Exhibit
99.1
ANNUAL
INFORMATION FORM
Fiscal
year ended May 31, 2006
August
11, 2006
2
Meridian Road, Toronto, Ontario M9W 4Z7
Telephone:
(416) 798-1200
Fax:
(416) 798-2200
TABLE
OF CONTENTS
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CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
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1
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REFERENCE
INFORMATION
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2
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THE
COMPANY
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3
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GENERAL
DEVELOPMENT OF THE BUSINESS
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3
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REGULATORY
REQUIREMENTS
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6
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BUSINESS
OF THE COMPANY
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10
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Overview
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10
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Immunotherapy
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10
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Antisense
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11
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Small
Molecule Therapies
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15
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Low
Molecular Weight Compounds
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15
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Other
Technologies
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16
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Agreements
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16
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Business
Strategy
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18
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Financial
Strategy
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18
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Intellectual
Property and Protection of Confidential Information and
Technology
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19
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Regulatory
Strategy
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20
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Competition
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21
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Human
Resources
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21
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Properties
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21
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Control
of the Issuer
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21
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RISK
FACTORS
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22
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RISKS
RELATED TO OUR COMMON SHARES AND CONVERTIBLE DEBENTURES
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29
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DIVIDENDS
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30
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SHARE
CAPITAL AND MARKET FOR SECURITIES
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31
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Share
Capital
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31
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Market
for Securities
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31
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DIRECTORS
AND OFFICERS
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31
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MEDICAL
SCIENTIFIC AND ADVISORY BOARD
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33
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AUDIT
COMMITTEE INFORMATION
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33
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LEGAL
PROCEEDINGS
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34
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TRANSFER
AGENT AND REGISTRAR
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34
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MATERIAL
CONTRACTS
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34
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INTERESTS
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
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34
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ADDITIONAL
INFORMATION
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35
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GLOSSARY
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G-1
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SCHEDULE
A - AUDIT COMMITTEE CHARTER
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S-1
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CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
This
annual information form may contain forward-looking statements within the
meaning of Canadian and U.S. securities laws. Such statements include, but
are
not limited to, statements relating to:
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our
expectations regarding future
financings;
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our
plans to conduct clinical
trials;
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our
expectations regarding the progress and the successful and timely
completion of the various stages of our drug discovery,
preclinical and clinical studies and the regulatory approval
process;
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our
plans to obtain partners to assist in the further development of
our
product candidates; and
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our
expectations with respect to existing and future corporate alliances
and
licensing transactions with third parties, and the receipt and timing
of
any payments to be made by us or to us in respect of such
arrangements,
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the
Company’s plans, objectives, expectations and intentions and other statements
including words such as “anticipate”, “contemplate”, “continue”, “believe”,
“plan”, “estimate”, “expect”, “intend”, “will”, “should”, “may”, and other
similar expressions.
Such
statements reflect our current views with respect to future events and are
subject to risks and uncertainties and are necessarily based upon a number
of
estimates and assumptions that, while considered reasonable by us are inherently
subject to significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors could cause our actual results,
performance or achievements to be materially different from any future results,
performance, or achievements that may be expressed or implied by such
forward-looking statements, including, among others:
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our
ability to obtain the substantial capital required to fund research
and
operations;
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our
lack of product revenues and history of operating
losses;
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our
early stage of development, particularly the inherent risks and
uncertainties associated with (i) developing new drug candidates
generally, (ii) demonstrating the safety and efficacy of these drug
candidates in clinical studies in humans, and (iii) obtaining regulatory
approval to commercialize these drug
candidates;
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our
drug candidates require time-consuming and costly preclinical
and clinical testing and regulatory approvals before
commercialization;
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clinical
studies and regulatory approvals of our drug candidates are subject
to
delays, and may not be completed or granted on expected timetables,
if at
all, and such delays may increase our costs and could delay our ability
to
generate revenue;
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the
regulatory approval process;
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the
progress of our clinical
trials;
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our
ability to find and enter into agreements with potential
partners;
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our
ability to attract and retain key
personnel;
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our
ability to obtain patent protection and protect our intellectual
property
rights;
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our
ability to protect our intellectual property rights and to not infringe
on
the intellectual property rights of
others;
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our
ability to comply with applicable governmental regulations and
standards;
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development
or commercialization of similar products by our competitors, many
of which
are more established and have greater financial resources than we
do;
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commercialization
limitations imposed by intellectual property rights owned or controlled
by
third parties;
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our
business is subject to potential product liability and other
claims;
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our
ability to maintain adequate insurance at acceptable
costs;
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further
equity financing may substantially dilute the interests of our
shareholders;
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changing
market conditions; and
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other
risks detailed from time-to-time in our ongoing quarterly filings,
annual
information forms, annual reports and annual filings with Canadian
securities regulators and the United States Securities and Exchange
Commission, and those which are discussed under the heading “Risk
Factors”.
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Should
one or more of these risks or uncertainties materialize, or should the
assumptions set out in the section entitled “Risk Factors” underlying those
forward-looking statements prove incorrect, actual results may vary materially
from those described herein. These forward-looking statements are made as of
the
date of this annual information form or, in the case of documents incorporated
by reference herein, as of the date of such documents, and we do not intend,
and
do not assume any obligation, to update these forward-looking statements, except
as required by law. We cannot assure you that such statements will prove to
be
accurate as actual results and future events could differ materially from those
anticipated in such statements. Investors are cautioned that forward-looking
statements are not guarantees of future performance and accordingly investors
are cautioned not to put undue reliance on forward-looking statements due to
the
inherent uncertainty therein.
REFERENCE
INFORMATION
Unless
otherwise indicated, or the context requires otherwise, the information
appearing in this annual information form is stated as at May 31, 2006 and
references in this annual information form to “$” or “dollars” are to Canadian
dollars. In this annual information form the terms “Lorus”, “we”, “us”, “our”,
“the Company”, and similar expressions refer to Lorus Therapeutics Inc. together
with its subsidiaries, unless otherwise noted or the context otherwise requires.
