10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to

Commission File Number: 001-38899

Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

Québec	Not applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities 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	MIST	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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  ☒    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  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, 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.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 10^th, 2022, the registrant had 34,286,002 common shares, no par value per share, outstanding.

Table of Contents

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Loss	4
	Condensed Consolidated Statements of Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

“Milestone Pharmaceuticals” and the Milestone logo appearing in this Quarterly Report on Form 10-Q are unregistered trademarks of Milestone Pharmaceuticals Inc. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

This Quarterly Report on Form 10-Q contains references to United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars. References to “$” are to United States dollars and references to “C$” are to Canadian dollars.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "aim," "anticipate," "assume," "believe," "contemplate," "continue," "could," "design," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "positioned," "potential," "seek," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

● the initiation, timing, progress and results of our current and future clinical trials of etripamil, including our Phase 3 clinical trials of etripamil for the treatment of paroxysmal supraventricular tachycardia, our Phase 2 clinical trial of etripamil for the treatment of atrial fibrillation with rapid ventricular rate, and of our research and development programs;

● uncertain impacts that the COVID-19 pandemic may have on our business, strategy, clinical trial progress and research and development efforts;

● our plans to develop and commercialize etripamil and any future product candidates;

● our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

● our ability to develop and, if approved by regulatory authorities, commercialize etripamil in China and Taiwan through our license agreement with Ji Xing Pharmaceuticals;

● our ability to establish collaborations or obtain additional funding;

● our ability to obtain regulatory approval of our current and future product candidates;

● our expectations regarding the potential market size and the rate and degree of market acceptance of etripamil and any future product candidates;

● our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;

1

● the implementation of our business model and strategic plans for our business, etripamil and any future product candidates;

● our intellectual property position and the duration of our patent rights;

● developments or disputes concerning our intellectual property or other proprietary rights;

● our expectations regarding government and third-party payer coverage and reimbursement;

● our ability to compete in the markets we serve;

● the impact of government laws and regulations;

● developments relating to our competitors and our industry; and

● other factors that may impact our financial results.

The foregoing list of risks is not exhaustive. Other sections of this Quarterly Report on Form 10-Q and the section titled "Risk Factors" previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled "Risk Factors" previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K, filed with the SEC and under Milestone’s SEDAR profile at www.sedar.com on March 24, 2022, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Milestone Pharmaceuticals Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands of US dollars, except share data)

	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	37,286	$	114,141
Short-term investments		39,947		—
Research and development tax credits receivable		195		356
Prepaid expenses		5,058		4,299
Other receivables		435		127
Total current assets		82,921		118,923
Operating lease assets		2,545		711
Property and equipment		303		215
Total assets	$	85,769	$	119,849
Liabilities, and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	6,035	$	6,551
Operating lease liabilities		487		224
Total current liabilities		6,522		6,775
Operating lease liabilities (net of current portion)		2,092		474
Total liabilities		8,614		7,249
Shareholders’ Equity
Common shares, no par value, unlimited shares authorized 30,388,109 shares issued and outstanding as of September 30, 2022, 29,897,559 shares issued and outstanding as of December 31, 2021		254,937		251,901
Pre-funded warrants - 12,327,780 issued and outstanding as of September 30, 2022 and 12,327,780 as of December 31, 2021		52,941		52,941
Additional paid-in capital		22,441		15,711
Cumulative translation adjustment		(1,634)		(1,634)
Accumulated deficit		(251,530)		(206,319)
Total shareholders’ equity		77,155		112,600
Total liabilities and shareholders’ equity	$	85,769	$	119,849

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

3

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Loss (Unaudited)

(in thousands of US dollars, except share and per share data)

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenue	$	1,500	$	—	$	1,500	$	15,000
Operating expenses
Research and development, net of tax credits		9,826		9,733		29,251		27,755
General and administrative		4,034		2,961		11,595		8,612
Commercial		2,670		1,579		6,537		4,788
Loss from operations		(15,030)		(14,273)		(45,883)		(26,155)
Interest income, net		474		48		672		186
Net loss	$	(14,556)	$	(14,225)	$	(45,211)	$	(25,969)
Weighted average number of shares and pre-funded warrants outstanding, basic and diluted		42,491,787		42,187,887		42,339,123		41,707,563
Net loss per share, basic and diluted	$	(0.34)	$	(0.34)	$	(1.07)	$	(0.62)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

4

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands of US dollars, except share data)

	Common Shares			Pre-funded warrants
	Number of shares	Amount		Number of warrants	Amount		Additional paid-in capital		Cumulative translation adjustment		Accumulated deficit		Total
Balance as of June 30, 2021	29,846,000	$	251,716	12,327,780	$	52,927	$	11,795	$	(1,634)	$	(175,210)	$	139,594
Transactions in three-month period ended September 30, 2021
Net income	—		—	—		—		—		—		(14,225)		(14,225)
Exercise of stock options	23,785		50	—		—		(26)		—		—		24
Share-based compensation	—		—	—		—		—		—		—		—
Private Placement	—		—	—		—		2,024		—		—		2,024
Issuance of common shares, net of issuance costs	—		—	—		—		—		—		—		—
Balance as of September 30, 2021	29,869,785	$	251,766	12,327,780	$	52,927	$	13,793	$	(1,634)	$	(189,435)	$	127,417
Balance as of June 30, 2022	30,005,884	$	252,236	12,327,780	$	52,941	$	20,090	$	(1,634)	$	(236,974)	$	86,659
Transactions in three-month period ended September 30, 2022
Net loss	—		—	—		—		—		—		(14,556)		(14,556)
Exercise of stock options	20,989		57	—		—		(29)		—		—		28
Private Placement	—		—	—		—		—		—		—		—
Share-based compensation	—		—	—		—		2,380		—		—		2,380
Issuance of common shares, net of issuance costs	361,236		2,644	—		—		—		—		—		2,644
Balance as of September 30, 2022	30,388,109	$	254,937	12,327,780	$	52,941	$	22,441	$	(1,634)	$	(251,530)	$	77,155

Balance as of December 31, 2020	29,827,997	$	251,682	11,417,034	$	48,007	$	8,530	$	(1,634)	$	(163,466)	$	143,119
Transactions in nine-month period ended September 30, 2021
Net loss	—		—	—		—		—		—		(25,969)		(25,969)
Exercise of stock options	41,788		84	—		—		(41)		—		—		43
Private Placement	—		—	910,746		4,920		—		—		—		4,920
Share-based compensation	—		—	—		—		5,304		—		—		5,304
Issuance of common shares, net of issuance costs	—		—	—		—		—		—		—		—
Balance as of September 30, 2021	29,869,785	$	251,766	12,327,780	$	52,927	$	13,793	$	(1,634)	$	(189,435)	$	127,417
Balance as of December 31, 2021	29,897,559	$	251,901	12,327,780	$	52,941	$	15,711	$	(1,634)	$	(206,319)	$	112,600
Transactions in nine-month period ended September 30, 2022
Net loss	—		—	—		—		—		—		(45,211)		(45,211)
Exercise of stock options	129,314		392	—		—		(175)		—		—		217
Share-based compensation	—		—	—		—		6,905		—		—		6,905
Issuance of common shares, net of issuance costs	361,236		2,644	—		—		—		—		—		2,644
Balance as of September 30, 2022	30,388,109	$	254,937	12,327,780	$	52,941	$	22,441	$	(1,634)	$	(251,530)	$	77,155

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

5

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands of US dollars)

	Nine months ended September 30,
	2022		2021
Cash flows used in operating activities
Net loss	$	(45,211)	$	(25,969)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		74		70
Share-based compensation expense		6,905		5,304
Changes in operating assets and liabilities:
Other receivables		(308)		134
Research and development tax credits receivable		161		450
Prepaid expenses		(759)		(540)
Operating lease assets and liabilities		47		25
Accounts payable and accrued liabilities		(516)		(321)
Net cash used in operating activities		(39,607)		(20,847)
Cash provided by (used in) investing activities
Acquisition of PP&E		(162)		—
Acquisition of short-term investments		(62,947)		(15,000)
Redemption of short-term investments		23,000		70,000
Net cash provided by (used in) investing activities		(40,109)		55,000
Cash provided by financing activities
Issuance of common shares, net of issuance costs		2,644		—
Proceeds from exercise of options		217		43
Net Proceeds from issuance of pre-funded warrants in a private placement (note 6)		—		4,920
Cash provided by financing activities		2,861		4,963
Net decrease in cash and cash equivalents		(76,855)		39,116
Cash and cash equivalents – Beginning of period		114,141		72,310
Cash and cash equivalents – End of period	$	37,286	$	111,426

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

6

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

1    Organization and Nature of Operations

Milestone Pharmaceuticals Inc. (Milestone or the Company) is a biopharmaceutical company incorporated under the Business Corporations Act (Québec). Milestone is focused on the development and commercialization of cardiovascular medicines. Milestone’s lead product candidate, etripamil, is a novel, potent short-acting calcium channel blocker that the Company designed and is developing as a rapid-onset nasal spray to be administered by patients. The Company is developing etripamil to treat paroxysmal supraventricular tachycardia, atrial fibrillation, and other cardiovascular indications.

2     Summary of Significant Accounting Policies

a)  Basis of Consolidation

The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc. All intercompany transactions and balances have been eliminated.

b)  Basis of Presentation and Use of Accounting Estimates and Significant Accounting Policies

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed.  Accordingly, the unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2021.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of September 30, 2022, and its statements of loss, shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and its statement of cash flows for the nine months ended September 30, 2022 and 2021.

The condensed consolidated balance sheet as of December 31, 2021, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

These unaudited interim condensed consolidated financial statements are presented in US dollars, which is the Company’s functional currency.

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to,

● Estimates of the percentage of work completed of the total work over the life of an individual clinical trial in accordance with agreements established with contracted research organizations (“CRO”), contracted

7

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

manufacturing organizations (“CMO”) and clinical trial sites which in turn impact the research & development expenses.

● Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

c) Significant Risks and Uncertainties

The ongoing COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines. The pandemic has resulted in many state, local and foreign governments implementing and making adjustments to various orders and restrictions in order to control the spread of the disease, which have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s unaudited interim condensed consolidated financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidate; delays or problems in the supply of its study drug or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and complying with applicable regulatory requirements.

d) Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the unaudited condensed consolidated financial statements as a result of future adoption.

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception  and anticipates to continue to incur losses for at least the next several years. As of September 30, 2022, the Company had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million. Management has evaluated the Company’s current operating plan against our existing cash and cash equivalents and determined that we expect to be able to support our ongoing operations through 2023.

3     Revenues

We generated revenue of $1.5 million from milestone payments under the License Agreement for the three months and nine months ended September 30, 2022 compared to no revenue in the three months ended September 30, 2021 and revenue of $15 million from upfront payments under the License Agreement during the nine months ended September 30, 2021.

8

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

4     Short-term Investments

Short term investments are classified as held-to-maturity, are initially recognized at fair value and are subsequently accounted for at amortized cost. They are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

5    Leases

On May 20, 2022, the Company entered into a new lease arrangement for a 62-month term for new office space located in Charlotte, NC.  The Company recognized the operating lease right-of-use asset and operating lease liabilities at the lease commencement date on August 1, 2022.  The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt.  As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments.  The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S. markets for collateralized debt and used rates near the 62-month period. This resulted in an incremental borrowing rate of 7.55%. Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.

6    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the following:  

	September 30, 2022		December 31, 2021
Trade accounts payable	$	2,853	$	4,384
Accrued compensation and benefits payable		1,851		1,458
Accrued research and development liabilities		571		272
Other accrued liabilities		760		437
Total	$	6,035	$	6,551

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

7      Shareholders’ Equity

Authorized Share Capital

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 30,388,109 shares were issued and outstanding as of September 30, 2022.

As of September 30, 2022, there were 1,121,076 common shares available for issuance under the Employee Stock Purchase Plan (“ESPP”)  and no common shares have been issued under such plan.

In August 2022, the Company issued and sold 361,236 common shares under the Open Market Sale Agreement^SM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, for proceeds of $2.6 million (net of issuance costs of $0.1 million).

Additional Paid-in Capital

The additional paid-in capital balances were as follows:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Opening balance	$	20,090	$	11,795	$	15,711	$	8,530
Share-based compensation expense		2,380		2,024		6,905		5,304
Exercise of stock options		(29)		(26)		(175)		(41)
Closing balance	$	22,441	$	13,793	$	22,441	$	13,793

8     Share Based Compensation

Under the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and the Company’s Stock Option Plan (the “2011 Plan”), unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36^th) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on four-year anniversary of the grant date.

On January 1, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,195,902 common shares. In addition, 125,127 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan. As of September 30, 2022, there were 5,811,310 common shares available for issuance under the 2019 Plan, of which 664,726 common shares were available for future grants.

On November 10, 2021, the Company established a 2021 Inducement Plan through the granting of awards. This 2021 Inducement Plan is intended to help the Company provide an inducement material for certain individuals to enter into employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which employees may benefit from increases in value of the common shares. There were 523,000 options granted and outstanding under the 2021 Inducement Plan during the nine-month period ended September 30, 2022. The options were granted at a weighted average exercise price of $6.37.  

On July 15, 2022, the Company offered an ESPP, in which participation is available to substantially all of our employees in the United States and Canada who meet certain service eligibility requirements.  As of September 30, 2022, the Company has 1,121,076 common shares available under the ESPP with no common shares issued under this plan.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

The total outstanding and exercisable options from the 2011 Plan, 2019 Plan and Inducement Plan as of September 30 were as follows:

	2022
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	1,995,971	1,995,971	$	2.07
Outstanding at beginning of year - 2019 Plan		3,759,834	—		—	3,759,834		9.51
Granted - 2019 Plan		1,748,700	—		—	1,748,700		5.78
Granted - Inducement Plan		—	523,000		—	523,000		6.37
Expired - 2011 Plan		—	—		(1,121)	(1,121)		0.96
Exercised - 2011 Plan		—	—		(114,225)	(114,225)		1.38
Exercised - 2019 Plan		(15,089)	—		—	(15,089)		3.92
Forfeited - 2019 Plan		—	—		—	—		8.56
Cancelled - 2011 Plan		—	—		(19,387)	(19,387)		9.42
Cancelled - 2019 Plan		(17,950)	—		—	(17,950)		14.31
Outstanding at end of period	$	5,475,495	523,000		1,861,238	7,859,733	$	6.70
Outstanding at end of period - Weighted average exercise price	$	8.32	6.37	$	2.04
Exercisable at end of period		2,219,125	—		1,831,482	4,050,607	$	6.28
Exercisable at end of period - Weighted average exercise price	$	9.79	—	$	2.01

	2021
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	2,080,097	2,080,097	$	2.15
Outstanding at beginning of year - 2019 Plan		1,706,190	—		—	1,706,190		13.55
Granted - 2019 Plan		2,065,200	—		—	2,065,200		6.24
Forefeited - 2019 Plan		(13,882)	—		—	(13,882)		12.81
Cancelled - 2019 Plan		(1,167)	—		—	(1,167)		21.48
Exercised - 2011 Plan		—	—		(40,538)	(40,538)		0.97
Exercised - 2019 Plan		(1,250)	—		—	(1,250)		3.74
Outstanding at end of period		3,755,091	—		2,039,559	5,794,650	$	6.94
Outstanding at end of period - Weighted average exercise price	$	9.53	—	$	2.18
Exercisable at end of period		938,433	—		1,764,146	2,702,579	$	5.39
Exercisable at end of period - Weighted average exercise price	$	11.61	—	$	2.08

The weighted average remaining contractual life was 7.8 and 8.0 years for outstanding options as of  September 30, 2022 and 2021, respectively. The weighted average remaining contractual life was 6.7 and 6.9 years for vested options, as of September 30, 2022 and 2021, respectively.

