no par value.

Changes in issued and outstanding common shares for the years ended December 31, 2020 and 2019 were as follows:

	Number		Dollars
Balance, December 31, 2019		55,378,660	$	486,401
Issued in consideration for acquisition of remaining BLU-5937 Assets (note 8 (a) (i))		4,770,000		47,749
Issued in connection with the 2020 Offering (note 8 (a) (ii))		17,888,889		40,250
Issued upon stock options exercise (note 8 (b) (i))		128,222		334
Issued upon broker warrants exercise (note 8 (b) (ii))		171,590		552
Balance, December 31, 2020		78,337,361	$	575,286

21

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(a) Share capital (continued):

	Number		Dollars
Balance, December 31, 2018 and January 1, 2019		43,622,136	$	405,626
Issued in connection with the 2019 Offering (note 8 (a) (iii))		11,179,451		79,374
Issued upon stock options exercise (note 8 (b) (i))		41,667		103
Issued upon broker warrants exercise (note 8 (b) (ii))		535,406		1,298
Balance, December 31, 2019		55,378,660	$	486,401

(i) On March 25, 2020, the Company issued 4,770,000 common shares from treasury in consideration for the acquisition of the remaining BLU-5937 Assets (refer to note 6).

(ii) On October 22, 2020, the Company closed an equity offering, issuing a total of 17,888,889 common shares from treasury at a price of $2.25 per share for gross proceeds of $40,250 including the exercise in full of the underwriters’ option to purchase 2,333,333 common shares (the “2020 Offering”). Share issue costs of $2,953, comprised mainly of agents’ commission, legal, professional and filing fees, have been charged to the deficit.

(iii) On September 9, 2019, the Company closed an equity offering, issuing 9,859,155 common shares from treasury at a price of $7.10 per share for gross proceeds of $70,000, and on September 17, 2019, the underwriters of the equity offering partially exercised their option to purchase additional common shares (over-allotment option) to purchase common shares of the Company, resulting in the issuance of an additional 1,320,296 common shares from treasury at a price of $7.10 per share, for additional gross proceeds of $9,374 (together, the “2019 Offering”). Share issue costs of $6,723, comprised mainly of agents’ commission, legal, professional and filing fees, have been charged to the deficit.

22

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(a) Share capital (continued):

“At-the-market” sales agreement

On December 23, 2020, the Company entered into an “at-the-market” ("ATM") sales agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company may from time to time sell through at-the-market distributions with Jefferies acting as sales agent (the “Agent”) its common shares for aggregate gross proceeds of up to $50,000, including sales made directly on the Nasdaq or on any other existing trading market for the common shares in the United States. No common shares will be offered or sold in Canada. The common shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 2-year term and requires the Company to pay to the Agent a commission of up to 3.0% of the gross proceeds of any common shares sold. Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts to sell the common shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Company and the Agent may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Company has provided the Agent with customary indemnification rights.

During the year ended December 31, 2020, no common shares were sold under the ATM program. As at December 31, 2020, total costs incurred to register the Sales Agreement, amounting to $380, are recorded as deferred financing costs and classified as prepaids and other assets in the consolidated statement of financial position. Under an ATM program, proportional costs for commission, legal and costs related to common shares sold are reclassified from deferred financing costs to deficit upon share issuance.

23

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements:

(i) Stock Option Plan:

Under its stock option plan, the Company may grant options to purchase common shares to directors, officers, employees and consultants of the Company (the “Stock Option Plan”). The number of common shares subject to each stock option, the vesting period, the expiration date and other terms and conditions related to each stock option are determined and approved by the Board of Directors. In general, stock options vest over a period of up to five years and are exercisable over a period of 10 years from the grant date. The aggregate number of common shares reserved for issuance under this plan shall not exceed 12.5% of the total issued and outstanding common shares of the Company from time to time. The aggregate number of common shares reserved for issuance at any time to any optionee shall not exceed 5% of the issued and outstanding common shares of the Company. The aggregate number of common shares issuable or reserved for issuance to insiders of the Company under this plan and any other share compensation arrangement of the Company cannot at any time exceed 10% of the issued and outstanding common shares of the Company. The option price per share is equal to the weighted average trading price of common shares for the five days preceding the date of grant during which the common shares were traded on the TSX.

Changes in outstanding stock options issued under the Stock Option Plan for the years ended December 31, 2020 and 2019 were as follows:

	Number			Weighted average exercise price (9)
Balance, December 31, 2019		4,726,943			$	2.26 (CAD $2.88)
Granted (1) (2) (3) (4) (5)		1,805,000			$	7.74 (CAD $9.85)
Exercised		(128,222	)		$	1.51 (CAD $1.92)
Forfeited		(115,555	)		$	6.27 (CAD $7.99)
Balance, December 31, 2020		6,288,166			$	3.78 (CAD $4.81)

24

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(i) Stock Option Plan (continued):

	Number			Weighted average exercise price (9)
Balance, December 31, 2018		3,220,280		$	1.13 (CAD $1.47)
Granted (6) (7) (8)		1,548,330		$	4.45 (CAD $5.79)
Exercised		(41,667	)	$	1.39 (CAD $1.80)
Balance, December 31, 2019		4,726,943		$	2.22 (CAD $2.88)

⁽¹⁾ 1,010,000 stock options were granted on April 1, 2020, having an exercise price of $10.92 (CAD $13.91); 750,000 stock options granted to key management personnel and 260,000 granted to other employees.

⁽²⁾ 65,000 stock options were granted to other employees on May 14, 2020, having an exercise price of $11.56 (CAD $14.72).

⁽³⁾ 85,000 stock options were granted to other employees on August 12, 2020, having an exercise price of $2.81 (CAD $3.58).

⁽⁴⁾ 185,000 stock options were granted to other employees on November 11, 2020, having an exercise price of $2.41 (CAD $3.14).

⁽⁵⁾ 460,000 stock options were granted on December 14, 2020, having an exercise price of $3.24 (CAD $4.12); 390,000 stock options granted to key management personnel and 70,000 granted to other employees.

⁽⁶⁾ 1,015,275 stock options were granted on February 20, 2019, having an exercise price of $3.35 (CAD $4.36); 895,830 stock options granted to key management personnel and 119,445 granted to other employees.

⁽⁷⁾ 20,833 stock options were granted to other employees on August 7, 2019, having an exercise price of $8.79 (CAD $11.41).

⁽⁸⁾ 512,222 stock options were granted on November 13, 2019, having an exercise price of $6.46 (CAD $8.39); 472,222 stock options granted to key management personnel and 40,000 granted to other employees.

⁽⁹⁾ USD equivalent is presented at the closing rate of the corresponding period.

25

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(i) Stock Option Plan (continued):

The following table summarizes information about stock options outstanding and exercisable as at December 31, 2020:

	Options outstanding			Options exercisable
			Weighted
			average years
Exercise price/share (1)		Number	To expiration		Number
$0.85 (CAD $1.08)		719,445	6.3		432,223
$0.99 (CAD $1.26)		1,127,779	7.1		441,111
$1.19 (CAD $1.51)		41,667	6.9		25,000
$1.41 (CAD $1.80)		1,077,777	1.6		1,077,777
$1.61 (CAD $2.05)		41,667	7.5		16,667
$2.47 (CAD $3.14)		185,000	9.9		—
$2.81 (CAD $3.58)		70,000	9.6		—
$2.97 (CAD $3.78)		5,667	1.6		5,667
$3.17 (CAD $4.03)		28,611	5.2		22,889
$3.24 (CAD $4.12)		460,000	10.0		—
$3.42 (CAD $4.36)		974,998	8.1		190,556
$6.59 (CAD $8.39)		512,222	8.9		102,444
$8.96 (CAD $11.41)		8,333	8.6		4,166
$10.92 (CAD $13.91)		970,000	9.3		—
$11.56 (CAD $14.72)		65,000	9.4		—
		6,288,166	7.1		2,318,500

⁽¹⁾ USD equivalent is presented at the closing rate.

Stock-based compensation:

For the year ended December 31, 2020, the Company recorded a stock-based compensation expense related to stock options granted under the stock option plan in the amount of $4,791 in the consolidated statement of loss and other comprehensive loss; from this amount, $1,939 is presented in Research and development expenses and $2,852 is presented in General and administrative expenses (2019 – $1,610, $408 presented in Research and development expenses and $1,202 presented in General and administrative expenses).

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes pricing model. Expected volatility is estimated by considering historic average share price volatility for a period commensurate with the expected life.

26

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(i) Stock Option Plan (continued):

Stock-based compensation (continued):

The weighted average assumptions for stock options granted during the years ended December 31, 2020 and 2019 were as follows:

	2020 (1) (3)			2019 (2) (3)
Weighted average fair value of stock options at grant date	$	5.68 (CAD $7.93	)	$	3.57 (CAD $4.72	)
Weighted average share price	$	7.06 (CAD $9.85	)	$	4.38 (CAD $5.79	)
Weighted average exercise price	$	7.06 (CAD $9.85	)	$	4.38 (CAD $5.79	)
Risk-free interest rate		0.55	%		1.73	%
Expected volatility		104	%		100	%
Expected life in years		7			7
Expected dividend yield		Nil			Nil

⁽¹⁾ Stock options were granted on April 1, 2020, May 14, 2020 and August 12, 2020, November 11, 2020 and December 14, 2020.

⁽²⁾ Stock options were granted on February 20, 2019, August 7, 2019 and November 13, 2019.

⁽³⁾ USD equivalent is presented at the historical rate.

Dividend yield was excluded from the calculation, since it is the present policy of the Company to retain all earnings to finance operations and future growth.

(ii) Broker warrants:

In connection with the Company’s equity offering in December 2018 (the “2018 Offering”), the Company issued 402,851 broker warrants exercisable for common shares. Each broker warrant entitled the holders to buy one common share at a price of $2.69 (CDN$3.42) per share for a period of 18 months from the closing of the 2018 Offering.

In connection with the Company’s equity offering in December 2017 (the “2017 Offering”), the Company issued 501,871 broker warrants exercisable for common shares. Each broker warrant entitled the holders to buy one common share at a price of $1.07 (CAD$1.37) per share for a period of 18 months from the closing of the 2017 Offering.

27

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(ii) Broker warrants:

Changes in outstanding broker warrants for the years ended December 31, 2020 and 2019 were as follows:

	Number			Dollars
Balance, December 31, 2019		171,590		$	131
Exercised – from the 2018 Offering (1)		(171,590	)		(131	)
Balance, December 31, 2020		—		$	—

	Number			Dollars
Balance, December 31, 2018 and January 1, 2019		710,278		$	521
Exercised – from the 2018 Offering (2)		(231,261	)		(166	)
Exercised – from the 2017 Offering (3)		(304,145	)		(221	)
Expired – from the 2017 Offering		(3,282	)		(3	)
Balance, December 31, 2019		171,590		$	131

⁽¹⁾ During the year ended December 31, 2020, the Company issued a total of 171,590 common shares from treasury upon the exercise of a total of 171,590 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $131, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽²⁾ During the year ended December 31, 2019, the Company issued a total of 231,261 common shares from treasury upon the exercise of a total of 231,261 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $166, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽³⁾ During the year ended December 31, 2019, the Company issued a total of 304,145 common shares from treasury upon the exercise of a total of 304,145 broker warrants issued in connection with 2017 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $221, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

28

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(iii) Deferred share unit (DSU) plan:

The Company has a deferred share unit (“DSU”) plan for employees and members of the Board of Directors created to afford the Company the flexibility to offer DSUs as an alternative to cash compensation.

The price of DSUs is determined by the five-day volume weighted average trading price of the Company’s common shares at the time the DSUs are issued, as provided for under the plan. The DSUs are redeemable only upon the participant’s resignation, termination, retirement or death, in cash, at a value equal to the number of DSUs credited, multiplied by the 5-day market value weighted average price of common shares prior to the date on which a notice of redemption is filed.

For DSUs, compensation cost is measured based on the market price of the Company’s common shares from the date of grant through to the settlement date. Any changes in the market value of the Company’s common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income.

Changes in the number of units for the years ended December 31, 2020 and 2019 were as follows:

Number of units	2020		2019
Balance, beginning of year		234,633		181,352
Units granted (1)		18,395		53,281
Balance, end of year		253,028		234,633
Balance of DSU liability, included in Trade and other payables	$	761	$	1,772

⁽¹⁾ All DSUs were granted to key management personnel.

During the year ended December 31, 2020, the Company granted 18,395 DSUs having a fair value per unit of $11,39 (CAD $14.51) (53,281 DSUs having an average fair value per unit of $3.94 (CAD $5.12) were granted during the year ended December 31, 2019).

As at December 31, 2020, the Company estimated the fair value of the DSU liability at $761, based on the market price of the Company’s common shares at that date ($1,772 as at December 31, 2019). The stock-based compensation expense related to the DSU plan recorded in the consolidated statement of loss for the year ended December 31, 2020 amounted to $(993); from this amount, $(2) is presented in Research and development expenses and $(991) is presented in General and administrative expenses (2019 – $1,209; $2 presented in Research and development expenses and $1,207 presented in General and administrative expenses).

29

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

8. Shareholders’ equity (continued):

(b) Share-based payment arrangements (continued):

(iii) Deferred share unit (DSU) plan (continued):

The value of DSUs granted in 2020 for which services have not been rendered as at December 31, 2020 amounted to $73 and is presented in Prepaid expenses and other assets in the consolidated statement of financial position (the value of DSUs granted in 2019 for which services have not been rendered as at December 31, 2019 amounted to $74).

(c) Accumulated other comprehensive income:

The accumulated balance relates to currency translation adjustments arising from the change in presentation currency, which was applied retrospectively (refer to note 2 (c)).

9. Personnel expenses:

The aggregate compensation to personnel of the Company for the years ended December 31, 2020 and 2019 is set out below:

	2020			2019
Short-term benefits	$	4,953		$	2,615
Stock-based compensation (recovery) expense - DSU plan		(993	)		1,209
Stock-based compensation expense – Stock option plan		4,791			1,610
	$	8,751		$	5,434

10. Net finance income (costs):

Finance income and Finance costs for the years ended December 31, 2020 and 2019 were attributed as follows:

	2020			2019
Interest income	$	1,045		$	1,146
Foreign exchange gain		179			—
Finance income		1,224			1,146
Interest expense on lease liability (note 5)		(17	)		(12	)
Interest and bank charges		(22	)		(11	)
Foreign exchange loss		—			(1,400	)
Finance costs		(39	)		(1,423	)
Net finance income (costs)	$	1,185		$	(277	)

30

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

11. Income taxes:

Deferred tax expense

	December 31,			December 31,
	2020			2019
Origination and reversal of temporary differences	$	(7,062	)	$	(6,456	)
Change in unrecognized deductible temporary differences including effect of change in tax rate of nil in 2020 (2019 – $25)		7,062			6,456
Deferred tax expense	$	—		$	—

Reconciliation of effective tax rate:

	Year ended			Year ended
	December 31,			December 31,
	2020			2019
Loss before income taxes:
Canadian operations	$	(29,807	)	$	(25,757	)
US operations		(1,950	)		(251	)
		(31,757	)		(26,008	)
Tax using the Company’s domestic tax rate		(8,416	)		(6,918	)
Change in unrecognized deductible temporary differences		7,062			6,456
Difference in tax rate of a foreign subsidiary		107			14
Effect of change in tax rate		—			25
Non-deductible stock option expense		1,270			428
Permanent differences and other items		(23	)		(5	)
Total income tax expense	$	—		$	—

The applicable statutory tax rates are 26.5% in 2020 and 26.6% in 2019. The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company operates. The decrease is due to the reduction of the Quebec income tax rate in 2020 from 11.6% to 11.5%.

31

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

11. Income taxes (continued):

Deferred tax assets and liabilities

Recognized deferred tax assets and liabilities:

As at December 31, 2020 and 2019, recognized deferred tax assets and liabilities are attributable to the following:

	Assets						Liabilities						Net
	2020			2019			2020			2019			2020			2019
Taxes losses carried forward	$	183		$	61		$	—		$	—		$	183		$	61
Right-of-use assets		—			—			(178	)		(54	)		(178	)		(54	)
Trade and other receivables		—			—			(5	)		(7	)		(5	)		(7	)
Tax assets (liabilities)		183			61			(183	)		(61	)		—			—
Set off of tax		(183	)		(61	)		183			61			—			—
Net tax assets (liabilities)	$	—		$	—		$	—		$	—		$	—		$	—

Unrecognized deferred tax assets and investment tax credits:

As at December 31, 2020 and 2019, the amounts and expiry dates of tax attributes and temporary differences for which no deferred tax assets was recognized were as follows:

	December 31, 2020				December 31, 2019
	Federal		Provincial		Federal		Provincial
Research and development expenses, without time limitation	$	12,576	$	12,975	$	7,601	$	7,763
Federal research and development investment tax credits
2037		243		—		238		—
2038		365		—		357		—
2039		393		—		399		—
2040		706		—		—		—
		1,707		—		994		—
Tax losses carried forward
2032		266		166		260		162
2033		702		901		688		884
2034		645		645		633		633
2035		876		876		859		859
2036		898		898		880		880
2037		1,768		1,944		1,733		1,906
2038		3,946		3,836		3,868		3,761
2039		23,163		23,015		22,701		22,570
2040		24,711		24,500		—		—
		56,975		56,781		31,622		31,655
Capital losses		11,149		11,149		10,931		10,931
Other deductible temporary differences, without time limitation	$	9,453	$	9,453	$	8,972	$	8,972

32

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

11. Income taxes (continued):

Unrecognized deferred tax assets and investment tax credits (continued):

Deferred tax assets and investments tax credits have not been recognized in respect to these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom. The generation of future taxable profit is dependent on the successful commercialization of the Company’s products and technologies.

12. Loss per share:

	Year ended			Year ended
	December 31,			December 31,
	2020			2019
Basic weighted average number of common shares outstanding		59,023,380			47,430,219
Basic and diluted loss per share	$	(0.54	)	$	(0.55	)

Excluded from the calculation of the diluted loss per share for the year ended December 31, 2020 is the impact of all stock options granted under the Stock Option Plan, as they would be anti-dilutive.

Excluded from the calculation of the diluted loss per share for the year ended December 31, 2019 is the impact of all stock options granted under the Stock Option Plan and broker warrants, as they would be anti-dilutive.

Stock options granted under the Stock Option Plan could potentially be dilutive in the future.

13. Commitments and contingencies:

(a) Contracts in the normal course of business:

The Company enters into contracts in the normal course of business, including for research and development activities, consulting and other services.

As at December 31, 2020, the Company has commitments for expenditures related to contracts for research and development activities of approximately $36,659 (approximately $8,724 as at December 31, 2019), of which $34,621 is due in 2021, $1,486 in 2022 and $552 in 2023.

33

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

13. Commitments and contingencies (continued):

(b) Indemnity agreement:

The Company is potentially liable in relation to the following indemnity agreement:

In March 2017, the Company entered into a share purchase agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate Shigamab^TM. The Company agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the share purchase agreement. No indemnity provision has been recorded by the Company as at December 31, 2020 and 2019 for this matter as the Company does not expect to make any payments under the indemnity provisions of this agreement.

(c) License agreements and research collaborations:

In the past the Company has entered into various agreements whereby future cash payments may be made based on criteria such as sales for certain legacy products. The Company has not recorded any provision on such agreements as the possibly for a payment is not probable.

(d) Consulting and services agreement:

The payments under the consulting and services agreement with Picchio International Inc. ("Picchio International") (refer to note 14 (b)) will amount to $196 (CAD$250) in 2021, plus the reimbursement of applicable expenses for services rendered under the agreement.

(e) Letter of credit:

As at December 31, 2020, the Company is contingently liable for a letter of credit in the amount of $39 (CAD$50) (2019 - $38 (CAD$50)). Cash is pledged under the letter of credit and is presented as non-current Other assets in the consolidated statement of financial position as at December 31, 2020.

14. Related party transactions:

(a) There is no single ultimate controlling party.

(b) Dr. Francesco Bellini, Chairman of the Board of Directors, provides ongoing advisory services to the Company under the terms of a consulting and services agreement between the Company and Picchio International, wholly-owned by Dr. Francesco Bellini and his spouse. The agreement has a one-year term and shall renew for successive one-year terms. The Company recorded fees and expenses of $284 and $287 (CAD $381 for both years) under the consulting and services agreement for the years ended December 31, 2020 and 2019, respectively.

34

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

14. Related party transactions (continued):

(c) Key management personnel:

The Chief Executive Officer, Chief Financial Officer, Chief Medical Officer, Vice-Presidents and Directors of BELLUS Health are considered key management personnel.

The aggregate compensation to key management personnel of the Company for the years ended December 31, 2020 and 2019 is set out below:

	2020			2019
Short-term benefits	$	2,307		$	1,799
Stock-based compensation (recovery) expense – DSU plan		(993	)		1,209
Stock-based compensation expense - Stock option plan		3,790			1,409
	$	5,104		$	4,417

15. Segment disclosures:

Business segment:

The Company operates in one business segment, which is the development of therapeutic candidates for the treatment of health disorders. As at December 31, 2020, the Company’s operations were conducted in Canada and the United States. All of the Company’s non-current assets are located in Canada.

16. Capital management:

The Company’s objective in managing capital is to ensure a sufficient liquidity position to finance its research and development activities, including pipeline expansion, general and administrative expenses, working capital and overall capital expenditures.

Since inception, the Company has financed its liquidity needs primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits. When possible, the Company tries to optimize its liquidity needs by non-dilutive sources, including research tax credits, grants, interest income, as well as with proceeds from collaboration and research agreements, asset sales or product licensing agreements.

Historically, when the Company had the option, it has settled its obligations through the issuance of common shares instead of in cash to preserve its liquidities to finance its operations and future growth.

The Company defines capital to include total shareholders’ equity.

The capital management objectives remain the same as previous fiscal year.

35

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

16. Capital management (continued):

As at December 31, 2020, cash, cash equivalents and short-term investments amounted to $98,260. The Company’s general policy on dividends is to retain cash to keep funds available to finance the Company’s growth.

The Company is not subject to any capital requirements that are externally imposed.

17. Financial instruments:

(a) Financial instruments - carrying values and fair values:

Fair value estimates are made as of a specific point in time, using available information about the financial instrument. These estimates are subjective in nature and may not be determined with precision.

For its financial assets and liabilities measured at amortized cost as at December 31, 2020, the Company has determined that the carrying value of its short-term financial assets and liabilities (consisting of cash, cash equivalents and short-term investments, trade and other receivables and trade and other payables) approximates their fair value because of the relatively short periods to maturity of these instruments.

(b) Credit risk management:

Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. The Company invests cash mainly with major North American financial institutions. Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than A-1) as rated by Standard and Poor’s. The Company has investment policies that are designed to provide for the safety and preservation of principal, the Company’s liquidity needs and yields that are appropriate.

As at December 31, 2020, the Company’s maximum credit exposure corresponded to the carrying amount of these financial assets.

(c) Liquidity risk management:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company requires continued access to capital markets to support its operations, as well as to achieve its strategic plans. Any impediments to the Company’s ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of the Company’s financial condition or prospects, could have a materially adverse effect on the Company. In addition, the Company’s access to financing is influenced by the economic and credit market environment.

36

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

17. Financial instruments (continued):

(c) Liquidity risk management (continued):

The Company manages liquidity risk through the management of its capital structure, as outlined in note 16. The Company will require additional financing in the future. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews, approves and monitors the Company’s operating and capital budgets, as well as any material transactions.

The balance of accounts payable and accrued liabilities is due within one year. For information on the maturity of leases, as well as commitments and contingencies, see notes 5 and 13, respectively.

(d) Foreign currency risk management:

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than US dollar. The Company’s exposure relates primarily to changes in the US dollar versus the Canadian dollar exchange rate. For the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the US dollar will create volatility in the Company’s cash flows and the reported amounts for revenue and expenses in income. Additional variability arises from the translation of monetary assets and liabilities denominated in currencies other than the US dollar at the rates of exchange at each statement of financial position date, the impact of which is reported as a foreign exchange gain or loss in income. The Company holds a portion of its cash, cash equivalents and short-term investments in Canadian dollars to meet its liquidity needs in Canadian dollars, but does not use derivative financial instruments to reduce its foreign exchange exposure.

The following table provides an indication of the Company’s significant foreign currency exposures as at December 31, 2020:

	December 31,
(in US dollars)	2020
Net assets denominated in Canadian dollars:
Cash and cash equivalents	$	7,864
Short-term investments		4,341
Trade and other receivables		324
Research tax credit		716
Other assets		39
Trade and other payables		(2,212	)
Lease liability, total		(503	)
	$	10,569

37

bellus health INC.

Notes to Consolidated Financial Statements (Continued)

Years ended December 31, 2020 and 2019

(in thousands of United States, except per share data, unless otherwise noted)

17. Financial instruments (continued):

(d) Foreign currency risk management (continued):

Based on the Company’s net foreign currency exposure noted above, and assuming that all other variables remain constant, a hypothetical 10% depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase/decrease of $1,057 in income.

The CAD to USD exchange rate applied as at December 31, 2020 was 0.7852.

(e) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company’s exposure to interest rate risk is as follows:

Cash and cash equivalents	Short-term fixed and variable interest rate
Short-term investments	Short-term fixed interest rate
Restricted cash	Short-term fixed interest rate

Based on the carrying amount of the Company’s variable interest-bearing financial instruments as at December 31, 2020, an assumed 1% increase or 1% decrease in interest rates during such period would have resulted in an increase/decrease of $337 in income.

Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to maturity.

The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

Interest income presented in the consolidated statement of loss represents interest income on financial assets.

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EX-99.3

Exhibit 99.3

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) provides a review of BELLUS Health Inc.’s operations and financial performance for the years ended December 31, 2020 and 2019. In this MD&A, unless the context otherwise requires, the terms “BELLUS Health”, “we”, “us”, and “our” refer to BELLUS Health Inc. This document should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Additional information relating to us, including our Annual Report and Annual Information Form, as well as other public filings, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.

The consolidated financial statements and MD&A have been reviewed by our Audit Committee and approved by our Board of Directors. This MD&A was prepared by management with information available as at February 25, 2021.

This document contains forward-looking statements, which are qualified by reference to, and should be read together with the “Forward-Looking Statements” cautionary notice, which can be found below.

All currency figures reported in the consolidated financial statements and in this document are in US dollars, unless otherwise specified. Effective January 1, 2020, we adopted the US dollar as our functional and presentation currency. Refer to the “Change in Accounting Policies” section below for details.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this MD&A may constitute “forward-looking information” within the meaning of applicable securities laws in Canada and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended (collectively, “forward-looking statements”), which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, objectives and strategies to achieve those objectives, as well as statements with respect to our beliefs, targets, expectations, anticipations, estimates or intentions. In some cases, you can identify forward-looking statements by terminology such as “believe”, “may”, “estimate”, “continue”, “anticipate”, “intend”, “should”, “plan”, “expect”, “predict”, “potential”, “could”, “assume”, “project”, “guidance” or the negative of these terms or other similar expressions, although not all forward-looking statements include such words. These statements reflect current expectations of management regarding future events and operating performance and speak only as of the date of this MD&A. The statements we make regarding the following matters are forward-looking by their nature and are based on certain of the assumptions noted below:

• our aim to develop and commercialize BLU-5937 for the treatment of hypersensitization disorders, including chronic cough and chronic pruritus;

• our aim to complete additional preclinical studies on BLU-5937;

• our aim to complete additional clinical Phase 1 trials with BLU-5937;

1

• our expectations to release topline results in the fourth quarter of 2021 for our Phase 2b SOOTHE clinical trial of BLU-5937 for the treatment of patients with refractory chronic cough and conduct an interim analysis in mid-2021, the results of which we may use to initiate planning activities for Phase 3 clinical trials;

• our expectations to release topline results in the fourth quarter of 2021 for our Phase 2 BLUEPRINT clinical trial of BLU-5937 for the treatment of patients with chronic pruritus associated with atopic dermatitis;

• our aim to further explore the potential of BLU-5937 for the treatment of other afferent hypersensitization-related conditions;

• our expectations with respect to the timing and cost of the research and development activities of BLU-5937;

• the function, potential benefits, tolerability profile, effectiveness and safety of our product candidates, including BLU-5937, including with respect to patient population, pricing and labeling, and the impact of our enrichment strategy on labeling;

• our expectations with respect to pre-commercialization activities related to the commercial launch of BLU-5937;

• our expectations regarding the potential once-daily dosing with extended-release formulation for BLU-5937 and our aim to begin prototype development of the BLU-5937 once-daily formulation in 2021;

• our expectations regarding our ability to arrange for and scale up the manufacturing of BLU-5937 to reach commercial scale;

• our estimates and assessment of the potential markets (including size) for our product candidates;

• our expectations regarding pricing and acceptance of our product candidates by the market;

• our estimates and projections regarding potential pricing for BLU-5937 and how such pricing compares to other P2X3 inhibitors;

• our estimates and projections regarding the size of the total addressable global refractory chronic cough market and associated P2X3 revenue potential;

• the benefits and risks of our product candidates as compared to others;

• our aim to obtain regulatory approvals to market our product candidates;

• our expectations with respect to the cost of preclinical studies and clinical trials and commercialization of our product candidates, including BLU-5937;

• our expectation of the continued listing of the common shares on the TSX and Nasdaq;

• our current and future capital requirements and anticipated sources of financing or revenue;

• our expectations regarding the COVID-19 pandemic and its impact on our business;

• our expectations regarding the protection of our intellectual property;

• our business strategy; and

• our development and partnership plans and objectives.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements.