For ease of reference, a glossary of terms used in this annual information
form
can be found beginning on page G-1.
THE
COMPANY
Lorus
Therapeutics Inc. was incorporated under the Business
Corporations Act (Ontario)
on September 5, 1986 under the name RML Medical Laboratories Inc. On October
28,
1991, RML Medical Laboratories Inc. amalgamated with Mint Gold Resources Ltd.,
resulting in the Company becoming a reporting issuer (as defined under
applicable securities law) in Ontario, on such date. On August 25, 1992, the
Company changed its name to IMUTEC Corporation. On November 27, 1996, the
Company changed its name to Imutec Pharma Inc., and on November 19, 1998, the
Company changed its name to Lorus Therapeutics Inc. On October 1, 2005 the
Company continued under the Canada
Business Corporations Act.
The
address of the Company’s head and registered office is 2 Meridian Road, Toronto,
Ontario, Canada, M9W 4Z7. Our corporate website is www.lorusthera.com. The
contents of the website are specifically not included in this annual information
form by reference.
Our
common shares are listed on the Toronto Stock Exchange (the “TSX”) under the
symbol “LOR” and are listed on the American Stock Exchange (the “AMEX”) under
the symbol “LRP”.
Lorus’
subsidiaries are GeneSense Technologies Inc. (“GeneSense”), a corporation
incorporated under the laws of Canada, of which Lorus owns 100% of the issued
and outstanding share capital, and NuChem Pharmaceuticals Inc. (“NuChem”), a
corporation incorporated under the laws of Ontario, of which Lorus owns 80%
of
the issued and outstanding voting share capital and 100% of the issued and
outstanding non-voting preference share capital.
GENERAL
DEVELOPMENT OF THE BUSINESS
We
are a life sciences company focused on the research and development of effective
anticancer development stage therapies with high safety. We believe that we
have
established a diverse anticancer product pipeline, with products in various
stages of development ranging from pre-clinical compounds to multiple ongoing
Phase II clinical trials. A growing intellectual property portfolio supports
this product pipeline.
Our
commercial success is dependent upon several factors, including establishing
the
efficacy and safety of our products in clinical trials, obtaining the necessary
regulatory approvals to enable us to market any products that may be approved
and maintaining sufficient levels of funding through public and/or private
financing.
We
have product candidates in three classes of anticancer therapies: (i)
immunotherapy, based on macrophage-stimulating biological response modifiers;
(ii) antisense therapies, based on synthetic segments of DNA designed to bind
to
the messenger RNA (mRNA) that is responsible for the production of proteins
over-expressed in cancer cells; and (iii) small molecule therapies based on
anti-angiogenic, anti-proliferative and anti-metastatic agents. In addition,
we
have a number of anticancer technologies in the research and pre-clinical stages
of development, including tumor suppressor gene therapy, siRNA and U-Sense
technology.
Over
the past three years, we have focused on advancing our product candidates
through pre-clinical and clinical testing. You should be aware that it can
cost
millions of dollars and take many years before a product candidate may be
approved for therapeutic use in humans. In addition, a product candidate may
not
meet the end points of any Phase I, Phase II or Phase III clinical trial. See
“Risk Factors”.
Immunotherapy
Lorus’
immunotherapy product candidates are Virulizin® and IL-17E.
Virulizin®
In
2002, we initiated a phase III clinical trial of Virulizin® for patients with
locally advanced or metastatic pancreatic cancer who had not previously received
systemic chemotherapy. In July of 2005, we announced the completion of the
study
and in October 2005, we announced that the results of the trial indicated that
the overall survival rate of patients who were treated with Virulizin® plus
gemcitabine (a standard chemotherapy drug) was not statistically significant
when compared to those patients in the study who were given gemcitabine plus
a
placebo. We are currently seeking partners to continue the clinical development
of Virulizin®. See “-- Clinical Development” and “Business of the Company -
Immunotherapy”.
IL-17E
We
have recently discovered a new lead drug candidate, IL-17E, which belongs to
a
larger family of cytokines. In experiments with mice, IL-17E has demonstrated
significant antitumor activity against a variety of human tumors, including
melanoma, pancreatic, colon, lung and ovarian tumors. We believe that these
preliminary animal results support our further investigation of the potential
clinical applications of IL-17E.
Antisense
We
have two lead antisense products, GTI-2040 and GTI-2501, and other antisense
molecules in pre-clinical development.
GTI-2040
Seven
of the eight clinical studies initiated for GTI-2040 have been conducted in
conjunction with the United States National Cancer Institute (“NCI”) and the
remaining study was conducted by Lorus. We have initiated, are conducting or
have conducted Phase II clinical trials of GTI-2040 in patients with refractory
or relapsed acute myeloid leukemia, metastatic breast cancer, non-small cell
lung cancer, solid tumors, advanced unresectable colon cancer, hormone
refractory prostate cancer, advanced, end-stage renal cell cancer, and high
grade myelodysplastic syndrome and acute myeloid leukemia.
GTI-2501
Our
other antisense therapy, GTI-2501, is currently in a Phase II clinical trial
for
the treatment of hormone refractory prostate cancer at the Toronto Sunnybrook
Regional Cancer Centre, following the successful conclusion of a Phase I
clinical trial in the United States. See “-- Clinical Development” and “Business
of the Company - Antisense”.
Other
We
have entered into a collaboration agreement in respect of our antisense therapy,
GTI-2601 and have other antisense molecules in pre-clinical development. See
“Business of the Company - Antisense”.
Small
Molecule
Our
small molecule program is in the pre-clinical stage. See “-- Clinical
Development” and “Business of the Company - Small Molecule
Therapies”.