There was $18.6 million and $17.3 million total unrecognized compensation cost related to non-vested share options as of September 30, 2022 and 2021, respectively. The share options are expected to be recognized over a remaining weighted average vesting period of 2.5 years and 2.6 years as of September 30, 2022 and 2021, respectively.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity.

The non-vested options as of September 30 were as follows:

	2022
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		200,639	200,639	$	1.86
Non-vested share options at beginning of year - 2019 Plan		2,665,518		—		—	2,665,518		6.39
Granted - 2019 Plan		1,748,700		—		—	1,748,700		4.37
Granted - Inducement Plan		—		523,000		—	523,000		4.81
Vested, outstanding 2011 Plan		—		—		(170,883)	(170,883)		1.76
Vested, outstanding 2019 Plan		(1,149,117)		—		—	(1,149,117)		5.99
Forfeited - 2019 Plan		(8,731)		—		—	(8,731)		6.27
Non-vested share options at end of period		3,256,370		523,000		29,756	3,809,126	$	5.34
Non-vested share options at end of period - Weighted average fair value	$	5.45	$	—	$	2.44

	2021
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		543,192	543,192	$	1.81
Non-vested share options at beginning of year - 2019 Plan		1,438,026		—		—	1,438,026		10.28
Granted - 2019 Plan		2,065,200		—		—	2,065,200		4.71
Vested, outstanding 2011 Plan		—		—		(267,789)	(267,789)		1.64
Forfeited - 2019 Plan		(13,882)		—			(13,882)		9.18
Vested, outstanding 2019 Plan		(672,686)		—		—	(672,686)		9.17
Non-vested share options at end of period		2,816,658		—		275,403	3,092,061	$	6.07
Non-vested share options at end of period - Weighted average fair value	$	6.47	$	—	$	1.98

There were 523,000 options granted, outstanding and non-vested under the 2021 Inducement Plan during the nine month period ended September 30, 2022. The options were granted at a weighted average fair value price of $4.81.  

The fair value of share-based payment transaction is measured using Black-Scholes valuation model. This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values.

The fair value of options granted for the 2011 Plan, 2019 Plan and 2021 Inducement Plan were estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted:

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Exercise price	$	6.94		$	5.96		$	5.91		$	6.24
Share price	$	6.94		$	5.96		$	5.91		$	6.24
Volatility		93	%		94	%		91	%		94	%
Risk-free interest rate		2.94	%		0.94	%		2.41	%		1.04	%
Expected life		5.75			6.08			6.03			6.01
Dividend		0	%		—	%		0	%		0	%

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the U.S. sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

The Company recognized share-based compensation expense as follows:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Administration	$	1,891	$	863	$	3,683	$	2,186
Research and development		349		821		2,302		2,226
Commercial activities		140		340		920		892
Total	$	2,380	$	2,024	$	6,905	$	5,304

9     Net Loss Per Share

Basic net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period.

For the nine months ended September 30, 2022 and 2021, the Company was in a net loss position. Dilutive net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and shares issuable upon exercise of pre-funded warrants outstanding during the period. The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of September 30, as they would be anti-dilutive:

	2022	2021
Share options	7,859,733	5,794,640

Amounts above reflect the common share equivalents of the noted instruments.

10     Subsequent Events

On October 17, 2022, the Company announced positive of topline results from its second phase 3 clinical trial, which the Company refers to as the RAPID trial, of intranasally administered etripamil in the conversion of the cardiac arrythmia paroxysmal supraventricular tachycardia to normal sinus rhythm. With the positive results from the RAPID clinical trial, the Company has earned a payment of $3.5 million related to the License Agreement. This revenue will be recorded in the quarter ending December 31, 2022.

In mid-October 3,809,523 pre-funded warrants were exercised at an exercise price of $0.01 per share.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the unaudited interim condensed consolidated statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited annual consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 24, 2022. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on the development and commercialization of innovative cardiovascular medicines. Our lead product candidate etripamil is a novel, potent and short-acting calcium channel blocker that we designed as a rapid-onset nasal spray to be self-administered by patients. We are developing etripamil for the treatment of arrhythmias with a lead indication to treat paroxysmal supraventricular tachycardia, or PSVT, with a subsequent indication to treat atrial fibrillation with rapid ventricular rate, or AFib-RVR, and other cardiovascular indications. In October 2022, we announced positive topline results from our second phase 3 clinical trial in PSVT, which we refer to as our RAPID trial. We believe with the safety and tolerability experience from the PSVT program that etripamil can be expanded to the AFib-RVR indication, for which we currently are in a phase 2 clinical trial in the emergency department setting.

Etripamil - Phase III Clinical Program in PSVT

PSVT is a rapid heart rate condition affecting approximately two million Americans that is characterized by episodes of supraventricular tachycardia, or SVT, that start and stop without warning. Episodes of SVT are experienced by patients with symptoms such as palpitations, sweating, chest pressure or pain, shortness of breath, sudden onset of fatigue, lightheadedness or dizziness, fainting and anxiety. Calcium channel blockers have long been approved for the treatment of PSVT as well as other cardiac conditions. Calcium channel blockers available in oral form are used prophylactically to control the frequency and duration of future episodes of SVT. For treatment of acute episodes of SVT, approved calcium channel blockers are administered intravenously under medical supervision, usually in the emergency department, or ED. The combination of convenient nasal-spray delivery, rapid-onset and short duration of action of etripamil has the potential to shift the current treatment paradigm for episodes of SVT away from the burdensome and costly ED setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid termination of episodes of SVT wherever and whenever they occur.

Atrial Fibrillation, or AFib, is a common form of arrhythmia with an irregular and often rapid heart rate that can increase the risk of stroke, heart failure, and other heart-related complications. Acommon complication of AFib is rapid ventricular rate, or AFib-RVR, which is frequently defined as a heart rate ≥ 110 beats per minute. While AFib can occur with or without symptoms, the occurrence of rapid ventricular rate increases the likelihood of symptoms including heart palpitations, shortness of breath and weakness. There are currently two pharmacological approaches to managing AFib: rate control to lower a rapid heart rate and rhythm control to restore and maintain a regular (sinus) rhythm and prevent recurrent AFib episodes. Either of these pharmacological management approaches may be administered chronically or acutely, depending on patient preference and episode frequency and/or severity. For rate control, the rapid heart rate of AFib is typically treated with AV nodal blocking drugs, such as calcium channel blockers, beta blockers, or less commonly, digoxin, to control symptoms and improve cardiac function and hemodynamic stability. Oral rate control drugs used acutely do not provide immediate ventricular rate control due to a 30- to 60-minute delayed onset of action. Breakthrough episodes of symptomatic AFib often require urgent medical treatment with intravenous calcium channel blockers and beta-blockers under medical supervision, usually in the ED to quickly reduce heart rate before transitioning a patient back to oral therapy.  The combination of convenient nasal-spray delivery, rapid-onset and short duration of action of etripamil has the potential to shift the setting of care for rapid rate control away from the burdensome and costly

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ED setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid rate reduction of episodes of Afib-RVR wherever and whenever they occur.

Clinical Program for the Treatment of Paroxysmal Supraventricular Tachycardia

Completed Phase 3 RAPID, NODE-301 and NODE-302 Clinical Trials

RAPID, our multi-center, randomized, double-blind, placebo-controlled phase 3 trial, enrolled a total of 706 patients across clinical sites in North America and Europe. Patients were randomized 1:1 to a regimen of self-administering a first dose etripamil nasal spray, with a repeat dose 10 minutes later if symptoms persisted, or a matching placebo regimen. Self-administration was prompted by a patient’s customary symptoms and was performed in the at-home setting without medical monitoring. A repeat dose regimen was tested such that, patients who did not experience symptom relief within 10 minutes were directed to self-administer a repeat dose of study drug. The RAPID trial achieved its primary endpoint, with patients taking the etripamil regimen demonstrating a highly statistically significant and clinically meaningful difference in time to SVT conversion as compared to placebo. A Kaplan Meier analysis demonstrated a significantly greater proportion of patients who took etripamil converted within thirty minutes compared to placebo (64.3% vs. 31.2%; hazard ratio, or HR, = 2.62; [95% CI 1.66; 4.15]; p<0.001). By 90 minutes post-study drug administration, 80.6% of etripamil patients converted versus 60.7% of placebo patients (HR = 1.93; 95% CI 1.349, 2.752; p<0.001) and statistical significance was maintained throughout the 5-hour observation window. Statistically significant reductions in time to conversion in patients who took etripamil were evident early and persisted throughout the observation window of the study compared to placebo. The median time to conversion for patients in RAPID who self-administered etripamil was 17.2 minutes compared to 53.3 minutes for patients on placebo.The safety and tolerability data from the RAPID trial continue to support the potential self use of etripamil, with findings consistent with those observed in prior trials. The most common randomized treatment emergent adverse events, or RTEAEs, adverse events, or AEs, which occurred within 24 hours of etripamil administration, were related to the nasal local administration site. Overall, the majority of RTEAEs were reported as mild (68%) to moderate (31%). There were no reported serious AEs related to etripamil. To date, the Company’s overall PSVT clinical program has resulted in more than 1,600 unique subject exposures of etripamil doses ≥70 mg.

In the RAPID study, patients who self-administered etripamil sought additional medical interventions less frequently (25% vs. 15%; p=0.103) and had fewer emergency department visits (21% vs. 14%; p=0.209) than patients in the placebo arm. These findings were consistent with the Company’s previously completed Phase 3 NODE-301 study, in which patients who self-administered etripamil sought additional medical interventions less frequently (27% vs. 14%; p=0.119) and saw a reduction in emergency department visits (25% vs. 13%; p=0.076) than patients in the placebo arm. Neither study individually was powered to show statistical significance for these analyses. Notably, predefined analyses of pooled data from the NODE-301 and RAPID trials show that etripamil treatment provided a statistically significant reduction in both the use of additional medical interventions and visits to the emergency department.

The Company believes results from the RAPID trial together with the data from the already completed NODE-301 trial could fulfill the efficacy requirement for a New Drug Application (NDA) submission for etripamil in patients with PSVT. The Company believes they now have the required exposures to fulfill the safety dataset for the NDA and has initiated closure of the open label NODE-303 safety trial.  We plan to submit an NDA application in mid-2023, pending agency feedback.

In March 2020, we reported topline results of the NODE-301 pivotal trial of etripamil for the treatment of PSVT, which was a placebo-controlled phase 3 safety and efficacy trial. NODE-301, which enrolled a total of 431 patients across 65 sites in the United States and Canada, did not meet its primary endpoint of time to conversion of SVT to sinus rhythm compared to placebo over the five-hour period in which patients wore a cardiac monitor following study drug administration. However, important findings included: the median time to conversion for etripamil was 25 minutes (95% CI: 16, 43) compared to 50 minutes (95% CI: 31,101) for placebo (p=0.12). Moreover, early efficacy activity was observed, including the conversion of 61% of etripamil patients compared to 45% of placebo patients within 45 minutes after study drug administration (p=0.02), a time period consistent with etripamil’s pharmacological activity, results from the latter

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part of the observation window confounded the statistical analysis of the primary endpoint. Patients were monitored during the five-hour period after study drug administration.

After reviewing the data from NODE-301 with the FDA in July 2020, the agency indicated that an analysis period shorter than 5 hours would be appropriate to measure the efficacy of etripamil. The FDA indicated that two trials, the RAPID and NODE-301 trials could potentially fulfill the efficacy requirement for our planned NDA for etripamil in patients with PSVT, both using time to conversion over the first 30 minutes with a target p-value of less than 0.05 as the primary endpoint. When employing the updated analysis to the NODE-301 data, 54% of etripamil patients vs. 35% of placebo patients converted within 30 minutes (HR 1.87, p=0.02).

NODE-302 was a phase 3 open-label safety extension of the NODE-301 trial. Patients who completed NODE-301 and enrolled in NODE-302 could receive up to an additional 11 doses of etripamil. NODE-302 is a multi-center, open label trial primarily designed to evaluate the safety of etripamil nasal spray when self-administered by patients without medical supervision for spontaneous episodes of SVT in an outpatient setting over multiple episodes. While the primary purpose of the trial is safety, efficacy assessments were also performed. We presented data from the NODE-302 study at a late-breaking session of the Heart Rhythm Society’s Heart Rhythm 2022 Annual conference. Of 198 eligible NODE-301 patients, 169 (85%) enrolled in NODE-302 and 105 (62%) experienced a perceived episode of PSVT, self-administered etripamil and were included in the safety population. Overall, the rate of conversion of PSVT to normal sinus rhythm at 30 minutes following etripamil administration was 60.2% with a median time to conversion of 15.5 minutes (95% CI, 11.3-22.1 minutes). Among 40 patients who self-treated two separate episodes, 21 of 26 (81%) who converted on their first episode were also successfully converted on their second episode. Moreover, the need for an external medical intervention (e.g., an intravenous therapy administered in an emergency department) to terminate a PSVT episode was low (13% of patients and 8.5% of positively adjudicated PSVT episodes). Etripamil was generally well-tolerated, with adverse events consistent with those observed in previous trials; most adverse events related to treatment were localized to the nasal administration site and were mild and transient.

Other Clinical Trials in PSVT

NODE-303 is a phase 3, multi-center, open-label safety trial, evaluating the safety of etripamil when self administered without medical supervision over multiple, separate SVT episodes. Unique to the NODE-303 trial is the elimination of a test dose procedure present in the RAPID and NODE-301 trials. (The test dose procedure employed in the other phase 3 studies requires patients to first self-administer etripamil in the controlled setting of the clinic while in normal sinus rhythm before determining if the patient should be entered into the at-home self-administered dosing portion of the trial.) The NODE-303 trial was initiated with an etripamil 70 mg single dose regimen and the 70 mg optional repeat dose regimen was introduced into the trial starting in the second half of 2021 following FDA acceptance of the protocol amendment. The trial is designed to add to the safety data from the remainder of the development program, including those data already obtained from the RAPID, NODE-301 and NODE-302 trials, in order to fulfill the safety data set needed for NDA filing. Following, the results from the RAPID study in October 2022, and the assessment of the total exposures to etripamil in the development program to date, we believe we have the safety dataset needed for review of the NDA for PSVT and have moved to the closure phase of the  NODE-303 study.