Conclusions, forecasts and projections set out in forward-looking information are based on our current objectives and strategies and on expectations and estimates and other factors and assumptions that we believe to be reasonable at the time applied but may prove to be incorrect. These include, but are not limited to:

• the function, potential benefits, effectiveness and safety of BLU-5937;

• the benefits and risks of our product candidates as compared to others;

2

• the accuracy of our belief that selective P2X3 inhibitors have an improved tolerability profile compared to the most advanced P2X3 receptor inhibitor in development, Merck & Co.’s gefapixant;

• progress, timing and costs related to the development, completion and potential commercialization of our product candidate;

• estimates and projections regarding our industry;

• market acceptance of our product candidate;

• future success of current research and development activities;

• achievement of development and commercial milestones, including forecasted preclinical study and clinical trial milestones within the anticipated timeframe;

• our reliance on third parties to conduct preclinical studies and clinical trials for BLU-5937;

• that the timeline and costs for our preclinical and clinical programs are not incorrectly estimated or affected by unforeseen circumstances;

• the successful development of once daily dosing with extended release formulation for BLU-5937;

• our ability to achieve intended order of market entry of BLU-5937 relative to other P2X3 inhibitors;

• accuracy of our findings of statistically significant interaction between baseline cough frequency and treatment benefit, and realization of the intended benefits of our enrichment strategy;

• accuracy of our estimates and projections regarding potential pricing for BLU-5937, including parity to other P2X3 inhibitors;

• accuracy of our estimates and projections regarding the size of the total addressable global refractory chronic cough market and associated P2X3 revenue potential;

• the capacity of our primary supply chain to produce the required clinical supplies to support a Phase 3 program in refractory chronic cough within the anticipated timeframe;

• absence of interruption or delays in the operations of our suppliers of components or raw materials, contract research organizations or other third parties with whom we engage, whether as a result of disruptions caused by the COVID-19 pandemic or otherwise;

• accuracy of our expectations regarding label indication for BLU-5937 in refractory chronic cough and the potential to expand the use of P2X3 inhibitors on all refractory chronic cough patients;

• absence of material deterioration in general business and economic conditions, including the impact on the economy and financial markets of the COVID-19 pandemic and other health risks;

• the effectiveness of COVID-19 containment efforts, including the implementation of vaccination programs and gradual recovery of global environment and global economic conditions;

• the receipt of regulatory and governmental approvals for research and development projects and timing thereof;

• the availability of tax credits and financing for research and development projects, and the availability of financing on favorable terms;

• our expectations regarding our status as a passive foreign investment company;

• the accuracy of our estimates regarding future financing and capital requirements and expenditures;

• the achievement of our forecasted cash burn rate;

• the sufficiency and validity of our intellectual property rights;

• our ability to secure, maintain and protect our intellectual property rights, and to operate without infringing on the proprietary rights of others or having third parties circumvent the rights owned or licensed by us;

• our ability to source and maintain licenses from third-party owners on acceptable terms and conditions;

• absence of significant changes in Canadian dollar-U.S. dollar and other foreign exchange rates or significant variability in interest rates;

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• the absence of material changes in market competition and accuracy of our assumptions and projections regarding profile and market dynamic amongst more selective agents;

• our ability to attract and retain skilled staff;

• our ability to maintain ongoing relations with employees and business partners, suppliers and other third parties;

• the accuracy of the market research, third-party industry data and forecasts relied upon by us; and

• the absence of adverse changes in relevant laws or regulations.

There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. See “Risk Factors” section in this MD&A. Should one or more of the risks, uncertainties or other factors outlined in this MD&A materialize, our objectives, strategies or intentions change, or any of the factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans and targets could vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans or targets. All of the forward-looking information in this MD&A is qualified by the cautionary statements herein.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this MD&A, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this MD&A, to conform these statements to actual results or to changes in our expectations.

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CORPORATE PROFILE

We are a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization disorders. Our lead product candidate, BLU-5937, is an investigational product that is a highly selective antagonist of the P2X3 receptor, a target linked to hypersensitivity. We are developing BLU-5937 for the treatment of chronic cough and chronic pruritus, or chronic itch. We believe these hypersensitization-related disorders, which share a common pathophysiology that is mediated through the P2X3 receptor, represent areas of significant unmet medical need and potentially large market opportunities. We believe BLU-5937’s characteristics observed in our preclinical studies and Phase 1 and 2 clinical trials position it for development as a potential competitive treatment option in the P2X3 antagonist class. We initiated two trials in the fourth quarter of 2020 including SOOTHE, a Phase 2b trial evaluating the efficacy and safety of BLU-5937 in refractory chronic cough (“RCC”) patients and BLUEPRINT, a Phase 2 proof-of-concept trial evaluating the efficacy and safety of BLU-5937 in patients with chronic pruritus associated with atopic dermatitis (“AD”).

Our shares trade on the Nasdaq Global Market (“Nasdaq”) and on the Toronto Stock Exchange (“TSX”) both under the symbol “BLU”.

BUSINESS OVERVIEW

2020 Highlights

Initiated the Phase 2b SOOTHE clinical trial of BLU-5937 in patients with RCC in December 2020.

• Topline results from the SOOTHE trial are expected in the fourth quarter of 2021.

• An interim analysis using a predefined efficacy and probability threshold is expected to be performed in mid-2021, once 50% of participants have completed the study.

• Phase 2b SOOTHE trial population enriched for participants with cough frequency above 25 coughs/h at baseline.

Initiated the Phase 2 BLUEPRINT clinical trial of BLU-5937 in patients with chronic pruritus associated with AD in December 2020.

• Topline results from the BLUEPRINT trial are expected in the fourth quarter of 2021.

Announced topline results from the Phase 2 RELIEF clinical trial of BLU-5937 in patients with RCC in July 2020.

• The RELIEF trial achieved proof-of-concept in reducing cough frequency in RCC patients including statistically significant and clinically meaningful reductions in two pre-specified sub-group analyses of participants with baseline awake cough frequency of ≥20 coughs/hour (80% of trial participants) and ≥32 coughs/hour (50% of trial participants).

• Numerical differences in favor of BLU-5937 were also observed in the whole study (intention-to-treat) population; however the trial did not meet its primary endpoint in this population.

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• BLU-5937 was well tolerated and showed an adverse event profile comparable to placebo. The taste disturbance adverse events were limited to 10% or less, confirming the hypothesis that BLU-5937 has a favorable adverse event profile compared to the first generation P2X3 antagonist. Additionally, no complete loss of taste was observed at any dose, no severe taste adverse event was reported and no dropouts due to taste disturbance occurred.

Completed a $40.3 million offering in October 2020.

• In October 2020, we completed an offering of our common shares resulting in gross proceeds to BELLUS Health of $40.3 million.

Acquired full ownership of the intellectual property rights to BLU-5937 and related P2X3 antagonists in March 2020.

• In March 2020, we acquired all of the remaining BLU-5937 and related P2X3 antagonists intellectual property rights from adMare BioInnovations’ NEOMED Institute and now own 100% of BLU-5937 and related P2X3 antagonists intellectual property with no future payments due.

Appointed Ramzi Benamar as Chief Financial Officer.

• In December 2020, we appointed Ramzi Benamar to the role of Chief Financial Officer. Mr. Benamar brings to BELLUS Health extensive experience in corporate strategy, finance and operations.

Ended the year with cash, cash equivalents and short-term investments totaling $98.3 million.

BUSINESS SECTION

Our Pipeline

We are evaluating BLU-5937 in RCC and chronic pruritus associated with AD, as identified in the following pipeline table: 

 

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BLU-5937 for Chronic Cough

We are developing BLU-5937, a potent, highly selective, small molecule antagonist of the P2X3 receptor, as an oral therapy to reduce cough frequency and severity, as well as to improve quality of life in RCC patients.

In December 2020, we initiated SOOTHE, a Phase 2b trial evaluating the efficacy and safety of BLU-5937 in refractory chronic cough patients, enriched for higher cough frequency patients.

Following a Type C meeting with the U.S. Food and Drug Administration ("FDA") in November 2020, we decided to proceed with our planned Phase 2b SOOTHE trial in patients with RCC.

In July 2020, we announced topline results from our Phase 2 RELIEF clinical trial of BLU-5937 that demonstrated proof-of-concept in RCC patients. Numerical differences in favor of BLU-5937 were observed in the primary endpoint of reduction in cough frequency. Clinically meaningful and statistically significant reductions in cough frequency were observed in two pre-specified sub-group analyses including participants with baseline awake cough frequency of ≥20 coughs/hour (80% of trial participants) and ≥32 coughs/hour (50% of trial participants).

Chronic cough, our lead indication for BLU-5937, is a cough lasting more than eight weeks, and may have a significant adverse impact on patients’ quality of life. It is estimated that approximately 26 million adults in the United States suffer from chronic cough of which approximately 9 million patients are identified as having refractory chronic cough. Many patients report that their condition has a marked effect on their quality of life including sleep disruption, tiredness, incontinence, and disruption of social interactions. Currently, there is no therapy approved specifically for the treatment of refractory chronic cough. Available treatment options are limited and may have inadequate benefit and/or significant safety and tolerability issues. We believe that BLU-5937, if approved, may be adopted by physicians as an oral cough therapy in patients for whom cough hypersensitivity is the primary etiology.

Ongoing Phase 2b SOOTHE Clinical Trial

On December 8, 2020, we announced that the first participant has been dosed in the Phase 2b SOOTHE trial of BLU-5937. Topline data from SOOTHE is expected in the fourth quarter of 2021. An interim analysis is expected to be performed in mid-2021, once 50% of participants have completed the study.

The SOOTHE trial is a multicenter, randomized, double-blind, four-week, parallel-arm, placebo-controlled Phase 2b trial evaluating the efficacy and safety of three doses of BLU-5937 (12.5 mg, 50 mg and 200 mg BID) in 300 participants. Two hundred and forty participants with a baseline awake cough frequency of ≥25 coughs per hour are expected to be randomized across four arms (1:1:1:1) evaluating the three active doses and placebo in the main study. Treatment arms will be stratified to balance the number of participants per treatment group with baseline awake cough frequency ≥45 coughs per hour. The primary efficacy endpoint will be the placebo-adjusted change in the 24-hour cough frequency from baseline to day 28 collected with a cough recorder. An exploratory group of an additional 60 participants with a baseline awake cough frequency of ≥10 and <25 coughs per hour are expected to be randomized across two arms (1:1) evaluating one active dose (200 mg BID) and placebo to further investigate the effect of BLU-5937 in patients with lower cough frequency.

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The interim analysis is expected to be conducted by an independent statistical team once 50% of participants have completed the main study and is anticipated in mid-2021. Using a predefined probability of efficacy hurdle, results from the interim analysis may be used to initiate planning activities for Phase 3. The SOOTHE trial will continue to completion regardless of the results of the interim analysis; futility will not be assessed at the interim analysis.

The trial is expected to enroll participants in approximately 120 sites of which approximately 50% are in the United States.

Phase 2 RELIEF Clinical Trial

The RELIEF trial established proof-of-concept for BLU-5937 in the treatment of RCC patients. The RELIEF trial did not achieve statistical significance for the primary endpoint of reduction in placebo-adjusted awake cough frequency at any dose tested in the Intent to Treat Population (n=67); however, pre-specified analyses regarding the impact of baseline cough frequency on treatment effect, including subgroup analyses in participants with baseline awake cough frequency of ≥ 20 coughs/hour (“coughs/h”) and ≥ 32 coughs/h (median), revealed statistically significant and clinically meaningful reductions in cough frequency relative to placebo:

• Participants with ≥20 coughs/h (representing 80% of total trial participants) at baseline saw placebo-adjusted reductions in awake cough frequency of 20% (p=0.001), 18% (p=0.02), 19% (p=0.03) and 27% (p=0.003) at doses of 25, 50, 100 and 200 mg twice daily (BID) respectively.

• Participants with cough frequencies at or above the baseline median of 32 coughs/h at baseline (representing 50% of total trial participants) saw placebo-adjusted reductions in awake cough frequency of 28%, 28%, 30% and 32% (all p<0.0015) at doses of 25, 50, 100 and 200 mg BID, respectively.

• A statistically significant interaction (p=0.0258) was observed between average awake cough frequency at baseline and treatment effect, linking higher baseline cough frequency with improved treatment benefit.

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Top-line results

All patients — Intent to Treat Patients Population (n=67)

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-11%	p=0.14
50 mg BID	-6%	p=0.46
100 mg BID	-8%	p=0.41
200 mg BID	-17%	p=0.09

Pre-specified subgroup — Patients with awake cough frequency at >20 coughs/h (n=54)

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-20%	p=0.0010
50 mg BID	-18%	p=0.0186
100 mg BID	-19%	p=0.0320
200 mg BID	-27%	p=0.0026

Pre-specified Subgroup — Patients with awake cough frequency at or above baseline median

(>32.4 cough/h; n=34)

DOSE	PLACEBO-ADJUSTED REDUCTION IN AWAKE COUGH FREQUENCY	P-VALUE
25 mg BID	-28%	p=0.0005
50 mg BID	-28%	p=0.0003
100 mg BID	-30%	p=0.0014
200 mg BID	-32%	p=0.0006

BLU-5937 was observed to be well tolerated with the most common (≥5%) treatment-emergent adverse events being headache (9.8%), back pain (8.2%), dysgeusia (8.2%), diarrhea (6.6%), upper respiratory tract infection (6.6%), dizziness (6.6%), and oropharyngeal pain (4.9%). No treatment-related serious adverse events and no withdrawals due to treatment-related adverse events were reported at any dose.

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Incidence of Most Frequent Adverse Events (>5% Incidence) 

 

¹One participant diagnosed with non-treatment-related colorectal cancer following trial completion

Taste disturbance adverse events, including taste alteration and partial taste loss, were reported at all dose levels (6.5%, 9.8%, 10% and 8.6% at 25, 50, 100 and 200 mg BID, respectively, versus 4.9% on placebo) and were mostly mild in nature. No participants reported complete taste loss. There were no clinically meaningful changes in vital signs, electrocardiogram or clinical laboratory values.

Incidence of Taste Disturbance Adverse Events (Safety Population)

 

¹One subject reported both taste disturbance and partial taste loss during the same period at all dose levels of BLU-5937 but is counted only once in the total taste adverse events

RELIEF enrolled participants in 16 sites (8 in the United Kingdom and 8 in the United States) and randomized a total of 68 refractory chronic cough participants; 67 were included in the Intent to Treat population. 52 participants completed both treatment periods and 16 participants dropped out in total, including 13 as a result of risk considerations related to the COVID-19 pandemic or the sponsor’s early termination of the trial. There were three additional non-drug related discontinuations.

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Learnings from RELIEF Phase 2 Data

Based on the RELIEF trial results, we believe cough frequency at baseline is a key indicator of potential treatment benefit, with subgroup analysis of participants having baseline awake cough frequencies ≥20 coughs/h and ≥32 coughs/h demonstrating statistically significant and clinically meaningful benefit at all doses. Based on these analyses and the participants level data of participants with baseline awake cough frequency of ≥20 coughs/h and <32 coughs/h, we have selected a baseline cough frequency of 25 coughs/h as an inclusion criterion for the Phase 2b trial.

No dose response was observed in the Phase 2 RELIEF trial, including based on an analysis of within-participant dose response curves. Plasma concentrations achieved in RELIEF are also consistent with achieving receptor occupancies in the 75-95+% range. Based on this information, doses of 12.5 mg BID, 50 mg BID and 200 mg BID were selected for the Phase 2b SOOTHE trial.

Competitive Landscape

In addition to BELLUS Health, other companies are developing P2X3 antagonist product candidates for the treatment of RCC, including Merck & Co. (“Merck”), Bayer AG (“Bayer”) and Shionogi Inc. (“Shionogi”). 

 

¹Limited head to head studies have been conducted; data presented is derived from company specific disclosures. 

²Smith J., Lancet Respir Med 2020: Gefapixant, a P2X3 receptor antagonist, for the treatment of refractory or unexplained chronic cough: a randomised, double- blind, controlled, parallel group, phase 2b trial. 

³Safety and Efficacy of BAY 1817080, a P2X3 Receptor Antagonist, in Patients with Refractory Chronic Cough (RCC), Presenter Q&A – ERS 2020. 

⁴Niimi A, European Respiratory Journal 2019 54: RCT452.

Merck announced in March of 2020 that the 45mg BID dose MK-7264 had reached statistical significance on the primary efficacy endpoint in both the COUGH-1 and COUGH-2 study and that the 15mg BID dose had not achieved statistical significance in either the COUGH-1 or COUGH-2 study. Pursuant to this announcement, in September 2020 at the European Respiratory Society ("ERS") International conference, Merck presented these Phase 3 results. The high dose (45 mg BID) of MK-7264 achieved a statistically significant result in its primary endpoint of placebo-adjusted reduction in 24-hour cough frequency (18% in the 12-week COUGH-1 trial and 16% in the 24-week COUGH-2 trial, respectively), but showed significant rates of taste disturbance adverse events (58% and 69% in COUGH-1 and COUGH-2, respectively). The impact of baseline cough frequency on treatment benefit was not disclosed in the Phase 3 trials, although a statistically significant interaction between baseline cough frequency and treatment benefit was observed in two Phase 2 trials.

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Shionogi announced top-line results of its Phase 2a trial of S-600918 in patients with RCC at the European Respiratory Society ("ERS") International Congress in October 2019, which included a placebo-adjusted reduction in 24-hour cough frequency of 32% (p=0.055) and a rate of 6.5% of taste disturbance adverse events. The average cough per hour frequency at baseline was 56. At the 2020 ERS International Congress, Shionogi reported that they observed an interaction between baseline cough frequency and treatment effect in their Phase 2a trial; this prompted the utilization of a minimal cough frequency threshold as an inclusion criterion in the Phase 2b trial of S-600918. Moreover, Shionogi stratified participants by baseline cough frequency to balance trial arms.

In April 2020, Bayer announced top-line results of its Phase 2a trial evaluating BAY 1817080 at the American Thoracic Society International Conference, which demonstrated that higher doses of Bayer’s P2X3 antagonist significantly reduced 24-hour cough counts in patients with RCC (ranging from 15% to 25% cough reduction compared to placebo) and cough severity. Taste disturbance adverse events were reported by 5% to 21% of participants receiving BAY 1817080 and were dose-dependent. In October 2020, Bayer initiated a Phase 2b trial evaluating three doses of BAY1817080 in 236 RCC participants.

Market Opportunity in Chronic Cough

We estimate 10% of the adult population in developed countries suffer from chronic cough including the United States, nations in the European Union, the United Kingdom and Japan. This represents approximately 26 million patients with chronic cough in the United States alone.

We estimate that approximately 30% of chronic cough patients, or approximately nine million patients in the U.S., are uncontrolled or have RCC, which is the expected addressable patient population for BLU-5937. These RCC patients continue to cough despite treatment for potential underlying causes triggering the cough or their cough is unexplained. We estimate that approximately one-third, or approximately three million, of these RCC patients in the U.S. have been coughing for over a year, a key inclusion criteria in current RCC trials, including the Phase 2 RELIEF trial of BLU-5937. RCC patients can also be segmented by severity, with about 45% of patients having moderate to severe disease and 55% having mild disease. Severely affected patients have a debilitating disease, moderately affected patients have important impacts on their quality of life, and mildly affected patients have fewer but still relevant impact from their disease.

As for potential pricing considerations for BLU-5937, comparable analogue drugs in the U.S. market have a monthly wholesale acquisition cost that ranges from $300 to $600. These analogues include, but are not limited to, comparable chronic use drugs for Asthma and COPD, CIC and IBS-C, Chronic Constipation, Migraine, and High Cholesterol.

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BLU-5937 in Chronic Pruritus

We are also developing BLU-5937 as an oral therapy to reduce itch (pruritis) in patients with chronic pruritus associated with AD. On December 14, 2020, we announced that the first participants had been dosed in the Phase 2 BLUEPRINT trial of BLU-5937. We expect to release top-line data in the fourth quarter of 2021.

Phase 2 BLUEPRINT Clinical Trial

The BLUEPRINT trial is a multicenter, randomized, double-blind, placebo-controlled, parallel design Phase 2 trial evaluating the efficacy, safety, and tolerability of BLU-5937 in approximately 128 adults with moderate to severe chronic pruritus associated with mild to moderate AD. Participants are randomized into one of two treatment arms (1:1) and will receive either 200 mg BID of BLU-5937 or placebo for a four-week treatment period. The primary efficacy endpoint is the change from baseline in weekly mean Worst Itch-Numeric Rating Scale ("WI-NRS") score at week four. A key secondary endpoint is a responder-rate analysis of at least a four-point WI-NRS improvement from baseline at week four.

The BLUEPRINT trial is being conducted at approximately 30 centers located in Canada and the United States.

Chronic pruritus, the second studied indication for BLU-5937, is commonly known as chronic itch, and is an irritating sensation that leads to scratching and persists for longer than six weeks, which can be debilitating and can significantly impact quality of life. It is a hallmark of many inflammatory skin diseases, including AD. It is estimated that AD affects approximately 5% of adults in the United States. Despite currently available treatments targeting AD, there is still a lack of options targeting the burden of pruritus in AD patients.

BLU-5937 in Other P2X3 Hypersensitization-Related Disorders

In addition to chronic cough and chronic pruritus, BLU-5937 may potentially have clinical benefit in other afferent hypersensitization-related disorders. We are exploring how P2X3 activation can contribute to irritation and pain, and whether inhibition of P2X3 receptors can help treat these afferent hypersensitization-related disorders.

Merck, Bayer and Shionogi are currently developing P2X3 antagonists for other afferent hypersensitization-related disorders, with Phase 2 trials ongoing or planned in four non-cough P2X3 indications: overactive bladder, neuropathic pain, endometriosis pain and sleep apnea.

Supporting Preclinical and Clinical Development Activities

Preclinical and clinical development activities to support an anticipated Phase 3 RCC program start are ongoing or expected to be initiated in 2021, including: chronic toxicity studies in rats and dogs; a 2-year carcinogenicity study in the rat; a drug-drug interaction clinical trial in combination with an inhibitor of CYP3A4; an absorption, metabolism and excretion clinical trial; a Phase 1 clinical trial to assess the potential effect of BLU-5937 on cardiac repolarization as measured by QT/QTc interval; and a pharmacokinetic study in Asian population.

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Chemistry, Manufacturing, and Controls (“CMC”)

We have a primary supply chain in place with the capacity to produce the required clinical supplies to support a Phase 3 program in RCC. Activities related to manufacturing process optimization and upscaling to support a potential commercialization are ongoing.

Development of a Once-Daily (“QD”) Formulation

We have initiated activities in preparation for the development of a QD formulation for BLU-5937 using an extended-release tablet formulation. We are developing a QD formulation since BLU-5937 exhibits favorable physical-chemical and pharmacokinetic characteristics, including high solubility and permeability, good absorption in the small and large intestine, linear pharmacokinetic profile, no interaction with food observed to date and a low predicted therapeutic dose. A pharmacokinetic pharmacology-based modelization study has been completed and we plan to initiate the development of a BLU-5937 QD formulation prototype after the completion of the Phase 2b RCC trial.

Acquisition of the Complete Ownership of BLU-5937 Intellectual Property Rights

On March 25, 2020, we closed an asset purchase and sale agreement to acquire all of the remaining BLU-5937 and related P2X3 antagonists intellectual property assets (the “BLU-5937 Assets”) from adMare BioInnovations’ NEOMED Institute (“adMare”). We now own 100% of the BLU-5937 Assets. The license agreement entered into in February 2017 pursuant to which we had exclusive rights to develop and commercialize the BLU-5937 Assets was terminated as part of this transaction.

In consideration of the forgoing, we issued to adMare and AstraZeneca AB (“AstraZeneca”) an aggregate of 4,770,000 common shares from treasury, representing 7.3% of BELLUS Health’s fully diluted equity at that time. In addition, we paid a cash consideration to adMare of $352,000 (CA $500,000). AstraZeneca assigned the BLU-5937 Assets to adMare in 2012.

We no longer have any obligations to adMare, or any other third party, in respect to tiered royalty obligations and revenue share that would have been otherwise owed to adMare under and subject to the February 2017 license agreement.

Intellectual Property

Our BLU-5937 program is protected by a comprehensive patent estate comprised of issued and allowed patents, as well as pending patent applications. We have secured composition of matter patent protection for BLU-5937 in all major pharmaceutical markets, including the United States of America, Europe, Japan and China, all with an expiration date of 2034. Under certain circumstances, such patent term may be extended for up to five years in certain jurisdictions such as the United States, Europe and Japan. In addition, we have secured methods of use patent protection in the United States for avoiding loss of taste response while treating a chronic cough patient through treatment with BLU-5937, expiring in 2038. Patent applications with similarly broad claims are currently pending in other industrialized nations.

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October 2020 Equity Offering

On October 22, 2020, we raised total gross proceeds of $40.3 million by issuing a total of 17,888,889 common shares at a price of $2.25 per share in the United States and in Canada (the “2020 Offering”), including the exercise in full of the underwriters’ option to purchase 2,333,333 common shares. We intend to use the net proceeds of the 2020 Offering, amounting to $37.3 million, primarily to fund research and development activities, general and administrative expenses, working capital needs and other general corporate purposes.

September 2019 Equity Offering and Nasdaq Listing and Share Consolidation

In September 2019, we raised total gross proceeds of US$79.4 million by issuing a total of 11,179,451 common shares in the United States and in Canada (the “2019 Offering”). Total net proceeds amounted to $72.7 million. Concurrently with the pricing of our equity offering, our common shares began trading on the Nasdaq on September 5, 2019. Our common shares are now dual-listed on the Nasdaq and the TSX.

Prior to the financing, we completed a share consolidation on the basis of one new common share for every 3.6 outstanding shares, effective on August 19, 2019, in order to increase our share price to allow listing on the Nasdaq.

Appointment of a Chief Financial Officer

In December 2020, we appointed Ramzi Benamar to the role of CFO. Mr. Benamar brings to BELLUS Health extensive experience developing corporate strategy for clinical-stage and commercial biopharma companies, combined with a proven track record in financial leadership. He earned a M.B.A. and B.B.A. in Marketing and Finance as well as a Master of Healthcare and Pharmaceutical Business Administration.

Prior to joining BELLUS Health, Mr. Benamar served as Chief Financial Officer of DBV Technologies, where he was responsible for all matters related to the strategic, operating, financial and accounting undertakings. During his time at DBV, Mr. Benamar was instrumental in capitalizing the company, strengthening the balance sheet and managing capital deployment. Previously, he was Vice President and Head of Financial Planning and Analysis for Spark Therapeutics until the acquisition of the company by Roche Holding. He provided financial leadership across the entire company, strengthened the finance organization and contributed to the transition to a commercial-stage organization. Earlier in his career, Mr. Benamar held numerous positions of increasing responsibilities spanning from R&D and global finance to strategy and operations at Merck, Johnson & Johnson, Shire Plc. and Purdue Pharma.