Clinical
Development
The
chart below illustrates our current view of the clinical development stage
of
each of our products. This chart reflects the current regulatory approval
process for biopharmaceuticals in Canada and the United States (with the
exception of Virulizin® for malignant melanoma, which is approved for use in the
private market in Mexico). See “Regulatory Requirements” for a description of
the regulatory approval process in Canada and the United States. These
qualitative estimates of the progress of our products are intended solely for
illustrative purposes and the information contained herein is qualified in
its
entirety by the information appearing elsewhere or incorporated by reference
in
this annual information form.
CLINICAL
DEVELOPMENT PIPELINE
REGULATORY
REQUIREMENTS
Overview
Regulation
by government
authorities in Canada, the United States, Mexico,
and the European Union is
a significant factor in our current research and drug development activities.
To
clinically test, manufacture and market drug products for therapeutic use,
we
must satisfy the rigorous mandatory procedures and standards established by
the
regulatory agencies in the countries in which we currently operate or intend
to
operate.
The
laws of most of these countries require the licensing of manufacturing
facilities, carefully controlled research and the extensive testing of products.
Biotechnology companies must establish the safety and efficacy of their new
products in clinical trials and establish cGMP and control over marketing
activities before being allowed to market their products. The safety and
efficacy of a new drug must be shown through clinical trials of the drug carried
out in accordance with the mandatory procedures and standards established by
regulatory agencies.
The
process of completing clinical trials and obtaining regulatory approval for
a
new drug takes a number of years and requires the expenditure of substantial
resources. Once a new drug or product license application is submitted, we
cannot assure you that a regulatory agency will review and approve the
application in a timely manner. Even after initial approval has been obtained,
further studies, including post-marketing studies, may be required to provide
additional data on efficacy and safety necessary to confirm the approved
indication or to gain approval for the use of the new drug as a treatment for
clinical indications other than those for which the new drug was initially
tested. Also, regulatory agencies require post-marketing surveillance programs
to monitor a new drug’s side effects. Results of post-marketing programs may
limit or expand the further marketing of new drugs. A serious safety or
effectiveness problem involving an approved new drug may result in a regulatory
agency requiring withdrawal of the new drug from the market and possible civil
action. We cannot assure you that we will not encounter such difficulties or
excessive costs in our efforts to secure necessary approvals, which could delay
or prevent us from manufacturing or marketing our products.
In
addition to the regulatory product approval framework, biotechnology companies,
including Lorus, are subject to regulation under local provincial, state and
federal law, including requirements regarding occupational safety, laboratory
practices, environmental protection and hazardous substance control, and may
be
subject to other present and future local, provincial, state, federal and
foreign regulation, including possible future regulation of the biotechnology
industry.
Canada
In
Canada, the manufacture and sale of drugs are controlled by Health Canada
(“HC”). New drugs (sometimes referred to as drug candidates or product
candidates) must pass through a number of testing stages, including pre-clinical
testing and clinical trials. Pre-clinical testing involves testing the new
drug’s chemistry, pharmacology and toxicology in
vitro
and in
vivo.
Successful results (that is, potentially valuable pharmacological activity
combined with an acceptable low level of toxicity) enable the developer of
the
drug candidate to file a clinical trial application (“CTA”) to begin clinical
trials involving humans.
To
study a drug in Canadian patients, a CTA submission must be filed with HC.
The
CTA submission must contain specified information, including the results of
the
pre-clinical tests completed at the time of the submission and any available
information regarding use of the drug in humans. In addition, since the method
of manufacture may affect the efficacy and safety of a new drug, information
on
manufacturing methods and standards and the stability of the drug substance
and
dosage form must be presented. Production methods and quality control procedures
must be in place to ensure an acceptably pure product, essentially free of
contamination, and to ensure uniformity with respect to all quality
aspects.
Provided
HC does not reject a CTA submission, clinical trials can begin. Clinical trials
for product candidates to treat cancer are generally carried out in three
phases. Phase I involves studies to evaluate toxicity and ideal dose levels
in
humans. The new drug is administered to human patients who have met the clinical
trial entry criteria to determine pharmacokinetics, human tolerance and
prevalence of adverse side effects. Phases II and III involve therapeutic
studies. In Phase II, efficacy, dosage, side effects and safety are established
in a small number of patients who have the disease or disorder that the new
drug
is intended to treat. In Phase III, there are controlled clinical trials in
which the drug candidate is administered to a large number of patients who
are
likely to receive benefit from the new drug. In Phase III, the effectiveness
of
the drug candidate is compared to that of standard accepted methods of treatment
in order to provide sufficient data for the statistical proof of safety and
efficacy for the new drug.
If
clinical studies establish that a drug candidate has value, the manufacturer
submits a new drug submission (“NDS”) application to HC for marketing approval.
The NDS contains all information known about the drug candidate, including
the
results of pre-clinical testing and clinical trials. Information about a
substance contained in an NDS includes its proper name, its chemical name,
and
details on its method of manufacturing and purification, and its biological,
pharmacological and toxicological properties. The NDS also provides information
about the dosage form of the new drug, including a quantitative listing of
all
ingredients used in its formulation, its method of manufacture, manufacturing
facility information, packaging and labelling, the results of stability tests,
and its diagnostic or therapeutic claims and side effects, as well as details
of
the clinical trials to support the safety and efficacy of the new drug.
Furthermore, for biological products, an on-site evaluation is required prior
to
the issuance of a notice of compliance (“NOC”). All aspects of the NDS are
critically reviewed by HC. If an NDS is found satisfactory, an NOC is issued
permitting the new drug to be sold. In Canada an establishment license must
be
obtained prior to marketing the product.
HC
has a policy of priority evaluation of new drug submissions for all drugs
intended for serious or life-threatening diseases for which no drug product
has
received regulatory approval in Canada and for which there is reasonable
scientific evidence to indicate that the proposed drug candidate is safe and
may
provide effective treatment.