We are conducting patient access programs to provide further access to etripamil to patients who have participated in the clinical development registration trials to treat future SVT episodes. These programs are tailored to meet the regulatory requirements in the territories in which the clinical sites are located.

Recent Developments

On July 1, 2022 our partner Ji Xing Pharmaceuticals Limited or Ji Xing, a clinical-stage biopharmaceutical company committed to bringing innovative medicines to underserved Chinese patients with serious and life-threatening diseases, announced the first patient enrollment at Nanfang Hospital of Southern Medical University in its phase 3 trial. The trial is currently being carried out in more than 40 clinical centers across China and has a similar design and size as those of the RAPID trial.

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Clinical Trial in AFib

In addition to our PSVT clinical program, we began enrollment of patients in a phase 2 proof-of concept clinical trial in patients with AFib, which we refer to as our ReVeRA trial in the first quarter of 2021 to evaluate the potential effectiveness of etripamil to reduce ventricular rate during AFib- RVR episodes. The phase 2 double blind, placebo controlled, proof-of-concept, trial which is being conducted in Canada in collaboration with the Montreal Heart Institute and other research centers, is expected to enroll approximately 50 patients randomized 1:1 to receive either 70 mg of etripamil nasal spray or placebo. The primary endpoint will assess maximum reduction in ventricular rate, with key secondary endpoints including the time to achieve maximum reduction in ventricular rate and the duration of the effect. The trial is being conducted in the hospital or ED, setting under medical supervision, which is the same concept applied to the PSVT program. The ED setting, especially since the onset of the COVID-19 pandemic, has proven to be a very difficult environment in which to conduct the trial and enrollment is very slow. We are expanding this trial into other regions and clinical sites that we believe have the opportunity to overcome some of the current enrollment challenges.

Operations Overview

Since the commencement of our operations in 2003, we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities, providing general and administrative support for these operations and, more recently preparing for commercialization. We operate our business using a significant outsourcing model.  As such, our team is composed of a relatively smaller core of employees who direct a significantly larger number of team members who are outsourced in the forms of vendors and consultants to enable execution of our operational plans. We do not currently have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations.

Since inception, we have incurred significant operating losses. For the three months ended September 30, 2022 and 2021 we recorded net loss of $14.6 million and $14.2 million, respectively. For the nine months ended September 30, 2022 and 2021, we recorded net losses of $45.2 million and $26.0 million, respectively. As of September 30, 2022, we had an accumulated deficit of $251.5 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development activities required for obtaining regulatory approval and preparing for potential commercialization of our product candidates. We had $77.2 million of cash, cash equivalents and short-term investments at September 30, 2022.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:

● continue our ongoing and planned development of etripamil, as we close out our  Phase 3 clinical trials of etripamil for the treatment of PSVT and begin our future clinical trials of etripamil for the treatment of AFib-RVR ;

● seek marketing approvals for etripamil for the treatment of PSVT, AFib-RVR and other cardiovascular indications;

● establish a sales, marketing, manufacturing and distribution capability, either directly or indirectly through third parties, to commercialize etripamil or any future product candidate for which we may obtain marketing approval;

17

● build a portfolio of product candidates through development, or the acquisition or in-license of drugs, product candidates or technologies;

● initiate preclinical studies and clinical trials for etripamil for any additional indications we may pursue, including the clinical trials for the treatment of AFib and AFib-RVR as well as other areas of unmet medical need, and for any additional product candidates that we may pursue in the future;

● maintain, protect and expand our intellectual property portfolio;

● hire additional clinical, commercial, regulatory and scientific personnel;

● add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

● incur additional legal, accounting, insurance and other expenses associated with operating as a public company.

COVID-19 Business Update

The periods of reduced global economic activity and volatility, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospectsWe continue to monitor the pandemic as we evolve our business continuity plans and response strategy.

Clinical Development

With respect to clinical development, we have taken measures to maintain patient safety and trial continuity and to preserve study integrity. While COVID-19 resurgences around the world impact different geographies and clinical sites to varying degrees and at different times, the PSVT clinical program average overall enrollment rate displayed clear forward momentum, compared to 2020. Enrollment rates had slowed as a result of COVID-19, but largely recovered due to operational actions by Milestone, as evidenced by the recent completion and plans to close the phase 3 studies, RAPID and NODE 303. During 2021 and 2020, the COVID-19 pandemic delayed the initiation of many proposed RAPID clinical trial sites as some health care institutions prioritized their resources for pandemic related activities with some precluding the initiation of new clinical trials or conduct of existing trials. It also delayed the initiation of clinical trial sites and the enrollment of patients into our ReVeRA trial of etripamil for AFib-RVR performed in the acute care hospital setting in Canada, due to closures of clinical sites as well as to the increased stress that COVID-19 places on ED logistics and staff. Given the uncertainty and differing and evolving restrictions applicable to clinical trial sites and participants, additional disruptions and delays are possible. To be precautionary, we will continue to monitor the impact of COVID-19 on our planned clinical sites and patient enrollment activities. We could also see an impact on the ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience further significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Other Financial and Corporate Impacts

While we expect the COVID-19 pandemic to continue to affect our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, business closure requirements in

18

the United States, Canada, Europe and other countries, the timing and unpredictability of achieving widespread vaccination rates, the effectiveness of any vaccines against new variants, and the timing of the return of the global economy to pre-pandemic levels. In addition, we may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation and Russian hostilities in Ukraine and overall fluctuations in the financial markets in the United States and abroad.

Components of Results of Operations

Revenues

We have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales in the near future. Our revenues for the nine months ended September 30, 2022 and September 30, 2021 are from the license agreement with Ji Xing and are comprised of upfront and milestone payments.  

Research and Development

Research and development expenses consist primarily of salaries and fees paid to external service providers and also include personnel costs, including share-based compensation expense and other related compensation expenses. We expense research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers.

To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, while we expect our research and development costs for the development of etripamil in AFib-RVR to increase for the ReVeRA clinical trial as we continue to expand this trial, we expect our research and development expenses related to the development of etripamil for PSVT to remain a very large majority of our total research and development expenses.

We expect our research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming and is subject to uncertainties and delays, including as a result of the ongoing COVID-19 pandemic. COVID-19 has adversely affected enrollment rates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all.

We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits.

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General and Administrative

General and administrative expenses include personnel and related compensation costs, expenses for outside professional services, lease expense, insurance expense and other general administrative expenses. Personnel costs consist of salaries, bonuses, benefits, related payroll taxes and share-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees.

We expect to continue to incur expenses as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administrative and professional services.

Commercial

Commercial expenses consist primarily of personnel and related compensation costs, market and health economic research, and market development activities for PSVT and, to a lesser extent, AFib-RVR. The focus of these expenses is three-fold: first, we want to leverage rigorous primary and secondary research to fully understand our target disease states from the perspective of the patient, healthcare provider, and payer; second, we want to understand and document the burden of disease posed by PSVT and AFib-RVR from an epidemiology, healthcare resource use, and cost perspective; and third, we want to engage our target patient, physician, and payer stakeholders with evidence-based and compliant educational materials that serve to increase the awareness and understanding of the impact of PSVT and AFib-RVR on patients and the overall healthcare system.

Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel, and operational expenses required to launch our first product in the United States, if approved.

Interest Income

Interest income primarily consists of interest income from our cash equivalents and short-term investments.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations and changes:

	Three months ended September 30,
(in thousands)	2022		2021		$ Change		% Change
Revenue	$	1,500	$	-		1,500	100.0%
Operating expenses
Research and development, net of tax credits	$	9,826	$	9,733	$	93	1.0%
General and administrative		4,034		2,961		1,073	36.2%
Commercial		2,670		1,579		1,091	69.1%
Total operating expenses		16,530		14,273		2,257	15.8%
Loss from operations		(15,030)		(14,273)		(757)	5.3%
Interest income, net		474		48		426	887.5%
Net loss	$	(14,556)	$	(14,225)	$	(331)	2.3%

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	Nine months ended September 30,
(in thousands)	2022		2021		$ Change		% Change
Revenue	$	1,500	$	15,000	$	(13,500)	(90.0)%
Operating expenses
Research and development, net of tax credits		29,251		27,755		1,496	5.4%
General and administrative		11,595		8,612		2,983	34.6%
Commercial		6,537		4,788		1,749	36.5%
Total operating expenses		47,383		41,155		6,228	15.1%
Loss from operations		(45,883)		(26,155)		(19,728)	75.4%
Interest income, net		672		186		486	261.3%
Net loss		(45,211)		(25,969)		(19,242)	74.1%

Revenue

We generated revenue of $1.5 million from milestone payments under the License Agreement for the three months and nine months ended September 30, 2022 compared to no revenue in the three months ended September 30, 2021 and revenue of  $15 million from upfront payments under the License Agreement during the nine months ended September 30, 2021.

Research and Development Expenses

The following table shows our research and development expenses by type of activity for the three and nine months ended September 30, 2022 and 2021, respectively.

	Three months ended September 30,							Nine months ended September 30,
(in thousands)	2022		2021		$ Change		% Change	2022		2021		$ Change		% Change
Clinical	$	7,886	$	8,081	$	(195)	(2.4)%	$	23,704	$	22,545	$	1,159	5.1%
Drug manufacturing and formulation		1,389		1,272		117	9.2%		3,564		3,926		(362)	(9.2)%
Regulatory and other costs		688		580		108	18.6%		2,303		1,662		641	38.6%
Less: R&D tax credits		(137)		(200)		63	(31.5)%		(320)		(378)		58	(15.3)%
Total R&D expenses	$	9,826	$	9,733	$	93	1.0%	$	29,251	$	27,755	$	1,496	5.4%

Research and development expenses were consistent for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Research and development expenses increased by $1.5 million, or 5.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was due to clinical personnel related costs and clinical consulting fees. Regulatory costs increased due to personnel related costs.

We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits.

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General and Administrative

General and administrative expenses increased by $1.1 million, or 36.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The primary contributor was an increase in personnel-related costs and consulting fees for general and administrative expenses.

General and administrative expenses increased by $3.0 million, or 34.6% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The primary contributor was an increase in personnel-related costs and consulting fees for general and administrative expenses.

Commercial

For the three months ended September 30, 2022, commercial expenses increased by $1.1 million, or 69.1%, compared to the three months ended September 30, 2021. The increase is due to consulting and marketing analytics.

Commercial expenses increased by $1.7 million, or 36.5%, for the nine months ended September 30, 2022, compared to the same period in 2021. The increase is due to personnel related costs and consulting fees.

Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel and operational expenses required to launch our first product in the United States, if approved.

Interest Income, net

Interest income, net, was $0.5 million and $0.05 million for the three months ended September 30, 2022 and 2021, respectively. Interest income, net of bank charges, was $0.7 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in interest income was due to higher interest rates earned on investments in 2022 when compared to 2021.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred operating losses and experienced negative operating cash flows since our inception, and we anticipate continuing to incur losses for at least the next several years. As of September 30, 2022, we had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million.

On July 29, 2020, we entered into an Open Market Sale Agreement^SM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, under which the Company may issue and sell its common shares having an aggregate offering price of up to $50 million through Jefferies as its sales agent or principal. The common shares to be sold under the Sales Agreement, are offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-239318), which was declared effective by the SEC on July 6, 2020. During the nine months ended September 30, 2022, we issued 361,236 shares under the Sales Agreement, resulting in net proceeds of $2.6 million (net of issuance costs of $0.1 million).

Based on our cash and cash equivalents as of September 30, 2022, we expect to be able to support our current operating plan through 2023.

Funding Requirements

We use our cash primarily to fund research and development expenditures. We expect our total research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. We expect to incur an increase in general and administrative expenses, and a continued increase in expenses related to commercial activities in 2022 as we focus our efforts on the clinical pathway and potential commercialization of etripamil. We expect

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to incur increasing operating losses for the foreseeable future as we continue the clinical development of our product candidate. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize etripamil or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations.

In addition, we have exclusive development and commercialization rights for etripamil for all indications that we may pursue and as such have the potential to license development and or commercialization rights for etripamil to a potential partner. We plan to establish commercialization and marketing capabilities using a direct sales force to commercialize etripamil in the United States. Outside of the United States, we are considering commercialization strategies that may include collaborations with other companies.

For other new product candidates, our efforts are focused on licensing development and/or commercialization rights from potential partners. In the case of either in-licensing or out-licensing, we cannot forecast when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements.

The timing and amount of our operating expenditures will depend largely on:

● the timing, progress and results of our ongoing and planned clinical trials and other development activities of etripamil in PSVT, AFib-RVR and in other cardiovascular indications;

● the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of etripamil for additional indications or any future product candidates that we may pursue;

● our ability to establish collaborations on favorable terms, if at all;

● the ability of vendors and third-party service providers to accurately forecast expenses and deliver on expectations;

● the costs, timing and outcome of regulatory review of etripamil and any future product candidates;

● the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for etripamil and any future product candidates for which we receive marketing approval;

● the revenue, if any, received from commercial sales of etripamil and any future product candidates for which we receive marketing approval;

● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and

● the extent to which we acquire or in-license other product candidates and technologies.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into arrangements, similar to the agreement entered into with Ji Xing, or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. In addition, the COVID-19 pandemic, the Russian invasion of Ukraine and the implementation of a tightening monetary

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policy has contributed to periods of reduced global economic activity and volatility. If these and other events contributes to future periods of disruption of the global financial markets, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition and results of operations.

Discussion of Cash Flows

The following table summarizes our cash flows for the periods indicated:

	Nine months ended September 30,
(in thousands)	2022		2021		$ Change	% Change
Net cash (used in) provided by:
Operating activities	$	(39,607)	$	(20,847)	(18,760)	90.0%
Investing activities		(40,109)		55,000	(95,109)	(172.9)%
Financing activities		2,861		4,963	(2,102)	(42.4)%
Net decrease in cash and cash equivalents during the period	$	(76,855)	$	39,116	(115,971)

Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2022 was $39.6 million, which consisted of a net loss of $45.2 million and a net decrease of $1.4 million in our operating assets and liabilities due to increases in prepaid expenses and other receivables and a decrease in accounts payable offset by non-cash charges of $7.0 million related to share-based compensation and depreciation expenses.

Net cash used in operating activities during the nine months ended September 30, 2021 was $20.5 million, which consisted of a net loss of $26.0 million and a net decrease of $0.3 million in our operating assets and liabilities offset by non-cash charges of $5.4 million related to share-based compensation and depreciation expenses.  