15

Selected Financial Information

(In thousands of dollars, except per share data)

	Years ended December 31
	2020			2019			2018
Revenues	$	15		$	27		$	27
Expenses:
Research and development		23,729			19,714			5,544
Research tax credits		(507	)		(536	)		(504	)
		23,222			19,178			5,040
General and administrative		9,735			6,580			2,630
Total operating expenses		32,957			25,758			7,670
Results from operating activities		(32,942	)		(25,731	)		(7,643	)
Finance income		1,224			1,146			576
Finance costs		(39	)		(1,423	)		(5	)
Net finance income (costs)		1,185			(277	)		571
Change in fair value of contingent consideration receivable		—			—			63
Net loss for the year	$	(31,757	)	$	(26,008	)	$	(7,009	)
Loss per share – Basic and diluted	$	(0.54	)	$	(0.55	)	$	(0.21	)

Financial Position:

	At December 31,		At December 31,		At December 31,
	2020		2019		2018
Total assets	$	153,113	$	96,372	$	39,084
Total non-current financial liabilities	$	347	$	21	$	Nil

Due to the change in functional and presentation currency on January 1, 2020, historical consolidated financial statements were recast in US dollars by translating assets and liabilities at the closing rate in effect at the end of the respective period.

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RESULTS OF OPERATIONS

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For the year ended December 31, 2020, net loss amounted to $31,757,000 ($0.54 per share), compared to $26,008,000 ($0.55 per share) for the previous year. The increase in net loss is primarily attributable to higher research and development expenses in relation to the development of BLU-5937, our product candidate for the treatment of chronic cough and chronic pruritus, and to higher general and administration expenses.

Research and development expenses, net of research tax credits, amounted to $23,222,000 for the year ended December 31, 2020, compared to $19,178,000 for the previous year, a $4,044,000 or 21% year on year increase to support the development of BLU-5937. The increase is primarily attributable to our increased workforce in 2020 as well as to higher stock-based compensation expense in relation to our stock option plan. We expect expenses in relation to our BLU-5937 program to continue to increase in subsequent quarters as we pursue its development, for which we initiated in December 2020 two clinical trials, SOOTHE, a Phase 2b trial in RCC, and BLUEPRINT, a Phase 2 trial in chronic pruritus associated with AD.

General and administrative expenses amounted to $9,735,000 for the year ended December 31, 2020, compared to $6,580,000 for the previous year, a $3,155,000 or 48% year on year increase. The increase is mainly due to costs related to our public listing on the NASDAQ, which occurred in September 2019, as well as to higher stock-based compensation expense in relation to our stock option plan, offset in part by a stock-based compensation net recovery related to our deferred share unit plan, due to the change in the BELLUS Health stock price in 2020.

Net finance income amounted to $1,185,000 for the year ended December 31, 2020, compared to net finance costs of $277,000 for the corresponding period the previous year. The increase in net finance income is mainly attributable to a foreign exchange gain that arose from the translation of our net monetary assets denominated in Canadian dollars during the year. In 2019, prior to the change in functional currency, we incurred a foreign exchange loss from the translation of our net monetary assets denominated in US dollars during the year.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For the year ended December 31, 2019, net loss amounted to $26,008,000 ($0.55 per share), compared to $7,009,000 ($0.21 per share) for the previous year. The increase in net loss is primarily attributable to higher research and development expenses in relation to the development of BLU-5937, our product candidate for the treatment of chronic cough and chronic pruritus, and to higher general and administration expenses.

Research and development expenses, net of research tax credits, amounted to $19,178,000 for the year ended December 31, 2019, compared to $5,040,000 for the previous year, a $14,138,000 or 281% year on year increase. The increase is primarily attributable to higher expenses incurred in relation to the development of BLU-5937, mainly for the manufacturing of active pharmaceutical ingredient for upcoming studies and activities in relation to the Phase 2 trial in refractory chronic cough, for which the first participant was enrolled in July 2019.

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General and administrative expenses amounted to $6,580,000 for the year ended December 31, 2019, compared to $2,630,000 for the previous year, a $3,950,000 or 150% year on year increase. The increase is mainly due to increased general and administrative costs related to our public listing on the NASDAQ, which occurred in September 2019, as well as to higher stock-based compensation expense in relation to our deferred share unit plan and our stock option plan.

Net finance costs amounted to $277,000 for the year ended December 31, 2019, compared to net finance income of $571,000 for the previous year. The increase in net finance costs is primarily attributable to a foreign exchange loss that arose from the translation of our net monetary assets denominated in US dollars, partially offset by higher interest income due to increased cash, cash equivalents and short-term investments position following the 2019 Offering.

Change in fair value of contingent consideration receivable for the year ended December 31, 2019 amounted to nil compared to an increase of $63,000 for the previous year. The contingent consideration receivable related to the sale of our equity interest in FB Health S.p.A. in June 2017.

As at December 31, 2019, total assets amounted to $96,372,000, compared to $39,084,000 as at December 31, 2018. The increase is primarily due to the funds received from the 2019 Offering, offset by funds used to finance our operating activities. Total non-current financial liabilities amounted to $21,000 as at December 31, 2019, compared to nil as at December 31, 2018.

Quarter Ended December 31, 2020 Compared to Quarter Ended December 31, 2019

For the three-month period ended December 31, 2020, net loss amounted to $7,494,000 ($0.10 per share), compared to $9,973,000 ($0.18 per share) for the corresponding period the previous year. The decrease in net loss is primarily attributable to lower research and development expenses compared to last year.

Research and development expenses, net of research tax credits, amounted to $5,017,000 for the three-month period ended December 31, 2020, compared to $7,048,000 for the corresponding period the previous year. The decrease is attributable to expenses incurred in relation to the development of BLU-5937, mainly for the manufacturing of active pharmaceutical ingredient, which efforts were more important in the fourth quarter of 2019 in preparation for studies and clinical trials to begin in 2020.

General and administrative expenses amounted to $3,078,000 for the year ended December 31, 2020, compared to $2,087,000 for the previous year. The increase is mainly due to higher stock-based compensation expense in relation to our stock option plan.

Net finance income amounted to $597,000 for the three-month period ended December 31, 2020, compared to net finance cost of $845,000 for the corresponding period the previous year. The increase in net finance income is mainly attributable to a foreign exchange gain that arose from the translation of our net monetary assets denominated in Canadian dollars during the year. In 2019, prior to the change in functional currency, we incurred a foreign exchange loss from the translation of our net monetary assets denominated in US dollars during the year.

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Quarterly Results (Unaudited)  

(in thousands of dollars, except per share data)

	2020			2020			2020			2020			2019			2019			2019			2019
		Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Revenues	$	4		$	3		$	4		$	4		$	7		$	7		$	6		$	7
Expenses:
Research and development, net		5,017			5,796			5,899			6,510			7,048			5,600			4,100			2,430
General and administrative		3,078			456			3,439			2,762			2,087			1,666			1,771			1,056
Total operating expenses		8,095			6,252			9,338			9,272			9,135			7,266			5,871			3,486
Operating loss		(8,091	)		(6,249	)		(9,334	)		(9,268	)		(9,128	)		(7,259	)		(5,865	)		(3,479	)
Net finance income (costs)		597			540			912			(864	)		(845	)		739			(44	)		(127	)
Net loss	$	(7,494	)	$	(5,709	)	$	(8,422	)	$	(10,132	)	$	(9,973	)	$	(6,520	)	$	(5,909	)	$	(3,606	)
Loss per share	$	(0.10	)	$	(0.09	)	$	(0.14	)	$	(0.18	)	$	(0.18	)	$	(0.14	)	$	(0.13	)	$	(0.08	)

Due to the change in functional and presentation currency on January 1, 2020, historical consolidated quarterly results for 2019 in the above table were recast in US dollars by translating revenue and expenses at the average rate in effect for the respective period.

The variation of the net loss of a quarter compared to the corresponding quarter of the previous year are explained by the following elements.

The decrease in net loss for the fourth quarter of 2020 is primarily attributable to lower research and development expenses. The decrease in net loss for the third quarter of 2020 is primarily attributable to a stock-based compensation net recovery related to our deferred share unit plan, due to the change in the BELLUS Health stock price in 2020. The increase in net loss for the second quarter of 2020 is primarily attributable to higher research and development expenses in relation to the BLU-5937 program and higher general and administration expenses. The increase in net loss for the first quarter of 2020 is primarily attributable to higher research and development expenses, higher general and administration expenses as well as higher foreign exchange

Related Party Transactions

Dr. Francesco Bellini is the Chairman of our Board of Directors and provides ongoing advisory services under the terms of a consulting and services agreement between us and Picchio International Inc. (“Picchio International”), wholly-owned by Dr. Francesco Bellini and his spouse. Picchio International receives a monthly fee of $16,358 (CAD$20,833), plus the reimbursement of applicable expenses for services rendered under the agreement. The agreement has a one-year term renewable for successive one-year terms. We have recorded fees and expenses of $284,000 and $287,000 (CAD$381,000) under the consulting and services agreement for the years ended December 31, 2020 and 2019, respectively.

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FINANCIAL CONDITION

Liquidity and Capital Resources

As at December 31, 2020, we had available cash, cash equivalents and short-term investments totaling $98,260,000, compared to $89,980,000 as at December 31, 2019. For the year ended December 31, 2020, the net increase in cash, cash equivalents and short-term investments amounted to $8,280,000, compared to a net increase of $54,118,000 for the corresponding period the previous year. Working capital amounted to $96,663,000 as at December 31, 2020, compared to $86,633,000 as at December 31, 2019. The net increase in cash and working capital for the year ended December 31, 2020 is primarily attributable to funds received from the 2020 Offering, offset by funds used to finance our operating activities, mainly the research and development of our product candidate BLU-5937. The net increase in cash and working capital for the year ended December 31, 2019 is primarily attributable to funds received from the 2019 Offering, offset by funds used to finance our operating activities, mainly the research and development of our product candidate BLU-5937.

The other significant change in our financial position as at December 31, 2020, compared to the financial position as at December 31, 2019, is as follows:

• The increase in the In-process research and development asset reflects the acquisition of the BLU-5937 Assets from adMare in March 2020, as discussed in the Business section.

Based on management’s estimate and current level of operations, we believe that our current cash, cash equivalents and short-term investments are projected to be sufficient to fund our operating plan until the end of 2022. We will need to raise additional capital to fund our operations and to develop BLU-5937.

We do not have any long-term debt and we do not have any pre-arranged credit facilities or other sources of financing cash flows. In December 2020, we put in place an at-the-market distributions facility, as discussed in the Financing and Investing Activities section below.

We are subject to a number of risks, including risks associated with the conduct of our product candidate’s development programs and their results, the establishment of strategic alliances and the successful development of new product candidates and their marketing. We have incurred significant operating losses and negative cash flows from operations since inception. To date, we have financed our operations primarily through public offerings of common shares, private placements, the issuance of convertible notes, assets sales and the proceeds from research tax credits. Our ability to ultimately achieve future profitable operations is dependent upon the successful expansion and development of our project pipeline, obtaining regulatory approval in various jurisdictions and successful sale or commercialization of our products and technologies, which is dependent on a number of factors outside of our control. Refer to the Risk Factors section below.

Also refer to Financial Condition – Contractual Obligations and Financial Risk Management – Liquidity Risk sections for further details on our liquidity and capital resources.

Financing and Investing Activities

In October 2020, we raised total gross proceeds of $40.3 million from the 2020 Offering by issuing a total of 17,888,889 common shares at a price of $2.25 per share including the exercise in full of the underwriters’ option to purchase 2,333,333 common shares. We intend to use the net proceeds of the 2020 Offering primarily to fund research and development activities, general and administrative expenses, working capital needs and other general corporate purposes.

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The use of proceeds presented in our prospectus supplement dated October 19, 2020 did not include funds from the exercise of the overallotment option. Taking into consideration these additional funds, we intend to use the net proceeds of the 2020 Offering, together with our cash, cash equivalents and short-term investments on hand at the time of closing for the purposes and in the amounts indicated below.

	As per October 19, 2020 prospectus supplement		As at February 25, 2021, including overallotment option
BLU-5937 clinical trials in chronic cough and chronic pruritus	$	59 million	$	62 million
Manufacturing, formulation and scale-up	$	16 million	$	17 million
Other project costs	$	5 million	$	6 million

with the remaining net proceeds allocated to administrative expenses, working capital and other general corporate purposes.

As at December 31, 2020, we have used $5.8 million of 2020 Offering net proceeds.

On December 23, 2020, we entered into an “at-the-market” ("ATM") sales agreement (the “Sales Agreement”) with Jefferies LLC ("Jefferies") pursuant to which we may from time to time sell through at-the-market distributions with Jefferies acting as sales agent (the “Agent”), our common shares for aggregate gross proceeds of up to $50,0 million, including sales made directly on the Nasdaq or on any other existing trading market for the common shares in the United States. No common shares will be offered or sold in Canada. The Common Shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 2-year term and requires us to pay to the Agent a commission of up to 3.0% of the gross proceeds of any common shares sold. Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts to sell the common shares from time to time, based upon our instructions. We have no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. We and the Agent may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, we have provided the Agent with customary indemnification rights and the Agent will be entitled to compensation, as previously mentioned. During the year ended December 31, 2020, no common shares were sold under the ATM program.

During 2020, we purchased short-term investments with initial maturities greater than three months and less than a year for an aggregate amount of $51,090,000, and redeemed at maturity or sold short-term investments for an aggregate amount of $72,771,000 (purchased for $70,740,000 and redeemed at maturity or sold for $25,300,000 in 2019).

In September 2019, we raised total gross proceeds of $79.4 million from the 2019 Offering by issuing a total of 11,179,451 common shares at a price of $7.10 per share, including an overallotment option for 1,320,296 common shares. Net proceeds from the 2019 Offering amounted to $72.7 million.

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Other

As at February 25, 2021, we had 78,337,361 common shares outstanding and 86,033,527 common shares on a fully diluted basis, including 7,696,166 stock options granted under the stock option plan (of which 1,408,000 stock options were granted on February 25, 2021).

During 2020, we granted 1,805,000 stock options (1,548,330 in 2019), 128,222 stock options were exercised (41,667 in 2019) and 115,555 stock options were cancelled (nil in 2019). We received an aggregate amount $176,000 and issued 128,222 common shares from treasury in 2020 upon the exercise of stock options (received an aggregate amount of $56,000 and issued 41,667 common shares from treasury in 2019).

During 2020, we received an aggregate amount of $421,000 and issued 171,590 common shares from treasury upon the exercise of broker warrants issued in connection with our 2018 equity offering. During 2019, we received an aggregate amount of $911,000 and issued 535,406 common shares from treasury upon the exercise of broker warrants issued in connection with our 2017 and 2018 equity offering.

Contractual Obligations

As at December 31, 2020, our minimum future contractual obligations are principally for payments in relation to property leases, consulting fees for Picchio International, trade and other payables and contracts for research and development activities. Future contractual obligations by year of maturity are presented below.

Contractual obligations							2023
(in thousands of dollars)	Total		2021		2022		and after
Lease liabilities	$	552	$	184	$	206	$	162
Consulting fees		196		196		—		—
Trade and other accrued liabilities		5,495		5,495		—		—
Contracts for research and development activities		36,659		34,621		1,486		552

We are potentially liable in relation to the following indemnity agreement:

In March 2017, we entered into a Share Purchase Agreement with Taro Pharmaceuticals Inc. (“Taro”) for the sale of our wholly-owned subsidiary Thallion Pharmaceuticals Inc. (“Thallion”), including all the rights to the drug candidate Shigamab^TM. We agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the Share Purchase Agreement. No indemnity provision has been recorded as at December 31, 2020 and 2019 for this matter as we do not expect to make any payments under the indemnity provisions of this agreement.

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We have a letter of credit issued in connection with a lease agreement in the amount of $39,000 (CAD$50,000). Cash is pledged under the letter of credit and is presented as restricted cash under non-current Other assets in the consolidated statement of financial position as at December 31, 2020.

We have entered into other agreements which involve future commitments. Refer to note 13 to the consolidated financial statements for the year ended December 31, 2020 for details.

We have not engaged in commodity contract trading or off-balance sheet financing.

FINANCIAL RISK MANAGEMENT

This section provides disclosures relating to the nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, and how we manage those risks.

Credit Risk

Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. We invest our cash mainly with major North American financial institutions. Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than A-1) as rated by Standard and Poor’s. We have investment policies that are designed to provide for the safety and preservation of principal, liquidity needs and yields that are appropriate.

As at December 31, 2020, our maximum credit exposure corresponded to the carrying amount of these financial assets.

Liquidity Risk

Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We require continued access to capital markets to support our operations, as well as to achieve our strategic plans. Any impediments to our ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of our financial condition or prospects, could have a materially adverse effect on us. In addition, our access to financing is influenced by the economic and credit market environment.

We manage liquidity risk through the management of our capital structure, as outlined in note 16 to the consolidated financial statements for the year ended December 31, 2020 (Capital Disclosures). In addition, we manage liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews, approves and monitors our annual operating and capital budgets, as well as any material transactions.

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Foreign Currency Risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than US dollars. Our exposure relates primarily to changes in the US dollar versus the Canadian dollar exchange rate. For foreign currency transactions, fluctuations in the respective exchange rates relative to the US dollar will create volatility in our cash flows and the reported amounts for revenue and expenses in income. Additional variability arises from the translation of monetary assets and liabilities denominated in currencies other than the US dollar at the rates of exchange at each reporting date, the impact of which is reported as a foreign exchange gain or loss in income.

Our objective in managing our foreign currency risk is to minimize our net exposures to foreign currency cash flows, by transacting with third parties in our functional currency to the maximum extent possible and practical and holding cash, cash equivalents and short-term investments as well as incurring borrowings in our functional currency. We hold a portion of our cash, cash equivalents and short-term investments in Canadian dollars to meet our liquidity needs in Canadian dollars, but do not use derivative financial instruments to reduce our foreign exchange exposure. Note 17 (d) to the consolidated financial statements for the year ended December 31, 2020 provides indication of our significant foreign exchange currency exposures as at that date.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates. Our financial instruments exposed to interest rate risk are cash and cash equivalents, short-term investments and restricted cash. We believe that the risk that we will realize a loss as a result of the decline in the fair value of our cash equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to maturity. Our capacity to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

We have had no interest rate hedging activities during the current year.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed with securities regulatory authorities is recorded, processed, summarized and reported within prescribed time periods and is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified by applicable securities legislation. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The Chief Executive Officer and the Chief Financial Officer are assisted in this responsibility by our disclosure committee, which is composed of members of senior management. Based on an evaluation of our disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s Annual Report on Internal Control Over Financial Reporting

Internal control over financial reporting (“ICFR”) is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate ICFR. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Management assessed the effectiveness of our ICFR as of December 31, 2020 based on the framework established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the Chief Executive Officer and the Chief Financial Officer concluded that our ICFR were effective as of December 31, 2020. The assessment is not subject to an attestation report of our auditors regarding ICFR.

Changes in Internal Controls Over Financial Reporting

In accordance with the Canadian Securities Administrators’ Multilateral Instrument 52-109, we have filed certificates signed by the Chief Executive Officer and the Chief Financial Officer, that, among other things, report on the design of disclosure controls and procedures and the design of internal control over financial reporting.

There have been no changes in our ICFR during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect our ICFR.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires management to adopt accounting policies and to make certain judgments, estimates and assumptions that we believe are reasonable based upon the information available at the time these decisions are made. These accounting policies, judgments, estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues, expenses and cash flows during the reporting periods. By their nature, these judgments are subject to an inherent degree of uncertainty and are based upon historical experience, trends in the industry and information available from outside sources. On an ongoing basis, management reviews its estimates and actual results could differ from estimates.

Our significant accounting policies are described in note 3 to the consolidated financial statements for the year ended December 31, 2020. Management considers that the following accounting policies and estimates are more important in assessing, understanding, and evaluating our consolidated financial statements.

Accrued expenses: As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel and service providers to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. For research and development activities, the majority of service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. There may be instances in which payments to the service providers will exceed the level of services provided and result in a prepayment of the expense.

In-process research and development asset: The in-process research and development (“IPR&D”) asset is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. We account for subsequent research and development costs associated with the acquired IPR&D asset consistent with the research and development policy in note 3 (d) to the consolidated financial statements. We assess at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount. Note 2 (d) to the consolidated financial statements provides additional information regarding the use of estimates and judgements in the application of accounting policies.

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CHANGES IN ACCOUNTING POLICIES

Changes in significant accounting policies in 2020

Change in functional and presentation currency in 2020:

Effective January 1, 2020, we have adopted the US dollar as our functional and presentation currency. Prior to these consolidated financial statements, the functional and presentation currency was the Canadian dollar. The change in the functional currency from the Canadian dollar to the US dollar reflects the primary economic environment in which we operate in. As a result of the advancement of our development programs, we anticipate higher research and development costs in future periods which will be denominated mainly in US dollar. In addition, these costs will be financed from proceeds received from the financings in US dollar, including those that closed in September 2019 and October 2020. We also anticipate that potential future sales revenues and financings will be primarily denominated in US dollar.

As such, these consolidated financial statements are presented in US dollar. On January 1, 2020, the change in functional currency resulted in the assets and liabilities as of December 31, 2019 being translated in US dollar using the exchange rate in effect on that date, and equity transactions were translated at historical rates. The change in functional currency is applied prospectively.

The change in presentation currency was applied retrospectively and therefore, these consolidated financial statements are presented in US dollar, together with the comparative information as at December 31, 2019, and for the consolidated statement of financial position as at January 1, 2019. For comparative purposes, historical consolidated financial statements were recast in US dollar by translating assets and liabilities at the closing rate in effect at the end of the respective period, revenues, expenses and cash flows at the average rate in effect for the respective period and equity transactions at historical rates. Any exchange difference resulting from the translation was included in accumulated other comprehensive income presented in shareholders’ equity.

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RISK FACTORS

Investing in our common shares involves a significant amount of risk. You should carefully consider the risks described below. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially adversely affected. These are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also materially and adversely affect us. In such an event, the trading price of our common shares could decline and you may lose part or all of your investment in our securities. Any reference in this section to our “products” or “product candidates” includes a reference to BELLUS Health’s product candidate and future products or product candidates that may be developed.

Risks Related to Our Business

We may not be able to maintain our operations and research and development without additional funding, and we may not have access to sufficient capital.

To date, we have financed our operations primarily through public offerings of common shares, private placements, the issuance of convertible notes and research tax credits. We have incurred significant operating losses and negative cash flows from operations since inception. As at December 31, 2020 we had available cash, cash equivalents and short-term investments totaling $98.3 million. Based on management’s estimate and current level of operations, we believe that our current liquidity position is sufficient to finance our operations into the foreseeable future. We will need to raise additional capital to fund our operations and to develop BLU-5937. Our future capital requirements will be substantial and may increase beyond current expectations depending on many factors, such as the duration, scope, rate of progress, results and costs of any preclinical studies and clinical trials for our current or any future product candidates; unexpected delays or developments in seeking regulatory approvals and the outcome thereof; the time and cost in preparing, filing, prosecuting, maintaining, and enforcing patent claims; other unexpected developments encountered in implementing our business development and commercialization strategies; the outcome of any litigation; and arrangements with collaborators. Further, changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We have based the foregoing estimates on assumptions that may prove to be wrong, and we could utilize our available financial resources sooner than we currently expect.

We may seek to raise additional funds through public or private equity or debt financing, collaborations agreements with other companies and/or from other sources. We have no committed source of additional capital and additional funding may not be available on terms that are acceptable to us, or at all. If adequate funding is not available on reasonable terms, we may need to obtain funds on terms less favorable than we would otherwise accept. Our ATM is not an assured source of raising capital as it is subject to terms and conditions and market demand. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to our shareholders. Moreover, the incurrence of debt financing could result in a substantial portion of our future operating cash flow, if any, being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on operations. This could render us more vulnerable to competitive pressures and economic downturns. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of BLU-5937 or other future product candidates or other research and development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. If we are unable to obtain sufficient funds in a timely manner, we may be forced to scale back our operating plan; delay or discontinue one of our research and development programs; be unable to expand our organization to support our programs; and/or be unable to capitalize on business opportunities as planned. This may negatively impact our business and ability to execute our plan.

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No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to us. The failure to obtain additional financing on favorable terms, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.

We have a history of losses and have not generated any product sales revenue to date. We may never achieve or maintain profitability.

Our product candidate, BLU-5937, is still only in development, and as a result, we have not generated any revenues from product sales to date. We have incurred substantial expenses in our efforts to develop BLU-5937, and consequently, have generated operating losses each year since our inception. For the years ended December 31, 2020 and 2019, we incurred net losses of $31.8 million and $26.0, respectively. As of December 31, 2020, we had an accumulated deficit of US$468.8 million. Our losses have adversely affected, and will continue to adversely impact, working capital, total assets, and shareholders’ equity. We do not expect to generate any revenues from product sales in the immediate future. We may never successfully commercialize any products. Even if we succeed in developing commercial products, we expect to incur additional operating losses for at least the next several years. If we do not ultimately commercialize products and achieve or maintain profitability, an investment in our shares could result in a significant or total loss. Our prospects currently depend heavily on the success and market acceptance of BLU-5937, which is still in clinical development. We currently have no products for sale and may never be able to successfully develop products for sale. We currently believe that our growth and future prospects are mainly dependent on the successful development, regulatory approval and commercialization of our product candidate BLU-5937, which may never occur. We are focusing our efforts and resources into the development of BLU-5937. Our business thus depends on the successful preclinical and clinical development, regulatory approval and commercialization of BLU-5937, for which we must conduct additional preclinical studies and clinical trials, undergo further development activities and seek and receive regulatory approval prior to commercial launch. Further development of BLU-5937 will require substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales, if approved.

We anticipate that our ability to generate revenues will depend on the commercial success of BLU-5937, which will depend upon its market acceptance by purchasers in the pharmaceutical market and the future market demand and medical need for products and research utilizing BLU-5937. Most prescription drug candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. If we are unable to successfully commercialize BLU-5937, we may never generate revenues. There is also the risk that the actual market size or opportunity for BLU-5937 is not certain, particularly with respect to the addressable market for the selected population of high frequency cough patients. For instance, we are not aware of any data that segregates the RCC patient population by cough frequency. Accordingly, while we estimate that there are approximately nine million chronic cough patients in the U.S. who are uncontrolled or have RCC, we are unable to estimate what percentage of this population has a baseline awake cough frequency of ≥25 coughs per hour, an inclusion criterion in our Phase 2b SOOTHE clinical trial. If BLU-5937 reaches commercialization and there is low market demand for BLU-5937 or the market for BLU-5937 develops less rapidly than we anticipate, we may not have the ability to shift our resources to the development of alternative products. Failure to gain market acceptance of BLU-5937 or an incorrect estimate in the nature and size of our market could have a material adverse effect on us.

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We rely on third parties to conduct preclinical studies and clinical trials for BLU-5937, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for BLU-5937.

We have designed the clinical trials for BLU-5937. However, we rely on contract research organizations and other third parties to assist in managing, monitoring and otherwise carrying out these trials. We likewise rely on third parties to conduct preclinical studies. We compete with many other companies for the resources of these third parties. The third parties on whom we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of our product candidate. The U.S. Food and Drug Administration (the "FDA"), and comparable foreign regulatory authorities require compliance with regulations and standards for designing, conducting, monitoring, recording, analyzing, and reporting the results of preclinical studies and clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our preclinical studies and clinical trials, they are not our employees, and we are responsible for ensuring that each of these preclinical studies and clinical trials is conducted in accordance with our general investigational plan, protocol and other requirements. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to preclinical studies or clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with preclinical studies or clinical trial protocols or meet expected deadlines, the preclinical studies or clinical trials of BLU-5937 may not meet regulatory requirements. If preclinical studies or clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of BLU-5937 on a timely basis or at all.

We rely completely on one third-party contract manufacturer to manufacture the active pharmaceutical ingredient (“API”), for BLU-5937 and another third-party contract manufacturer to manufacture the final drug product, and we intend to rely on third parties to produce non-clinical, clinical and commercial supplies of BLU-5937 and any other future product candidates.

We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinical drug supply of BLU-5937, or any other product candidates we may develop in the future, for use in the conduct of our research and development activities, preclinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical or commercial scale. We currently have the API for BLU-5937 manufactured by one third-party contract manufacturer and final drug product supplied by another contract manufacturer, and do not currently have backup manufacturing capacity.

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We plan to continue to rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, preclinical studies, clinical trials and product commercialization, and to perform their obligations in a timely manner and in accordance with applicable government regulations. While we intend to contract for the commercial manufacture of our product candidates, we may not be able to identify and qualify contractors or obtain favorable contracting terms.

If any of the third parties with whom we engage, including the China-based third-party contract manufacturer that supplies the API for BLU-5937, contract research organizations or other third parties experience shutdowns or other business disruptions, including staffing shortages, production slowdowns or stoppages, or other similar disruptions related to the COVID-19 pandemic or otherwise, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.