The
monitoring of a new drug does not cease once it is on the market. For example,
a
manufacturer of a new drug must report any new information received concerning
serious side effects, as well as the failure of the new drug to produce desired
effects. As well, if HC determines it to be in the interest of public health,
a
notice of compliance for a new drug may be suspended and the new drug may be
removed from the market.
An
exception to the foregoing requirements relating to the manufacture and sale
of
a new drug is the limited authorization that may be available in respect of
the
sale of drug candidates for emergency treatment. Under a special access program,
HC may authorize the sale of a quantity of a new drug for human use to a
specific practitioner for the emergency treatment of a patient under the
practitioner’s care. Prior to authorization, the practitioner must supply HC
with information concerning the medical emergency for which the new drug is
required, such data as is in the possession of the practitioner with respect
to
the use, safety and efficacy of the new drug, the names of the institutions
at
which the new drug is to be used and such other information as may be requested
by HC. In addition, the practitioner must agree to report to both the drug
manufacturer and HC the results of the new drug’s use in the medical emergency,
including information concerning adverse reactions, and must account to HC
for
all quantities of the new drug made available.
The
Canadian regulatory approval requirements for new drugs outlined above are
similar to those of other major pharmaceutical markets. While the testing
carried out in Canada is often acceptable for the purposes of regulatory
submissions in other countries, individual regulatory authorities may request
supplementary testing during their assessment of any submission. We cannot
assure you that the clinical testing conducted under HC authorization or the
approval of regulatory authorities of other countries will be accepted by
regulatory authorities of such other countries outside of Canada.
United
States
In
the United States, the United States Food and Drug Administration (“FDA”)
controls the manufacture and sale of new drugs. New drugs require FDA approval
of a marketing application (e.g.,
an NDA or FDA application) prior to commercial sale. To obtain marketing
approval, data from adequate and well-controlled clinical investigations,
demonstrating to the FDA’s satisfaction a new drug’s safety and effectiveness
for its intended use, are required. Such data are generated in studies conducted
pursuant to an IND submission, similar to that required for a CTA in Canada.
As
in Canada, clinical studies are characterized as Phase I, Phase II and Phase
III
trials or a combination thereof. In a marketing application, the manufacturer
must also demonstrate the identity, potency, quality and purity of the active
ingredients of the new drug involved, and the stability of those ingredients.
Further, the manufacturing facilities, equipment, processes and quality controls
for the new drug must comply with the FDA’s cGMP regulations for drugs or
biological products both in a pre-licensing inspection before product licensing
and in subsequent periodic inspections after licensing. In the case of a
biological product, an establishment license must be obtained prior to marketing
and batch releasing.
A
five-year period of market exclusivity for a drug comprising a new chemical
entity (“NCE”) is available to an applicant that succeeds in obtaining FDA
approval of an NCE, provided the active ingredient of the NCE has never before
been approved in an NDA. During this exclusivity period, the FDA may not approve
any abbreviated application filed by another sponsor for a generic version
of
the NCE. Further, a three-year period of market exclusivity for a new use or
indication for a previously approved drug is available to an applicant that
submits new clinical studies that are essential to support the new use or
indication. During the latter period of exclusivity, the FDA may not approve
an
abbreviated application filed by another sponsor for a generic version of the
product for that use or indication.
The
FDA has “fast track” regulations intended to accelerate the approval process for
the development, evaluation and marketing of new drugs used to diagnose or
treat
life-threatening and severely debilitating illnesses for which no satisfactory
alternative therapies exist. “Fast track” designation affords early interaction
with the FDA in terms of protocol design and permits, although it does not
require, the FDA to issue marketing approval after completion of Phase II
clinical trials (although the FDA will require subsequent clinical trials or
even post-approval efficacy studies).
BUSINESS
OF THE COMPANY
Overview
Chemotherapeutic
drugs have been the predominant medical treatment option for cancer,
particularly metastatic cancer, for the past 30 years. More recently, a range
of
novel cancer drugs have been developed that are efficacious while improving
patient quality of life. Unlike chemotherapies, which are typically based on
chemical synthesis, these new drugs may be of biological origin, based on
naturally occurring molecules, proteins or genetic material. While chemotherapy
drugs are relatively non-specific and, as a result, toxic to normal cells,
these
biological agents specifically target individual molecules or genes that are
involved in disease and are therefore preferentially toxic to tumor cells.
The
increased specificity of these drugs may result in fewer and milder side
effects, meaning that, in theory, larger and therefore, more effective doses
can
be administered.
We
believe that the future of cancer treatment and management lies in drugs that
are effective, safe and have minimal side effects leading to improved quality
of
life for patients. Many of the drugs currently approved for the treatment and
management of cancer are toxic, resulting in severe side effects that limit
dosing and efficacy. We believe that a product development plan based on
effective and safe drugs would have broad applications in cancer treatment.
Lorus’ strategy is to continue the development of our product pipeline using
several therapeutic approaches. Each therapeutic approach is dependent on
different technologies, which we believe mitigates the development risks
associated with a single technology platform. In developing and evaluating
our
products, we evaluate the merits of each product candidate throughout the
clinical trial process and consider commercialization opportunities.
Immunotherapy
Introduction
Immunotherapy
is a form of treatment that stimulates the body’s immune system to fight
diseases including cancer. Immunotherapy may help the immune system to fight
cancer by improving recognition of differences between healthy cells and cancer
cells. Alternatively, it may stimulate the production of specific cancer
fighting cells.
Virulizin®
Virulizin®,
Lorus’ immunotherapeutic drug, has been shown in pre-clinical studies to be an
immunotherapy that stimulates monocytes and macrophages to infiltrate tumor
tissue and attack tumor cells. Monocytes and macrophages are types of white
blood cells that are key players in the immune response to foreign pathogens
and
tumor cells. When macrophages and monocytes are activated, they produce proteins
called cytokines that have the ability to kill tumor cells directly. Our studies
indicate that Virulizin® stimulates the release of tumor necrosis factor
(TNF-alpha), one type of cytokine, in immune cells to induce apoptosis
(programmed cell death) of tumor cells. Our studies also indicate that
Virulizin® produces fewer negative side effects than commonly used chemotherapy
agents likely because the drug works by stimulating the immune system to attack
the cancer, rather than directly killing cancerous cells.