Investing Activities

In the nine months ended September 30, 2022 we acquired $63.0 million of short-term investments while we divested of $23.0 million. In the nine months ended September 30, 2021 we acquired $15.0 million of short-term investments while we divested of $70.0 million during the same period.

Financing Activities

In the nine months ended September 30, 2022, our financing activities provided a de minimis amount of proceeds from the exercise of share options. In August 2022, the Company issued and sold 361,236 common shares under the Sales Agreement for proceeds of $2.6 million (net of issuance costs of $0.1 million). During the nine months ended September 30, 2021, our financing activities provided $5.0 million, consisting of net proceeds from the Private Placement and a de minimis amount of proceeds from the exercise of share options.

We have not entered into off-balance sheet arrangements.

Contractual Obligations

During the nine months ended September 30, 2022, there were no material changes to our contractual obligations and commitments described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, filed with the SEC on March 24, 2022.

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Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited interim consolidated financial statements as of September 30, 2022, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP and on a basis consistent with those accounting principles followed by us. The preparation of these consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to:

● Estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs, CMOs and clinical trial sites which in turn impact the research & development expenses.

● Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

a) Research & Development Expenses — Accruals

Research and development costs are charged against income in the period of expenditure. Our research and development costs consist primarily of salaries and fees paid to CROs and to CMOs.

Clinical trial expenses include direct costs associated with CROs, direct CMO costs for the formulation and packaging of clinical trial material, as well as investigator and patient-related costs at sites at which our trials are being conducted. Direct costs associated with our CROs and CMOs are generally payable on a time-and-materials basis, or when milestones are achieved. The invoicing from clinical trial sites can lag several months. We record expenses for our clinical trial activities performed by third parties based upon estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. We determine the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services based on facts and circumstances known to us as of each consolidated balance sheet date. The actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. If the actual timing of the performance of services of the level of effort varies from the estimate, we will adjust the accrual accordingly. Adjustments to prior period estimates have not been material. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.

b) Share-Based Compensation

We recognize compensation costs related to share options granted to employees, consultants and directors based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. This Black-Scholes option pricing model uses various inputs to measure fair value, including estimated fair value of our underlying common shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of our common shares. The estimated volatility creates a critical estimate because we have not been a public company long enough to demonstrate our

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own historical volatility. The grant date fair value of the share-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur.

Recent Accounting Pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies”, for a discussion of recent accounting pronouncements and to the notes to our audited consolidated financial statements as of December 31, 2021 appearing in our Annual Report on Form 10-K, filed with the SEC on March 24, 2022.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and short-term investments of $77.2 million as of September 30, 2022, which consist primarily of bank deposits and guaranteed investment certificates. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We undertake certain transactions in Canadian dollars and as such are subject to risk due to fluctuations in exchange rates. Canadian dollar denominated payables are paid at the converted rate as due. We do not use derivative instruments to hedge exposure to foreign exchange rate risk due to the low volume of transactions denominated in foreign currencies. On September 30, 2022, our net monetary exposure denominated in Canadian dollars was $4.7 million.

Our operating results and financial position are reported in U.S. dollars in our consolidated financial statements. The fluctuation of the Canadian dollar in relation to the U.S. dollar might, consequently, have an impact upon our loss and may also affect the value of our assets and the amount of shareholders’ equity.

We do not have a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our consolidated financial results.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees have worked remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitations on Effectiveness of Controls.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

Aside from the risk factor listed below, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K, filed with the SEC and under Milestone’s SEDAR profile at www.sedar.com on March 24, 2022.

Healthcare legislative reform measures may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010 the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,

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collectively referred to as PPACA, was passed, which substantially changed the way healthcare is financed by both governmental and private payors in the United States. There have been executive, judicial and Congressional challenges to certain aspects of the PPACA. For example, the Tax Cuts and Jobs Act of 2017, or the Tax Act, was enacted, which included a provision that repealed, effective January 1, 2019, the tax based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the PPACA mandated “Cadillac” tax on high cost employer sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Moreover, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the PPACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the PPACA. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in PPACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost through a newly established manufacturer discount program. It is possible that the PPACA will be subject to judicial or Congressional challenges in the future. It is unclear how any additional healthcare reform measures of the Biden administration will impact the PPACA and our business.

Further, in the United States there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Servies, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report within ninety (90) days on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries.. It is unclear whether this executive order or similar policy initiatives will be implemented in the future. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional U.S. healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for etripamil or any future product candidates or additional pricing pressures.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Infrastructure Investment and Jobs Act, will remain in effect through 2031 with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the ongoing COVID-19 pandemic, unless additional

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Congressional action is taken. Under current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

We cannot predict the likelihood, nature or extent of health reform initiatives that may arise from future legislation or administrative action in the United States or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing or new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, etripamil or any future product candidates we may develop may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Equity Securities

None

Item 3. Defaults Upon Senior Securities.

Not applicable

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

Not applicable

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Item 6. Exhibits.

Exhibit Number	Description
3.1	Amended Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38899), filed with the SEC on May 15, 2019).
3.2	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-38899), filed with the SEC on May 15, 2019).
10.1	2019 Equity Incentive Plan, as amended
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL.

*        Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

+ Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MILESTONE PHARMACEUTICALS INC.
Date: November 10, 2022	By:	/s/ Joseph Oliveto
		Joseph Oliveto
		President and Chief Executive Officer (Principal Executive Officer)
Date: November 10, 2022	By:	/s/ Amit Hasija
		Amit Hasija
		Chief Financial Officer   (Principal Financial Officer and Principal Accounting Officer)

31

EX-10.1

Exhibit 10.1

MILESTONE PHARMACEUTICALS INC.

2019 EQUITY INCENTIVE PLAN

ADOPTED BY THE BOARD OF DIRECTORS: APRIL 10, 2019

APPROVED BY THE SHAREHOLDERS: APRIL 29, 2019

IPO DATE: MAY 8, 2019

AMENDED BY THE BOARD OF DIRECTORS: APRIL 19, 2022

APPROVED BY THE SHAREHOLDERS: JULY 5, 2022

1.             GENERAL.

(a)           Successor to and Continuation of Prior Plan. The Plan is intended as the successor to and continuation of the Milestone Pharmaceuticals Inc. Third Amended and Restated Stock Option Plan (the “Prior Plan”). From and after 12:01 a.m. Eastern time on the IPO Date, no additional share awards will be granted under the Prior Plan. All Awards granted on or after 12:01 a.m. Eastern Time on the IPO Date will be granted under this Plan. All share awards granted under the Prior Plan will remain subject to the terms of the Prior Plan.

(i)             Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Eastern Time on the IPO Date (the “Prior Plan’s Available Reserve”) will cease to be available under the Prior Plan at such time. Instead, that number of Common Shares equal to the Prior Plan’s Available Reserve will be added to the Share Reserve (as further described in Section 3(a) below) and will be immediately available for grants and issuance pursuant to Share Awards hereunder, up to the maximum number set forth in Section 3(a) below.

(ii)            In addition, from and after 12:01 a.m. Eastern time on the IPO Date, any shares subject, at such time, to outstanding share awards granted under the Prior Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a share award (such shares the “Returning Shares”) will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when such shares become Returning Shares, up to the maximum number set forth in Section 3(a) below.

(b)           Eligible Award Recipients. Employees, Directors and Consultants are eligible to receive Awards.

(c)           Available Awards. The Plan provides for the grant of the following types of Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Share Appreciation Rights (iv) Restricted Share Awards, (v) Restricted Share Unit Awards, (vi) Performance Share Awards, (vii) Performance Cash Awards, and (viii) Other Share Awards.

(d)           Purpose. The Plan, through the granting of Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Shares.

2.             ADMINISTRATION.

(a)           Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).

(b)           Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i)             To determine (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Shares under the Award; (E) the number of Common Shares subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Share Award.

(ii)            To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.

(iii)           To settle all controversies regarding the Plan and Awards granted under it.

(iv)           To accelerate, in whole or in part, the time at which an Award may be exercised or vest (or the time at which cash or Common Shares may be issued in settlement thereof).

(v)             To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not materially impair a Participant’s rights under the Participant’s then-outstanding Award without the Participant’s written consent except as provided in subsection (viii) below.

(vi)           To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or bringing the Plan or Awards granted under the Plan into compliance with the requirements for Incentive Stock Options or ensuring that they are exempt from or compliant with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek shareholder approval of any amendment of the Plan that (A) materially increases the number of Common Shares available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which Common Shares may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan or an Award Agreement, no amendment of the Plan will materially impair a Participant’s rights under an outstanding Award without the Participant’s written consent.

(vii)           To submit any amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 422 of the Code regarding incentive stock options or (B) Rule 16b-3.

(viii)         To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that a Participant’s rights under any Award will not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, (1) a Participant’s rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participant’s rights, and (2) subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participant’s consent (A) to maintain the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code; (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws or listing requirements.

(ix)           Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Awards.

(x)             To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States (provided that Board approval will not be necessary for immaterial modifications to the Plan or any Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction).

(xi)           To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Share Award; (B) the cancellation of any outstanding Share Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Share Award, (3) Restricted Share Unit Award, (4) Other Share Award, (5) cash and/or (6) other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of Common Shares as the cancelled Share Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.

(c)            Delegation to Committee.

(i)             General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee, as applicable). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Committee may, at any time, abolish the subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

(ii)            Rule 16b-3 Compliance. The Committee may consist solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.

(d)           Delegation to an Officer. The Board may delegate to one or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Share Awards) and, to the extent permitted by applicable law, the terms of such Awards, and (ii) determine the number of Common Shares to be subject to such Share Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of Common Shares that may be subject to the Share Awards granted by such Officer and that such Officer may not grant a Share Award to himself or herself. Any such Share Awards will be granted on the form of Share Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(w)(iii) below.

(e)           Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.

3.             SHARES SUBJECT TO THE PLAN.

(a)           Share Reserve. Subject to Section 9(a) relating to Capitalization Adjustments, and the following sentence regarding the annual increase, the aggregate number of shares of Common Stock that may be issued pursuant to Share Awards will not exceed 5,710,564 shares (the “Share Reserve”), which number is the sum of (i) 1,000,000 new shares that were approved at the Company’s 2022 Annual Meeting of Stockholders, plus (ii) 1,923,501 shares that were approved in connection with the initial adoption of the Plan as of the Adoption Date, plus (iii) the number of shares subject to the Prior Plan’s Available Reserve plus (iv) the number of shares that are Returning Shares, as such shares become available from time to time. In addition, the Share Reserve will automatically increase on January

1^st of each year, for a period of not more than ten years, commencing on January 1^st of the year following the year in which the IPO Date occurs and ending on (and including) January 1, 2029, in an amount equal to 4% of the total number of shares of Capital Shares outstanding on December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January 1^st of a given year to provide that there will be no January 1^st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a lesser number of Common Shares than would otherwise occur pursuant to the preceding sentence.

For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of Common Shares that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Share Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan.

(b)           Reversion of Shares to the Share Reserve. If a Share Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Share Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than shares), such expiration, termination or settlement will not reduce (or otherwise offset) the number of Common Shares that may be available for issuance under the Plan. If any Common Shares issued pursuant to a Share Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares subject to a Share Award (or portion thereof) that are surrendered to the Company in satisfaction of tax withholding obligations on a Share Award or as consideration for the exercise or purchase price of a Share Award will again become available for issuance under the Plan.

(c)             Incentive Stock Option Limit. Subject to the Share Reserve and Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of Common Shares that may be issued pursuant to the exercise of Incentive Stock Options will be 17,131,692 Common Shares.

(d)             Limitation on Grants to Non-Employee Directors. The maximum number of shares of Common Stock subject to Share Awards granted under the Plan or otherwise during a single calendar year to any Non-Employee Director, taken together with any cash fees paid by the Company to such Non-Employee Director during such calendar year for service on the Board, will not exceed seven hundred fifty thousand dollars ($750,000) in total value (calculating the value of any such Share Awards based on the grant date fair value of such Share Awards for financial reporting purposes), or, with respect to the calendar year in which a Non-Employee Director is first appointed or elected to the Board, one million one hundred thousand dollars ($1,100,000).

(e)             Source of Shares. The shares issuable under the Plan will be authorized but unissued Common Shares.

4.             ELIGIBILITY.

(a)             Eligibility for Specific Share Awards. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Share Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, that Share Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405 of the Securities Act, unless (i) the shares underlying such Share Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Share Awards are granted pursuant to a corporate transaction such as a spin off transaction), (ii) the Company, in consultation with its legal counsel, has determined that such Share Awards are otherwise exempt from Section 409A of the Code, or (iii) the Company, in consultation with its legal counsel, has determined that such Share Awards comply with the distribution requirements of Section 409A of the Code.

(b)             Ten Percent Shareholders. A Ten Percent Shareholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five years from the date of grant.

5.             PROVISIONS RELATING TO OPTIONS AND SHARE APPRECIATION RIGHTS.

Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for Common Shares purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however, that each Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:

(a)             Term. Subject to the provisions of Section 4(b) regarding Ten Percent Shareholders, no Option or SAR will be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Award Agreement.

(b)           Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Shareholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Shares subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Shares subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or share appreciation right pursuant to a corporate transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in Common Shares equivalents.

(c)           Purchase Price for Options. The purchase price of Common Shares acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:

(i)             by cash, check, bank draft or money order payable to the Company;

(ii)            pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the shares subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;

(iii)           if an Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Common Shares issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Common Shares will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares otherwise issuable upon exercise are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares otherwise issuable are withheld to satisfy tax withholding obligations; or

(iv)           in any other form of legal consideration that may be acceptable to the Board and specified in the applicable Award Agreement.

(d)           Exercise and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Share Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of Common Shares equal to the number of Common Share equivalents in which the Participant is vested under such SAR, and with respect to which the Participant is exercising the SAR on such date, over (B) the aggregate strike price of the number of Common Share equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Shares, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Agreement evidencing such SAR.

(e)           Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:

(i)             Restrictions on Transfer. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.

(ii)           Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by Treasury Regulation Section 1.421-1(b)(2). If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.

(iii)          Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, on the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Shares or other consideration resulting from such exercise. In the absence of such a designation, upon the death of the Participant, the executor or administrator of the Participant’s estate will be entitled to exercise the Option or SAR and receive the Common Shares or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.

(f)            Vesting Generally. The total number of Common Shares subject to an Option or SAR may vest and become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of Common Shares as to which an Option or SAR may be exercised.

(g)           Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service), but only within the period of time ending on the earlier of (i) the date that is three (3) months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the applicable Award Agreement, which period will not be less than thirty (30) days if necessary to comply with applicable laws unless such termination is for Cause) and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR as applicable will terminate.

(h)           Extension of Termination Date. Except as otherwise provided in the applicable Award Agreement or other written agreement between the Participant and the Company, if the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause and other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of Common Shares would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of time (that need not be consecutive) equal to the applicable post termination exercise period after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements or other applicable securities laws, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participant’s Award Agreement, if the sale of any Common Shares received on exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the Common Shares received upon exercise of the Option or SAR would not be in violation of the Company’s insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.