If our current or future third-party manufacturers do not perform as agreed, experience business disruptions as previously described, or breach or terminate their agreements with us, significant additional time and costs would be required to effect a transition to a new contract manufacturer. If we are unable to retain our current contractors, or are unable to secure arrangements with new contractors to provide manufacturing services in a timely manner and on acceptable terms as needed, it will delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or any other future product candidates we may develop, and have a negative effect on our operations and financial condition. Moreover, if a replacement to our current or future contract manufacturers is required, the ability to establish second-sourcing or find a replacement manufacturer may be difficult due to the lead times generally required to manufacture drug products and the need for regulatory compliance inspections and approvals of any replacement manufacturer, all of which factors could result in production delays and additional costs.

Manufacturing of API and final drug products is complex and requires significant expertise. Difficulties could be encountered in production, particularly in scaling up and validating production. There can be no assurance that contract manufacturers will be successful at scaling up and producing BLU-5937 with the required quality and in the quantities and timelines that will be needed for clinical and/or commercial purposes. So far, we have only produced small quantities of BLU-5937 at kilogram scale for use in preclinical studies and clinical trials.

Our reliance on these contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

We rely on third-party contract manufacturers that are located outside of Canada. As a result, our operations are subject to customary risks related to the import of goods, including fluctuations in the value of currencies, changes in import duties, exchange controls, trade restrictions, work stoppages and general political and economic conditions in foreign countries. The countries from which we import pharmaceutical ingredients may, from time to time, impose new duties, tariffs or other restrictions or adjust presently prevailing duties or tariffs, which could adversely impact our ability to purchase such pharmaceutical ingredients or significantly increase the cost of doing so. The occurrence of any of these risks could delay or prevent the development, promotion, marketing, or sale of BLU-5937, if approved, or of any other future product candidates we may develop, and have a negative effect on our operations and financial condition.

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The clinical safety and effectiveness of BLU-5937 have not yet been fully established.

The preclinical toxicology studies and the Phase 1 clinical trials completed to date showed that BLU-5937 has a favorable tolerability profile, and we believe that the Phase 2 clinical data announced in July 2020 support further evaluation of BLU-5937 in additional clinical trials, including our SOOTHE Phase 2b clinical trial. However, the long-term clinical safety and effectiveness of BLU-5937 have to be demonstrated through further preclinical studies and clinical trials. The additional preclinical studies that are ongoing or planned include: chronic toxicity studies in rats and dogs, carcinogenicity and toxicity on reproduction organs. The additional clinical Phase 1 trials planned include: a drug-drug interaction clinical trial in combination with an inhibitor of CYP3A4; an absorption, metabolism and excretion clinical trial; a clinical trial to assess the potential effect of BLU-5937 on cardiac repolarization as measured by QT/QTc interval; and a pharmacokinetic study in Asian population. The results of these preclinical/clinical studies may have an impact on the product labeling and/or approval of BLU-5937. If these preclinical/clinical studies or additional future studies call into question the safety or efficacy of BLU-5937 or any other product candidates we may develop in the future, our business, financial condition, results of operations or prospects could be adversely affected. Even if BLU-5937 or any other product candidates we may develop in the future successfully complete the clinical trials and receive the regulatory approval necessary to market the product candidates to the public, there is also the risk of unknown side effects, which may not appear until the product candidates are on the market and may result in delay or denial of additional regulatory approval or withdrawal of previous approvals, product recalls or other adverse events, which could materially adversely affect us.

Our clinical trials may not yield results that will enable us to obtain regulatory approval for our current or future product candidates.

We will only receive regulatory approval for a product candidate if we can demonstrate in carefully designed and conducted clinical trials that the product candidate is safe and effective. We do not know whether our current or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or if they will result in marketable products.

Clinical trials are lengthy, complex, costly, and uncertain processes. It takes several years to complete testing, and failure can occur at any stage of testing. The early stage of our product candidate involves risks related to safety, efficacy, drug metabolism, pharmacokinetic profile, tolerability, manufacturing, formulation and distribution, among others. Results attained in preclinical testing and early clinical studies or trials may not be indicative of results that are obtained in later studies. We have suffered, and may suffer further, significant setbacks in advanced clinical trials, even after promising results in earlier studies. For instance, in June 2016, we announced that KIACTA (eprodisate) did not meet the primary efficacy endpoint in a Phase 3 clinical trial. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue the development of a product candidate. Furthermore, actual results may vary once the final and quality-controlled verification of data and analyses has been completed. The FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, and we may receive feedback from regulatory authorities that requires us to modify the design of our ongoing or planned clinical trials or conduct additional clinical trials. If we fail to adequately demonstrate the safety and efficacy of BLU-5937, we will not be able to obtain the required regulatory approvals to commercialize that product candidate.

Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards or ethics committees, and must meet the requirements of these authorities; must meet requirements for informed consent; and must meet requirements for good clinical practices. We may not be able to comply with these requirements.

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We rely on third parties, including contract research organizations and outside consultants, to assist in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failing to complete, these trials if one or more third parties fail to perform with the speed and level of competence expected. If clinical trials for a product candidate are unsuccessful, we will be unable to commercialize such product candidate. If one or more of the clinical trials is delayed, we will be unable to meet our anticipated development or commercialization timelines. Either circumstance could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we encounter difficulties enrolling participants in clinical trials, the trials could be delayed or otherwise adversely affected.

Clinical trials for product candidates require us or third parties we contract with to identify and enroll a large number of participants with the disorder under investigation. We or the third parties we contract with may not be able to enroll a sufficient number of participants to complete clinical trials in a timely manner. Participant enrollment is a function of many factors, including the following: design of the protocol, size of the patient population, eligibility criteria for the trial in question, perceived risks and benefits of the drug under study, availability of competing therapies, clinical trials for other investigational products that seek to enroll the same participants, efforts to facilitate timely enrollment in clinical trials, patient referral practices of physicians, and availability of clinical trial sites. If we or the third parties we contract with have difficulty enrolling a sufficient number of participants to conduct our clinical trials as planned, we may need to delay or terminate ongoing clinical trials.

The outcome of preclinical studies and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials.

The outcome of preclinical testing and earlier-stage clinical trials may not be predictive of the success of later-stage clinical trials. BLU-5937 and any other product candidates we may develop may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. Numerous companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials, and we cannot be certain that we will not face similar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Furthermore, the failure of any product candidate to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of any other product candidates then under development and/or cause applicable regulatory authorities to require additional testing before approving any other product candidates.

Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more participant data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

From time to time, we may publish interim topline or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as participant enrollment continues and more participant data become available. Preliminary or topline results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common shares to fluctuate significantly.

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Even if we or any future partners obtain regulatory approvals for our product candidates, we will be subject to ongoing government regulation.

Even if regulatory authorities approve BLU-5937 or any future product candidate we may develop, the manufacturing, marketing, and sale of such products will be subject to strict and ongoing regulation. Compliance with such regulation may be costly and consume substantial financial and management resources. For example, an approval for a product may be conditioned on conducting costly post-marketing follow-up studies. In addition, if, based on these studies, a regulatory authority does not believe that the drug demonstrates a benefit to patients, such authority could limit the indications for which the product may be sold or revoke the product’s regulatory approval. Similarly, even if we successfully complete clinical trials, regulatory authorities might approve a more restrictive label than we expect, which may limit the commercial opportunity of our product candidates. For instance, our Phase 2b SOOTHE clinical trial will have an inclusion criterion of a baseline awake cough frequency of ≥25 coughs per hour, and, even if this clinical trial and future clinical trials are successful, as a result of this enrichment strategy, regulatory authorities may limit the breadth of our label.

We and our contract manufacturers are required to comply with applicable current Good Manufacturing Practice regulations for the manufacture of product candidates. These regulations include requirements relating to quality assurance, as well as the corresponding maintenance of records and documentation. Manufacturing facilities must be inspected before they can be used in the commercial manufacturing of products and are subject to subsequent periodic inspection by regulatory authorities. In addition, material changes in the methods of manufacturing or changes in the suppliers of raw materials are subject to further regulatory review and approval.

If we or any future marketing collaborators or contract manufacturers fail to comply with applicable regulatory requirements, we may be subject to sanctions, including fines, drug recalls or seizures, injunctions, total or partial suspension of production, civil penalties, withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties could delay or prevent the promotion, marketing, or sale of our products.

In addition, we are currently or will in the future be subject to healthcare regulation and enforcement by the federal government and the states in which we will conduct our business once our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s restrictions on marketing of pharmaceutical products, the healthcare laws and regulations that may affect our ability to operate include: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and federal transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways, thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.

Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States, could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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We may not achieve our projected development goals in the announced and expected time frames.

From time to time, we set goals for and make public statements regarding the expectations for and timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials, expected results, anticipated regulatory submission and approval dates, and timing of product launch. The actual timing of these events can vary dramatically due to factors such as delays or failures in clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving manufacturing or marketing arrangements sufficient to commercialize products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned, or that we will be able to adhere to our current schedule for the launch of BLU-5937 or any other future product candidates we may develop. If we fail to achieve one or more of these milestones as planned, the price of our common shares would likely be adversely affected.

If we or our partners fail to obtain acceptable prices, coverage or adequate reimbursement for our products, our ability to generate revenues will be diminished.

Patients in the United States and elsewhere generally rely on third-party payors to reimburse part or all of the costs associated with their prescription drugs. Accordingly, our ability to successfully commercialize our products would depend significantly on the ability to obtain acceptable prices and the availability of coverage and adequate reimbursement from third-party payors, such as government and private insurance plans. Coverage and reimbursement policies for drug products can differ significantly among payors as there is no uniform policy of coverage and reimbursement for drug products among U.S. third-party payors. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time-consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. While we have not commenced discussions with any such parties, these third-party payors frequently require companies to provide predetermined discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us to sell our products on a competitive basis. Even if we obtain coverage for a given product candidate, the associated reimbursement rate may not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments that patients find unacceptably high. In addition, the continuing efforts of third-party payors to contain or reduce the costs of healthcare through various means may limit our commercial opportunity and reduce any associated revenue and profits. We expect proposals to implement similar government controls to continue.

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In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products. Cost-control initiatives could decrease the price that we or any current or potential collaborators could receive for any of the products and could adversely affect profitability. In addition, in Canada and in many other countries, where significant healthcare reforms are currently under discussion, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject to government control. In the United States, there have been and continue to be a number of healthcare-related legislative initiatives that have significantly affected the pharmaceutical industry. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, (collectively, the “Affordable Care Act”), was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the pharmaceutical industry. Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. Various portions of the Affordable Care Act are currently undergoing legal and constitutional challenges in the U.S. Supreme Court and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the Affordable Care Act. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business. There also has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. If we fail to obtain acceptable prices, coverages or an adequate level of reimbursement for our products, the sales of the products would be adversely affected or there may be no commercially viable market for our products.

Competition in the biopharmaceutical industry is intense, and development by other companies could render our product candidate or any future product candidates or technologies non-competitive.

The biopharmaceutical industry is intensely competitive and is subject to rapid and significant change. We face potential competition from many sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies. We consider our primary competitors to be those companies that are developing products specifically to treat refractory chronic cough and pruritus related atopic dermatitis and those companies that develop products that, when approved, could be used off label to treat refractory chronic cough and pruritus related to atopic dermatitis. We are aware of other companies targeting refractory chronic cough as the primary outcome measure in clinical studies of products. There are multiple companies developing products at varying stages of development specifically intended to treat refractory chronic cough including Merck & Co., Bayer AG, Shionogi Inc. and NeRRe Therapeutics Ltd, some of which have substantially greater product development capabilities and financial, scientific, marketing, and human resources than us. Of these companies, Merck, Bayer and Shionogi are developing P2X3 antagonists for refractory chronic cough that could compete directly with BLU-5937. Certain of these companies have announced top-line data in mid- to late-stage clinical trials of their product candidates, and such product candidates may be more advanced in development than BLU-5937 or have shown or show in the future comparable or superior efficacy, safety and/or tolerability data as compared to BLU-5937. Even if BLU-5937 successfully completes clinical trials and is approved by regulatory authorities, it may not be able to achieve a degree of market acceptance necessary for commercial success if other treatments demonstrate superior efficacy, safety, tolerability, ease of administration and/or cost-effectiveness. Moreover, there are multiple companies developing therapeutic treatments for atopic dermatitis specifically, or various other forms of pruritus which could also have a therapeutic effect on atopic dermatitis itch including Sanofi S.A., Bayer AG, Pfizer Inc., Novartis International AG, LEO Pharma Inc., VYNE Therapeutics Inc., Vanda Pharmaceuticals Inc., Trevi Therapeutics Inc., Galderma S.A., Sienna Biopharmaceuticals, Inc., Tioga Pharmaceuticals, Inc. and Cara Therapeutics Inc.

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We may not obtain adequate protection for our products through our intellectual property. Our success depends, in large part, on our ability to protect our competitive position through patents, trade secrets, trademarks, and other intellectual property rights.

Our success, competitive position and future revenues with respect to these product candidates will depend, in part, on our ability to protect our intellectual property. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by maintaining trade secrets and by filing U.S. and foreign patent applications related to our licensed technology, inventions and improvements that are important to the development of our business. Our failure to do so may adversely affect our business and competitive position.

The patent positions of pharmaceutical and biopharmaceutical firms, including ours, are uncertain and involve complex questions of law and fact for which important legal issues remain unresolved. The patents issued or to be issued to us may not provide us with any competitive advantage. We may not be able to protect our intellectual property rights throughout the world. Our patents may be challenged by third parties in patent litigation. In addition, it is possible that third parties with drugs that are very similar to ours will circumvent our patents by means of alternate designs or processes. We may have to rely on method of use protection for our compounds in development and any resulting drugs, which may not confer the same level of protection as protection of our compounds per se. We may be required to disclaim part of the term of certain patents. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that our patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology or drug would be found by a court to infringe our patents.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

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Patent applications relating to or affecting our business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents, or patent applications, and such conflict could reduce the scope of patent protection that we could otherwise obtain. We could become involved in interference proceedings in the United States in connection with one or more of our patents or patent applications to determine priority of invention. Our granted patents could also be challenged and revoked in opposition proceedings in certain countries outside of the United States. In addition to patents, we rely on trade secrets and proprietary know-how to protect our intellectual property. We generally require employees, consultants, outside scientific collaborators, and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all of the technology that is conceived by the individual during the course of employment is our exclusive property. These agreements may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of proprietary information. In addition, it is possible that third parties could independently develop proprietary information and techniques substantially similar to ours or otherwise gain access to our trade secrets.

We may obtain the right to use certain technology under license agreements with third parties. Our failure to comply with the requirements of material license agreements could result in the termination of such agreements, which could cause us to terminate the related development program and cause a complete loss of investment in that program. As a result of the foregoing factors, we may not be able to rely on our intellectual property to protect our products in the marketplace.

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If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

We seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

We may infringe the intellectual property rights of others.

Our commercial success depends significantly on our ability to operate without infringing on the patents and other intellectual property rights of third parties. There could be issued patents of which we are not aware that our products infringe or patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are, in some cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our drug infringes.

The biopharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. We believe that BLU-5937 does not infringe any valid claim of these patents, although there can be no assurances of this. In the event of an infringement or violation of another party’s patent, we may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of drugs or lead to prohibition of the manufacture or sale of drugs by us.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Third parties may assert patent or other intellectual property infringement claims against us or our other licensors arising from the manufacture, use, or sale of our current or future product candidates. An unfavorable outcome could result in loss of patent rights and require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

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We may become involved in lawsuits or other proceedings to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents or other intellectual property. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, (“USPTO”), or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. The validity of our current or future patents or patent applications or those of our licensors may also be challenged in interference or derivation proceedings, opposition, post grant review, inter partes review, or other similar enforcement and revocation proceedings, provoked by third parties or brought by us. Our patents could be found invalid, unenforceable, or their scope significantly reduced.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.

Patent litigation is costly and time consuming and may subject us to liabilities.

Our involvement in any patent litigation, interference, post-grant proceedings such as inter partes review or opposition, or other administrative proceedings will likely cause us to incur substantial expenses, and the efforts of technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject us to significant liabilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common shares. We may be subject to claims challenging the inventorship of our patents and other intellectual property.

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We may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor.

For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

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The market price of our common shares experiences a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally and the short-term effect of a number of possible events.

We are a public growth company in the biotechnology sector. As frequently occurs among these companies, the market price for our common shares may experience a high level of volatility. During the 12-month period ended on the date of this MD&A, our common shares traded between CAD$2.70 and CAD$16.68 per share on the TSX and between US$2.01 and US$12.03 per share on Nasdaq.

Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares, including, among other things, the following: (1) clinical and regulatory developments regarding our product candidate and those of our competitors; (2) arrangements or strategic partnerships by our competitors; (3) other announcements by us or our competitors regarding technological, drug development, sales, or other matters; (4) patent or other intellectual property achievements or adverse developments; (5) arrivals or departures of key personnel; (6) changes in financial estimates and recommendations by securities analysts; (7) government regulatory action affecting our product candidate and our competitors’ products in the United States, Canada, and foreign countries; (8) actual or anticipated fluctuations in revenues or expenses; (9) general market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors; (10) failure to enter into favorable third-party manufacturing agreements; (11) events related to threatened, new, or existing litigation; (12) economic conditions in the United States, Canada, or abroad; (13) purchases or sales of blocks of our securities; (14) difficulties in our ability to obtain additional financing; and (15) the spread of infectious disease, including the ongoing COVID-19 pandemic.

The listing of our common shares on Nasdaq may increase share price volatility due to various factors, including that the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our common shares, regardless of our operating performance. In addition, sales of substantial amounts of our common shares in the public market after any offering, or the perception that those sales may occur, could cause the market price of our common shares to be adversely affected.

As at the date hereof, our Major Shareholders (as defined below) together own, directly or indirectly, an aggregate of approximately 12.1% of our outstanding common shares. A decision by one or more of our Major Shareholders or any other significant shareholder to sell a substantial amount of our common shares could cause the trading price of our common shares to be adversely affected. Furthermore, shareholders may initiate securities class action lawsuits if the market price of our common shares drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

These factors, among others, could depress the trading price of our securities. Because we may experience high volatility in our common shares, individuals or entities should not invest in our common shares unless prepared to absorb a significant loss of capital. At any given time, investors may not be able to sell their shares at a price that is acceptable or at all. The market liquidity for our stock is low. While a more active trading market may develop in the future, the limited market liquidity for our common shares may affect an investor’s ability to sell at a price that is satisfactory to them or at all.

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We do not expect to pay any cash dividends for the foreseeable future.

Investors should not rely on an investment in our common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common shares.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover our company downgrade our common shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause our share price and trading volume to decline.

We would not be able to successfully commercialize product candidates if we are unable to create sales, marketing, and distribution capabilities or make adequate arrangements with third parties, including entering into collaborations with partners, for such purposes.

In order to commercialize our product candidates successfully, we could, on a product-by-product basis, either develop internal sales, marketing, and distribution capabilities or make arrangements with third parties, including entering into collaborations with partners, to perform some or all of these services. We currently have no marketing capabilities and sales force. To the extent that we internally develop a sales force, the cost of establishing and maintaining a sales force would be substantial and may exceed our cost effectiveness. In addition, in marketing our drugs, we would likely compete with many companies that currently have extensive and well-funded marketing and sales operations. Despite marketing and sales efforts, we may be unable to compete successfully against these companies. We may not be able to do so on favorable terms. We could rely on third parties to market and sell our products in certain territories, rather than establishing an internal sales force. When we contract with third parties, including entering into collaborations with partners, for the sale and marketing of our products, revenues depend upon the efforts of these third parties, which may not be successful. If we fail to establish successful marketing and sales capabilities or to make arrangements with third parties for such purposes, our business, financial condition, results of operations and prospects will be materially adversely affected. To date, we have never marketed or sold pharmaceutical products.

We are subject to intense competition for skilled personnel. The loss of key personnel or the inability to attract additional personnel could impair our ability to conduct operations.

We are highly dependent on our management and staff; the loss of whose services might adversely impact our ability to achieve our objectives. Recruiting and retaining qualified management and other personnel is critical to our success. Competition for skilled personnel is intense, and the ability to attract and retain qualified personnel may be affected by such competition. We do not maintain “key person” insurance for any of our key personnel.

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We are subject to the risk of product liability claims, for which we may not have, or may not be able to obtain, adequate insurance coverage. We may also be subject to legal and administrative proceedings and litigations other than product liability lawsuits which could materially harm our business and ability to conduct our clinical trials and fund our operations.

Human therapeutic products involve the risk of product liability claims and associated adverse publicity. Currently, our principal risks relate to participants in the clinical trials who may suffer unintended consequences. Claims might be made directly by consumers, patients, healthcare providers, or pharmaceutical companies or others selling or consuming any of our products, if approved. We may not have or be able to obtain or maintain sufficient and affordable insurance coverage, including coverage for potentially very significant legal expenses. Without sufficient coverage, any claim brought against us could have a materially adverse effect on our business, financial condition, results of operations or prospects. We may also be subject to legal and administrative proceedings and litigations other than product liability lawsuits which could materially harm our business and ability to conduct our clinical trials and fund our operations.

Legislative actions, potential new accounting pronouncements, and higher insurance costs are likely to impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue or expense fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with greater frequency and are expected to occur in the future, and we may make, or may be required to make, changes in our accounting policies in the future. Compliance with changing regulations of corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional expenses. Changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for companies like us, and insurance costs are increasing as a result of this uncertainty.

We may incur losses associated with foreign currency fluctuations.

Effective January 1, 2020, we adopted the United States dollar as our functional and reporting currency. Prior to that date, our functional and reporting currency was the Canadian dollar. Our operations are, in some instances, conducted in currencies other than the U.S. dollar (principally in Canadian dollars) and a portion of our net monetary assets is denominated in other currencies (principally in Canadian dollars). Fluctuations in the value of foreign currencies relative to the U.S. dollar could cause us to incur currency exchange losses.

We may incur losses due to adverse decisions by tax authorities.

Our income tax reporting is subject to audit by tax authorities. The effective tax rate may change from year to year based on the mix of income; non-deductible expenses; changes in tax law; and changes in the estimated values of future income tax assets and liabilities. We may enter into transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain. We must therefore make estimates and judgments in determining our consolidated tax provision. In addition, we apply for numerous tax credits that play an important role in our financial planning and we are not certain that the tax authorities will grant them. The final outcome of any audits by taxation authorities may differ from estimates and assumptions used in determining the consolidated tax provisions and accruals. This could result in a material effect on our consolidated research tax credits, income tax provision, financial position and the net income/loss for the period in which such determinations are made.

44

We are subject to taxation in Canada and were subject to taxation in certain foreign jurisdictions prior to the corporate reorganization. Our effective tax rate and tax liability are determined by a number of factors, including the amount of taxable income in particular jurisdictions, the tax rates in these jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds to and repatriate funds from our subsidiaries and future changes in laws. An adverse interpretation or ruling by one of the taxing authorities in a jurisdiction in which we operate or a change in law could increase our tax liability or result in the imposition of penalty payments, which could adversely impact our operating results.

Our Major Shareholders have influence over our business and corporate matters, including those requiring shareholder approval. This could delay or prevent a change in control. Sales of common shares by our largest shareholders could have an impact on the market price of our common shares.

Power Sustainable Capital Investments Inc. (“PSCI”), a subsidiary of Power Corporation of Canada, and Rocabe Investments Inc., a company in which Mr. Roberto Bellini has a 50% equity interest (“Rocabe” and, together with PSCI, the “Major Shareholders”), together own, directly or indirectly, an aggregate of approximately 12.1% of our outstanding common shares as at the date hereof.

Pursuant to board representation agreements dated April 16, 2009, between us and each of PSCI and a predecessor to Rocabe (the “2009 Board Representation Agreements”), each of PSCI and Rocabe is entitled to cause two nominees to be included in the list of management nominees to be proposed for election to the Board at each shareholders meeting occurring following that date. Despite their rights, each of PSCI and Rocabe has only nominated one candidate. PSCI’s and Rocabe’s right to two nominees each shall terminate on the date each of PSCI, on the one hand, and Rocabe, the FMRC Family Trust (“FMRC”) and 1324286 Alberta Limited, a wholly-owned subsidiary of FMRC, collectively, on the other hand, ceases to beneficially hold at least 7.5% of our issued and outstanding common shares. Therefore, PSCI, FMRC, Rocabe and certain persons related to such entities have the ability to exercise a significant degree of influence over our business and the outcome of various corporate matters, including those requiring shareholder approval. In particular, this concentration of ownership may have the effect of delaying or deferring a change in control of BELLUS Health and may adversely affect the price of our common shares.

If we are a passive foreign investment company, (“PFIC”), for U.S. federal income tax purposes, the consequences to U.S. holders of our common shares may be adverse.

Under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), we will be classified as a PFIC in respect of any taxable year in which either (i) 75% or more of our gross income consists of certain types of “passive income” or (ii) 50% or more of the average quarterly value of our assets is attributable to “passive assets” (assets that produce or are held for the production of passive income). For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, if we directly or indirectly own at least 25% by value of the shares of another corporation, we will be treated as if we held our proportionate share of the assets and received directly our proportionate share of the income of such other corporation. PFIC status is a factual determination that needs to be made annually after the close of each taxable year, on the basis of the composition of our income, the relative value of our active and passive assets, and our market capitalization. For this purpose, our PFIC status depends in part on the application of complex rules, which may be subject to differing interpretations, relating to the classification of our income and assets. Based on our interpretation of the law, our recent financial statements, and taking into account expectations about our income, assets and activities, we believe that we were a PFIC for the taxable year ended December 31, 2020 and expect that we will be a PFIC for the current taxable year.

45

If we are a PFIC for any taxable year during which a U.S. holder holds our common shares, we will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years during which the U.S. holder owns the common shares, regardless of whether we continue to meet the PFIC test described above, unless the U.S. holder makes a specified election once we cease to be a PFIC. If we are classified as a PFIC for any taxable year during which a U.S. holder holds our common shares, the U.S. holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferential tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. In certain circumstances, a U.S. holder may alleviate some of the adverse tax consequences attributable to PFIC status by making either a “qualified electing fund” (“QEF”) election (subject to the provision of certain information necessary for U.S. holders to make a QEF Election) or a mark- to-market election (if our common shares constitute “marketable” securities under the Code).

If a United States person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a U.S. holder is treated as owning, directly, indirectly or constructively, at least 10% of the value or voting power of our common shares, such U.S. holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group, if any. Our group currently includes one U.S. subsidiary and, therefore, under current law our current non-U.S. subsidiary and any future newly formed or acquired non-U.S. subsidiaries will be treated as controlled foreign corporations, regardless of whether we are treated as a controlled foreign corporation. A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with controlled foreign corporation reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any United States shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the controlled foreign corporation rules of the Code. U.S. holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares.

We are an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our common shares less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenue of US$1.07 billion or more; (ii) December 31, 2024 (the last day of the fiscal year ending after the fifth anniversary of the date of the completion of the first sales of its common equity pursuant to an effective registration statement under the United States Securities Act of 1933, as amended (the “Securities Act”)); (iii) the date on which we have issued more than US$1.0 billion in non-convertible debt securities during the prior three-year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares held by non-affiliates exceeds US$700 million as of the last business day of its most recently completed second fiscal quarter after we have been a reporting company in the United States for at least 12 months. For so long as we remain an emerging growth company, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act Sarbanes-Oxley Act (2002), as amended (the “Sarbanes-Oxley Act”).

46

We may take advantage of some, but not all, of the available exemptions available to emerging growth companies. For example, our auditors have not been engaged to attest on our internal controls over financial reporting. We cannot predict whether investors will find our common shares less attractive if we rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

The COVID-19 pandemic could adversely impact our business and operations, including clinical trials.

In December 2019, a novel strain of coronavirus known as “COVID-19” surfaced in Wuhan, China and rapidly spread to multiple countries around the world. In March 2020, COVID-19 was declared a global pandemic by the World Health Organization.

The Phase 2 RELIEF clinical trial of BLU-5937 for the treatment of refractory chronic cough was prematurely completed due to the disruptions caused by COVID-19 and particularly the impact of COVID-19 on conducting clinical trial activities and performing site visits. As a result, 13 participants discontinued the trial due to COVID-19 with 52 participants having completed dosing out of 68 randomized participants. Three participants discontinued the trial due to reasons that are not related to COVID-19 nor BLU-5937.