Clinical
Development Program
In
2002, Lorus initiated a Phase III, double-blind, multicenter, randomized study
in patients with locally advanced or metastatic pancreatic cancer who had not
previously received systemic chemotherapy. This clinical trial was conducted
at
over 100 sites in North America and Europe with enrolment of 436 patients with
advanced pancreatic cancer. Patients enrolled in the study were randomly
selected to receive treatment with either: (i) Virulizin® plus gemcitabine or
(ii) placebo plus gemcitabine. Optional second line therapy for those patients
who failed to respond or became resistant to gemcitabine included Virulizin® or
placebo, alone or in combination with 5-fluorouracil (“5-FU”). All study
subjects were monitored throughout the remainder of their lifespan. The end
points of the study were survival and clinical benefits. In July 2005, Lorus
announced completion of “last patient visit” for the phase III trial. Lorus
announced the results of the phase III trial in October 2005 and those results
are discussed in detail below.
Clinical
Trial Results
In
October 2005, we released the results of the Phase III clinical trial evaluating
Virulizin® for the treatment of pancreatic cancer. The primary end points of the
study were not met. For the efficacy evaluable population, the study showed
that
the addition of Virulizin® to gemcitabine resulted in a median overall survival
of 6.8 months and a one-year survival rate of 27.2%, compared to 6.0 months
and
16.8% for placebo plus gemcitabine. In the intent to treat population the median
overall survival rates were 6.3 months for Virulizin® plus gemcitabine (one year
survival rate of 25.9%) compared to 6.0 months for placebo plus gemcitabine
(one
year survival rate of 17.6%). While comparison of the median overall survival
times did not reach statistical significance, exploratory analysis did show
promising trends in specific patient populations.
We
are currently seeking partners to continue the clinical development of
Virulizin® in these patient specific populations.
Orphan
Drug
Lorus
received Orphan Drug designation from the FDA in February 2001 for Virulizin® in
the treatment of pancreatic cancer. Orphan drug status is awarded to drugs
used
in the treatment of a disease that afflicts less than 200,000 patients annually
in the United States to encourage research and testing. This status means that
the FDA will help to facilitate the drug’s development process by providing
financial incentives and granting seven years of market exclusivity in the
United States (independent of patent protection) upon approval of the drug
in
the United States. In June 2005, we announced that Virulizin® was granted Orphan
Drug status in the European Union for pancreatic cancer.
IL-17E
Lorus
has recently discovered a new lead drug candidate, IL-17E, which belongs to
a
larger family of cytokines. In experiments with mice, IL-17E has demonstrated
significant antitumor activity against a variety of human tumors, including
melanoma, pancreatic, colon, lung and ovarian tumors. Lorus believes that these
preliminary animal results support its further investigation of the potential
clinical applications of IL-17E.
Antisense
Introduction
Metabolism,
cell growth and cell division are tightly controlled by complex protein
signalling pathways in response to specific conditions, thereby maintaining
normal function. Many human diseases, including cancer, can be traced to faulty
protein production and/or regulation. As a result, traditional therapeutics
are
designed to interact with the disease-causing proteins and modify their
function. A significant number of current anticancer drugs act by damaging
either DNA or proteins within cells (e.g.,
chemotherapy) or by inhibiting the function of proteins or small molecules
(e.g.,
estrogen blockers, such as Tamoxifen). Antisense therapeutics offer a novel
approach to treatment in that they are designed to prevent the production of
proteins causing disease.
The
premise of this therapeutic approach is to target an earlier stage of the
biochemical process than is usually possible with conventional drugs. The
blueprint for protein production is encoded in the DNA of each cell. To
translate this code into protein, the cell first produces mRNAs (messenger
ribonucleic acids) specific to each protein and these act as intermediaries
between the information encoded in DNA and production of the corresponding
protein. Most traditional therapies interact with the final synthesized or
processed protein. Often this interaction lacks specificity that would allow
for
interaction with only the intended target, resulting in undesired side effects.
In contrast, this newer approach alters gene-expression at the mRNA level,
prior
to protein synthesis, with specificity such that expression of only the intended
target is affected. We believe that drugs based on this approach may have broad
applicability, greater efficacy and fewer side effects than conventional
drugs.
We
have developed a number of antisense drugs, of which our lead products are
GTI-2040 and GTI-2501. These products target the two components of
ribonucleotide reductase (“RNR”). RNR is a highly regulated, cell
cycle-controlled protein required for DNA synthesis and repair. RNR is made
up
of two components, R1 and R2, encoded by different genes. RNR is essential
for
the formation of deoxyribonucleotides, which are the building blocks of DNA.
Since RNR activity is highly elevated in tumor cell populations and is
associated with tumor cell proliferation, we have developed antisense molecules
specific for the mRNA of the R1 (GTI-2501) or the R2 (GTI-2040) components
of
RNR. Furthermore, the R2 component also appears to be a signal molecule in
cancer cells and its elevation is believed to modify a biochemical pathway
that
can increase the malignant properties of tumor cells. Consequently, reducing
the
expression of the RNR components in a tumor cell with antisense drugs is
expected to have antitumor effects.
GTI-2040
Our
lead antisense therapy is GTI-2040, an antisense drug that targets the R2
component of RNR and has exhibited antitumor properties against over a dozen
different human cancers in standard mouse models, including chemotherapy
resistant tumors. We have recently completed a Phase II clinical trial of
GTI-2040 for advanced or metastatic renal cell carcinoma. We have also commenced
a multiple Phase II clinical trial program in cooperation with the NCI, for
the
study of GTI-2040 for the treatment of acute myeloid leukemia (“AML”), breast
cancer, lung cancer, colon cancer, prostate cancer and a series of solid
tumors.