(i)             Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable laws) and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.

(j)             Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participant’s Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Award Agreement, which period will not be less than six (6) months if necessary to comply with applicable laws) and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable) will terminate.

(k)           Termination for Cause. Except as explicitly provided otherwise in a Participant’s Award Agreement or other individual written agreement between the Company or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR will terminate immediately upon such Participant’s termination of Continuous Service, and the Participant will be prohibited from exercising his or her Option or SAR from and after the time of such termination of Continuous Service.

(l)             Non-Exempt Employees. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any Common Shares until at least six (6) months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement, in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Company’s then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six (6) months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt

employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Share Award will be exempt from the employee’s regular rate of pay, the provisions of this Section 5(l) will apply to all Share Awards and are hereby incorporated by reference into such Share Award Agreements.

6.             PROVISIONS OF SHARE AWARDS OTHER THAN OPTIONS AND SARS.

(a)           Restricted Share Awards. Each Restricted Share Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. To the extent consistent with the Company’s bylaws, at the Board’s election, Common Shares may be (i) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Share Award lapse; or (ii) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Share Award Agreements may change from time to time, and the terms and conditions of separate Restricted Share Award Agreements need not be identical. Each Restricted Share Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i)             Consideration. A Restricted Share Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

(ii)            Vesting. Common Shares awarded under the Restricted Share Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.

(iii)           Termination of Participant’s Continuous Service. If a Participant’s Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the Common Shares held by the Participant as of the date of termination of Continuous Service under the terms of the Restricted Share Award Agreement.

(iv)           Transferability. Common Shares acquired under the Restricted Share Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Share Award Agreement, as the Board will determine in its sole discretion, so long as Common Shares awarded under the Restricted Share Award Agreement remains subject to the terms of the Restricted Share Award Agreement.

(v)             Dividends. A Restricted Share Award Agreement may provide that any dividends paid on Common Shares will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Share Award to which they relate.

(b)           Restricted Share Unit Awards. Each Restricted Share Unit Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. The terms and conditions of Restricted Share Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Share Unit Award Agreements need not be identical. Each Restricted Share Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i)             Consideration. At the time of grant of a Restricted Share Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each Common Share subject to the Restricted Share Unit Award. The consideration to be paid (if any) by the Participant for each Common Share subject to a Restricted Share Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

(ii)           Vesting. At the time of the grant of a Restricted Share Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Share Unit Award as it, in its sole discretion, deems appropriate.

(iii)           Payment. A Restricted Share Unit Award may be settled by the delivery of Common Shares, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Share Unit Award Agreement.

(iv)           Additional Restrictions. At the time of the grant of a Restricted Share Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the Common Shares (or their cash equivalent) subject to a Restricted Share Unit Award to a time after the vesting of such Restricted Share Unit Award.

(v)             Dividend Equivalents. Dividend equivalents may be credited in respect of Common Shares covered by a Restricted Share Unit Award, as determined by the Board and contained in the Restricted Share Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional Common Shares covered by the Restricted Share Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Share Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Share Unit Award Agreement to which they relate.

(vi)           Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Share Unit Award Agreement or other written agreement between a Participant and the Company or an Affiliate, such portion of the Restricted Share Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

(c)           Performance Awards.

(i)             Performance Share Awards. A Performance Share Award is a Share Award that is payable (including that may be granted, may vest or may be settled) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Share Award may, but need not, require the Participant’s completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Board or Committee, in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board or the Committee may determine that cash may be used in payment of Performance Share Awards.

(ii)           Performance Cash Awards. A Performance Cash Award is a cash award that is payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Board or Committee, in its sole discretion. The Board or Committee may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.

(iii)           Board Discretion. The Board retains the discretion to adjust or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Share Award Agreement or the written terms of a Performance Cash Award.

(d)           Other Share Awards. Other forms of Share Awards valued in whole or in part by reference to, or otherwise based on, Common Shares, including the appreciation in value thereof (e.g., options or share rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Shares at the time of grant) may be granted either alone or in addition to Share Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Share Awards will be granted, the number of Common

Shares (or the cash equivalent thereof) to be granted pursuant to such Other Share Awards and all other terms and conditions of such Other Share Awards.

7.             COVENANTS OF THE COMPANY.

(a)           Availability of Shares. The Company will keep available at all times the number of Common Shares reasonably required to satisfy then outstanding Share Awards.

(b)           Securities Law Compliance. The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan, as necessary, such authority as may be required to grant Share Awards and to issue Common Shares upon exercise or settlement of the Share Awards; provided, however, that this undertaking will not require the Company to register under the Securities Act or other securities or applicable laws, the Plan, any Share Award or any Common Shares issued or issuable pursuant to any such Share Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary or advisable for the lawful issuance of Common Shares under the Plan, the Company will be relieved from any liability for failure to issue Common Shares upon exercise or settlement of such Share Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Shares pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.

(c)           No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the tax treatment or time or manner of exercising such Share Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.

8.             MISCELLANEOUS.

(a)            Use of Proceeds from Issuance of Common Shares. Proceeds from the issuance of Common Shares pursuant to Share Awards will constitute general funds of the Company.

(b)             Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action approving the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement or related grant documents as a result of a clerical error in the papering of the Award Agreement or related grant documents, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documents.

(c)             Shareholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Common Shares subject to an Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of Common Shares under, the Award pursuant to its terms, and (ii) the issuance of the Common Shares subject to such Award has been entered into the books and records of the Company.

(d)             No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) subject to applicable employment standards legislation, the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state or foreign jurisdiction in which the Company or the Affiliate is domiciled or incorporated, as the case may be.

(e)             Change in Time Commitment. In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee or takes a leave of absence) after the date of grant of any Award to the Participant, subject to applicable employment standards legislation, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.

(f)             Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Shares with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).

(g)             Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Shares under any Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that such Participant is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Shares subject to the Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Shares. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Shares under the Share Award has been registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on share certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Shares.

(h)             Withholding Obligations. Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any federal, foreign, state, provincial or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding Common Shares from the Common Shares issued or otherwise issuable to the Participant in connection with the Share Award; provided, however, that no Common Shares are withheld with a value exceeding the maximum amount of tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Share Award as a liability for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Award Agreement.

(i)             Electronic Delivery. Any reference herein to a “written” agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto) or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access).

(j)             Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Shares or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code or the Tax Act, as applicable. Consistent with Section 409A of the Code or the Tax Act, as applicable, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board

is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.

(k)            Clawback/Recovery. All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired Common Shares or other cash or property upon the occurrence of an event constituting Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntary terminate employment upon a “resignation for good reason,” or for a “constructive termination” or any similar term under any plan of or agreement with the Company.

(l)             Compliance with Section 409A of the Code. Unless otherwise expressly provided for in an Award Agreement, to the extent applicable, the Plan and Award Agreements will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. To the extent Section 409A of the Code is applicable, if the Board determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the Common Shares are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six months following the date of such Participant’s “separation from service” or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six month period elapses, with the balance paid thereafter on the original schedule.

9.             ADJUSTMENTS UPON CHANGES IN COMMON SHARES; OTHER CORPORATE EVENTS.

(a)             Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities by which the share reserve is to increase automatically each year pursuant to Section 3(a), (iii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iv) the class(es) and maximum number of securities that may be awarded to any Non-Employee Director pursuant to Section 3(d), and (v) the class(es) and number of securities and price per share subject to outstanding Share Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.

(b)             Dissolution. Except as otherwise provided in the Share Award Agreement, in the event of a Dissolution of the Company, all outstanding Share Awards (other than Share Awards consisting of vested and outstanding Common Shares not subject to a forfeiture condition or the Company’s right of repurchase) will terminate immediately prior to the completion of such Dissolution, and the Common Shares subject to the Company’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Share Award is providing Continuous Service; provided, however, that the Board may, in its sole discretion, cause some or all Share Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Share Awards have not previously expired or terminated) before the Dissolution is completed but contingent on its completion.

(c)            Transaction. The following provisions will apply to Share Awards in the event of a Transaction unless otherwise provided in the Share Award Agreement or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Share Award. In the event of a Transaction, then, notwithstanding any other provision of the Plan, the Board may take one or more of the following actions with respect to Share Awards, contingent upon the closing or completion of the Transaction:

(i)             arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the Share Award or to substitute a similar share award for the Share Award (including, but not limited to, an award to acquire the same consideration paid to the shareholders of the Company pursuant to the Transaction);

(ii)            arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Shares issued pursuant to the Share Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);

(iii)           accelerate the vesting, in whole or in part, of the Share Award (and, if applicable, the time at which the Share Award may be exercised) to a date prior to the effective time of such Transaction as the Board determines (or, if the Board does not determine such a date, to the date that is five days prior to the effective date of the Transaction), with such Share Award terminating if not exercised (if applicable) at or prior to the effective time of the Transaction; provided, however, that the Board may require Participants to complete and deliver to the Company a notice of exercise before the effective date of a Transaction, which exercise is contingent upon the effectiveness of such Transaction;

(iv)            arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Share Award;

(v)             cancel or arrange for the cancellation of the Share Award, to the extent not vested or not exercised prior to the effective time of the Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and

(vi)           make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Share Award immediately prior to the effective time of the Transaction, over (B) any exercise price payable by such holder in connection with such exercise. For clarity, this payment may be $0 if the value of the property is equal to or less than the exercise price. Payments under this provision may be delayed to the same extent that payment of consideration to the holders of the Company’s Common Shares in connection with the Transaction is delayed as a result of escrows, earn outs, holdbacks or any other contingencies.

The Board need not take the same action or actions with respect to all Share Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of a Share Award.

(d)           Change in Control. A Share Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Share Award Agreement for such Share Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.

10.           PLAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN.

The Board may suspend or terminate the Plan at any time. No Incentive Stock Options may be granted after the tenth anniversary of the earlier of (i) the date the Plan is adopted by the Board (the “Adoption Date”), or (ii) the date the Plan is approved by the shareholders of the Company. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

11.           EXISTENCE OF THE PLAN; TIMING OF FIRST GRANT OR EXERCISE.

The Plan will come into existence on the Adoption Date; provided, however, that no Share Award may be granted prior to the IPO Date. In addition, no Share Award will be exercised (or, in the case of a Restricted Share Award, Restricted Share Unit Award, Performance Share Award, or Other Share Award, no Share Award will be granted) and no Performance Cash Award will be settled unless and until the Plan has been approved by the shareholders of the Company, which approval will be within 12 months after the date the Plan is adopted by the Board.

12.           CHOICE OF LAW.

The laws of the province of Quebec and the laws of Canada applicable therein will govern all questions concerning the construction, validity and interpretation of this Plan.

13.           DEFINITIONS. As used in the Plan, the following definitions will apply to the capitalized terms indicated below:

(a)            “Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

(b)            “Award” means a Share Award or a Performance Cash Award.

(c)            “Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award.

(d)            “Board” means the Board of Directors of the Company.

(e)            “Capital Shares” means each and every class of common shares of the Company, regardless of the number of votes per share.

(f)            “Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Shares subject to the Plan or subject to any Share Award after the Adoption Date without the receipt of consideration by the Company through merger, amalgamation, arrangement, consolidation, reorganization, recapitalization, reincorporation, share dividend, dividend in property other than cash, large nonrecurring cash dividend, share split, reverse share split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.

(g)            “Cause” shall have the meaning ascribed to such term in any written agreement between the Participant and the Company or an Affiliate defining such term and, in the absence of such agreement, such term means, with respect to a Participant, in addition to such meaning as shall have been or shall hereafter be ascribed to such term or similar terms from time to time by the jurisprudence or law: (i) a failure or refusal by the Participant to perform his or her customary duties or services for the Company or any Affiliate without lawful justification after being provided with 10 business days’ notice from the Company and an opportunity to cure such failure to perform, in a manner satisfactory to the Company or any Affiliate; (ii) the Participant’s conviction for a criminal act or other indictable offence pursuant to the provisions of the Criminal Code or of any other criminal or penal statute of any jurisdiction which the Company or any Affiliate reasonably determines may have an adverse effect upon the reputation or good will of the Company or any Affiliate or on the performance of the Participant’s duties, or the commission by the Participant of any indictable or criminal offence or act which denotes moral turpitude, whether relating or not to the course of employment; (iii) a breach by the Participant of, or his or her failure or refusal to perform, in any material respect, any of his or her obligations under any employment agreement, employee invention and confidentiality agreement or such other material written agreement between participant and the company or any related entity; (iv) wanting in adequate capacity or qualification to fulfil the Participant’s employment functions; (v) any breach of any non-compete or non-solicitation covenant of the participant; or (vi) any dishonest or fraudulent act relating directly or indirectly to the course of employment. The determination that a termination of the Participant’s Continuous Service

is either for Cause or without Cause shall be made by the Company, in its sole discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.

(h)            “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i)             any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, amalgamation, arrangement, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, (C) on account of the acquisition of securities of the Company by any individual who is, on the IPO Date, either an executive officer or a Director (either, an “IPO Investor”) and/or any entity in which an IPO Investor has a direct or indirect interest (whether in the form of voting rights or participation in profits or capital contributions) of more than 50% (collectively, the “IPO Entities”) or on account of the IPO Entities continuing to hold shares that come to represent more than 50% of the combined voting power of the Company’s then outstanding securities as a result of the conversion of any class of the Company’s securities into another class of the Company’s securities having a different number of votes per share pursuant to the conversion provisions set forth in the Company’s Amended and Restated Certificate of Incorporation; or (D) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;

(ii)            there is consummated a merger, amalgamation, arrangement, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, amalgamation, arrangement, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving Entity in such merger, amalgamation, arrangement, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving Entity in such merger, amalgamation, arrangement, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction; provided, however, that a merger, amalgamation, arrangement, consolidation or similar transaction will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more than 50% of the combined voting power of the surviving Entity or its parent are owned by the IPO Entities;

(iii)           there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than 50% of the combined voting power of the voting securities of which are Owned by shareholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; provided, however, that a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries will not constitute a Change in Control under this prong of the definition if the outstanding voting securities representing more than 50% of the combined voting power of the acquiring Entity or its parent are owned by the IPO Entities;

(iv)            the shareholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company will otherwise occur, except for a liquidation into a parent corporation; or

(v)             individuals who, on the IPO Date, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.

Notwithstanding the foregoing definition or any other provision of the Plan, (A) the term Change in Control will not include a sale of assets, merger amalgamation, arrangement, or other transaction effected exclusively for the purpose of changing the domicile of the Company and the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.

(i)            “Code” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.

(j)            “Committee” means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).

(k)           “Common Share” means, as of the IPO Date, a common share in the share capital of the Company.

(l)            “Company” means Milestone Pharmaceuticals Inc and any successor corporation thereto.

(m)          “Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is available to register either the offer or the sale of the Company’s securities to such person.