Furthermore, as a result of the COVID-19 pandemic, the extent and length of which is uncertain, we have developed and implemented additional clinical study policies and procedures designed to help protect study participants from the COVID-19 virus while maintaining study integrity and execution such as following public health recommendations at all study sites, remote monitoring of participants and clinical sites, and measures to ensure that data from clinical studies that may be disrupted as a result of the pandemic are collected pursuant to the study protocol and consistent with good clinical practices. Missed scheduled site visits, interruption in study drug supply, or other factors that may result in incomplete data being generated during a study as a result of the pandemic will be adequately documented and justified. 

Since we are considered an “essential service”, our operations in Quebec have not been subject to mandated business closures and, accordingly, disruptions to our business as a result of COVID-19 have been limited thus far. However, the COVID-19 pandemic continues to rapidly evolve and the extent to which it may impact our business will depend on future developments that are highly uncertain, such as the geographic spread and duration of the outbreak, travel restrictions and other public health measures, business closures or business disruptions, and the availability and effectiveness of treatments for the disease.

47

We cannot presently predict the scope and severity of any potential business shutdowns or disruptions related to COVID-19 nor the impact of the vaccines that are now accessible or will be made accessible in Canada, the United States and in other countries, but if we or any of the third parties with whom we engage, including the suppliers, regulators, contract research organizations and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. If the COVID-19 outbreak continues or increases in severity and results in expanded or prolonged travel, commercial or other similar restrictions, we could experience supply, logistics or other disruptions, which could have a negative impact on our ability to conduct research and development (including clinical trials) or commercialize products. As a result of the COVID-19 pandemic, we may experience disruptions that could severely impact our business and clinical trials, including:

• delays or difficulties enrolling and retaining patients in clinical trials, which may be exacerbated by the fact that coughing, a hallmark of refractory chronic cough, and taste disturbances, a potential side effect of P2X3 antagonists, are both common COVID-19 symptoms;

• delays or difficulties in clinical site initiation, including difficulties in recruiting clinical staff and clinical site investigators;

• interruption of key clinical trial activities, such as clinical trial site data monitoring, or interruption of clinical trial procedures; which may impact the integrity of our clinical data, interim analysis and clinical study endpoints;

• diversion of healthcare resources at our clinical trial sites, which may cause significant delay in completing clinical trials

• limitations on the quality, completeness and interpretability of data that we are able to collect from clinical trial sites;

• interruption or delays in the operations of regulatory authorities, which may in turn impact approval timelines;

• interruption or delays in the operations of our suppliers of components or raw materials, such as our China-based third-party contract manufacturer that supplies the API for BLU-5937, contract research organizations and other third parties as a result of staffing shortages, production slowdowns or stoppages, or other similar disruptions caused by the pandemic;

• ability to raise additional capital to finance our business plans on attractive terms due to market conditions and volatility

• limitations in resources, including our employees, that may be restricted due to sickness, requirements to avoid contact with large groups of people or limitations on movement or access to our facility as a result of government-imposed “shelter in place” or other reasons affecting access and ability to work;

• changes in local regulations related to responses to the COVID-19 pandemic may require us to change the way we conduct ongoing clinical trials, which may result in additional costs or disruptions to our clinical trials; and

• Refusal of the FDA to accept clinical trial data from clinical trials affected by COVID 19.

Depending on its duration and severity, the COVID-19 pandemic may also impact other risks described in the “Risk Factors” section of this MD&A.

Depending on its duration and severity, the COVID-19 pandemic may also have the effect of heightening other risks described in the “Risk Factors” section of this MD&A.

Brexit may continue to create volatility in markets and uncertainty regarding future laws and regulations in the United Kingdom and the rest of Europe.

Our business is subject to risks associated with the exit of the United Kingdom from the European Union, commonly referred to as “Brexit”, following the outcome of the British referendum held on June 23, 2016. On January 31, 2020, under the terms of the agreement on the withdrawal of the United Kingdom and Northern Ireland from the European Union and the European Atomic Energy Community, the United Kingdom withdrew from the European Union, beginning a transition period which ended on December 31, 2020. On December 24, 2020, the United Kingdom from the European Union announced they had entered into a post-Brexit deal on certain aspects of trade and other strategic and political issues. We are currently in the process of evaluating our own risks and uncertainty related to ascertain what financial, trade, regulatory and legal implications this new Brexit trade deal could have on our operations, if any. While we have not experienced any direct material financial impact since the 2016 referendum, we cannot predict its future implications. As such, Brexit and its related effects may have a material adverse effect on global economic conditions and or on the stability of global financial markets, and may affect our ability to carry out our plans with respect to the development of BLU-5937, which in turn could have a material adverse effect on our business and financial condition.

48

Our internal computer systems, or those used by our contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our third parties on which we rely, are vulnerable to damage from computer viruses and unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. While we have not experienced any such material system failure or security breach to our knowledge to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product candidates could be delayed.

The biopharmaceutical industry is subject to rapid technological change, which could affect the commercial viability of our products.

The biopharmaceutical industry is subject to rapid and significant technological change. Research, discoveries or inventions by others may result in medical insights or breakthroughs which render our products less competitive or even obsolete. Furthermore, there may be breakthroughs of new biopharmaceutical technologies which may become superior to ours that may result in the loss of our commercial advantage. Our future success will, in part, depend on our ability to, among others:

▪     develop or license new technologies that address the changing needs of the medical community; and

▪     respond to technological advances and changing industry standards and practices in a cost-effective and timely manner.

Developing technology entails significant technical and business risks and substantial costs. We cannot assure you that we will be able to utilize new technologies effectively or that we will be able to adapt our existing technologies to changing industry standards in a timely or cost-effective manner, or at all. If we are unable to keep up with advancements in technology, our business, financial conditions and results of operations could be materially adversely affected.

49

We incur increased costs as a result of operating as a public company in the United States and our management will be required to devote substantial time to new compliance initiatives.

As a public company listed on the NASDAQ, we incur significant legal, accounting and other expenses. The potential future loss of our “emerging growth company” status may increase these expenses. In addition, the Sarbanes-Oxley Act, SEC and NASDAQ rules impose various requirements that we must comply with in the United States.

Pursuant to Section 404, our management is required to provide a report on our internal control over financial reporting (“ICFR”), and, if we lose our “emerging growth company” status, we would be required to provide an attestation report on ICFR issued by our independent registered public accounting firm. To continue to comply with Section 404, we have documented and evaluated our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and continue to assess and document the adequacy of our compliance with the ICFR requirements. Additionally, we will continue to improve our control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that neither us nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in a determination that there are one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to loss of confidence in the reliability of our consolidated financial statements.

Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities required for public company more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and divert management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Being a public company listed on the NASDAQ and complying with applicable rules and regulations require us to obtain director and officer liability insurance, which is expensive, can be difficult to obtain and can impact our ability to attract and retain qualified executive officers and board members.

50

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

As a foreign private issuer under applicable U.S. federal securities laws, we are not required to comply with all of the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and related rules and regulations. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell securities of BELLUS Health as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, we are exempt from the proxy rules under the Exchange Act.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to BELLUS Health.

In order to maintain our current status as a foreign private issuer, a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States unless we also satisfy one of the additional requirements necessary to preserve this status. We may in the future lose our foreign private issuer status if a majority of the common shares are owned of record in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a Canadian foreign private issuer eligible to use MJDS. If we are not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from Nasdaq corporate governance requirements that are available to foreign private issuers.

51

EX-99.4

Exhibit 99.4

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Roberto Bellini, certify that:

1. I have reviewed this annual report on Form 40-F of BELLUS Health Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the company’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: February 25, 2021

/s/ Roberto Bellini

Name: Roberto Bellini

Title: President and Chief Executive Officer

(principal executive officer)

EX-99.5

Exhibit 99.5

CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ramzi Benamar, certify that:

1. I have reviewed this annual report on Form 40-F of BELLUS Health Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting 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 generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the company’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: February 25, 2021

 /s/ Ramzi Benamar

Ramzi Benamar

Chief Financial Officer

(principal financial officer)

EX-99.6

Exhibit 99.6

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, as the President and Chief Executive Officer of BELLUS Health Inc. certifies that, to the best of his knowledge and belief, the annual report on Form 40-F for the fiscal year ended December 31, 2020, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and the information contained in the annual report on Form 40-F for the fiscal year ended December 31, 2020 fairly presents, in all material respects, the financial condition and results of operations of BELLUS Health Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

Date: February 25, 2021

/s/ Roberto Bellini

Name: Roberto Bellini

Title: President and Chief Executive Officer

(principal executive officer)

EX-99.7

Exhibit 99.7

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, as Chief Financial Officer of BELLUS Health Inc. certifies that, to the best of his knowledge and belief, the annual report on Form 40-F for the fiscal year ended December 31, 2020, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and the information contained in the annual report on Form 40-F for the fiscal year ended December 31, 2020 fairly presents, in all material respects, the financial condition and results of operations of BELLUS Health Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

Date: February 25, 2021

 /s/ Ramzi Benamar

Ramzi Benamar

Chief Financial Officer

(principal financial officer)

EX-99.8

Exhibit 99.8

 

KPMG LLP	Telephone	(514) 840-2100
600 de Maisonneuve Blvd. West	Fax	(514) 840-2187
Suite 1500, Tour KPMG	Internet	www.kpmg.ca
Montréal (Québec) H3A 0A3
Canada

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

BELLUS Health Inc.

We, KPMG, LLP, consent to the incorporation by reference in the Registration Statement (No. 333-251329) on Form F-10 and (No. 333-233922 and 333-238274) on Forms S-8 of BELLUS Health Inc. of our report dated February 25, 2021, on the consolidated financial statements which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the years ended December 31, 2020 and 2019, and the related notes, which report refers to a change in presentation currency to the United States dollar in fiscal 2020 on a retrospective basis, and which report is included in the annual report on Form 40-F of BELLUS Health Inc. for the fiscal year ended December 31, 2020, and further consent to the use of such report in such annual report on Form 40-F.

/s/ KPMG LLP

Montréal, Canada

February 25, 2021

XML

Document and Entity Information	12 Months Ended
	Dec. 31, 2020 shares
Document and Entity Information
Entity Registrant Name	BELLUS Health Inc.
Entity Central Index Key	0001259942
Document Type	40-F
Document Period End Date	Dec. 31, 2020
Amendment Flag	false
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding	55,378,660
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Title of 12(b) Security	Common Shares
Trading Symbol	BLU
Security Exchange Name	NASDAQ
Annual Information Form	true
Audited Annual Financial Statements	true
ICFR Auditor Attestation Flag	false

XML

Consolidated Statements of Financial Position - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Current assets:
Cash and cash equivalents (note 4)	$ 48,889	$ 18,688	$ 10,950
Short-term investments (note 4)	49,371	71,292	24,912
Trade and other receivables	325	241	113
Research tax credits receivable	724	1,036	480
Prepaid expenses and other assets	3,005	2,988	843
Total current assets	102,314	94,245	37,298
Non-current assets:
Right-of-use asset (note 5)	501	204	114
Other assets	198	107	56
In-process research and development asset (note 6)	50,100	1,816	1,730
Total non-current assets	50,799	2,127	1,900
Total Assets	153,113	96,372	39,198
Current liabilities:
Trade and other payables (note 7)	5,495	7,445	1,992
Lease liability (note 5)	156	167	114
Total current liabilities	5,651	7,612	2,106
Non-current liabilities:
Lease liability (note 5)	347	21
Total non-current liabilities	347	21
Total Liabilities	5,998	7,633	2,106
Shareholders' equity:
Share capital (note 8 (a))	575,286	486,401	405,626
Other equity (notes 8 (b) (i) and (ii))	31,360	26,858	25,682
Deficit	(468,829)	(433,818)	(401,087)
Accumulated other comprehensive income (note 2 (c))	9,298	9,298	6,871
Total Shareholders' Equity	147,115	88,739	37,092
Commitments and contingencies (note 13)
Total Liabilities and Shareholders' Equity	$ 153,113	$ 96,372	$ 39,198

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Consolidated Statements of Loss and Other Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Consolidated Statements of Loss and Other Comprehensive Loss
Revenues	$ 15	$ 27
Expenses:
Research and development	23,729	19,714
Research tax credits	(507)	(536)
Research and development, net of tax credits	23,222	19,178
General and administrative	9,735	6,580
Total operating expenses	32,957	25,758
Loss from operating activities	(32,942)	(25,731)
Finance income	1,224	1,146
Finance costs	(39)	(1,423)
Net finance income (costs) (note 10)	1,185	(277)
Net loss for the year	(31,757)	(26,008)
Other comprehensive income:
Currency translation adjustment (note 2 (c))		2,427
Other comprehensive income for the year		2,427
Total comprehensive loss for the year	$ (31,757)	$ (23,581)
Loss per share (note 12)
Basic and diluted loss per share	$ (0.54)	$ (0.55)

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Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Share Capital	Other equity	Deficit	Accumulated other comprehensive income	Total
Balance at the beginning at Dec. 31, 2018	$ 405,626	$ 25,682	$ (401,087)	$ 6,871	$ 37,092
Total comprehensive loss for the year:
Net loss			(26,008)		(26,008)
Other comprehensive income				2,427	2,427
Total comprehensive loss for the year			(26,008)	2,427	(23,581)
Transactions with shareholders, recorded directly in shareholders' equity:
Issued in connection with offering	79,374		(6,723)		72,651
Stock-based compensation (note 8 (b) (i))		1,610			1,610
Issued upon stock options exercise (note 8 (b) (i))	103	(47)			56
Issued upon broker warrants exercise (note 8 (b) (ii))	1,298	(387)			911
Balance at the end at Dec. 31, 2019	486,401	26,858	(433,818)	9,298	88,739
Total comprehensive loss for the year:
Net loss			(31,757)		(31,757)
Total comprehensive loss for the year			(31,757)		(31,757)
Transactions with shareholders, recorded directly in shareholders' equity:
Issued in consideration for acquisition of remaining BLU-5937 Assets (note 6)	47,749		(301)		47,448
Issued in connection with offering	40,250		(2,953)		37,297
Stock-based compensation (note 8 (b) (i))		4,791			4,791
Issued upon stock options exercise (note 8 (b) (i))	334	(158)			176
Issued upon broker warrants exercise (note 8 (b) (ii))	552	(131)			421
Balance at the end at Dec. 31, 2020	$ 575,286	$ 31,360	$ (468,829)	$ 9,298	$ 147,115

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Cash flows from (used in) operating activities:
Net loss for the year	$ (31,757)	$ (26,008)
Adjustments for:
Depreciation (note 5)	179	119
Stock-based compensation	4,791	1,610
Loss on lease modification	4
Net finance (income) costs	(1,185)	277
Other items	(76)	88
Changes in operating assets and liabilities
Trade and other receivables	(84)	(123)
Research tax credits receivable	306	(522)
Prepaid expenses and other assets	(60)	(1,947)
Trade and other payables	(1,863)	5,450
Net cash flows from (used in) operating activities	(29,745)	(21,056)
Cash flows from (used in) financing activities
Issuance of common shares through 2020 Offering, net of share issue costs	37,297
Share issue costs related to issuance of common shares to finance acquisition of in-process research and development asset (note 6)	(301)
Issuance of common shares through 2019 Offering, net of share issue costs		72,651
Issuance of common shares through 2018 Offering, net of share issue costs		(303)
Issuance of common shares upon stock option exercise	176	56
Issuance of common shares upon broker warrant exercise	421	911
Deferred financing costs	(49)	(43)
Lease liability - principal repayments	(187)	(148)
Interest paid	(22)	(10)
Net cash flows from (used in) financing activities	37,335	73,114
Cash flows from (used in) investing activities:
Purchases of short-term investments	(51,090)	(70,740)
Sales of short-term investments	72,771	25,300
Acquisition of in-process research and development asset, including transaction costs (note 6)	(535)
Interest received	1,355	826
Net cash flows from (used in) investing activities	22,501	(44,614)
Net increase in cash and cash equivalents	30,091	7,444
Cash and cash equivalents, beginning of year	18,688	10,950
Effect of foreign exchange on cash and cash equivalents	110	294
Cash and cash equivalents, end of year	48,889	18,688
Supplemental cash flow disclosure:
Initial recognition of right-of-use asset and lease liability (note 5)		114
Additions to right-of-use asset and lease liability (note 5)		205
Issuance of common shares in consideration for acquisition of remaining BLU-5937 Assets (note 6)	47,749
Share issue costs related to equity offerings, in Trade and other payables		117
Deferred financing costs, in Trade and other payables	420	165
Ascribed value related to issuance of common shares upon stock options exercise (note 8 (b) (i))	158	47
Ascribed value related to issuance of common shares upon broker warrants exercise ( note 8 (b) (ii))	131	387
Value of DSUs in prepaid expenses and other assets (note 8 (b) (iii))	$ 73	$ 74

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Reporting entity

12 Months Ended

Dec. 31, 2020

Reporting entity:

Reporting entity:

1.   Reporting entity:

BELLUS Health Inc. (“BELLUS Health” or the “Company”) is a clinical-stage biopharmaceutical company developing novel therapeutics for the treatment of chronic cough and other hypersensitization-related disorders. The Company's product candidate, BLU-5937, is being developed for the treatment of chronic cough and chronic pruritus. The Company is domiciled in Canada. The address of the Company’s registered office is 275 Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7. BELLUS Health’s common shares trade on the Nasdaq Capital Market (“Nasdaq”) and on the Toronto Stock Exchange (“TSX”) both under the symbol BLU.

The Company is subject to a number of risks, including risks associated with the conduct of its product candidate’s development programs and results, the establishment of strategic alliances and the successful development of new product candidates and their marketing. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits, and will require additional financing in the future. The ability of the Company to ultimately achieve future profitable operations is dependent upon the successful development of its product candidates obtaining regulatory approval in various jurisdictions and successful sale or commercialization of the Company’s products and technologies, which is dependent on a number of factors outside of the Company’s control.

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Basis of preparation

12 Months Ended

Dec. 31, 2020

Basis of preparation:

Basis of preparation:

2.   Basis of preparation:

(a) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements for the year ended December 31, 2020, were approved by the Board of Directors on February 25, 2021.

The financial statements have been prepared on an historical cost basis, except for certain of the Company’s accounting policies and disclosures that require the determination of fair value, namely:

· Liabilities related to cash-settled share-based arrangements and stock-based compensation, which are measured at fair value on grant date pursuant to IFRS 2, Share-based payments. 

· Lease liabilities, which are initially measured at the present value of minimum lease payments.

(b) Basis of measurement:

In establishing the fair value, the Company uses a fair value hierarchy based on levels as defined below:

· Level 1: defined as observable inputs such as quoted prices in active markets.

· Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.

· Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop their own assumptions.

(c) Functional and presentation currency:

Effective January 1, 2020, the Company adopted the United States dollar ("USD") as its functional and presentation currency. Prior to these consolidated financial statements, the functional and presentation currency was the Canadian dollar ("CAD"). The change in the functional currency from the CAD to the USD reflects the primary economic environment in which the Company operates in. As a result of the advancement of the Company’s development programs, the Company anticipates higher research and development costs in future periods which will be denominated mainly in USD. In addition, these costs will be financed from proceeds received from the financing in USD, including those that closed in September 2019 and October 2020.  The Company also anticipates that potential future sales revenues and financings will be primarily denominated in USD.

As such, these consolidated financial statements are presented in USD. On January 1, 2020, the change in functional currency resulted in the assets and liabilities as of December 31, 2019 being translated in USD using the exchange rate in effect on that date, and equity transactions were translated at historical rates. The change in functional currency is applied prospectively.

The change in presentation currency was applied retrospectively and therefore, these consolidated financial statements are presented in USD, together with the comparative information as at December 31, 2019, for the year ended December 31, 2019, and on the consolidated statement of financial position as at January 1, 2019. For comparative purposes, historical consolidated financial statements were recast in USD by translating assets and liabilities at the closing rate in effect at the end of the respective period, revenues, expenses and cash flows at the average rate in effect for the respective period and equity transactions at historical rates. Any exchange difference resulting from the translation was included in Accumulated other comprehensive income presented in shareholders’ equity

(d) Use of estimates and judgments:

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The reported amounts and note disclosures reflect management’s best estimate of the most probable set of economic conditions and planned course of actions. Actual results may differ from these estimates.

A critical judgment in applying accounting policies that has the most significant effect on the amounts recognized in the consolidated financial statements relates to the use of the going concern basis of preparation of the financial statements. At the end of each reporting period, management assesses the basis of preparation of the financial statements. These financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment is included within the following notes and is described below:

(i) Estimation of accrued expenses:

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel and service providers to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost.

For research and development activities, the majority of service providers invoice the Company in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. There may also be instances in which payments to the service providers will exceed the level of services provided and result in a prepayment of the expense.

The Company estimates its accrued expenses and prepaid expenses as of each statement of financial position date in its financial statements based on facts and circumstances known at that time.

(ii) Estimating the cost of the in-process research and development (“IPR&D”) asset using the fair value of the issued share-based consideration related to the remaining BLU-5937 Assets the Company acquired in March 2020 (refer to note 6).

(ii)Estimating the recoverable amount of the in-process research and development asset related to BLU-5937 for the purpose of the annual impairment test (note 6).

Other areas requiring the use of management estimates and judgements include assessing the recoverability of research tax credits as well as estimating the initial fair value of equity-classified stock-based compensation. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they are made and in future periods affected.

(e)COVID-19 pandemic:

The COVID-19 pandemic continues to cause significant financial market and social dislocation. The situation is dynamic with various cities and countries around the world responding in different ways to address the outbreak. Since the Company is considered an “essential service”, its operations in Quebec have not been subject to mandated business closures and, accordingly, disruptions to its business as a result of COVID-19 have been limited thus far. However, the COVID-19 pandemic continues to rapidly evolve and the extent to which it may impact our business will depend on future developments that are highly uncertain. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions related to COVID-19 nor the impact of the vaccines that are now accessible or will be made accessible in Canada, the United States and in other countries, but if the Company or any of the third parties with whom it engages, were to experience shutdowns or other business disruptions, its ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively impacted. The Company will continue to monitor developments of the pandemic and continuously assess its potential further impact on its operations to prevent any disruptions to the conduct of its business and clinical trials. In the event of a prolonged continuation of the pandemic, it is not clear what the potential impact may be on the Company's business, financial position and financial performance. 

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Significant accounting policies

12 Months Ended

Dec. 31, 2020

Significant accounting policies:

Significant accounting policies:

3.   Significant accounting policies:

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements.

(a)  Basis of consolidation:

These consolidated financial statements include the accounts of BELLUS Health Inc. and its subsidiaries.

Subsidiaries are entities controlled by BELLUS Health Inc. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intercompany balances and transactions have been eliminated on consolidation.

(b)  Cash, cash equivalents and short-term investments:

The Company considers all investments with maturities of three months or less at inception, that are highly liquid and readily convertible into cash, to be cash equivalents. Investments with maturities greater than three months and less than one year are presented as short-term investments in the consolidated statement of financial position.

(c)  Revenue recognition:

Revenue from contracts with customers is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. A company recognizes revenue when it transfers control of a product or service to a customer. The Company does not have any revenue from contracts with customers.

Revenue from other contracts may be derived from development and other services provided by the Company. Revenue from contracted services is recognized over time as the contracted services are performed.

Consideration received from other contracts may also include amounts received as licensing fees, costs reimbursements, sales-based royalty payments, upfront payments and regulatory and sales-based milestone payments for specific achievements. Revenue is recognized in income only when conditions and events under the contract have been met or occurred and it is probable that the Company will collect the consideration to which it is entitled.

(d)  Research and development:

Research and development costs consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s development programs. Overhead expenses comprise general and administrative support provided to the development programs and involve costs associated with support activities.

Research expenditures undertaken with the prospect of gaining new scientific or technical knowledge are expensed as incurred. Development expenditures are deferred when they meet the criteria for capitalization in accordance with IFRS, and the future benefits could be regarded as being reasonably certain. The criteria to be fulfilled in order to capitalize development costs are if such costs can be measured reliably, if the product or process is technically and commercially feasible, if future economic benefits are probable and if the Company intends to and has sufficient resources to complete the development and to use or sell the asset. As at December 31, 2020 and 2019, no development costs were deferred.

(e)  In-process research and development asset:

The in-process research and development (“IPR&D”) asset acquired by the Company in 2017 is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. In March 2020, the IPR&D asset’s carrying value was increased for the additional portion acquired by the Company at that time (refer to note 6). The acquisition cost of this additional portion of the IPR&D asset was estimated using the fair value of the issued share-based consideration paid. Subsequent research and development costs associated with the IPR&D asset are accounted for consistent with the research and development policy in note 3 (d).

The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount.

The asset’s recoverable amount is the greater of its fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount immediately. Impairment losses are recognized in income. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years.

(f)  Government assistance:

Government assistance, consisting of research tax credits, is recorded as a reduction of the related expense. Research tax credits are recognized when management determines that there is reasonable assurance that the tax credits will be received. Research tax credits claimed for the current and prior years are subject to government review and approval which could result in adjustments to amounts recognized by the Company. Adjustments from tax authorities, if any, would be recognized in the period of revision.

(g)  Foreign exchange:

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction. Income and expenses denominated in foreign currencies are translated at exchange rates in effect at the transaction date. Translation gains and losses are recognized in income.

(h)  Income taxes:

Deferred tax is recognized for temporary differences between the financial reporting bases and the income tax bases of the Company’s assets and liabilities and is recorded using the substantively enacted tax rates anticipated to be in effect when the tax differences are expected to reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, 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 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.

(i)  Provisions:

A provision is recognized if, as a result of a past event, the Company has a present, legal or constructive obligation that can be estimated reliably, 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 current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(j)Leases:

The Company is a lessee for a number of leases. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for its leases of property, the Company has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The right-of-use asset is depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made (measured at amortised cost using the effective interest method). It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

(k)  Earnings per share:

Basic earnings per share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a manner consistent with basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of dilutive stock options and broker warrants. The number of additional shares is calculated by assuming that outstanding stock options and broker warrants were exercised, and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting period.

(l)  Employee benefits:

(i) Short-term employee benefits:

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment arrangements:

The Company follows the fair value-based method to account for stock options granted to employees, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. For the stock options with graded vesting, the fair value of each tranche is recognized over its respective vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date.

When stock options are exercised, the Company issues new shares. The proceeds received, together with the related portion previously recorded in other equity, are credited to share capital.

The Company also grants Deferred Share Units (“DSU”) as compensation for directors and designated employees. Upon termination of service, DSU participants are entitled to receive for each DSU credited to their account the payment in cash on the date of settlement based on the value of a BELLUS Health common share. For DSUs, compensation cost is measured based on the market price of the Company’s common shares from the date of grant through to the settlement date. Any changes in the market value of the Company’s common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income in the same line item as stock-based compensation expense.

(m)  Financial instruments:

The Company measures its financial instruments as follows:

Financial assets and Financial liabilities

(i)Recognition and initial measurement:

Trade receivables are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii)Classification and subsequent measurement:

Financial assets - Classification:

On initial recognition, a financial asset is classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) – debt investment, FVOCI – equity investment or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest in the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment by investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets - Subsequent measurement and gains and losses:

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in income.

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in income. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to income.

Equity investments at FVOCI are subsequently measured at fair value. Dividends are recognized as income in income unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to income.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses are recognized in income.

Financial liabilities - Classification:

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.

Financial liabilities - Subsequent measurement and gains and losses:

Financial liabilities at FVTPL are subsequently measured at fair value and net gains and losses, including any interest expense, are recognized in income. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in income. Any gain or loss on derecognition is also recognized in income.

Cash, cash equivalents and short-term investments, trade receivables, amounts receivable under license agreements and other receivables are measured at amortized cost.

Trade and other payables are measured at amortized cost.

Share capital

Common shares and preferred shares that are not redeemable or are redeemable only at the Company’s option are classified as equity. Incremental costs directly attributable to the issue of equity-classified shares are recognized as a deduction from the deficit, net of any tax effects.