Pre-clinical
Testing
Formal
pre-clinical development of GTI-2040, including manufacturing and toxicology
studies, was initiated in mid-1998. Pre-clinical studies, including GLP
toxicology studies in standard animal models, have demonstrated that GTI-2040
is
well tolerated at concentrations that exceed commensurate therapeutic doses
in
humans.
Clinical
Development
Our
clinical development for GTI-2040 has been done in conjunction with the NCI,
which pays for the cost of all clinical trials. See “-- Agreements -
Collaboration Agreements - National Cancer Institute”. To date, we have
initiated seven clinical trials with the NCI for GTI-2040 in patients with
AML,
metastic breast cancer, non-small all lung cancer, solid tumors, unresectable
colon cancer, hormone refractory prostate cancer, and high grade myelodysplastic
syndrome (“MDS”) and AML. These indications were selected based on the most
promising results from our preclinical studies. In addition, Lorus conducted
a
study for GTI-2040 for the treatment of patients with renal cell cancer. Upon
receipt of the clinical data from the ongoing NCI clinical trials, we will
analyze and make decisions regarding the strategic direction of our antisense
portfolio. We continue to search for partnerships for the future development
of
GTI-2040.
In
September 2005, Lorus announced a steering committee assessment of progress
in
the six ongoing
U.S. NCI-sponsored clinical studies of GTI-2040. The committee concluded that
all six studies continue to progress without unacceptable toxicity. Combination
chemotherapies under study include docetaxel, capecitabine, oxaliplatin,
cytarabine, and gemcitabine.
Acute
Myeloid Leukemia
In
July 2003, we announced the FDA’s approval of the NCI-sponsored IND application
for a clinical trial of GTI-2040 in combination with cytarabine, in patients
with refractory or relapsed acute myeloid leukemia. Cytarabine is the current
established drug for treating AML patients.
In
December 2005, we announced interim data from the NCI-sponsored trial of
GTI-2040 in acute myeloid leukemia. The data presented showed complete responses
in 44% of patients 60 years of age or younger. Patients in this trial had either
failed to respond to prior therapy or had rapidly relapsed and as such had
a low
expectation of response to subsequent treatment (10-20%). Complete responses
in
the clinical trial directly correlated with down regulation of R2, the
intracellular target of GTI-2040, demonstrating drug specificity and providing
strong evidence for an antisense mechanism of action. Toxicities for the
combination were comparable to those expected for cytarabine alone and were
non
dose-limiting. This study is ongoing.
Metastatic
Breast Cancer
In
August 2003, we announced that the FDA had approved the NCI’s IND to begin a
Phase II clinical trial to investigate GTI-2040 as a treatment for metastatic
breast cancer in combination with capecitabine. This study is
ongoing.
Non-Small
Cell Lung Cancer
In
September 2003, we received approval from HC for initiation of a clinical trial
of GTI-2040 in combination with docetaxel for the treatment of advanced
non-small cell lung cancer, as part of a Phase II clinical program of GTI-2040
in collaboration with the NCI. Interim results from this study were announced
in
May 2005. Our interim results showed that the toxicity profile was determined
to
be acceptable for the specific combination therapy and the observed level of
disease stabilizations was encouraging given the advanced stage of the disease
in this subset of patients. This study is ongoing.
Solid
Tumors
In
February 2004, we announced the initiation of a Phase II clinical trial
examining the use of GTI-2040 in combination with gemcitabine in patients with
solid tumors. In June 2005, results from the trial were published. The trial
was
intended to identify the recommended dose of GTI-2040 and its toxicity profile.
At the recommended dose GTI-2040 demonstrated a manageable toxicity profile
and
was generally well tolerated when given as a single agent. This study is
ongoing.
Unresectable
Colon Cancer
In
May 2004, we announced the initiation of a Phase II clinical trial examining
GTI-2040 in combination with oxaliplatin and capecitabine in the treatment
of
advanced unresectable colon cancer. This study is ongoing.
Hormone
Refractory Prostate Cancer
In
November 2004, we announced the initiation of a Phase II clinical trial
examining GTI-2040 in combination with docetaxel and prednisone in hormone
refractory prostate cancer. In November 2005, we announced interim data from
this trial. The data showed that along with an acceptable tolerability profile,
nine of 22 PSA evaluable patients demonstrated a PSA response (reductions of
greater than 50%). PSA is overproduced in prostate cancer cells and is commonly
used to assess disease progression and response.
Advanced
Renal Cell Cancer
In
April 2005, we announced completion of a Phase II clinical trial of GTI-2040
in
combination with capecitabine, in patients with advanced, end-stage renal cell
cancer in the United States. This trial was a single-arm pilot study examining
the safety and efficacy of GTI-2040 used in combination with the anticancer
agent capecitabine. The majority of patients had failed two or more prior
therapies before entering the study, exhibited extensive metastases, and were
representative of a population with very poor prognostic outcome in renal cell
cancer. All 33 patients entering this study had advanced disease with multiple
metastatic sites, with or without prior removal of the primary kidney tumor.
However, more than half (52%) of the patients on the recommended dose exhibited
disease stabilization or better, including one confirmed partial response.
GTI-2040 was well tolerated when combined with a cytotoxic agent with expected
adverse events. Lorus
is actively searching for partnerships to assist with the further development
of
GTI-2040 for the treatment of renal cell cancer.
High
Grade Myelodysplastic Syndrome and AML
In
June 2006, we announced a plan for a new clinical investigation of GTI-2040
as a
single agent in patients with high grade myelodysplastic syndrome (MDS) and
acute myeloid leukemia (AML) sponsored by the NCI.
Orphan
Drug Status
On
March 12, 2003, the FDA awarded Orphan Drug Status to GTI-2040 for the treatment
of renal cell carcinoma.