(n)           “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will not terminate a Participant’s Continuous Service; provided, however, that if the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participant’s Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

(o)           “Corporate Transaction” means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i)             a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;

(ii)           a sale or other disposition of more than 50% of the outstanding securities of the Company;

(iii)          a merger, amalgamation, arrangement, consolidation or similar transaction following which the Company is not the surviving corporation; or

(iv)           a merger, amalgamation, arrangement, consolidation or similar transaction following which the Company is the surviving corporation but the Common Shares outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, amalgamation, arrangement, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

(p)           “Director” means a member of the Board.

(q)           “Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.

(r)           “Dissolution” means when the Company, after having executed a certificate of dissolution with the Registraire des entreprises du Quebec, has completely wound up its affairs.

(s)           “Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an “Employee” for purposes of the Plan.

(t)            “Entity” means a corporation, partnership, limited liability company or other entity.

(u)           “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(v)           “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their Ownership of shares of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the IPO Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities.

(w)           “Fair Market Value” means, as of any date, the value of the Common Shares determined as follows:

(i)             If the Common Shares are listed on any established stock exchange or traded on any established market, the Fair Market Value of a Common Share will be, unless otherwise determined by the Board, the closing sales price for such share as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Shares) on the date of determination, as reported in a source the Board deems reliable.

(ii)           Unless otherwise provided by the Board, if there is no closing sales price for the Common Shares on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists.

(iii)          In the absence of such markets for the Common Shares, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code.

(x)           “Incentive Stock Option” means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code.

(y)           “IPO Date” means the date of the underwriting agreement between the Company and the underwriter(s) managing the initial public offering of the Common Shares, pursuant to which the Common Shares are priced for the initial public offering.

(z)           “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(aa)          “Nonstatutory Stock Option” means any Option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.

(bb)          “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

(cc)          “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase Common Shares granted pursuant to the Plan.

(dd)          “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.

(ee)          “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(ff)           “Other Share Award” means an award based in whole or in part by reference to the Common Shares which is granted pursuant to the terms and conditions of Section 6(d).

(gg)         “Other Share Award Agreement” means a written agreement between the Company and a holder of an Other Share Award evidencing the terms and conditions of an Other Share Award grant. Each Other Share Award Agreement will be subject to the terms and conditions of the Plan.

(hh)         “Own,” “Owned,” “Owner,” “Ownership” means a person or Entity will be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

(ii)           “Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.

(jj)          “Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).

(kk)        “Performance Criteria” means the one or more criteria that the Board will select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board:

(i) sales; (ii) revenues; (iii) assets; (iv) expenses; (v) market penetration or expansion; (vi) earnings from operations; (vii) earnings before or after deduction for all or any portion of interest, taxes, depreciation, amortization, incentives, service fees or extraordinary or special items, whether or not on a continuing operations or an aggregate or per share basis; (viii) net income or net income per common share (basic or diluted); (ix) return on equity, investment, capital or assets; (x) one or more operating ratios; (xi) borrowing levels, leverage ratios or credit rating; (xii) market share; (xiii) capital expenditures; (xiv) cash flow, free cash flow, cash flow return on investment, or net cash provided by operations; (xv) share price, dividends or total shareholder return; (xvi) development of new technologies or products; (xvii) sales of particular products or services; (xviii) economic value created or added; (xix) operating margin or profit margin; (xx) customer acquisition or retention; (xxi) raising or refinancing of capital; (xxii) successful hiring of key individuals; (xxiii) resolution of significant litigation; (xxiv) acquisitions and divestitures (in whole or in part); (xxv) joint ventures and strategic alliances; (xxvi) spin-offs, split-ups and the like; (xxvii) reorganizations; (xxviii) recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; (xxix) or strategic business criteria, consisting of one or more objectives based on the following goals: achievement of timely development, design management or enrollment, meeting specified market penetration or value added, payor acceptance, patient adherence, peer reviewed publications, issuance of new patents, establishment of or securing of licenses to intellectual property, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings, approvals or milestones, discovery of novel products, maintenance of multiple products in pipeline, product launch or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third party collaborations), manufacturing or process development, legal compliance or risk reduction, patent application or issuance goals, or goals relating to acquisitions, divestitures or other business combinations (in whole or in part), joint ventures or strategic alliances; and (xxx) other measures of performance selected by the Board.

(ll)           “Performance Goals” means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. The Board is authorized at any time in its sole discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; or (c) in view of the Board’s assessment of the business strategy of the Company, performance of comparable organizations, economic and business conditions, and any other circumstances deemed relevant. Specifically, the Board is authorized to make adjustment in the method of calculating attainment of Performance Goals and objectives for a Performance Period as follows: (i) to exclude the dilutive effects of acquisitions or joint ventures; (ii) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; and (iii) to exclude the effect of any change in the outstanding Common Shares of the Company by reason of any share dividend or split, share repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common shareholders other than regular cash dividends. In addition, the Board is authorized to make adjustment in the method of calculating attainment of Performance Goals and objectives for a Performance Period as follows: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles; (v) to exclude the effects to any statutory adjustments to corporate tax rates; and (vi) to make other appropriate adjustments determined by the Board.

(mm)       “Performance Period” means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Share Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.

(nn)          “Performance Share Award” means a Share Award granted under the terms and conditions of Section 6(c)(i).

(oo)          “Plan” means this Milestone Pharmaceuticals Inc. 2019 Equity Incentive Plan, as amended.

(pp)          “Restricted Share Award” means an award of Common Shares which is granted pursuant to the terms and conditions of Section 6(a).

(qq)          “Restricted Share Award Agreement” means a written agreement between the Company and a holder of a Restricted Share Award evidencing the terms and conditions of a Restricted Share Award grant. Each Restricted Share Award Agreement will be subject to the terms and conditions of the Plan.

(rr)          “Restricted Share Unit Award” means a right to receive Common Shares which is granted pursuant to the terms and conditions of Section 6(b).

(ss)          “Restricted Share Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Share Unit Award evidencing the terms and conditions of a Restricted Share Unit Award grant. Each Restricted Share Unit Award Agreement will be subject to the terms and conditions of the Plan.

(tt)           “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(uu)         “Securities Act” means the Securities Act of 1933, as amended.

(vv)          “Share Appreciation Right” or “SAR” means a right to receive the appreciation on Common Shares that is granted pursuant to the terms and conditions of Section 5.

(ww)        “Share Appreciation Right Agreement” means a written agreement between the Company and a holder of a Share Appreciation Right evidencing the terms and conditions of a Share Appreciation Right grant. Each Share Appreciation Right Agreement will be subject to the terms and conditions of the Plan.

(xx)          “Share Award” means any right to receive Common Shares granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Share Award, a Restricted Share Unit Award, a Share Appreciation Right, a Performance Share Award or any Other Share Award.

(yy)          “Share Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Share Award grant. Each Share Award Agreement will be subject to the terms and conditions of the Plan.

(zz)          “Subsidiary” means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.

(aaa)        “Tax Act” means the Income Tax Act (Canada), as amended, including any applicable regulations and guidance thereunder.

(bbb)        “Ten Percent Shareholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or any Affiliate.

(ccc)        “Transaction” means a Corporate Transaction or a Change in Control.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph Oliveto, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Milestone Pharmaceuticals 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 registrant as of, and for, the periods presented in this report;

4.           The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.

Date: November 10, 2022
	/s/ Joseph Oliveto
	Joseph Oliveto
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Amit Hasija, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Milestone Pharmaceuticals 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 registrant as of, and for, the periods presented in this report;

4.           The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.

Date: November 10, 2022
	/s/ Amit Hasija
	Amit Hasija
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Joseph Oliveto, Chief Executive Officer of Milestone Pharmaceuticals Inc. (the “Company”), and Amit Hasija, Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:

1.            The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

2.            The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 10, 2022
/s/ Joseph Oliveto	/s/ Amit Hasija
Joseph Oliveto	Amit Hasija
Chief Executive Officer	Chief Financial Officer
(Principal Executive Officer)	(Principal Financial Officer and Principal Accounting Officer)

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	Sep. 30, 2022	Nov. 10, 2022
Document and Entity Information
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Document Period End Date	Sep. 30, 2022
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-38899
Entity Registrant Name	Milestone Pharmaceuticals Inc.
Entity Incorporation, State or Country Code	A8
Entity Tax Identification Number	00-0000000
Entity Address, Address Line One	1111 Dr. Frederik-Philips Boulevard
Entity Address, Address Line Two	Suite 420
Entity Address, City or Town	Montréal
Entity Address, State or Province	QC
Entity Address, Postal Zip Code	H4M 2X6
City Area Code	514
Local Phone Number	336-0444
Title of 12(b) Security	Common Shares
Trading Symbol	MIST
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		34,286,002
Entity Central Index Key	0001408443
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets
Cash and cash equivalents	$ 37,286	$ 114,141
Short-term investments	39,947
Research and development tax credits receivable	195	356
Prepaid expenses	5,058	4,299
Other receivables	435	127
Total current assets	82,921	118,923
Operating lease assets	2,545	711
Property and equipment	303	215
Total assets	85,769	119,849
Current liabilities
Accounts payable and accrued liabilities	6,035	6,551
Operating lease liabilities	487	224
Total current liabilities	6,522	6,775
Operating lease liabilities (net of current portion)	2,092	474
Total liabilities	8,614	7,249
Shareholders' Equity
Common shares, no par value, unlimited shares authorized 30,005,884 shares issued and outstanding as of June 30, 2022, 29,897,559 shares issued and outstanding as of December 31, 2021	254,937	251,901
Pre-funded warrants - 12,327,780 issued and outstanding as of June 30, 2022 and 12,327,780 as of December 31, 2021	52,941	52,941
Additional paid-in capital	22,441	15,711
Cumulative translation adjustment	(1,634)	(1,634)
Accumulated deficit	(251,530)	(206,319)
Total shareholders' equity	77,155	112,600
Total liabilities and shareholders' equity	$ 85,769	$ 119,849

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Condensed Consolidated Balance Sheets
Common shares, par value (in dollars per share)	$ 0	$ 0
Common shares, Shares authorized (in shares)	Unlimited	Unlimited
Common shares, Shares issued (in shares)	30,388,109	29,897,559
Common shares, Shares outstanding (in shares)	30,388,109	29,897,559
Warrants issued	12,327,780	12,327,780
Warrants outstanding	12,327,780	12,327,780

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Condensed Consolidated Statements of Earnings (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Condensed Consolidated Statements of Earnings (Loss)
Revenue	$ 1,500		$ 1,500	$ 15,000
Operating expenses
Research and development, net of tax credits	9,826	$ 9,733	29,251	27,755
General and administrative	4,034	2,961	11,595	8,612
Commercial	2,670	1,579	6,537	4,788
Earnings (loss) from operations	(15,030)	(14,273)	(45,883)	(26,155)
Interest income, net	474	48	672	186
Net earnings (loss)	$ (14,556)	$ (14,225)	$ (45,211)	$ (25,969)
Weighted average number of shares and pre-funded warrants outstanding, basic	42,491,787	42,187,887	42,339,123	41,707,563
Weighted average number of shares and pre-funded warrants outstanding, diluted	42,491,787	42,187,887	42,339,123	41,707,563
Net earnings (loss) per share, basic	$ (0.34)	$ (0.34)	$ (1.07)	$ (0.62)
Net earnings (loss) per share, diluted	$ (0.34)	$ (0.34)	$ (1.07)	$ (0.62)

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Condensed Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Shares	Pre-funded warrants	Additional paid-in capital	Cumulative translation adjustment	Accumulated deficit	Total
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Number of warrants		11,417,034
Beginning balance at Dec. 31, 2020	$ 251,682	$ 48,007	$ 8,530	$ (1,634)	$ (163,466)	$ 143,119
Balance at the beginning of period (in shares) at Dec. 31, 2020	29,827,997
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Net (loss) earnings					(25,969)	(25,969)
Exercise of stock options	$ 84		(41)			43
Exercise of stock options (in shares)	41,788
Private placement		$ 4,920				4,920
Private placement (in shares)		910,746
Share-based compensation			5,304			5,304
Ending balance at Sep. 30, 2021	$ 251,766	$ 52,927	13,793	(1,634)	(189,435)	127,417
Balance at the end of period (in shares) at Sep. 30, 2021	29,869,785
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Number of warrants		12,327,780
Beginning balance at Jun. 30, 2021	$ 251,716	$ 52,927	11,795	(1,634)	(175,210)	139,594
Balance at the beginning of period (in shares) at Jun. 30, 2021	29,846,000
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Net (loss) earnings					(14,225)	(14,225)
Exercise of stock options	$ 50		(26)			24
Exercise of stock options (in shares)	23,785
Private placement			2,024			2,024
Share-based compensation			2,024
Ending balance at Sep. 30, 2021	$ 251,766	$ 52,927	13,793	(1,634)	(189,435)	$ 127,417
Balance at the end of period (in shares) at Sep. 30, 2021	29,869,785
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Number of warrants		12,327,780
Number of warrants		12,327,780				12,327,780
Beginning balance at Dec. 31, 2021	$ 251,901	$ 52,941	15,711	(1,634)	(206,319)	$ 112,600
Balance at the beginning of period (in shares) at Dec. 31, 2021	29,897,559					29,897,559
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Net (loss) earnings					(45,211)	$ (45,211)
Exercise of stock options	$ 392		(175)			217
Exercise of stock options (in shares)	129,314
Issuance of common shares, net of issuance costs	$ 2,644					2,644
Issuance of common shares, net of issuance costs (shares)	361,236
Share-based compensation			6,905			6,905
Ending balance at Sep. 30, 2022	$ 254,937	$ 52,941	22,441	(1,634)	(251,530)	$ 77,155
Balance at the end of period (in shares) at Sep. 30, 2022	30,388,109					30,388,109
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Number of warrants		12,327,780
Beginning balance at Jun. 30, 2022	$ 252,236	$ 52,941	20,090	(1,634)	(236,974)	$ 86,659
Balance at the beginning of period (in shares) at Jun. 30, 2022	30,005,884
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Net (loss) earnings					(14,556)	(14,556)
Exercise of stock options	$ 57		(29)			28
Exercise of stock options (in shares)	20,989
Issuance of common shares, net of issuance costs	$ 2,644					2,644
Issuance of common shares, net of issuance costs (shares)	361,236
Share-based compensation			2,380			2,380
Ending balance at Sep. 30, 2022	$ 254,937	$ 52,941	$ 22,441	$ (1,634)	$ (251,530)	$ 77,155
Balance at the end of period (in shares) at Sep. 30, 2022	30,388,109					30,388,109
Increase (Decrease) in Stockholders' Equity and Temporary Equity
Number of warrants		12,327,780				12,327,780

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows used in operating activities
Net loss	$ (45,211)	$ (25,969)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment	74	70
Share-based compensation expense	6,905	5,304
Changes in operating assets and liabilities:
Other receivables	(308)	134
Research and development tax credits receivable	161	450
Prepaid expenses	(759)	(540)
Operating lease assets and liabilities	47	25
Accounts payable and accrued liabilities	(516)	(321)
Net cash used in operating activities	(39,607)	(20,847)
Cash provided by (used in) investing activities
Acquisition of property and equipment	(162)
Acquisition of short-term investments	(62,947)	(15,000)
Redemption of short-term investments	23,000	70,000
Net cash provided by (used in) investing activities	(40,109)	55,000
Cash provided by financing activities
Proceeds from exercise of options	217	43
Issuance of common shares, net of issuance costs	2,644
Net Proceeds from issuance of pre-funded warrants in a private placement		4,920
Cash provided by financing activities	2,861	4,963
Net decrease in cash and cash equivalents	(76,855)	39,116
Cash and cash equivalents - Beginning of period	114,141	72,310
Cash and cash equivalents - End of period	$ 37,286	$ 111,426

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Organization and Nature of Operations

9 Months Ended

Sep. 30, 2022

Organization and Nature of Operations

Organization and Nature of Operations

1    Organization and Nature of Operations

Milestone Pharmaceuticals Inc. (Milestone or the Company) is a biopharmaceutical company incorporated under the Business Corporations Act (Québec). Milestone is focused on the development and commercialization of cardiovascular medicines. Milestone’s lead product candidate, etripamil, is a novel, potent short-acting calcium channel blocker that the Company designed and is developing as a rapid-onset nasal spray to be administered by patients. The Company is developing etripamil to treat paroxysmal supraventricular tachycardia, atrial fibrillation, and other cardiovascular indications.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2     Summary of Significant Accounting Policies

a)  Basis of Consolidation

The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc. All intercompany transactions and balances have been eliminated.

b)  Basis of Presentation and Use of Accounting Estimates and Significant Accounting Policies

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed.  Accordingly, the unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2021.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of September 30, 2022, and its statements of loss, shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and its statement of cash flows for the nine months ended September 30, 2022 and 2021.