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Cash, cash equivalents and short-term investments

12 Months Ended

Dec. 31, 2020

Cash, cash equivalents and short-term investments:

Cash, cash equivalents and short-term investments:

4.   Cash, cash equivalents and short-term investments:

Cash, cash equivalents and short-term investments consist of cash balances with banks and short-term investments:

	December 31,		December 31,		January 1,
	2020		2019		2019
Cash balances with banks	$	5,734	$	5,494	$	1,073
Short-term investments with initial maturities of less than
three months or that can be withdrawn on demand: Savings accounts and term deposits, yielding interest at 0.20% to 0.45%  as at December 31, 2020 (December 31, 2019 – 1.28% to 1.85)%		43,155		13,194		9,877
Cash and cash equivalents		48,889		18,688		10,950
Short-term investments with initial maturities greater than three months and less than one year:
Term deposits issued in USD, yielding interest as at 0.23% to 0.55% as at December 31, 2020 (December 31, 2019 – 1.80% to 2.15%)		20,021		36,701		10,510
Term deposits issued in CAD (CAD $5,529), yielding interest at 0.85% to 1.27% as at December 31, 2020 (December 31, 2019 – (CAD $15,555), 1.92% to 2.60%)		4,341		11,975		14,402
Bearer deposit notes issued in USD, yielding interest at 0.16% to 0.22% as at December 31, 2020  (December 31, 2019 – yielding interest at 1.76% to 1.83%)		25,009		22,616		—
Short-term investments		49,371		71,292		24,912
Cash, cash equivalents and short-term investments	$	98,260	$	89,980	$	35,862

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Right-of-use asset and lease liability

12 Months Ended

Dec. 31, 2020

Right-of-use asset and lease liability

Right-of-use asset and lease liability

5.   Right-of-use asset and lease liability:

BELLUS Health Inc.’s leases are mainly real estate leases for office space.

The Company leases office space in Laval, Quebec, Canada. Its main property lease was amended in September 2020, effective October 1, 2020 and expiring on September 30, 2023. The amendment caused the previous lease to expire on September 30, 2020 (initial expiry date of January 31, 2021).

Right-of-use asset:

	Carrying
	value
Cost:
Balance as at January 1, 2019	$	114
Additions to right-of-use asset		204
Currency translation adjustment (note 2 (c))		8
Balance as at December 31, 2019		326
Additions to right-of-use asset		535
Derecognition due to lease modification		(59)
Balance as at December 31, 2020	$	802
Accumulated amortization:
Balance as at January 1, 2019	$	—
Depreciation		(120)
Currency translation adjustment (note 2 (c))		(2)
Balance as at December 31, 2019		(122)
Depreciation		(179)
Balance as at December 31, 2020	$	(301)
Net carrying value:
Balance as at January 1, 2019	$	114
Balance as at December 31, 2019		204
Balance as at December 31, 2020		501

Lease liability:

	Carrying
	value
Balance as at January 1, 2019	$	114
Additions to lease liability		204
Interest expense		12
Principal repayment		(146)
Currency translation adjustment (note 2 (c))		4
Balance as at December 31, 2019	$	188
Addition to lease liability		535
Derecognition due to lease modification		(55)
Interest expense		17
Principal repayment		(187)
Foreign exchange loss		5
Balance as at December 31, 2020	$	503
Current portion of lease liability		156
Non-current portion of lease liability	$	347

The remaining weighted average life of the Company’s property lease as of December 31, 2020 is 2.7 years.

Lease payments were discounted using an incremental borrowing rate of 5%.  

Minimum annual payments under the non-cancelable leases, undiscounted, are as follows:

Years ending December 31,
2021	$	184
2022		206
2023 and after		162
	$	552

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In-process research and development asset

12 Months Ended

Dec. 31, 2020

In-process research and development asset:

In-process research and development asset:

6.   In-process research and development asset:

BELLUS Health acquired the IPR&D asset related to BLU-5937 in February 2017 through the obtention from the NEOMED Institute (“NEOMED”)  of an exclusive worldwide license to develop and commercialize BLU‑5937, a potent, highly selective, orally bioavailable small molecule antagonist of the P2X3 receptor, a clinically validated target for chronic cough.

On March 25, 2020, the Company closed an asset purchase and sale agreement to acquire all of the remaining BLU-5937 and related P2X3 antagonists intellectual property assets (the “BLU-5937 Assets”) from adMare BioInnovations’ NEOMED Institute (“adMare”), which is accounted for as an acquisition of assets. The February 2017 license agreement was terminated as part of this transaction.

In consideration of the foregoing, the Company issued to adMare and AstraZeneca AB (“AstraZeneca”) an aggregate of 4,770,000 BELLUS Health common shares from treasury, having an aggregate fair value of $47,749 at the date of the closing of the transaction, calculated using the average of the BELLUS Health’s March 25, 2020 opening and closing share price, plus a cash consideration paid to adMare of $352 (CAD $500). AstraZeneca assigned the BLU-5937 Assets to adMare in 2012.

The total consideration paid for the IPR&D asset related to the remaining BLU-5937 Assets was $48,284, consisting of the shares issued and cash paid referred to above, as well as transaction costs in relation to the acquisition of $183. Transactions costs in relation to the share issuance amounted to $301 and have been charged to the deficit. This acquisition was accounted for as a non-employee share-based payment transaction and measured using the consideration transferred by the Company.

The Company no longer has any obligations to adMare, or any other third party, in respect to tiered royalty obligations and revenue share that would have been otherwise owed to adMare under and subject to the February 2017 license agreement. No amount was payable under this agreement prior to its termination.

As a result of the transaction, the IPR&D asset’s carrying value was increased for the additional portion acquired by the Company. The IPR&D asset is accounted for as an indefinite-lived intangible asset until the project, currently in its clinical phase, is completed or abandoned, at which point it will be amortized or impaired, respectively. As at December 31, 2020, the aggregate carrying value of the IPR&D asset related to BLU‑5937 amounted to $50,100  ($1,816 as at December 31, 2019).

As at December 31, 2020 and 2019, the carrying amount of the IPR&D asset related to BLU-5937 did not exceed its estimated recoverable amount. The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Due to the topline results of its Phase 2 RELIEF trial of BLU-5937 in refractory chronic cough, the Company performed an impairment review of the IPR&D asset as at June 30, 2020. The carrying amount of the IPR&D asset did not exceed its estimated recoverable amount at that date, and at December 31, 2020 as part of the annual impairment review. The recoverability of this asset is dependent on successfully developing this project and achieving the expected future revenues from commercialization.

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Trade and other payables

12 Months Ended

Dec. 31, 2020

Trade and other payables:

Trade and other payables:

7.  Trade and other payables:

Trade and other payables consist of:

	December 31,		December 31,		January 1,
	2020		2019		2019
Trade payables	$	648	$	3,975	$	407
Other accrued liabilities		4,086		1,698		1,096
DSU liability (note 8 (b) (iii))		761		1,772		489
	$	5,495	$	7,445	$	1,992

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Shareholders' equity

12 Months Ended

Dec. 31, 2020

Shareholders' equity:

Shareholders' equity

8.Shareholders’ equity:

(a) Share capital:

The authorized share capital of the Company consists of:

· an unlimited number of voting common shares with no par value; and

· an unlimited number of non-voting preferred shares, issuable in one or more series, with no par value.

Changes in issued and outstanding common shares for the years ended December 31, 2020 and 2019 were as follows:

	Number	Dollars
Balance, December 31, 2019	55,378,660	$	486,401
Issued in consideration for acquisition of remaining  BLU-5937 Assets (note 8 (a) (i))	4,770,000		47,749
Issued in connection with the 2020 Offering (note 8 (a) (ii))	17,888,889		40,250
Issued upon stock options exercise (note 8 (b) (i))	128,222		334
Issued upon broker warrants exercise (note 8 (b) (ii))	171,590		552
Balance, December 31, 2020	78,337,361	$	575,286

	Number	Dollars
Balance, December 31, 2018 and January 1, 2019	43,622,136	$	405,626
Issued in connection with the 2019 Offering (note 8 (a) (iii))	11,179,451		79,374
Issued upon stock options exercise (note 8 (b) (i))	41,667		103
Issued upon broker warrants exercise (note 8 (b) (ii))	535,406		1,298
Balance, December 31, 2019	55,378,660	$	486,401

(i) On March 25, 2020, the Company issued 4,770,000 common shares from treasury in consideration for the acquisition of the remaining BLU-5937 Assets (refer to note 6).

(ii) On October 22, 2020, the Company closed an equity offering, issuing a total of 17,888,889 common shares from treasury at a price of $2.25 per share for gross proceeds of $40,250 including the exercise in full of the underwriters’ option to purchase 2,333,333 common shares (the “2020 Offering”). Share issue costs of $2,953, comprised mainly of agents’ commission, legal, professional and filing fees, have been charged to the deficit.

(iii) On September 9, 2019, the Company closed an equity offering, issuing 9,859,155 common shares from treasury at a price of $7.10 per share for gross proceeds of $70,000, and on September 17, 2019, the underwriters of the equity offering partially exercised their option to purchase additional common shares (over-allotment option) to purchase common shares of the Company, resulting in the issuance of an additional 1,320,296 common shares from treasury at a price of $7.10 per share, for additional gross proceeds of $9,374 (together, the "2019 Offering"). Share issue costs of $6,723, comprised mainly of agents' commission, legal, professional and filing fees, have been charged to the deficit.

“At-the-market” sales agreement

On December 23, 2020, the Company entered into an “at-the-market”  (“ATM”) sales agreement (the “Sales Agreement”) with Jefferies LLC ("Jefferies") pursuant to which the Company may from time to time sell through at-the-market distributions with Jefferies acting as sales agent (the “Agent”) its common shares for aggregate gross proceeds of up to $50,000, including sales made directly on the Nasdaq or on any other existing trading market for the common shares in the United States.  No common shares will be offered or sold in Canada. The common shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 2-year term and requires the Company to pay to the Agent a commission of up to 3.0% of the gross proceeds of any common shares sold. Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts to sell the common shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Company and the Agent may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Company has provided the Agent with customary indemnification rights.

During the year ended December 31, 2020, no common shares were sold under the ATM program. As at December 31, 2020, total costs incurred to register the Sales Agreement, amounting to $380, are recorded as deferred financing costs and classified as prepaids and other assets in the consolidated statement of financial position. Under an ATM program, proportional costs for commission, legal and costs related to common shares sold are reclassified from deferred financing costs to deficit upon share issuance.

(b) Share-based payment arrangements:

(i) Stock Option Plan:

Under its stock option plan, the Company may grant options to purchase common shares to directors, officers, employees and consultants of the Company (the “Stock Option Plan”). The number of common shares subject to each stock option, the vesting period, the expiration date and other terms and conditions related to each stock option are determined and approved by the Board of Directors. In general, stock options vest over a period of up to five years and are exercisable over a period of 10 years from the grant date. The aggregate number of common shares reserved for issuance under this plan shall not exceed 12.5% of the total issued and outstanding common shares of the Company from time to time. The aggregate number of common shares reserved for issuance at any time to any optionee shall not exceed 5% of the issued and outstanding common shares of the Company. The aggregate number of common shares issuable or reserved for issuance to insiders of the Company under this plan and any other share compensation arrangement of the Company cannot at any time exceed 10% of the issued and outstanding common shares of the Company. The option price per share is equal to the weighted average trading price of common shares for the five days preceding the date of grant during which the common shares were traded on the TSX.

Changes in outstanding stock options issued under the Stock Option Plan for the years ended December 31, 2020 and 2019 were as follows:

		Weighted
		average
	Number	exercise price (9)
Balance, December 31, 2019	4,726,943	$	2.26 (CAD $2.88)
Granted (1) (2) (3) (4) (5)	1,805,000	$	7.74 (CAD $9.85)
Exercised	(128,222)	$	1.51 (CAD $1.92)
Forfeited	(115,555)	$	6.27 (CAD $7.99)
Balance, December 31, 2020	6,288,166	$	3.78 (CAD $4.81)

		Weighted
		average
	Number	exercise price (9)
Balance, December 31, 2018	3,220,280	$	1.13 (CAD $1.47)
Granted (6) (7) (8)	1,548,330	$	4.45 (CAD $5.79)
Exercised	(41,667)	$	1.39 (CAD $1.80)
Balance, December 31, 2019	4,726,943	$	2.22 (CAD $2.88)

⁽¹⁾ 1,010,000 stock options were granted on April 1, 2020, having an exercise price of $10.92 (CAD $13.91); 750,000 stock options granted to key management personnel and 260,000 granted to other employees.

⁽²⁾ 65,000 stock options were granted to other employees on May 14, 2020, having an exercise price of $11.56 (CAD $14.72).

⁽³⁾ 85,000 stock options were granted to other employees on August 12, 2020, having an exercise price of $2.81 (CAD $3.58).

⁽⁴⁾ 185,000 stock options were granted to other employees on November 11, 2020, having an exercise price of $2.41 (CAD $3.14).

⁽⁵⁾ 460,000 stock options were granted on December 14, 2020, having an exercise price of $3.24 (CAD $4.12); 390,000 stock options granted to key management personnel and 70,000 granted to other employees.

⁽⁶⁾ 1,015,275 stock options were granted on February 20, 2019, having an exercise price of $3.35 (CAD$4.36); 895,830 stock options granted to key management personnel and 119,445 granted to other employees.

⁽⁷⁾ 20,833 stock options were granted to other employees on August 7, 2019, having an exercise price of $8.79 (CAD$11.41).

⁽⁸⁾ 512,222 stock options were granted on November 13, 2019, having an exercise price of $6.46 (CAD$8.39); 472,222 stock options granted to key management personnel and 40,000 granted to other employees.

⁽⁹⁾ USD equivalent is presented at the closing rate of the corresponding period.

The following table summarizes information about stock options outstanding and exercisable as at December 31, 2020:

	Options outstanding		Options exercisable
		Weighted
		average
		years
Exercise price/share (1)	Number	To expiration	Number
$0.85 (CAD $1.08)	719,445	6.3	432,223
$0.99 (CAD $1.26)	1,127,779	7.1	441,111
$1.19 (CAD $1.51)	41,667	6.9	25,000
$1.41 (CAD $1.80)	1,077,777	1.6	1,077,777
$1.61 (CAD $2.05)	41,667	7.5	16,667
$2.47 (CAD $3.14)	185,000	9.9	—
$2.81 (CAD $3.58)	70,000	9.6	—
$2.97 (CAD $3.78)	5,667	1.6	5,667
$3.17 (CAD $4.03)	28,611	5.2	22,889
$3.24 (CAD $4.12)	460,000	10.0	—
$3.42 (CAD $4.36)	974,998	8.1	190,556
$6.59 (CAD $8.39)	512,222	8.9	102,444
$8.96 (CAD $11.41)	8,333	8.6	4,166
$10.92 (CAD $13.91)	970,000	9.3	—
$11.56 (CAD $14.72)	65,000	9.4	—
	6,288,166	7.1	2,318,500

(1)   USD equivalent is presented at the closing rate.

Stock-based compensation:

For the year ended December 31, 2020, the Company recorded a stock-based compensation expense related to stock options granted under the stock option plan in the amount of $4,791 in the consolidated statement of loss and other comprehensive loss; from this amount, $1,939 is presented in Research and development expenses and $2,852 is presented in General and administrative expenses (2019 – $1,610,  $408 presented in Research and development expenses and $1,202 presented in General and administrative expenses).

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes pricing model. Expected volatility is estimated by considering historic average share price volatility for a period commensurate with the expected life.

The weighted average assumptions for stock options granted during the years ended December 31, 2020 and 2019 were as follows:

	2020 (1)(3)			2019 (2)(3)
Weighted average fair value of stock options at grant date	$	5.68 (CAD $7.93)		$	3.57 (CAD $4.72)
Weighted average share price	$	7.06 (CAD $9.85)		$	4.38 (CAD $5.79)
Weighted average exercise price	$	7.06 (CAD $9.85)		$	4.38 (CAD $5.79)
Risk-free interest rate		0.55	%		1.73	%
Expected volatility		104	%		100	%
Expected life in years		7			7
Expected dividend yield		Nil			Nil

⁽¹⁾ Stock options were granted on April 1, 2020, May 14, 2020 and August 12, 2020, November 11, 2020 and December 14, 2020.

⁽²⁾ Stock options were granted on February 20, 2019, August 7, 2019 and November 13, 2019.

⁽³⁾ USD equivalent is presented at the historical rate.

Dividend yield was excluded from the calculation, since it is the present policy of the Company to retain all earnings to finance operations and future growth.

(ii) Broker warrants:

In connection with the Company’s equity offering in December 2018 (the “2018 Offering”), the Company issued 402,851 broker warrants exercisable for common shares. Each broker warrant entitled the holders to buy  one common share at a price of $2.69 (CDN$3.42) per share for a period of 18 months from the closing of the 2018 Offering.

In connection with the Company’s equity offering in December 2017 (the “2017 Offering”), the Company issued 501,871  broker warrants exercisable for common shares. Each broker warrant entitled the holders to buy one common share at a price of $1.07 (CAD$1.37) per share for a period of 18 months from the closing of the 2017 Offering.

Changes in outstanding broker warrants for the years ended December 31, 2020 and 2019 were as follows:

	Number	Dollars
Balance, December 31, 2019	171,590	$	131
Exercised – from the 2018 Offering (1)	(171,590)		(131)
Balance, December 31, 2020	—	$	—

	Number	Dollars
Balance, December 31, 2018 and January 1, 2019	710,278	$	521
Exercised – from the 2018 Offering (2)	(231,261)		(166)
Exercised – from the 2017 Offering(3)	(304,145)		(221)
Expired – from the 2017 Offering	(3,282)		(3)
Balance, December 31, 2019	171,590	$	131

⁽¹⁾ During the year ended December 31, 2020, the Company issued a total of 171,590 common shares from treasury upon the exercise of a total of 171,590 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $131, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽²⁾ During the year ended December 31, 2019, the Company issued a total of 231,261 common shares from treasury upon the exercise of a total of 231,261 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $166, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽³⁾ During the year ended December 31, 2019, the Company issued a total of 304,145 common shares from treasury upon the exercise of a total of 304,145 broker warrants issued in connection with 2017 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $221, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

(iii) Deferred share unit (DSU) plan:

The Company has a deferred share unit (“DSU”) plan for employees and members of the Board of Directors created to afford the Company the flexibility to offer DSUs as an alternative to cash compensation.

The price of DSUs is determined by the five-day volume weighted average trading price of the Company’s common shares at the time the DSUs are issued, as provided for under the plan. The DSUs are redeemable only upon the participant’s resignation, termination, retirement or death, in cash, at a value equal to the number of DSUs credited, multiplied by the 5-day market value weighted average price of common shares prior to the date on which a notice of redemption is filed.

For DSUs, compensation cost is measured based on the market price of the Company’s common shares from the date of grant through to the settlement date. Any changes in the market value of the Company’s common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income.

Changes in the number of units for the years ended December 31, 2020 and 2019 were as follows:

Number of units	2020		2019
Balance, beginning of year		234,633		181,352
Units granted (1)		18,395		53,281
Balance, end of year		253,028		234,633
Balance of DSU liability, included in Trade and other payables	$	761	$	1,772

⁽¹⁾ All DSUs were granted to key management personnel.

During the year ended December 31, 2020, the Company granted 18,395 DSUs having a fair value per unit of $11,39 (CAD $14.51) (53,281 DSUs having an average fair value per unit of $3.94 (CAD $5.12) were granted during the year ended December 31, 2019).

As at December 31, 2020, the Company estimated the fair value of the DSU liability at $761, based on the market price of the Company's common shares at that date ($1,772 as at December 31, 2019). The stock-based compensation expense related to the DSU plan recorded in the consolidated statement of loss for the year ended December 31, 2020 amounted to $(993); from this amount, $(2) is presented in Research and development expenses and $(991) is presented in General and administrative expenses (2019 – $1,209; $2 presented in Research and development expenses and $1,207 presented in General and administrative expenses).

(b) Share-based payment arrangements (continued):

(iii) Deferred share unit (DSU) plan (continued):

The value of DSUs granted in 2020 for which services have not been rendered as at December 31, 2020 amounted to $73 and is presented in Prepaid expenses and other assets in the consolidated statement of financial position (the value of DSUs granted in 2019 for which services have not been rendered as at December 31, 2019 amounted to $74).

(c) Accumulated other comprehensive income:

The accumulated balance relates to currency translation adjustments arising from the change in presentation currency, which was applied retrospectively  (refer to note 2 (c)).

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Personnel expenses

12 Months Ended

Dec. 31, 2020

Personnel expenses:

Personnel expenses:

9.Personnel expenses:

The aggregate compensation to personnel of the Company for the years ended December 31, 2020 and 2019 is set out below:

	2020		2019
Short-term benefits	$	4,953	$	2,615
Stock-based compensation (recovery) expense - DSU plan		(993)		1,209
Stock-based compensation expense – Stock option plan		4,791		1,610
	$	8,751	$	5,434

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Net finance (costs) income

12 Months Ended

Dec. 31, 2020

Net finance (costs) income:

Net finance (costs) income

10.Net finance income (costs):

Finance income and Finance costs for the years ended December 31, 2020 and 2019 were attributed as follows:

	2020		2019
Interest income	$	1,045	$	1,146
Foreign exchange gain		179		—
Finance income		1,224		1,146
Interest expense on lease liability (note 5)		(17)		(12)
Interest and bank charges		(22)		(11)
Foreign exchange loss		—		(1,400)
Finance costs		(39)		(1,423)
Net finance income (costs)	$	1,185	$	(277)

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Income taxes

12 Months Ended

Dec. 31, 2020

Income taxes:

Income taxes:

11.Income taxes:

Deferred tax expense

	December 31,		December 31,
	2020		2019
Origination and reversal of temporary differences	$	(7,062)	$	(6,456)
Change in unrecognized deductible temporary differences
including effect of change in tax rate of nil
in 2020 (2019 – $25)		7,062		6,456
Deferred tax expense	$	—	$	—

Reconciliation of effective tax rate:

	Year ended		Year ended
	December 31,		December 31,
	2020		2019
Loss before income taxes:
Canadian operations	$	(29,807)	$	(25,757)
US operations		(1,950)		(251)
		(31,757)		(26,008)
Tax using the Company’s domestic tax rate		(8,416)		(6,918)
Change in unrecognized deductible temporary differences		7,062		6,456
Difference in tax rate of a foreign subsidiary		107		14
Effect of change in tax rate		—		25
Non-deductible stock option expense		1,270		428
Permanent differences and other items		(23)		(5)
Total income tax expense	$	—	$	—

The applicable statutory tax rates are 26.5% in 2020 and 26.6% in 2019. The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company operates. The decrease is due to the reduction of the Quebec income tax rate in 2020 from 11.6% to 11.5%.

Deferred tax assets and liabilities

Recognized deferred tax assets and liabilities:

As at December 31, 2020 and 2019, recognized deferred tax assets and liabilities are attributable to the following:

	Assets				Liabilities				Net
	2020		2019		2020		2019		2020		2019
Taxes losses carried forward	$	183	$	61	$	—	$	—	$	183	$	61
Right-of-use assets		—		—		(178)		(54)		(178)		(54)
Trade and other receivables		—		—		(5)		(7)		(5)		(7)
Tax assets (liabilities)		183		61		(183)		(61)		—		—
Set off of tax		(183)		(61)		183		61		—		—
Net tax assets (liabilities)	$	—	$	—	$	—	$	—	$	—	$	—

Unrecognized deferred tax assets and investment tax credits:

As at December 31, 2020 and 2019, the amounts and expiry dates of tax attributes and temporary differences for which no deferred tax assets was recognized were as follows:

	December 31, 2020					December 31, 2019
	Federal		Provincial		Federal		Provincial
Research and development expenses, without time limitation	$	12,576	$	12,975	$	7,601	$	7,763
Federal research and development investment tax credits
2037		243		—		238		—
2038		365		—		357		—
2039		393		—		399		—
2040		706		—		—		—
		1,707		—		994		—
Tax losses carried forward
2032		266		166		260		162
2033		702		901		688		884
2034		645		645		633		633
2035		876		876		859		859
2036		898		898		880		880
2037		1,768		1,944		1,733		1,906
2038		3,946		3,836		3,868		3,761
2039		23,163		23,015		22,701		22,570
2040		24,711		24,500		—		—
		56,975		56,781		31,622		31,655
Capital losses		11,149		11,149		10,931		10,931
Other deductible temporary differences, without time limitation	$	9,453	$	9,453	$	8,972	$	8,972

Unrecognized deferred tax assets and investment tax credits (continued):

Deferred tax assets and investments tax credits have not been recognized in respect to these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom. The generation of future taxable profit is dependent on the successful commercialization of the Company’s products and technologies.

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Loss per share

12 Months Ended

Dec. 31, 2020

Loss per share:

Loss per share:

12.Loss per share:

	Year ended		Year ended
	December 31,		December 31,
	2020		2019
Basic weighted average number of common shares outstanding		59,023,380		47,430,219
Basic and diluted loss per share	$	(0.54)	$	(0.55)

Excluded from the calculation of the diluted loss per share for the year ended December 31, 2020 is the impact of all stock options granted under the Stock Option Plan, as they would be anti-dilutive.

Excluded from the calculation of the diluted loss per share for the year ended December 31, 2019 is the impact of all stock options granted under the Stock Option Plan and broker warrants, as they would be anti-dilutive.

Stock options granted under the Stock Option Plan could potentially be dilutive in the future.

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Commitments and contingencies

12 Months Ended

Dec. 31, 2020

Commitments and contingencies:

Commitments and contingencies:

13.  Commitments and contingencies:

(a) Contracts in the normal course of business:

The Company enters into contracts in the normal course of business, including for research and development activities, consulting and other services.

As at December 31, 2020, the Company has commitments for expenditures related to contracts for research and development activities of approximately $36,659 (approximately $8,724 as at December 31, 2019), of which $34,621 is due in 2021, $1,486 in 2022 and $552 in 2023.

(b) Indemnity agreement:

The Company is potentially liable in relation to the following indemnity agreement:

In March 2017, the Company entered into a share purchase agreement with Taro for the sale of the Company’s wholly-owned subsidiary Thallion, including all the rights to the drug candidate ShigamabTM. The Company agreed to indemnify Taro, subject to certain conditions and limitations, for losses which it may suffer or incur, arising out of any debts, liabilities, commitments or obligations of any nature resulting from any matters, actions, events, facts or circumstances related to the activities or affairs of Thallion, which occurred prior to the effective time of the share purchase agreement. No indemnity provision has been recorded by the Company as at December 31, 2020 and 2019 for this matter as the Company does not expect to make any payments under the indemnity provisions of this agreement.

(c) License agreements and research collaborations:

In the past the Company has entered into various agreements whereby future cash payments may be made based on criteria such as sales for certain legacy products. The Company has not recorded any provision on such agreements as the possibly for a payment is not probable.

(d) Consulting and services agreement:

The payments under the consulting and services agreement with Picchio International Inc. (“Picchio International”) (refer to note 14 (b)) will amount to $196 (CAD$250) in 2021, plus the reimbursement of applicable expenses for services rendered under the agreement.

(e) Letter of credit:

As at December 31, 2020, the Company is contingently liable for a letter of credit in the amount of $39 (CAD$50) (2019 - $38 (CAD$50)). Cash is pledged under the letter of credit and is presented as non-current Other assets in the consolidated statement of financial position as at December 31, 2020.

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Related party transactions

12 Months Ended

Dec. 31, 2020

Related party transactions:

Related party transactions:

14.  Related party transactions:

(a) There is no single ultimate controlling party.

(b) Dr. Francesco Bellini, Chairman of the Board of Directors, provides ongoing advisory services to the Company under the terms of a consulting and services agreement between the Company and Picchio International, wholly-owned by Dr. Francesco Bellini and his spouse.  The agreement has a one-year term and shall renew for successive one-year terms. The Company recorded fees and expenses of $284 and $287 (CAD $381 for both years) under the consulting and services agreement for the years ended December 31, 2020 and 2019, respectively.

(c) Key management personnel:

The Chief Executive Officer, Chief Financial Officer, Chief Medical Officer, Vice-Presidents and Directors of BELLUS Health are considered key management personnel.

The aggregate compensation to key management personnel of the Company for the years ended December 31, 2020 and 2019 is set out below:

	2020		2019
Short-term benefits	$	2,307	$	1,799
Stock-based compensation (recovery) expense – DSU plan		(993)		1,209
Stock-based compensation expense - Stock option plan		3,790		1,409
	$	5,104	$	4,417

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Segment disclosures

12 Months Ended

Dec. 31, 2020

Segment disclosures:

Segment disclosures:

15.  Segment disclosures:

Business segment:

The Company operates in one business segment, which is the development of therapeutic candidates for the treatment of health disorders. As at December 31, 2020, the Company’s operations were conducted in Canada and the United States. All of the Company's non-current assets are located in Canada.