In
May 2005, Lorus received Orphan Drug designation from the FDA for GTI-2040
in
the treatment of AML.
GTI-2501
Our
other antisense therapy is GTI-2501.
Pre-clinical
Testing
GTI-2501
has demonstrated antitumor activity in a wide range of human cancers in standard
mouse models including human breast, kidney and prostate cancers. Pre-clinical
studies have demonstrated that GTI-2501 is well tolerated in standard animal
models at concentrations that exceed commensurate therapeutic doses in humans.
Clinical
Development Program
GLP-toxicology
studies for GTI-2501 were completed in November 2000 and approval of an IND
was
received from the FDA in February 2001. This Phase I dose-escalating study
at
the University of Chicago Medical Centre was designed to establish the
recommended clinical Phase II dose as well as look at the safety profile of
GTI-2501. A total of 34 patients with solid tumors or lymphoma were enrolled
and
have been evaluated following clinical completion. In December 2003, we
announced that a Phase II clinical trial for the treatment of hormone refractory
prostate cancer (HRPC) had been initiated at the Toronto Sunnybrook Regional
Cancer Centre, in which GTI-2501 is administered in combination with docetaxel.
The combination of GTI-2501 and docetaxel in this clinical trial is being
investigated in patients with asymptomatic or symptomatic HRPC where disease
progression is uncontrolled. This represents the first clinical trial of
GTI-2501 in Canada following the successful conclusion of the Phase I clinical
trial in 2004 in the United States. We announced expansion of this ongoing
HRPC
trial to two additional sites in Canada in July 2004. The study is ongoing
through 2006.
GTI-2601
On
April 5, 2005 we announced that we had signed a collaboration agreement with
one
of Japan’s leading pharmaceutical companies, Sumitomo Pharmaceuticals Co. Ltd.
(“Sumitomo”) and Koken Co. Ltd (“Koken”) with respect to GTI-2601, our lead
antisense compound targeting thioredoxin, a gene that is over-expressed in
many
tumor tissues and has been correlated with poor prognosis and chemotherapy
resistance. Sumitomo and Koken have developed an advanced delivery system based
on collagen combined with macromolecules. The collaboration agreement provides
that Sumitomo and Koken will further develop their delivery technology to
combine with GTI-2601, so that increased efficacy is provided with decreased
doses of the antisense drug. This agreement provides that Lorus, Sumitomo and
Koken will jointly own the compounds that result from this collaboration (Lorus
will share the results of the collaboration with Sumitomo and Koken, 1:1).
This
collaboration continued in 2005 and into 2006.
Small
Molecule Therapies
Most
anticancer chemotherapeutic treatments are DNA damaging, cytotoxic agents,
designed to act on rapidly dividing cells. Treatment with these drugs typically
includes unpleasant or even serious side effects due to the inability of these
drugs to differentiate between normal and cancer cells and/or due to a lack
of
high specificity for the targeted protein. In addition, these drugs often lead
to the development of tumor-acquired drug resistance. As a result of these
limitations, a need exists for more effective anticancer drugs. One approach
is
to develop small molecules with a greater specificity as anticancer drugs.
Chemical compounds weighing less than 1000 daltons (a unit of molecular weight)
are designated as small or low molecular weight molecules. These molecules
can
be designed to target specific proteins or receptors that are known to be
involved with disease.
Low
Molecular Weight Compounds
In
August 2005, Lorus announced the selection of two leading small molecule
compounds from a series of novel small molecules discovered by Lorus scientists
that exhibit potent anticancer activity. The results of the further
characterization of these compounds were presented in April 2006, including
studies that showed that the main mechanism of action of these compounds
involves the induction of the tumor suppressor Krüppel-like factor 4, which its
down-regulation is believed to be critical in the development and progression
of
certain types of cancer and comprise a novel anticancer mechanism of action.
From these two compounds, LT-253 was selected as the lead compound for
developments as a drug candidate for the treatment of colon carcinoma and
non-small cell lung cancer, based on its potent in
vitro
and in
vivo
efficacy in xenograft models of human cancer, and on its safety profile.
Manufacturing of a GMP product, formulation development as well as formal
toxicology studies in different animal species with the aim of filing an IND
application for the initiation of a Phase I clinical trial are in progress.
Other
Technologies
We
are currently assessing several new technologies for their potential as new
drug
candidates. They include technologies in areas of tumor suppressor gene therapy,
siRNA molecules targeting RNR and U-sense compounds that we believe to have
the
potential to work using a unique mechanism of action to decrease the expression
of cancer relevant genes.
Gene
Therapy
Researchers
at Lorus have developed a gene therapy product using the R1 gene of
ribonucleotide reductase (which has been shown to act as a tumour suppressor
gene) encoded in a modified adenoviral vector (rAd5-R1) for the potential
treatment of patients with colon cancer. This project is in the pre-clinical
phase of development.
siRNA
In
2003, Lorus began development of an anticancer therapeutic based on
siRNA-mediated inhibition of R2 expression. Early screening experiments have
identified lead siRNA’s and preliminary in
vitro
and in
vivo characterization
of these molecules has yielded promising results.
U-sense
Lorus
has a therapeutic platform based on short oligonucleotides that are identical
to
sequences in the untranslated regions of mRNA molecules. The binding of these
oligonucleotides to factors (i.e.,
proteins) that would otherwise bind to the mRNA has the potential to affect
translation and/or stability of the mRNA and as a result alter expression of
the
protein product.
Agreements
Manufacturing
Agreements
Bio
Vectra dcl
In
July 2004, we entered into negotiations with Diagnostics Chemicals Limited
(doing business as BioVectra dcl) in Prince Edward Island for the commercial
manufacture of Virulizin®, for which a contract was executed in October 2004.
BioVectra has a cGMP facility capable of large-scale commercial production.