The condensed consolidated balance sheet as of December 31, 2021, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

These unaudited interim condensed consolidated financial statements are presented in US dollars, which is the Company’s functional currency.

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to,

● Estimates of the percentage of work completed of the total work over the life of an individual clinical trial in accordance with agreements established with contracted research organizations (“CRO”), contracted

manufacturing organizations (“CMO”) and clinical trial sites which in turn impact the research & development expenses.

● Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

c) Significant Risks and Uncertainties

The ongoing COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines. The pandemic has resulted in many state, local and foreign governments implementing and making adjustments to various orders and restrictions in order to control the spread of the disease, which have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s unaudited interim condensed consolidated financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidate; delays or problems in the supply of its study drug or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and complying with applicable regulatory requirements.

d) Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the unaudited condensed consolidated financial statements as a result of future adoption.

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception  and anticipates to continue to incur losses for at least the next several years. As of September 30, 2022, the Company had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million. Management has evaluated the Company’s current operating plan against our existing cash and cash equivalents and determined that we expect to be able to support our ongoing operations through 2023.

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Revenues

9 Months Ended

Sep. 30, 2022

Revenues

Revenues

3     Revenues

We generated revenue of $1.5 million from milestone payments under the License Agreement for the three months and nine months ended September 30, 2022 compared to no revenue in the three months ended September 30, 2021 and revenue of $15 million from upfront payments under the License Agreement during the nine months ended September 30, 2021.

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Short-term Investments

9 Months Ended

Sep. 30, 2022

Short-term Investments

Short-term Investments

4     Short-term Investments

Short term investments are classified as held-to-maturity, are initially recognized at fair value and are subsequently accounted for at amortized cost. They are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

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Leases

9 Months Ended

Sep. 30, 2022

Leases

Leases

5    Leases

On May 20, 2022, the Company entered into a new lease arrangement for a 62-month term for new office space located in Charlotte, NC.  The Company recognized the operating lease right-of-use asset and operating lease liabilities at the lease commencement date on August 1, 2022.  The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt.  As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments.  The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S. markets for collateralized debt and used rates near the 62-month period. This resulted in an incremental borrowing rate of 7.55%. Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.

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Accounts Payable and Accrued Liabilities

9 Months Ended

Sep. 30, 2022

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities

6    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the following:  

	September 30, 2022		December 31, 2021
Trade accounts payable	$	2,853	$	4,384
Accrued compensation and benefits payable		1,851		1,458
Accrued research and development liabilities		571		272
Other accrued liabilities		760		437
Total	$	6,035	$	6,551

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Shareholders' Equity

9 Months Ended

Sep. 30, 2022

Shareholders' Equity

Shareholders' equity

7      Shareholders’ Equity

Authorized Share Capital

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 30,388,109 shares were issued and outstanding as of September 30, 2022.

As of September 30, 2022, there were 1,121,076 common shares available for issuance under the Employee Stock Purchase Plan (“ESPP”)  and no common shares have been issued under such plan.

In August 2022, the Company issued and sold 361,236 common shares under the Open Market Sale Agreement^SM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, for proceeds of $2.6 million (net of issuance costs of $0.1 million).

Additional Paid-in Capital

The additional paid-in capital balances were as follows:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Opening balance	$	20,090	$	11,795	$	15,711	$	8,530
Share-based compensation expense		2,380		2,024		6,905		5,304
Exercise of stock options		(29)		(26)		(175)		(41)
Closing balance	$	22,441	$	13,793	$	22,441	$	13,793

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Share Based Compensation

9 Months Ended

Sep. 30, 2022

Share Based Compensation

Share Based Compensation

8     Share Based Compensation

Under the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and the Company’s Stock Option Plan (the “2011 Plan”), unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36^th) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on four-year anniversary of the grant date.

On January 1, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,195,902 common shares. In addition, 125,127 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan. As of September 30, 2022, there were 5,811,310 common shares available for issuance under the 2019 Plan, of which 664,726 common shares were available for future grants.

On November 10, 2021, the Company established a 2021 Inducement Plan through the granting of awards. This 2021 Inducement Plan is intended to help the Company provide an inducement material for certain individuals to enter into employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which employees may benefit from increases in value of the common shares. There were 523,000 options granted and outstanding under the 2021 Inducement Plan during the nine-month period ended September 30, 2022. The options were granted at a weighted average exercise price of $6.37.  

On July 15, 2022, the Company offered an ESPP, in which participation is available to substantially all of our employees in the United States and Canada who meet certain service eligibility requirements.  As of September 30, 2022, the Company has 1,121,076 common shares available under the ESPP with no common shares issued under this plan.

The total outstanding and exercisable options from the 2011 Plan, 2019 Plan and Inducement Plan as of September 30 were as follows:

	2022
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	1,995,971	1,995,971	$	2.07
Outstanding at beginning of year - 2019 Plan		3,759,834	—		—	3,759,834		9.51
Granted - 2019 Plan		1,748,700	—		—	1,748,700		5.78
Granted - Inducement Plan		—	523,000		—	523,000		6.37
Expired - 2011 Plan		—	—		(1,121)	(1,121)		0.96
Exercised - 2011 Plan		—	—		(114,225)	(114,225)		1.38
Exercised - 2019 Plan		(15,089)	—		—	(15,089)		3.92
Forfeited - 2019 Plan		—	—		—	—		8.56
Cancelled - 2011 Plan		—	—		(19,387)	(19,387)		9.42
Cancelled - 2019 Plan		(17,950)	—		—	(17,950)		14.31
Outstanding at end of period	$	5,475,495	523,000		1,861,238	7,859,733	$	6.70
Outstanding at end of period - Weighted average exercise price	$	8.32	6.37	$	2.04
Exercisable at end of period		2,219,125	—		1,831,482	4,050,607	$	6.28
Exercisable at end of period - Weighted average exercise price	$	9.79	—	$	2.01

	2021
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	2,080,097	2,080,097	$	2.15
Outstanding at beginning of year - 2019 Plan		1,706,190	—		—	1,706,190		13.55
Granted - 2019 Plan		2,065,200	—		—	2,065,200		6.24
Forefeited - 2019 Plan		(13,882)	—		—	(13,882)		12.81
Cancelled - 2019 Plan		(1,167)	—		—	(1,167)		21.48
Exercised - 2011 Plan		—	—		(40,538)	(40,538)		0.97
Exercised - 2019 Plan		(1,250)	—		—	(1,250)		3.74
Outstanding at end of period		3,755,091	—		2,039,559	5,794,650	$	6.94
Outstanding at end of period - Weighted average exercise price	$	9.53	—	$	2.18
Exercisable at end of period		938,433	—		1,764,146	2,702,579	$	5.39
Exercisable at end of period - Weighted average exercise price	$	11.61	—	$	2.08

The weighted average remaining contractual life was 7.8 and 8.0 years for outstanding options as of  September 30, 2022 and 2021, respectively. The weighted average remaining contractual life was 6.7 and 6.9 years for vested options, as of September 30, 2022 and 2021, respectively.

There was $18.6 million and $17.3 million total unrecognized compensation cost related to non-vested share options as of September 30, 2022 and 2021, respectively. The share options are expected to be recognized over a remaining weighted average vesting period of 2.5 years and 2.6 years as of September 30, 2022 and 2021, respectively.

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity.

The non-vested options as of September 30 were as follows:

	2022
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		200,639	200,639	$	1.86
Non-vested share options at beginning of year - 2019 Plan		2,665,518		—		—	2,665,518		6.39
Granted - 2019 Plan		1,748,700		—		—	1,748,700		4.37
Granted - Inducement Plan		—		523,000		—	523,000		4.81
Vested, outstanding 2011 Plan		—		—		(170,883)	(170,883)		1.76
Vested, outstanding 2019 Plan		(1,149,117)		—		—	(1,149,117)		5.99
Forfeited - 2019 Plan		(8,731)		—		—	(8,731)		6.27
Non-vested share options at end of period		3,256,370		523,000		29,756	3,809,126	$	5.34
Non-vested share options at end of period - Weighted average fair value	$	5.45	$	—	$	2.44

	2021
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		543,192	543,192	$	1.81
Non-vested share options at beginning of year - 2019 Plan		1,438,026		—		—	1,438,026		10.28
Granted - 2019 Plan		2,065,200		—		—	2,065,200		4.71
Vested, outstanding 2011 Plan		—		—		(267,789)	(267,789)		1.64
Forfeited - 2019 Plan		(13,882)		—			(13,882)		9.18
Vested, outstanding 2019 Plan		(672,686)		—		—	(672,686)		9.17
Non-vested share options at end of period		2,816,658		—		275,403	3,092,061	$	6.07
Non-vested share options at end of period - Weighted average fair value	$	6.47	$	—	$	1.98

There were 523,000 options granted, outstanding and non-vested under the 2021 Inducement Plan during the nine month period ended September 30, 2022. The options were granted at a weighted average fair value price of $4.81.  

The fair value of share-based payment transaction is measured using Black-Scholes valuation model. This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values.

The fair value of options granted for the 2011 Plan, 2019 Plan and 2021 Inducement Plan were estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted:

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Exercise price	$	6.94		$	5.96		$	5.91		$	6.24
Share price	$	6.94		$	5.96		$	5.91		$	6.24
Volatility		93	%		94	%		91	%		94	%
Risk-free interest rate		2.94	%		0.94	%		2.41	%		1.04	%
Expected life		5.75			6.08			6.03			6.01
Dividend		0	%		—	%		0	%		0	%

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the U.S. sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

The Company recognized share-based compensation expense as follows:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Administration	$	1,891	$	863	$	3,683	$	2,186
Research and development		349		821		2,302		2,226
Commercial activities		140		340		920		892
Total	$	2,380	$	2,024	$	6,905	$	5,304

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Net Loss Per Share

9 Months Ended

Sep. 30, 2022

Net Loss Per Share

Net Loss Per Share

9     Net Loss Per Share

Basic net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period.

For the nine months ended September 30, 2022 and 2021, the Company was in a net loss position. Dilutive net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and shares issuable upon exercise of pre-funded warrants outstanding during the period. The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of September 30, as they would be anti-dilutive:

	2022	2021
Share options	7,859,733	5,794,640

Amounts above reflect the common share equivalents of the noted instruments.

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Subsequent Events

9 Months Ended

Sep. 30, 2022

Subsequent Events.

Subsequent Events

10     Subsequent Events

On October 17, 2022, the Company announced positive of topline results from its second phase 3 clinical trial, which the Company refers to as the RAPID trial, of intranasally administered etripamil in the conversion of the cardiac arrythmia paroxysmal supraventricular tachycardia to normal sinus rhythm. With the positive results from the RAPID clinical trial, the Company has earned a payment of $3.5 million related to the License Agreement. This revenue will be recorded in the quarter ending December 31, 2022.

In mid-October 3,809,523 pre-funded warrants were exercised at an exercise price of $0.01 per share.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting Policies

Basis of consolidation

a)  Basis of Consolidation

The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc. All intercompany transactions and balances have been eliminated.

Basis of Presentation and Use of Accounting Estimates and Significant Accounting Policies

b)  Basis of Presentation and Use of Accounting Estimates and Significant Accounting Policies

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed.  Accordingly, the unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2021.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of September 30, 2022, and its statements of loss, shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and its statement of cash flows for the nine months ended September 30, 2022 and 2021.

The condensed consolidated balance sheet as of December 31, 2021, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

These unaudited interim condensed consolidated financial statements are presented in US dollars, which is the Company’s functional currency.

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to,

● Estimates of the percentage of work completed of the total work over the life of an individual clinical trial in accordance with agreements established with contracted research organizations (“CRO”), contracted

manufacturing organizations (“CMO”) and clinical trial sites which in turn impact the research & development expenses.

● Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

Significant Risks and Uncertainties

c) Significant Risks and Uncertainties

The ongoing COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines. The pandemic has resulted in many state, local and foreign governments implementing and making adjustments to various orders and restrictions in order to control the spread of the disease, which have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s unaudited interim condensed consolidated financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidate; delays or problems in the supply of its study drug or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and complying with applicable regulatory requirements.

Recent Accounting Pronouncements

d) Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the unaudited condensed consolidated financial statements as a result of future adoption.

Sources of Liquidity and Funding Requirements

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception  and anticipates to continue to incur losses for at least the next several years. As of September 30, 2022, the Company had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million. Management has evaluated the Company’s current operating plan against our existing cash and cash equivalents and determined that we expect to be able to support our ongoing operations through 2023.