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Capital management

12 Months Ended

Dec. 31, 2020

Capital management:

Capital management:

16.  Capital management:

The Company’s objective in managing capital is to ensure a sufficient liquidity position to finance its research and development activities, including pipeline expansion, general and administrative expenses, working capital and overall capital expenditures.

Since inception, the Company has financed its liquidity needs primarily through public offerings of common shares, private placements, the issuance of convertible notes, asset sales and the proceeds from research tax credits. When possible, the Company tries to optimize its liquidity needs by non-dilutive sources, including research tax credits, grants, interest income, as well as with proceeds from collaboration and research agreements, asset sales or product licensing agreements.

Historically, when the Company had the option, it has settled its obligations through the issuance of common shares instead of in cash to preserve its liquidities to finance its operations and future growth.

The Company defines capital to include total shareholders’ equity.

The capital management objectives remain the same as previous fiscal year.

As at December 31, 2020, cash, cash equivalents and short-term investments amounted to $98,260. The Company’s general policy on dividends is to retain cash to keep funds available to finance the Company’s growth.

The Company is not subject to any capital requirements that are externally imposed.

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Financial instruments

12 Months Ended

Dec. 31, 2020

Financial instruments:

Financial instruments:

17.  Financial instruments:

(a) Financial instruments - carrying values and fair values:

Fair value estimates are made as of a specific point in time, using available information about the financial instrument. These estimates are subjective in nature and may not be determined with precision.

For its financial assets and liabilities measured at amortized cost as at December 31, 2020, the Company has determined that the carrying value of its short-term financial assets and liabilities (consisting of cash, cash equivalents and short-term investments, trade and other receivables and trade and other payables) approximates their fair value because of the relatively short periods to maturity of these instruments.

(b) Credit risk management:

Credit risk results from the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and short-term investments. The Company invests cash mainly with major North American financial institutions. Cash equivalents and short-term investments are comprised of fixed income instruments with a high credit ranking (not less than A‑1) as rated by Standard and Poor’s. The Company has investment policies that are designed to provide for the safety and preservation of principal, the Company’s liquidity needs and yields that are appropriate.

As at December 31, 2020, the Company’s maximum credit exposure corresponded to the carrying amount of these financial assets.

(c) Liquidity risk management:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company requires continued access to capital markets to support its operations, as well as to achieve its strategic plans. Any impediments to the Company’s ability to access capital markets, including the lack of financing capability or an adverse perception in capital markets of the Company’s financial condition or prospects, could have a materially adverse effect on the Company. In addition, the Company’s access to financing is influenced by the economic and credit market environment.

The Company manages liquidity risk through the management of its capital structure, as outlined in note 16. The Company will require additional financing in the future. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews, approves and monitors the Company’s operating and capital budgets, as well as any material transactions.

The balance of accounts payable and accrued liabilities is due within one year. For information on the maturity of leases, as well as commitments and contingencies, see notes 5 and 13, respectively.

(d) Foreign currency risk management:

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than US dollar. The Company’s exposure relates primarily to changes in the US dollar versus the Canadian dollar exchange rate. For the Company’s foreign currency transactions, fluctuations in the respective exchange rates relative to the US dollar will create volatility in the Company’s cash flows and the reported amounts for revenue and expenses in income. Additional variability arises from the translation of monetary assets and liabilities denominated in currencies other than the US dollar at the rates of exchange at each statement of financial position date, the impact of which is reported as a foreign exchange gain or loss in income. The Company holds a portion of its cash, cash equivalents and short-term investments in Canadian dollars to meet its liquidity needs in Canadian dollars, but does not use derivative financial instruments to reduce its foreign exchange exposure.

The following table provides an indication of the Company’s significant foreign currency exposures as at December 31, 2020:

	December 31,
(in US dollars)	2020
Net assets denominated in Canadian dollars:
Cash and cash equivalents	$	7,864
Short-term investments		4,341
Trade and other receivables		324
Research tax credit		716
Other assets		39
Trade and other payables		(2,212)
Lease liability, total		(503)
	$	10,569

Based on the Company’s net foreign currency exposure noted above, and assuming that all other variables remain constant, a hypothetical 10% depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase/decrease of $1,057 in income.

The CAD to USD exchange rate applied as at December 31, 2020 was 0.7852.

(e) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company’s exposure to interest rate risk is as follows:

Cash and cash equivalents	Short-term fixed and variable interest rate
Short-term investments	Short-term fixed interest rate
Restricted cash	Short-term fixed interest rate

Based on the carrying amount of the Company's variable interest-bearing financial instruments as at December 31, 2020, an assumed 1% increase or 1% decrease in interest rates during such period would have resulted in an increase/decrease of $337 in income.

Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash equivalents and short-term investments is limited because these investments have short-term maturities and are generally held to maturity.

The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

Interest income presented in the consolidated statement of loss represents interest income on financial assets.

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Significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2020

Significant accounting policies:

Basis of consolidation:

(a)  Basis of consolidation:

These consolidated financial statements include the accounts of BELLUS Health Inc. and its subsidiaries.

Subsidiaries are entities controlled by BELLUS Health Inc. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intercompany balances and transactions have been eliminated on consolidation.

Cash, cash equivalents and short-term investments:

(b)  Cash, cash equivalents and short-term investments:

The Company considers all investments with maturities of three months or less at inception, that are highly liquid and readily convertible into cash, to be cash equivalents. Investments with maturities greater than three months and less than one year are presented as short-term investments in the consolidated statement of financial position.

Revenue recognition:

(c)  Revenue recognition:

Revenue from contracts with customers is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. A company recognizes revenue when it transfers control of a product or service to a customer. The Company does not have any revenue from contracts with customers.

Revenue from other contracts may be derived from development and other services provided by the Company. Revenue from contracted services is recognized over time as the contracted services are performed.

Consideration received from other contracts may also include amounts received as licensing fees, costs reimbursements, sales-based royalty payments, upfront payments and regulatory and sales-based milestone payments for specific achievements. Revenue is recognized in income only when conditions and events under the contract have been met or occurred and it is probable that the Company will collect the consideration to which it is entitled.

Research and development:

(d)  Research and development:

Research and development costs consist of direct and indirect expenditures, including a reasonable allocation of overhead expenses, associated with the Company’s development programs. Overhead expenses comprise general and administrative support provided to the development programs and involve costs associated with support activities.

Research expenditures undertaken with the prospect of gaining new scientific or technical knowledge are expensed as incurred. Development expenditures are deferred when they meet the criteria for capitalization in accordance with IFRS, and the future benefits could be regarded as being reasonably certain. The criteria to be fulfilled in order to capitalize development costs are if such costs can be measured reliably, if the product or process is technically and commercially feasible, if future economic benefits are probable and if the Company intends to and has sufficient resources to complete the development and to use or sell the asset. As at December 31, 2020 and 2019, no development costs were deferred.

In-process research and development asset:

(e)  In-process research and development asset:

The in-process research and development (“IPR&D”) asset acquired by the Company in 2017 is accounted for as an indefinite-lived intangible asset until the project is completed or abandoned, at which point it will be amortized or impaired, respectively. In March 2020, the IPR&D asset’s carrying value was increased for the additional portion acquired by the Company at that time (refer to note 6). The acquisition cost of this additional portion of the IPR&D asset was estimated using the fair value of the issued share-based consideration paid. Subsequent research and development costs associated with the IPR&D asset are accounted for consistent with the research and development policy in note 3 (d).

The Company assesses at each reporting date whether there is an indication that the asset may be impaired. Irrespective of whether there is any indication of impairment, the IPR&D asset is tested for impairment annually by comparing its carrying amount with its recoverable amount.

The asset’s recoverable amount is the greater of its fair value less costs to sell and its value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount immediately. Impairment losses are recognized in income. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years.

Government assistance:

(f)  Government assistance:

Government assistance, consisting of research tax credits, is recorded as a reduction of the related expense. Research tax credits are recognized when management determines that there is reasonable assurance that the tax credits will be received. Research tax credits claimed for the current and prior years are subject to government review and approval which could result in adjustments to amounts recognized by the Company. Adjustments from tax authorities, if any, would be recognized in the period of revision.

Foreign exchange:

(g)  Foreign exchange:

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction. Income and expenses denominated in foreign currencies are translated at exchange rates in effect at the transaction date. Translation gains and losses are recognized in income.

Income taxes:

(h)  Income taxes:

Deferred tax is recognized for temporary differences between the financial reporting bases and the income tax bases of the Company’s assets and liabilities and is recorded using the substantively enacted tax rates anticipated to be in effect when the tax differences are expected to reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, 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 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.

Provisions:

(i)  Provisions:

A provision is recognized if, as a result of a past event, the Company has a present, legal or constructive obligation that can be estimated reliably, 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 current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

Leases:

(j)Leases:

The Company is a lessee for a number of leases. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. However, for its leases of property, the Company has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The right-of-use asset is depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made (measured at amortised cost using the effective interest method). It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Earnings per share:

(k)  Earnings per share:

Basic earnings per share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed in a manner consistent with basic earnings per share, except that the weighted average number of shares outstanding is increased to include additional shares from the assumed exercise of dilutive stock options and broker warrants. The number of additional shares is calculated by assuming that outstanding stock options and broker warrants were exercised, and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting period.

Employee benefits:

(l)  Employee benefits:

(i) Short-term employee benefits:

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(ii) Share-based payment arrangements:

The Company follows the fair value-based method to account for stock options granted to employees, whereby compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period with a corresponding increase to equity. For the stock options with graded vesting, the fair value of each tranche is recognized over its respective vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the vesting date.

When stock options are exercised, the Company issues new shares. The proceeds received, together with the related portion previously recorded in other equity, are credited to share capital.

The Company also grants Deferred Share Units (“DSU”) as compensation for directors and designated employees. Upon termination of service, DSU participants are entitled to receive for each DSU credited to their account the payment in cash on the date of settlement based on the value of a BELLUS Health common share. For DSUs, compensation cost is measured based on the market price of the Company’s common shares from the date of grant through to the settlement date. Any changes in the market value of the Company’s common shares through to the settlement date result in a change to the measure of compensation cost for those awards and are recorded in income in the same line item as stock-based compensation expense.

Financial instruments:

(m)  Financial instruments:

The Company measures its financial instruments as follows:

Financial assets and Financial liabilities

(i)Recognition and initial measurement:

Trade receivables are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(ii)Classification and subsequent measurement:

Financial assets - Classification:

On initial recognition, a financial asset is classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) – debt investment, FVOCI – equity investment or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest in the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment by investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets - Subsequent measurement and gains and losses:

Financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in income. Any gain or loss on derecognition is recognized in income.

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in income. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to income.

Equity investments at FVOCI are subsequently measured at fair value. Dividends are recognized as income in income unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to income.

Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses are recognized in income.

Financial liabilities - Classification:

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.

Financial liabilities - Subsequent measurement and gains and losses:

Financial liabilities at FVTPL are subsequently measured at fair value and net gains and losses, including any interest expense, are recognized in income. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in income. Any gain or loss on derecognition is also recognized in income.

Cash, cash equivalents and short-term investments, trade receivables, amounts receivable under license agreements and other receivables are measured at amortized cost.

Trade and other payables are measured at amortized cost.

Share capital

Common shares and preferred shares that are not redeemable or are redeemable only at the Company’s option are classified as equity. Incremental costs directly attributable to the issue of equity-classified shares are recognized as a deduction from the deficit, net of any tax effects.

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Cash, cash equivalents and short-term investments (Tables)

12 Months Ended

Dec. 31, 2020

Cash, cash equivalents and short-term investments:

Schedule of Cash, cash equivalents and short-term investments

	December 31,		December 31,		January 1,
	2020		2019		2019
Cash balances with banks	$	5,734	$	5,494	$	1,073
Short-term investments with initial maturities of less than
three months or that can be withdrawn on demand: Savings accounts and term deposits, yielding interest at 0.20% to 0.45%  as at December 31, 2020 (December 31, 2019 – 1.28% to 1.85)%		43,155		13,194		9,877
Cash and cash equivalents		48,889		18,688		10,950
Short-term investments with initial maturities greater than three months and less than one year:
Term deposits issued in USD, yielding interest as at 0.23% to 0.55% as at December 31, 2020 (December 31, 2019 – 1.80% to 2.15%)		20,021		36,701		10,510
Term deposits issued in CAD (CAD $5,529), yielding interest at 0.85% to 1.27% as at December 31, 2020 (December 31, 2019 – (CAD $15,555), 1.92% to 2.60%)		4,341		11,975		14,402
Bearer deposit notes issued in USD, yielding interest at 0.16% to 0.22% as at December 31, 2020  (December 31, 2019 – yielding interest at 1.76% to 1.83%)		25,009		22,616		—
Short-term investments		49,371		71,292		24,912
Cash, cash equivalents and short-term investments	$	98,260	$	89,980	$	35,862

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Right-of-use asset and lease liability (Tables)

12 Months Ended

Dec. 31, 2020

Right-of-use asset and lease liability

Schedule of right of use asset and lease liability

	Carrying
	value
Cost:
Balance as at January 1, 2019	$	114
Additions to right-of-use asset		204
Currency translation adjustment (note 2 (c))		8
Balance as at December 31, 2019		326
Additions to right-of-use asset		535
Derecognition due to lease modification		(59)
Balance as at December 31, 2020	$	802
Accumulated amortization:
Balance as at January 1, 2019	$	—
Depreciation		(120)
Currency translation adjustment (note 2 (c))		(2)
Balance as at December 31, 2019		(122)
Depreciation		(179)
Balance as at December 31, 2020	$	(301)
Net carrying value:
Balance as at January 1, 2019	$	114
Balance as at December 31, 2019		204
Balance as at December 31, 2020		501

Lease liability:

	Carrying
	value
Balance as at January 1, 2019	$	114
Additions to lease liability		204
Interest expense		12
Principal repayment		(146)
Currency translation adjustment (note 2 (c))		4
Balance as at December 31, 2019	$	188
Addition to lease liability		535
Derecognition due to lease modification		(55)
Interest expense		17
Principal repayment		(187)
Foreign exchange loss		5
Balance as at December 31, 2020	$	503
Current portion of lease liability		156
Non-current portion of lease liability	$	347

Schedule of minimum annual payments under leases

Years ending December 31,
2021	$	184
2022		206
2023 and after		162
	$	552

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Trade and other payables (Tables)

12 Months Ended

Dec. 31, 2020

Trade and other payables:

Schedule of trade and other payables

	December 31,		December 31,		January 1,
	2020		2019		2019
Trade payables	$	648	$	3,975	$	407
Other accrued liabilities		4,086		1,698		1,096
DSU liability (note 8 (b) (iii))		761		1,772		489
	$	5,495	$	7,445	$	1,992

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Shareholders' equity (Tables)

12 Months Ended

Dec. 31, 2020

Shareholders' equity:

Schedule of issued and outstanding common shares

	Number	Dollars
Balance, December 31, 2019	55,378,660	$	486,401
Issued in consideration for acquisition of remaining  BLU-5937 Assets (note 8 (a) (i))	4,770,000		47,749
Issued in connection with the 2020 Offering (note 8 (a) (ii))	17,888,889		40,250
Issued upon stock options exercise (note 8 (b) (i))	128,222		334
Issued upon broker warrants exercise (note 8 (b) (ii))	171,590		552
Balance, December 31, 2020	78,337,361	$	575,286

	Number	Dollars
Balance, December 31, 2018 and January 1, 2019	43,622,136	$	405,626
Issued in connection with the 2019 Offering (note 8 (a) (iii))	11,179,451		79,374
Issued upon stock options exercise (note 8 (b) (i))	41,667		103
Issued upon broker warrants exercise (note 8 (b) (ii))	535,406		1,298
Balance, December 31, 2019	55,378,660	$	486,401

(i) On March 25, 2020, the Company issued 4,770,000 common shares from treasury in consideration for the acquisition of the remaining BLU-5937 Assets (refer to note 6).

(ii) On October 22, 2020, the Company closed an equity offering, issuing a total of 17,888,889 common shares from treasury at a price of $2.25 per share for gross proceeds of $40,250 including the exercise in full of the underwriters’ option to purchase 2,333,333 common shares (the “2020 Offering”). Share issue costs of $2,953, comprised mainly of agents’ commission, legal, professional and filing fees, have been charged to the deficit.

(iii) On September 9, 2019, the Company closed an equity offering, issuing 9,859,155 common shares from treasury at a price of $7.10 per share for gross proceeds of $70,000, and on September 17, 2019, the underwriters of the equity offering partially exercised their option to purchase additional common shares (over-allotment option) to purchase common shares of the Company, resulting in the issuance of an additional 1,320,296 common shares from treasury at a price of $7.10 per share, for additional gross proceeds of $9,374 (together, the "2019 Offering"). Share issue costs of $6,723, comprised mainly of agents' commission, legal, professional and filing fees, have been charged to the deficit.

“At-the-market” sales agreement

On December 23, 2020, the Company entered into an “at-the-market”  (“ATM”) sales agreement (the “Sales Agreement”) with Jefferies LLC ("Jefferies") pursuant to which the Company may from time to time sell through at-the-market distributions with Jefferies acting as sales agent (the “Agent”) its common shares for aggregate gross proceeds of up to $50,000, including sales made directly on the Nasdaq or on any other existing trading market for the common shares in the United States.  No common shares will be offered or sold in Canada. The common shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 2-year term and requires the Company to pay to the Agent a commission of up to 3.0% of the gross proceeds of any common shares sold. Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts to sell the common shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Company and the Agent may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Company has provided the Agent with customary indemnification rights.

During the year ended December 31, 2020, no common shares were sold under the ATM program. As at December 31, 2020, total costs incurred to register the Sales Agreement, amounting to $380, are recorded as deferred financing costs and classified as prepaids and other assets in the consolidated statement of financial position. Under an ATM program, proportional costs for commission, legal and costs related to common shares sold are reclassified from deferred financing costs to deficit upon share issuance.

Schedule of changes in outstanding stock options issued

		Weighted
		average
	Number	exercise price (9)
Balance, December 31, 2019	4,726,943	$	2.26 (CAD $2.88)
Granted (1) (2) (3) (4) (5)	1,805,000	$	7.74 (CAD $9.85)
Exercised	(128,222)	$	1.51 (CAD $1.92)
Forfeited	(115,555)	$	6.27 (CAD $7.99)
Balance, December 31, 2020	6,288,166	$	3.78 (CAD $4.81)

		Weighted
		average
	Number	exercise price (9)
Balance, December 31, 2018	3,220,280	$	1.13 (CAD $1.47)
Granted (6) (7) (8)	1,548,330	$	4.45 (CAD $5.79)
Exercised	(41,667)	$	1.39 (CAD $1.80)
Balance, December 31, 2019	4,726,943	$	2.22 (CAD $2.88)

⁽¹⁾ 1,010,000 stock options were granted on April 1, 2020, having an exercise price of $10.92 (CAD $13.91); 750,000 stock options granted to key management personnel and 260,000 granted to other employees.

⁽²⁾ 65,000 stock options were granted to other employees on May 14, 2020, having an exercise price of $11.56 (CAD $14.72).

⁽³⁾ 85,000 stock options were granted to other employees on August 12, 2020, having an exercise price of $2.81 (CAD $3.58).

⁽⁴⁾ 185,000 stock options were granted to other employees on November 11, 2020, having an exercise price of $2.41 (CAD $3.14).

⁽⁵⁾ 460,000 stock options were granted on December 14, 2020, having an exercise price of $3.24 (CAD $4.12); 390,000 stock options granted to key management personnel and 70,000 granted to other employees.

⁽⁶⁾ 1,015,275 stock options were granted on February 20, 2019, having an exercise price of $3.35 (CAD$4.36); 895,830 stock options granted to key management personnel and 119,445 granted to other employees.

⁽⁷⁾ 20,833 stock options were granted to other employees on August 7, 2019, having an exercise price of $8.79 (CAD$11.41).

⁽⁸⁾ 512,222 stock options were granted on November 13, 2019, having an exercise price of $6.46 (CAD$8.39); 472,222 stock options granted to key management personnel and 40,000 granted to other employees.

⁽⁹⁾ USD equivalent is presented at the closing rate of the corresponding period.

Schedule of information about stock outstanding options and exercisable options

	Options outstanding		Options exercisable
		Weighted
		average
		years
Exercise price/share (1)	Number	To expiration	Number
$0.85 (CAD $1.08)	719,445	6.3	432,223
$0.99 (CAD $1.26)	1,127,779	7.1	441,111
$1.19 (CAD $1.51)	41,667	6.9	25,000
$1.41 (CAD $1.80)	1,077,777	1.6	1,077,777
$1.61 (CAD $2.05)	41,667	7.5	16,667
$2.47 (CAD $3.14)	185,000	9.9	—
$2.81 (CAD $3.58)	70,000	9.6	—
$2.97 (CAD $3.78)	5,667	1.6	5,667
$3.17 (CAD $4.03)	28,611	5.2	22,889
$3.24 (CAD $4.12)	460,000	10.0	—
$3.42 (CAD $4.36)	974,998	8.1	190,556
$6.59 (CAD $8.39)	512,222	8.9	102,444
$8.96 (CAD $11.41)	8,333	8.6	4,166
$10.92 (CAD $13.91)	970,000	9.3	—
$11.56 (CAD $14.72)	65,000	9.4	—
	6,288,166	7.1	2,318,500

(1)   USD equivalent is presented at the closing rate.

Schedule of weighted average assumptions for stock options granted

	2020 (1)(3)			2019 (2)(3)
Weighted average fair value of stock options at grant date	$	5.68 (CAD $7.93)		$	3.57 (CAD $4.72)
Weighted average share price	$	7.06 (CAD $9.85)		$	4.38 (CAD $5.79)
Weighted average exercise price	$	7.06 (CAD $9.85)		$	4.38 (CAD $5.79)
Risk-free interest rate		0.55	%		1.73	%
Expected volatility		104	%		100	%
Expected life in years		7			7
Expected dividend yield		Nil			Nil

⁽¹⁾ Stock options were granted on April 1, 2020, May 14, 2020 and August 12, 2020, November 11, 2020 and December 14, 2020.

⁽²⁾ Stock options were granted on February 20, 2019, August 7, 2019 and November 13, 2019.

⁽³⁾ USD equivalent is presented at the historical rate.

Schedule of changes in outstanding broker warrants

	Number	Dollars
Balance, December 31, 2019	171,590	$	131
Exercised – from the 2018 Offering (1)	(171,590)		(131)
Balance, December 31, 2020	—	$	—

	Number	Dollars
Balance, December 31, 2018 and January 1, 2019	710,278	$	521
Exercised – from the 2018 Offering (2)	(231,261)		(166)
Exercised – from the 2017 Offering(3)	(304,145)		(221)
Expired – from the 2017 Offering	(3,282)		(3)
Balance, December 31, 2019	171,590	$	131

⁽¹⁾ During the year ended December 31, 2020, the Company issued a total of 171,590 common shares from treasury upon the exercise of a total of 171,590 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $131, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽²⁾ During the year ended December 31, 2019, the Company issued a total of 231,261 common shares from treasury upon the exercise of a total of 231,261 broker warrants issued in connection with the 2018 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $166, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

⁽³⁾ During the year ended December 31, 2019, the Company issued a total of 304,145 common shares from treasury upon the exercise of a total of 304,145 broker warrants issued in connection with 2017 Offering. As a result of their exercise, the aggregate carrying value of the broker warrants of $221, initially allocated to Other equity pending the issuance of common shares, was reclassified to Share capital.

Schedule of changes in the number of deferred share units (DSU)

Number of units	2020		2019
Balance, beginning of year		234,633		181,352
Units granted (1)		18,395		53,281
Balance, end of year		253,028		234,633
Balance of DSU liability, included in Trade and other payables	$	761	$	1,772

⁽¹⁾ All DSUs were granted to key management personnel.

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Personnel expenses (Tables)

12 Months Ended

Dec. 31, 2020

Personnel expenses:

Schedule of personnel expenses

	2020		2019
Short-term benefits	$	4,953	$	2,615
Stock-based compensation (recovery) expense - DSU plan		(993)		1,209
Stock-based compensation expense – Stock option plan		4,791		1,610
	$	8,751	$	5,434

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Net finance (costs) income (Tables)

12 Months Ended

Dec. 31, 2020

Net finance (costs) income:

Schedule of net finance (costs) income

	2020		2019
Interest income	$	1,045	$	1,146
Foreign exchange gain		179		—
Finance income		1,224		1,146
Interest expense on lease liability (note 5)		(17)		(12)
Interest and bank charges		(22)		(11)
Foreign exchange loss		—		(1,400)
Finance costs		(39)		(1,423)
Net finance income (costs)	$	1,185	$	(277)

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Income taxes (Tables)

12 Months Ended

Dec. 31, 2020

Income taxes:

Schedule of deferred tax expense and recognized deferred tax assets and liabilities

	December 31,		December 31,
	2020		2019
Origination and reversal of temporary differences	$	(7,062)	$	(6,456)
Change in unrecognized deductible temporary differences
including effect of change in tax rate of nil
in 2020 (2019 – $25)		7,062		6,456
Deferred tax expense	$	—	$	—

	Assets				Liabilities				Net
	2020		2019		2020		2019		2020		2019
Taxes losses carried forward	$	183	$	61	$	—	$	—	$	183	$	61
Right-of-use assets		—		—		(178)		(54)		(178)		(54)
Trade and other receivables		—		—		(5)		(7)		(5)		(7)
Tax assets (liabilities)		183		61		(183)		(61)		—		—
Set off of tax		(183)		(61)		183		61		—		—
Net tax assets (liabilities)	$	—	$	—	$	—	$	—	$	—	$	—

Schedule of reconciliation of effective tax rate

	Year ended		Year ended
	December 31,		December 31,
	2020		2019
Loss before income taxes:
Canadian operations	$	(29,807)	$	(25,757)
US operations		(1,950)		(251)
		(31,757)		(26,008)
Tax using the Company’s domestic tax rate		(8,416)		(6,918)
Change in unrecognized deductible temporary differences		7,062		6,456
Difference in tax rate of a foreign subsidiary		107		14
Effect of change in tax rate		—		25
Non-deductible stock option expense		1,270		428
Permanent differences and other items		(23)		(5)
Total income tax expense	$	—	$	—

Schedule of the amounts and expiry dates of tax attributes and temporary differences for which no deferred tax assets was recognized

	December 31, 2020					December 31, 2019
	Federal		Provincial		Federal		Provincial
Research and development expenses, without time limitation	$	12,576	$	12,975	$	7,601	$	7,763
Federal research and development investment tax credits
2037		243		—		238		—
2038		365		—		357		—
2039		393		—		399		—
2040		706		—		—		—
		1,707		—		994		—
Tax losses carried forward
2032		266		166		260		162
2033		702		901		688		884
2034		645		645		633		633
2035		876		876		859		859
2036		898		898		880		880
2037		1,768		1,944		1,733		1,906
2038		3,946		3,836		3,868		3,761
2039		23,163		23,015		22,701		22,570
2040		24,711		24,500		—		—
		56,975		56,781		31,622		31,655
Capital losses		11,149		11,149		10,931		10,931
Other deductible temporary differences, without time limitation	$	9,453	$	9,453	$	8,972	$	8,972

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Loss per share (Tables)

12 Months Ended

Dec. 31, 2020

Loss per share:

Schedule of loss per share

	Year ended		Year ended
	December 31,		December 31,
	2020		2019
Basic weighted average number of common shares outstanding		59,023,380		47,430,219
Basic and diluted loss per share	$	(0.54)	$	(0.55)

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Related party transactions (Tables)

12 Months Ended

Dec. 31, 2020

Related party transactions:

Schedule of information about key management personnel

	2020		2019
Short-term benefits	$	2,307	$	1,799
Stock-based compensation (recovery) expense – DSU plan		(993)		1,209
Stock-based compensation expense - Stock option plan		3,790		1,409
	$	5,104	$	4,417

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Financial instruments (Tables)

12 Months Ended

Dec. 31, 2020

Financial instruments:

Schedule of indication of the Company's significant foreign currency exposures

	December 31,
(in US dollars)	2020
Net assets denominated in Canadian dollars:
Cash and cash equivalents	$	7,864
Short-term investments		4,341
Trade and other receivables		324
Research tax credit		716
Other assets		39
Trade and other payables		(2,212)
Lease liability, total		(503)
	$	10,569

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Cash, cash equivalents and short-term investments (Details) $ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CAD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
Cash, cash equivalents and short term investments:
Cash and cash equivalents			$ 48,889	$ 18,688	$ 10,950	$ 10,950
Cash, cash equivalents and short-term investments			98,260	89,980	35,862
Less than three months
Cash, cash equivalents and short term investments:
Cash balances with banks			5,734	5,494	1,073
Short-term investments			43,155	13,194	9,877
Greater than three months and less than one year
Cash, cash equivalents and short term investments:
Short-term investments			49,371	71,292	24,912
Greater than three months and less than one year | Term Deposits | US
Cash, cash equivalents and short term investments:
Short-term investments			20,021	36,701	10,510
Greater than three months and less than one year | Term Deposits | CDN
Cash, cash equivalents and short term investments:
Short-term investments	$ 5,529	$ 15,555	4,341	11,975	$ 14,402
Greater than three months and less than one year | Bearer Deposit Notes
Cash, cash equivalents and short term investments:
Short-term investments			$ 25,009	$ 22,616
Minimum | Less than three months
Cash, cash equivalents and short term investments:
Yielding interest	0.20%	1.28%
Minimum | Greater than three months and less than one year | Term Deposits | US
Cash, cash equivalents and short term investments:
Yielding interest	0.23%	1.80%
Minimum | Greater than three months and less than one year | Term Deposits | CDN
Cash, cash equivalents and short term investments:
Yielding interest	0.85%	1.92%
Minimum | Greater than three months and less than one year | Bearer Deposit Notes | US
Cash, cash equivalents and short term investments:
Yielding interest	0.16%	1.76%
Maximum | Less than three months
Cash, cash equivalents and short term investments:
Yielding interest	0.45%	1.85%
Maximum | Greater than three months and less than one year | Term Deposits | US
Cash, cash equivalents and short term investments:
Yielding interest	0.55%	2.15%
Maximum | Greater than three months and less than one year | Term Deposits | CDN
Cash, cash equivalents and short term investments:
Yielding interest	1.27%	2.60%
Maximum | Greater than three months and less than one year | Bearer Deposit Notes | US
Cash, cash equivalents and short term investments:
Yielding interest	0.22%	1.83%

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Right-of-use asset and lease liability (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Right-of-use asset
Balance at the beginning	$ 204
Additions to right of use assets		$ 205
Depreciation	179	119
Balance at the end	501	204
Cost
Right-of-use asset
Balance at the beginning	326	114
Additions to right of use assets	535	204
Currency translation adjustment (note 2 (c))		8
Derecognition due to lease modification	(59)
Balance at the end	802	326
Accumulated amortization
Right-of-use asset
Balance at the beginning	(122)
Currency translation adjustment (note 2 (c))		(2)
Depreciation	(179)	120
Balance at the end	$ (301)	(122)
IFRS Adjustment
Right-of-use asset
Balance at the beginning		$ 114

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Right-of-use asset and lease liability - Lease liability (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Lease liability:
Balance at the beginning	$ 188
Additions to lease liability	535	$ 204
Interest expense	17	12
Principal repayment	(187)	(146)
Currency translation adjustment (note 2 (c))		4
Derecognition due to lease modification	(55)
Foreign exchange loss	5
Balance at the end	503	188
Current portion of lease liability	156	167	$ 114
Non-current portion of lease liability	$ 347	21
Remaining life of property leases	2 years 8 months 12 days
Incremental borrowing rate	5.00%
IFRS Adjustment
Lease liability:
Balance at the beginning		$ 114

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Right-of-use asset and lease liability - Minimum annual payments (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Minimum annual payments:
Minimum annual payments under the non-cancelable leases, undiscounted	$ 552
2021
Minimum annual payments:
Minimum annual payments under the non-cancelable leases, undiscounted	184
2022
Minimum annual payments:
Minimum annual payments under the non-cancelable leases, undiscounted	206
2023 and after
Minimum annual payments:
Minimum annual payments under the non-cancelable leases, undiscounted	$ 162

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In-process research and development asset (Details) $ in Thousands, $ in Thousands				12 Months Ended
	May 25, 2020 shares	Mar. 25, 2020 CAD ($) shares	Mar. 25, 2020 USD ($) shares	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)
In-process research and development asset
Aggregate fair value of shares				$ 47,749
Carrying value				$ 50,100	$ 1,816	$ 1,730
Treasury shares
In-process research and development asset
Number of common shares issued from treasury | shares	4,770,000
In-process research and development asset | adMare
In-process research and development asset
Cash consideration		$ 500	$ 352
Total consideration paid			48,284
Transaction cost in relation to acquistion			183
Transaction cost in relation to share issuance			$ 301
In process research and development assets and intellectual property assets | adMare | Treasury shares
In-process research and development asset
Number of common shares issued from treasury | shares		4,770,000	4,770,000
Aggregate fair value of shares			$ 47,749

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Trade and other payables (Details) $ in Thousands, $ in Thousands	Dec. 31, 2020 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2019 USD ($)	Jan. 31, 2019 USD ($)	Jan. 01, 2019 USD ($)
Trade and other payables:
Trade payables		$ 648		$ 3,975	$ 407
Other accrued liabilities		4,086		1,698	1,096
DSU liability (note 8 (b) (iii))	$ 761	761	$ 1,772	1,772	489
Total trade and other current payables		$ 5,495		$ 7,445	$ 1,992	$ 1,992

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Shareholders' equity - Reconciliation (Details) $ in Thousands		12 Months Ended
	Dec. 23, 2020 USD ($)	Dec. 31, 2020 USD ($) shares	Dec. 31, 2019 USD ($) shares	Dec. 31, 2020 $ / shares shares	Oct. 22, 2020 shares	Sep. 09, 2019 shares
Share capital
Number of shares sold | shares					17,888,889	9,859,155
Total costs incurred		$ 301
Changes in share capital
Balance at the beginning		88,739	$ 37,092
Aggregate fair value of shares		47,749
Issued in connection with the 2019 Offering (note 8 (a) (iii))		37,297	72,651
Balance at the end		147,115	$ 88,739
At-the-market
Share capital
Aggregate gross proceeds	$ 50,000
Term of agreement	2 years
Maximum commission percentage	3.00%
Number of shares sold | shares				0
Total costs incurred		$ 380
Share Capital
Changes in number of shares issued
Balance at the beginning | shares		55,378,660	43,622,136
Issued in consideration for acquisition of remaining BLU-5937 Assets (note 8 (a) (i)) | shares		4,770,000
Issued in connection with the 2020 Offering (note 8 (a) (ii)) | shares		17,888,889	11,179,451
Issued upon stock options exercise (note 8 (b) (i)) | shares		128,222	41,667
Issued upon broker warrants exercise (note 8 (b) (ii)) | shares		171,590	535,406
Balance at the end | shares		78,337,361	55,378,660
Changes in share capital
Balance at the beginning		$ 486,401	$ 405,626
Aggregate fair value of shares		47,749
Issued in connection with the 2019 Offering (note 8 (a) (iii))		40,250	79,374
Issued upon stock options exercise (note 8 (b) (i))		334	103
Issued upon broker warrants exercise (note 8 (b) (ii))		552	1,298
Balance at the end		$ 575,286	$ 486,401
Common shares
Share capital
Par value | $ / shares				$ 0
Preferred shares
Share capital
Par value | $ / shares				$ 0

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Shareholders' equity - Stock Issuances (Details) $ / shares in Units, $ in Thousands	Oct. 22, 2020 $ / shares shares	Oct. 22, 2020 USD ($) shares	May 25, 2020 shares	Sep. 17, 2019 USD ($) $ / shares shares	Sep. 09, 2019 USD ($) $ / shares shares
Share capital
New shares issuance (in shares)	17,888,889	17,888,889			9,859,155
Price per share | (per share)	$ 2.25				$ 7.10
Proceeds from issuance of shares, gross | $		$ 40,250			$ 70,000
Number of common shares option	2,333,333	2,333,333
Agent commission, legal, professional and filing fees | $		$ 2,953		$ 6,723
Treasury shares
Share capital
Issued in consideration for acquisition of remaining BLU-5937 Assets (note 8 (a) (i))			4,770,000
Over-allotment option
Share capital
New shares issuance (in shares)				1,320,296
Price per share | $ / shares				$ 7.10
Proceeds from issuance of shares, gross | $				$ 9,374

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Shareholders' equity - Stock Option Plan (Details)	12 Months Ended
	Dec. 31, 2020 D
Shareholders' equity:
Vesting period of stock options	5 years
Exercise period of stock options	10 years
Aggregate shares reserved for issuance (as a percent)	12.50%
Aggregate shares reserved for issuance to an optionee (as a percent)	5.00%
Aggregate shares reserved for issuance to insiders (as a percent)	10.00%
Threshold Trading days preceding the date of grant, for calculation of option price per share	5

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Shareholders' equity - Changes in outstanding stock options issued (Details)																	12 Months Ended
	Dec. 14, 2020 Options $ / shares	Dec. 14, 2020 Options $ / shares	Nov. 11, 2020 Options $ / shares	Nov. 11, 2020 Options $ / shares	Aug. 12, 2020 Options $ / shares	Aug. 12, 2020 Options $ / shares	May 14, 2020 Options $ / shares	May 14, 2020 Options $ / shares	Apr. 01, 2020 Options $ / shares	Apr. 01, 2020 Options $ / shares	Nov. 13, 2019 Options $ / shares	Nov. 13, 2019 Options $ / shares	Aug. 07, 2019 Options $ / shares	Aug. 07, 2019 Options $ / shares	Feb. 20, 2019 Options $ / shares	Feb. 20, 2019 Options $ / shares	Dec. 31, 2020 Options $ / shares	Dec. 31, 2020 Options $ / shares	Dec. 31, 2019 Options $ / shares	Dec. 31, 2019 Options $ / shares
Number of options outstanding
Balance at the beginning																	4,726,943	4,726,943	3,220,280	3,220,280
Granted (1) (2) (3) (4) (5)	460,000	460,000	185,000.00	185,000.00					1,010,000	1,010,000	512,222	512,222			1,015,275	1,015,275	1,805,000	1,805,000	1,548,330	1,548,330
Exercised																	(128,222)	(128,222)	(41,667)	(41,667)
Forfeited																	(115,555)	(115,555)
Balance at the end																	6,288,166	6,288,166	4,726,943	4,726,943
Weighted average exercise price
Balance at the beginning | (per share)																	$ 2.26	$ 2.88	$ 1.13	$ 1.47
Granted (6) (7) (8) | (per share)	$ 3.24	$ 4.12							$ 10.92	$ 13.91	$ 6.46	$ 8.39			$ 3.35	$ 4.36	7.74	9.85	4.45	5.79
Exercised | (per share)																	1.51	1.92	1.39	1.80
Forfeited | (per share)																	6.27	7.99
Balance at the end | $ / shares																			2.22
Balance at the end | (per share)																	$ 3.78	$ 4.81	$ 2.26	$ 2.88
Key Management
Number of options outstanding
Granted (1) (2) (3) (4) (5)	390,000	390,000							750,000	750,000	472,222	472,222			895,830	895,830
Other interests
Number of options outstanding
Granted (1) (2) (3) (4) (5)	70,000	70,000			85,000	85,000	65,000	65,000	260,000	260,000	40,000	40,000	20,833	20,833	119,445	119,445
Weighted average exercise price
Granted (6) (7) (8) | (per share)			$ 2.41	$ 3.14	$ 2.81	$ 3.58	$ 11.56	$ 14.72					$ 8.79	$ 11.41

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Shareholders' equity - Stock options outstanding and exercisable (Details)	12 Months Ended
	Dec. 31, 2020 Options $ / shares	Dec. 31, 2020 Options $ / shares	Dec. 31, 2019 Options	Dec. 31, 2018 Options
Stock-based compensation
Options outstanding, Number	6,288,166	6,288,166	4,726,943	3,220,280
Options outstanding, Weighted average years to expiration	7 years 1 month 6 days
Options exercisable, Number	2,318,500	2,318,500
Exercise price of $0.85 (CAD $1.08)
Stock-based compensation
Exercise price/share | (per share)	$ 0.85	$ 1.08
Options outstanding, Number	719,445	719,445
Options outstanding, Weighted average years to expiration	6 years 3 months 18 days
Options exercisable, Number	432,223	432,223
Exercise price of $0.99 (CAD $1.26)
Stock-based compensation
Exercise price/share | (per share)	$ 0.99	$ 1.26
Options outstanding, Number	1,127,779	1,127,779
Options outstanding, Weighted average years to expiration	7 years 1 month 6 days
Options exercisable, Number	441,111	441,111
Exercise price of $1.19 (CAD $1.51)
Stock-based compensation
Exercise price/share | (per share)	$ 1.19	$ 1.51
Options outstanding, Number	41,667	41,667
Options outstanding, Weighted average years to expiration	6 years 10 months 24 days
Options exercisable, Number	25,000	25,000
Exercise price of $1.41 (CAD $1.80)
Stock-based compensation
Exercise price/share | (per share)	$ 1.41	$ 1.80
Options outstanding, Number	1,077,777	1,077,777
Options outstanding, Weighted average years to expiration	1 year 7 months 6 days
Options exercisable, Number	1,077,777	1,077,777
Exercise price of $1.61 (CAD $2.05)
Stock-based compensation
Exercise price/share | (per share)	$ 1.61	$ 2.05
Options outstanding, Number	41,667	41,667
Options outstanding, Weighted average years to expiration	7 years 6 months
Options exercisable, Number	16,667	16,667
Exercise price of $2.47 (CAD $3.14)
Stock-based compensation
Exercise price/share | (per share)	$ 2.47	$ 3.14
Options outstanding, Number	185,000	185,000
Options outstanding, Weighted average years to expiration	9 years 10 months 24 days
Exercise price of $2.81 (CAD $3.58)
Stock-based compensation
Exercise price/share | (per share)	$ 2.81	$ 3.58
Options outstanding, Number	70,000	70,000
Options outstanding, Weighted average years to expiration	9 years 7 months 6 days
Exercise price of $2.97 (CAD $3.78)
Stock-based compensation
Exercise price/share | (per share)	$ 2.97	$ 3.78
Options outstanding, Number	5,667	5,667
Options outstanding, Weighted average years to expiration	1 year 7 months 6 days
Options exercisable, Number	5,667	5,667
Exercise price of $3.17 (CAD $4.03)
Stock-based compensation
Exercise price/share | (per share)	$ 3.17	$ 4.03
Options outstanding, Number	28,611	28,611
Options outstanding, Weighted average years to expiration	5 years 2 months 12 days
Options exercisable, Number	22,889	22,889
Exercise price of $3.24 (CAD $4.12)
Stock-based compensation
Exercise price/share | (per share)	$ 3.24	$ 4.12
Options outstanding, Number	460,000	460,000
Options outstanding, Weighted average years to expiration	10 years
Exercise price of $3.42 (CAD $4.36)
Stock-based compensation
Exercise price/share | (per share)	$ 3.42	$ 4.36
Options outstanding, Number	974,998	974,998
Options outstanding, Weighted average years to expiration	8 years 1 month 6 days
Options exercisable, Number	190,556	190,556
Exercise price of $6.59 (CAD $8.39)
Stock-based compensation
Exercise price/share | (per share)	$ 6.59	$ 8.39
Options outstanding, Number	512,222	512,222
Options outstanding, Weighted average years to expiration	8 years 10 months 24 days
Options exercisable, Number	102,444	102,444
Exercise price of $8.96 (CAD $11.41)
Stock-based compensation
Exercise price/share | (per share)	$ 8.96	$ 11.41
Options outstanding, Number	8,333	8,333
Options outstanding, Weighted average years to expiration	8 years 7 months 6 days
Options exercisable, Number	4,166	4,166
Exercise price of $10.92 (CAD $13.91)
Stock-based compensation
Exercise price/share | (per share)	$ 10.92	$ 13.91
Options outstanding, Number	970,000	970,000
Options outstanding, Weighted average years to expiration	9 years 3 months 18 days
Exercise price of $11.56 (CAD $14.72)
Stock-based compensation
Exercise price/share | (per share)	$ 11.56	$ 14.72
Options outstanding, Number	65,000	65,000
Options outstanding, Weighted average years to expiration	9 years 4 months 24 days

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Shareholders' equity - Stock-based compensation expense (Details) - CAD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share-based payments
Stock-based compensation expense	$ 4,791	$ 1,610
Research and development expenses
Share-based payments
Stock-based compensation expense	1,939	408
General and administrative expenses
Share-based payments
Stock-based compensation expense	$ 2,852	$ 1,202

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Shareholders' equity - Weighted average assumptions for stock options granted (Details) - Weighted average	12 Months Ended
	Dec. 31, 2020 Y $ / shares	Dec. 31, 2020 Y $ / shares	Dec. 31, 2019 Y $ / shares	Dec. 31, 2019 Y $ / shares
Share-based payments
Weighted average fair value of stock options at grant date | (per share)	$ 5.68	$ 7.93	$ 3.57	$ 4.72
Weighted average share price | (per share)	7.06	9.85	4.38	5.79
Weighted average exercise price | (per share)	$ 7.06	$ 9.85	$ 4.38	$ 5.79
Risk-free interest rate	0.55%	0.55%	1.73%	1.73%
Expected volatility	104.00%	104.00%	100.00%	100.00%
Expected life in years	7	7	7	7
Expected dividend yield

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Shareholders' equity - Broker warrants (Details)	12 Months Ended
	Dec. 31, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares	Dec. 31, 2020 $ / shares	Dec. 31, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares
2018 Offering
Disclosure of classes of share capital [line items]
Issued	402,851
Conversion of warrants to shares (per warrant)	1			1
Exercise price (per share) | (per share)	$ 2.69		$ 131	$ 3.42
Broker warrants, term	18 months
2017 Offering
Disclosure of classes of share capital [line items]
Issued		501,871
Conversion of warrants to shares (per warrant)		1			1
Exercise price (per share) | (per share)		$ 1.07	$ 221		$ 1.37
Broker warrants, term		18 months

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Shareholders' equity - Broker warrants - outstanding (Details) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CAD ($) $ / shares shares	Dec. 31, 2019 CAD ($) shares	Dec. 31, 2018 CAD ($) shares	Dec. 31, 2017 $ / shares shares	Dec. 31, 2018 $ / shares shares	Dec. 31, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares
Number
Broker warrants outstanding at the beginning	171,590	710,278
Broker warrants outstanding at the end		171,590	710,278
Dollars
Broker warrants outstanding at the beginning | $	$ 131	$ 521
Broker warrants outstanding at the end | $		$ 131	$ 521
2018 Offering
Number
Issued			402,851
Exercised	(171,590)	(231,261)
Dollars
Exercised | $	$ (131)	$ (166)
Shares issued from treasury	171,590	231,261
Conversion of warrants to shares (per warrant)					1	1
Price per share | (per share)	$ 131				$ 2.69	$ 3.42
Warrants term			18 months
2017 Offering
Number
Issued				501,871
Exercised		(304,145)
Expired		(3,282)
Dollars
Exercised | $		$ (221)
Expired - from the 2017 Offering | $		$ (3)
Shares issued from treasury		304,145
Conversion of warrants to shares (per warrant)				1			1
Price per share | (per share)	$ 221			$ 1.07			$ 1.37
Warrants term				18 months

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Shareholders' equity - (DSU) plan (Details)	12 Months Ended
	Dec. 31, 2020 CAD ($) $ / shares	Dec. 31, 2020 USD ($) $ / shares	Dec. 31, 2019 CAD ($) $ / shares	Dec. 31, 2019 USD ($) $ / shares	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Jan. 31, 2019 USD ($)
Changes in number of Deferred share unit (DSU):
Balance of DSU liability, included in Trade and other payables	$ 761,000		$ 1,772,000		$ 761,000	$ 1,772,000	$ 489,000
Value of DSUs in prepaid expenses and other assets (note 8 (b) (iii))		$ 73,000		$ 74,000
Deferred share unit (DSU) plan
Share-based payments
Threshold number of days, for calculation of volume weighted average trading price	5 days	5 days
Threshold number of days, for calculation of weighted average share price for redemption	5 days	5 days
Changes in number of Deferred share unit (DSU):
Balance, beginning of year		234,633		181,352
Units granted (1)	18,395,000	18,395	53,281,000	53,281
Balance, end of year	253,028			234,633
Weighted average fair value per unit granted | (per share)	$ 14.51	$ 1,139	$ 5.12	$ 3.94
Stock-based compensation expense related to DSU plan	$ (993,000)		$ 1,209,000
Value of DSUs in prepaid expenses and other assets (note 8 (b) (iii))	73,000		74,000
Deferred share unit (DSU) plan | Research and development expenses
Changes in number of Deferred share unit (DSU):
Stock-based compensation expense related to DSU plan	(2,000)		2,000
Deferred share unit (DSU) plan | General and administrative expenses
Changes in number of Deferred share unit (DSU):
Stock-based compensation expense related to DSU plan	$ (991,000)		$ 1,207,000

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Personnel expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Personnel expenses:
Short-term benefits	$ 4,953	$ 2,615
Stock-based compensation (recovery) expense - DSU plan	(993)	1,209
Stock-based compensation expense - Stock option plan	4,791	1,610
Total personnel expenses	$ 8,751	$ 5,434

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Net finance (costs) income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Net finance (costs) income:
Interest income	$ 1,045	$ 1,146
Foreign exchange gain	179
Finance income	1,224	1,146
Interest expense on lease liability (note 5)	(17)	(12)
Interest and bank charges	(22)	(11)
Foreign exchange loss		(1,400)
Finance costs	(39)	(1,423)
Net finance income (costs)	$ 1,185	$ (277)

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Income taxes - Deferred Tax Expense (Details) $ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2019 USD ($)
Income taxes:
Origination and reversal of temporary differences		$ (7,062)		$ (6,456)
Change in unrecognized deductible temporary differences including effect of change in tax rate of $25 in 2020 (2019 - $25)		$ 7,062		6,456
Effect of change in tax rate	$ 0		$ 25	$ 25

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Income taxes - Reconciliation of effective tax rate (Details) $ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2019 USD ($)
Income taxes:
Loss before income taxes		$ (31,757)		$ (26,008)
Tax using the Company's domestic tax rate		(8,416)		(6,918)
Change in unrecognized deductible temporary differences		7,062		6,456
Difference in tax rate of foreign subsidiary		107		14
Effect of change in tax rate	$ 0		$ 25	25
Non-deductible stock option expense		1,270		428
Permanent differences and other items		$ (23)		$ (5)
Applicable statutory tax rate	26.50%	26.50%	26.60%	26.60%
Canadian operations
Income taxes:
Loss before income taxes		$ (29,807)		$ (25,757)
US operations
Income taxes:
Loss before income taxes		$ (1,950)		$ (251)
Quebec
Income taxes:
Applicable statutory tax rate	11.50%	11.50%	11.60%	11.60%

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Income taxes - Recognized deferred tax assets and liabilities (Details) $ in Thousands, $ in Thousands	Dec. 31, 2020 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax assets		$ 183	$ 61
Set off of tax assets		(183)	(61)
Tax liabilities		(183)	(61)
Set off of tax liabilities		183	61
Taxes losses carried forward
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax assets		183	61
Tax assets, net	$ 183		61
Right of use assets
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax liabilities		(178)	(54)
Tax liabilities, net	(178)
Net tax assets (liabilities)			(54)
Trade and other receivables
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax liabilities		$ (5)	(7)
Tax liabilities, net	$ (5)		$ (7)

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Income taxes - Unrecognized deferred tax assets and investment tax credits (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Federal
Disclosure of temporary difference, unused tax losses and unused tax credits
Research and development expenses, without time limitation	$ 12,576	$ 7,601
Federal research and development investment tax credits	1,707	994
Tax losses carried forward	56,975	31,622
Capital losses	11,149	10,931
Other deductible temporary differences, without time limitation	9,453	8,972
Federal | 2032
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	266	260
Federal | 2033
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	702	688
Federal | 2034
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	645	633
Federal | 2035
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	876	859
Federal | 2036
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	898	880
Federal | 2037
Disclosure of temporary difference, unused tax losses and unused tax credits
Federal research and development investment tax credits	243	238
Tax losses carried forward	1,768	1,733
Federal | 2038
Disclosure of temporary difference, unused tax losses and unused tax credits
Federal research and development investment tax credits	365	357
Tax losses carried forward	3,946	3,868
Federal | 2039
Disclosure of temporary difference, unused tax losses and unused tax credits
Federal research and development investment tax credits	393	399
Tax losses carried forward	23,163	22,701
Federal | 2040
Disclosure of temporary difference, unused tax losses and unused tax credits
Federal research and development investment tax credits	706
Tax losses carried forward	24,711
Provincial
Disclosure of temporary difference, unused tax losses and unused tax credits
Research and development expenses, without time limitation	12,975	7,763
Tax losses carried forward	56,781	31,655
Capital losses	11,149	10,931
Other deductible temporary differences, without time limitation	9,453	8,972
Provincial | 2032
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	166	162
Provincial | 2033
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	901	884
Provincial | 2034
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	645	633
Provincial | 2035
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	876	859
Provincial | 2036
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	898	880
Provincial | 2037
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	1,944	1,906
Provincial | 2038
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	3,836	3,761
Provincial | 2039
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	23,015	$ 22,570
Provincial | 2040
Disclosure of temporary difference, unused tax losses and unused tax credits
Tax losses carried forward	$ 24,500

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Loss per share (Details) - $ / shares	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Loss per share:
Basic weighted average number of common shares outstanding (in shares)	59,023,380	47,430,219
Basic and diluted loss per share	$ (0.54)	$ (0.55)

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Commitments and contingencies - Contracts (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Contracts:
Research and development commitments	$ 36,659	$ 8,724
2021
Contracts:
Research and development commitments	34,621
2022
Contracts:
Research and development commitments	1,486
2023
Contracts:
Research and development commitments	$ 552

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Commitments and contingencies - Indemnity agreement (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Indemnity Provision
Indemnity agreement:
Provisions	$ 0	$ 0

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Commitments and contingencies - Additional Information (Details) $ in Thousands, $ in Thousands	Dec. 31, 2020 CAD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2019 USD ($)
Other interests
Disclosure of commitments
Commitment	$ 250	$ 196
Letter of credit
Disclosure of commitments
Commitment	$ 50	$ 39	$ 50	$ 38

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Related party transactions (Details) $ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($)	Dec. 31, 2019 CAD ($)	Dec. 31, 2019 USD ($)
Key Management
Disclosure of transactions between related parties [line items]
Short-term benefits	$ 2,307		$ 1,799
Total Key management personnel compensation	$ 5,104		4,417
Chairman of the Board of Directors and Spouse
Disclosure of transactions between related parties [line items]
Successive 1-year terms	1 year
Renewal term of agreement (in years)	1 year
Fees and expenses	$ 284	$ 381	287
DSU Plan | Key Management
Disclosure of transactions between related parties [line items]
Stock-based compensation (recovery) expense - DSU plan	(993)		1,209
Stock option plan | Key Management
Disclosure of transactions between related parties [line items]
Stock-based compensation expense - Stock option plan	$ 3,790		$ 1,409

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Segment disclosures (Details)	12 Months Ended
	Dec. 31, 2020 segment
Segment disclosures:
Business segments (in segments)	1

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Capital management (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Jan. 01, 2019
Capital management:
Cash, cash equivalents and short-term investments	$ 98,260	$ 89,980	$ 35,862

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Financial instruments - Foreign currency risk management (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($) $ / $
Disclosure of nature and extent of risks arising from financial instruments [line items]
Percentage of reasonably possible increase (as a percent)	10.00%
Percentage of reasonably possible decrease (as a percent)	10.00%
Closing foreign exchange rate | $ / $	0.7852
Foreign currency risk
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	$ 10,569
Increase in measurement due to reasonably possible increase in unobservable input	1,057
(Decrease) in measurement due to reasonably possible decrease in unobservable input	1,057
Foreign currency risk | Cash and cash equivalents
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	7,864
Foreign currency risk | Short-term investments
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	4,341
Foreign currency risk | Trade and other receivables
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	324
Foreign currency risk | Research tax credit
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	716
Foreign currency risk | Trade and other payables
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	(2,212)
Foreign currency risk | Lease liability
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	(503)
Foreign currency risk | Other assets
Disclosure of nature and extent of risks arising from financial instruments [line items]
Risk exposure	$ 39
Interest rate risk
Disclosure of nature and extent of risks arising from financial instruments [line items]
Percentage of reasonably possible increase (as a percent)	1.00%
Percentage of reasonably possible decrease (as a percent)	1.00%
Increase in measurement due to reasonably possible increase in unobservable input	$ 337
(Decrease) in measurement due to reasonably possible decrease in unobservable input	$ (337)