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Accounts Payable and Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Accounts Payable and Accrued Liabilities

Schedule of accounts payable and accrued liabilities

	September 30, 2022		December 31, 2021
Trade accounts payable	$	2,853	$	4,384
Accrued compensation and benefits payable		1,851		1,458
Accrued research and development liabilities		571		272
Other accrued liabilities		760		437
Total	$	6,035	$	6,551

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2022

Shareholders' Equity

Schedule of additional paid-in capital

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Opening balance	$	20,090	$	11,795	$	15,711	$	8,530
Share-based compensation expense		2,380		2,024		6,905		5,304
Exercise of stock options		(29)		(26)		(175)		(41)
Closing balance	$	22,441	$	13,793	$	22,441	$	13,793

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Share Based Compensation (Tables)

9 Months Ended

Sep. 30, 2022

Share Based Compensation

Schedule of outstanding and exercisable options

	2022
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	1,995,971	1,995,971	$	2.07
Outstanding at beginning of year - 2019 Plan		3,759,834	—		—	3,759,834		9.51
Granted - 2019 Plan		1,748,700	—		—	1,748,700		5.78
Granted - Inducement Plan		—	523,000		—	523,000		6.37
Expired - 2011 Plan		—	—		(1,121)	(1,121)		0.96
Exercised - 2011 Plan		—	—		(114,225)	(114,225)		1.38
Exercised - 2019 Plan		(15,089)	—		—	(15,089)		3.92
Forfeited - 2019 Plan		—	—		—	—		8.56
Cancelled - 2011 Plan		—	—		(19,387)	(19,387)		9.42
Cancelled - 2019 Plan		(17,950)	—		—	(17,950)		14.31
Outstanding at end of period	$	5,475,495	523,000		1,861,238	7,859,733	$	6.70
Outstanding at end of period - Weighted average exercise price	$	8.32	6.37	$	2.04
Exercisable at end of period		2,219,125	—		1,831,482	4,050,607	$	6.28
Exercisable at end of period - Weighted average exercise price	$	9.79	—	$	2.01

	2021
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	2,080,097	2,080,097	$	2.15
Outstanding at beginning of year - 2019 Plan		1,706,190	—		—	1,706,190		13.55
Granted - 2019 Plan		2,065,200	—		—	2,065,200		6.24
Forefeited - 2019 Plan		(13,882)	—		—	(13,882)		12.81
Cancelled - 2019 Plan		(1,167)	—		—	(1,167)		21.48
Exercised - 2011 Plan		—	—		(40,538)	(40,538)		0.97
Exercised - 2019 Plan		(1,250)	—		—	(1,250)		3.74
Outstanding at end of period		3,755,091	—		2,039,559	5,794,650	$	6.94
Outstanding at end of period - Weighted average exercise price	$	9.53	—	$	2.18
Exercisable at end of period		938,433	—		1,764,146	2,702,579	$	5.39
Exercisable at end of period - Weighted average exercise price	$	11.61	—	$	2.08

Schedule of non-vested share options activity

	2022
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		200,639	200,639	$	1.86
Non-vested share options at beginning of year - 2019 Plan		2,665,518		—		—	2,665,518		6.39
Granted - 2019 Plan		1,748,700		—		—	1,748,700		4.37
Granted - Inducement Plan		—		523,000		—	523,000		4.81
Vested, outstanding 2011 Plan		—		—		(170,883)	(170,883)		1.76
Vested, outstanding 2019 Plan		(1,149,117)		—		—	(1,149,117)		5.99
Forfeited - 2019 Plan		(8,731)		—		—	(8,731)		6.27
Non-vested share options at end of period		3,256,370		523,000		29,756	3,809,126	$	5.34
Non-vested share options at end of period - Weighted average fair value	$	5.45	$	—	$	2.44

	2021
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		543,192	543,192	$	1.81
Non-vested share options at beginning of year - 2019 Plan		1,438,026		—		—	1,438,026		10.28
Granted - 2019 Plan		2,065,200		—		—	2,065,200		4.71
Vested, outstanding 2011 Plan		—		—		(267,789)	(267,789)		1.64
Forfeited - 2019 Plan		(13,882)		—			(13,882)		9.18
Vested, outstanding 2019 Plan		(672,686)		—		—	(672,686)		9.17
Non-vested share options at end of period		2,816,658		—		275,403	3,092,061	$	6.07
Non-vested share options at end of period - Weighted average fair value	$	6.47	$	—	$	1.98

Schedule of weighted average assumptions for the options granted

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Exercise price	$	6.94		$	5.96		$	5.91		$	6.24
Share price	$	6.94		$	5.96		$	5.91		$	6.24
Volatility		93	%		94	%		91	%		94	%
Risk-free interest rate		2.94	%		0.94	%		2.41	%		1.04	%
Expected life		5.75			6.08			6.03			6.01
Dividend		0	%		—	%		0	%		0	%

Schedule of share-based compensation expense

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Administration	$	1,891	$	863	$	3,683	$	2,186
Research and development		349		821		2,302		2,226
Commercial activities		140		340		920		892
Total	$	2,380	$	2,024	$	6,905	$	5,304

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Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2022

Net Loss Per Share

Schedule of potentially dilutive securities excluded from the computation of diluted weighted average shares

	2022	2021
Share options	7,859,733	5,794,640

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Summary of Significant Accounting Policies - Sources of Liquidity and Funding Requirements (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Summary of Significant Accounting Policies
Net proceeds	$ 2,644
Cash, cash equivalents and short-term investments	77,200
Accumulated deficit	$ (251,530)	$ (206,319)

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Revenues (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Revenues
Recognized collaboration revenue	$ 1,500	$ 1,500	$ 15,000
Warrants	$ 52,941	$ 52,941		$ 52,941

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Leases (Details) - Charlotte, NC	May 20, 2022
Operating lease
Operating lease, term	62 months
Incremental borrowing rate	7.55%

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Accounts Payable and Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accounts Payable and Accrued Liabilities
Trade accounts payable	$ 2,853	$ 4,384
Accrued compensation and benefits payable	1,851	1,458
Accrued research and development liabilities	571	272
Other accrued liabilities	760	437
Accounts payable and accrued liabilities	$ 6,035	$ 6,551

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Shareholders' Equity - Authorized share capital (Details) - USD ($) $ in Thousands	1 Months Ended	9 Months Ended
	Aug. 31, 2022	Sep. 30, 2022	Dec. 31, 2021
Authorized share capital
Common Stock, Shares, Issued		30,388,109	29,897,559
Common Stock, Shares, Outstanding		30,388,109	29,897,559
Issuance of common shares, net of issuance costs		$ 2,644
Employee Stock Purchase Plan
Authorized share capital
Number of common shares available for issuance		1,121,076
Number of shares issued under the ESPP		0
ATM Program
Authorized share capital
Number of shares issued during the period	361,236
Issuance of common shares, net of issuance costs	$ 2,600
Stock issuance cost	$ 100

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Shareholders' Equity - Pre-funded Warrants - Private Placement (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)
Shareholders' equity
Net proceeds	$ 2,644

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Shareholders' Equity - Additional paid-in capital (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Additional paid-in capital
Beginning balance	$ 86,659	$ 139,594	$ 112,600	$ 143,119
Share-based compensation expense	2,380		6,905	5,304
Exercise of stock options	28	24	217	43
Ending balance	77,155	127,417	77,155	127,417
Additional paid-in capital
Additional paid-in capital
Beginning balance	20,090	11,795	15,711	8,530
Share-based compensation expense	2,380	2,024	6,905	5,304
Exercise of stock options	(29)	(26)	(175)	(41)
Ending balance	$ 22,441	$ 13,793	$ 22,441	$ 13,793

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Share Based Compensation (Details) - $ / shares		9 Months Ended
	Jan. 01, 2022	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021	Dec. 31, 2020
2011 Plan
Share-based compensation
Number of options forfeited after termination of one plan	125,127
Number of options, Options outstanding		1,861,238	2,039,559	1,995,971	2,080,097
2019 Plan
Share-based compensation
Shares reserved for issuance	1,195,902	5,811,310
Shares available for future grants		664,726
Options granted		1,748,700	2,065,200
Number of options, Options outstanding		5,475,495	3,755,091	3,759,834	1,706,190
Weighted average exercise price		$ 5.78	$ 6.24
2021 Inducement Plan
Share-based compensation
Options granted		523,000
Number of options, Options outstanding		523,000
Weighted average exercise price		$ 6.37
ESPP
Share-based compensation
Shares reserved for issuance		1,121,076
Shares issued		0
Options | 2011 Plan
Share-based compensation
Vesting period		4 years
Options | 2011 Plan | Share-based Compensation Award, Tranche One
Share-based compensation
Percentage of shares to vest		25.00%
Options | 2019 Plan
Share-based compensation
Vesting period		4 years
Options | 2019 Plan | Share-based Compensation Award, Tranche One
Share-based compensation
Percentage of shares to vest		25.00%
Options | 2019 Plan | Share-based Compensation Award, Tranche Two
Share-based compensation
Percentage of shares to vest		2.78%

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Share Based Compensation - Outstanding and exercisable options (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Feb. 16, 2022	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Outstanding and exercisable options, weighted average exercise price
Weighted average remaining contractual life (in years)				7 years 9 months 18 days	8 years
Weighted average remaining contractual life for vested options (in years)				6 years 8 months 12 days	6 years 10 months 24 days
Share-based compensation expense		$ 2,380	$ 2,024	$ 6,905	$ 5,304
Unrecognized compensation cost		$ 18,600	$ 17,300	$ 18,600	$ 17,300
Expected period for recognition				2 years 6 months	2 years 7 months 6 days
Plans 2011 and 2019 and 2021 Inducement [Member]
Outstanding and exercisable options, number of shares
Outstanding at end of period		7,859,733	5,794,650	7,859,733	5,794,650
Exercisable at end of period		4,050,607	2,702,579	4,050,607	2,702,579
Outstanding and exercisable options, weighted average exercise price
Outstanding at end of period		$ 6.70	$ 6.94	$ 6.70	$ 6.94
Exercisable at end of period		$ 6.28	$ 5.39	$ 6.28	$ 5.39
2011 Plan
Outstanding and exercisable options, number of shares
Outstanding at beginning of period				1,995,971	2,080,097
Exercised				(114,225)	(40,538)
Cancelled				(19,387)
Expired				(1,121)
Outstanding at end of period		1,861,238	2,039,559	1,861,238	2,039,559
Exercisable at end of period		1,831,482	1,764,146	1,831,482	1,764,146
Outstanding and exercisable options, weighted average exercise price
Outstanding at beginning of period				$ 2.07	$ 2.15
Exercised				1.38	0.97
Cancelled				9.42
Expired				0.96
Outstanding at end of period		$ 2.04	$ 2.18	2.04	2.18
Exercisable at end of period		$ 2.01	$ 2.08	$ 2.01	$ 2.08
2019 Plan
Outstanding and exercisable options, number of shares
Outstanding at beginning of period				3,759,834	1,706,190
Granted				1,748,700	2,065,200
Exercised				(15,089)	(1,250)
Forfeited					(13,882)
Cancelled				(17,950)	(1,167)
Outstanding at end of period		5,475,495	3,755,091	5,475,495	3,755,091
Exercisable at end of period		2,219,125	938,433	2,219,125	938,433
Outstanding and exercisable options, weighted average exercise price
Outstanding at beginning of period				$ 9.51	$ 13.55
Granted				5.78	6.24
Exercised				3.92	3.74
Forfeited				8.56	12.81
Cancelled				14.31	21.48
Outstanding at end of period		$ 8.32	$ 9.53	8.32	9.53
Exercisable at end of period		$ 9.79	$ 11.61	9.79	11.61
Weighted average fair values of options granted				$ 4.37	$ 4.71
2021 Inducement Plan
Outstanding and exercisable options, number of shares
Granted				523,000
Outstanding at end of period		523,000		523,000
Outstanding and exercisable options, weighted average exercise price
Granted				$ 6.37
Exercised				6.37
Outstanding at end of period		$ 6.37		6.37
Weighted average fair values of options granted	$ 4.81			$ 4.81

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Share Based Compensation - Non-vested share options (Details) - $ / shares		9 Months Ended
	Feb. 16, 2022	Sep. 30, 2022	Sep. 30, 2021
Plans 2011 and 2019 and 2021 Inducement [Member]
Number of options
Non-vested share options at end of period		3,809,126	3,092,061
Weighted average fair value
Non-vested at end of period		$ 5.34	$ 6.07
2011 Plan
Number of options
Non-vested at beginning of period		200,639	543,192
Vested, outstanding		(170,883)	(267,789)
Non-vested share options at end of period		29,756	275,403
Weighted average fair value
Non-vested at beginning of period		$ 1.86	$ 1.81
Vested, outstanding		1.76	1.64
Non-vested at end of period		$ 2.44	$ 1.98
2019 Plan
Number of options
Non-vested at beginning of period		2,665,518	1,438,026
Granted		1,748,700	2,065,200
Vested, outstanding			(672,686)
Forfeited			(13,882)
Non-vested share options at end of period		3,256,370	2,816,658
Weighted average fair value
Non-vested at beginning of period		$ 6.39	$ 10.28
Granted		4.37	4.71
Vested, outstanding			9.17
Forfeited/expired			9.18
Non-vested at end of period		$ 5.45	$ 6.47
2021 Inducement Plan
Number of options
Granted		523,000
Vested, outstanding		(1,149,117)
Forfeited		(8,731)
Non-vested share options at end of period		523,000
Weighted average fair value
Granted	$ 4.81	$ 4.81
Vested, outstanding		5.99
Forfeited/expired		$ 6.27

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Share Based Compensation - Weighted average assumptions for the options granted (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Share Based Compensation
Exercise price	$ 6.94	$ 5.96	$ 5.91	$ 6.24
Share price (in dollars per share)	$ 6.94	$ 5.96	$ 5.91	$ 6.24
Volatility (as a percent)	93.00%	94.00%	91.00%	94.00%
Risk-free interest rate (as a percent)	2.94%	0.94%	2.41%	1.04%
Expected life (in years)	5 years 9 months	6 years 29 days	6 years 10 days	6 years 3 days
Dividend (as a percent)	0.00%		0.00%	0.00%

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Share Based Compensation - Recognized share-based compensation expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Share-based compensation
Share-based compensation expense	$ 2,380	$ 2,024	$ 6,905	$ 5,304
Administration
Share-based compensation
Share-based compensation expense	1,891	863	3,683	2,186
Research and development
Share-based compensation
Share-based compensation expense	349	821	2,302	2,226
Commercial activities
Share-based compensation
Share-based compensation expense	$ 140	$ 340	$ 920	$ 892

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Net Loss Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Share options
Net income (loss) per share
Share-based compensation options exercisable and in the money	7,859,733	5,794,640

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended	9 Months Ended
	Oct. 17, 2022	Oct. 14, 2022	Sep. 30, 2022	Sep. 30, 2022	Sep. 30, 2021
Subsequent events
Revenue			$ 1,500	$ 1,500	$ 15,000
Subsequent events
Subsequent events
Revenue	$ 3,500
Subsequent events | Pre-funded warrants
Subsequent events
Warrants exercised		3,809,523
Warrants exercise price		$ 0.01