In
June 2005 Lorus announced that BioVectra had successfully produced Virulizin® in
both optimized clinical and commercial batch scales. The contract remains in
force, although Bio Vectra is not currently performing any manufacturing of
Virulizin®.
Licence
Agreements
Ion
Pharmaceuticals and Cyclacel
In
December 1997, Lorus, through NuChem, acquired certain patent rights and a
sublicense from Ion to develop and commercialize the anticancer applications
of
CLT and new chemical entities related to CLT (the “NuChem Analogs”). To July
2006, NuChem had made cash payments totaling US $500,000 to Ion. The balance
is
payable upon the achievement of certain milestones based on the commencement
and
completion of clinical trials related to the NuChem Analogs.
All
research and development activities to be undertaken by NuChem are to be funded
by us through subscriptions for non-participating preference shares of NuChem.
As at May 31, 2006, we had provided a total of $6,079,000 of funding to
NuChem.
In
September 2003, Lorus, NuChem and Cyclacel Limited signed an exclusive worldwide
license agreement for the development and commercialization of the NuChem
Analogs. Under the terms of the agreement, Lorus received upfront fees of US
$400,000 and will receive milestone payments which, assuming all milestones
are
achieved, will total approximately US $11.6 million for our pre-clinical
compound NC 381, and similar milestone payments for each of any other compounds
developed from the compound library. In addition to these payments, we will
receive royalties based on product sales. Cyclacel is responsible for all future
drug development costs.
University
of Manitoba
The
University of Manitoba (the “University”), Dr. Jim Wright, Dr. Aiping Young and
Cancer Care entered into an exclusive license agreement (the “License
Agreement”) with GeneSense dated June 20, 1997 pursuant to which GeneSense was
granted an exclusive worldwide license to certain patent rights with the right
to sub-license. In consideration for the exclusive license to GeneSense of
the
patent rights, the University and Cancer Care are entitled to an aggregate
of
1.67% of the net sales received by GeneSense from the sale of products or
processes derived from the patent rights and 1.67% of all monies received by
GeneSense from sub-licenses of the patent rights. GeneSense is solely
responsible for the preparation, filing, prosecution and maintenance of all
patent applications and patents included in the patent rights and all related
expenses. Pursuant to the terms of the License Agreement, any and all
improvements to any of the patent rights derived in whole or in part by
GeneSense after the date of the License Agreement are not included within the
scope of the License Agreement and do not trigger any payment of royalties.
Collaboration
Agreements
National
Cancer Institute
In
February 2003, Lorus and the United States National Cancer Institute approved
clinical protocols to conduct a series of clinical trials in a Phase II program
to investigate the safety and efficacy of our lead antisense drug, GTI-2040
in
breast cancer, colon cancer, non-small cell lung cancer, acute myeloid leukemia,
prostate cancer, and in a range of solid tumors. Lorus and the NCI signed a
formal clinical trial agreement (expiring in October 2007) in which the NCI
financially sponsors the GTI-2040 clinical trials, while Lorus provides the
clinical trial drug. All six trials were in progress as of May 31, 2006. In
July
2006, we announced a seventh trial to be conducted with the NCI for GTI-2040
for
the treatment of MDS and AML.
University
of Toronto
In
May 2004 we signed a collaboration agreement with the University of Toronto
to
provide a further development and delivery strategy for our novel low molecular
weight compounds with anticancer and antibacterial activity. The collaboration
agreement provided for payment by us to the University of Toronto of set fees
and a percentage of net revenues derived from any intellectual property
developed under the agreement if and when the intellectual property is
commercialized. The work under this agreement has been completed.
Sumitomo
and Koken
In
April 2005, we signed a collaboration agreement with Sumitomo and Koken with
respect to GTI-2601, our antisense compound targeting thioredoxin. Sumitomo
and
Koken have developed an advanced delivery system based on collagen complexed
with macromolecules. The collaboration agreement provides that Sumitomo and
Koken will further develop their delivery technology to complex with GTI-2601,
so that increased efficacy is provided with decreased doses of the antisense
drug. This agreement provides that Lorus, Sumitomo and Koken will jointly own
the compounds that result from this collaboration (Lorus: Sumitomo and Koken,
1:1).
Other
From
time to time, we enter into other research and technology agreements with third
parties under which research is conducted and monies expended. These agreements
outline the responsibilities of each participant and the appropriate
arrangements in the event the research produces a product
candidate.
We
also have licensing agreements to use proprietary technology of third parties
in
relation to our research and development. If this research ultimately results
in
a commercialized product, we have agreed to pay certain royalties and licensing
fees.
Business
Strategy
By
developing cancer therapeutics using different mechanisms of action that may
be
efficacious against a wide variety of cancers, we seek to maximize our
opportunity to address multiple cancer therapeutic markets. In our efforts
to
obtain the greatest return on our investment in each drug candidate, we
separately evaluate the merits of each candidate throughout the clinical trial
process and consider commercialization opportunities when appropriate. In the
next fiscal year, we intend to pursue partnerships and further development
of
our lead technologies.
Our
objective is to maximize the therapeutic value and potential commercial success
of GTI-2040 and GTI-2501, and the small molecule platform. In the near term,
we
intend to pursue research and early clinical development with our own funds
with
respect to GTI-2040, GTI-2501 and the small molecule platform. In our efforts
to
obtain the greatest return on our investment in each drug candidate, we
separately evaluate the merits of each candidate throughout the clinical trial
process and consider commercialization opportunities when appropriate.
Financial
Strategy
To
meet future financing requirements, we intend to finance our operations through
some or all of the following methods: public or private equity or debt
financings, capital leases, and collaborative and licensing agreements. We
intend to pursue financing opportunities as they arise.
Public
Offering
On
June 11, 2003, Lorus raised net proceeds of $29.9 million by way of a public
offering of 26,220,000 units at a price of $1.25 per unit, each unit consisting
of one common share and one-half of one purchase warrant.
Secured
Convertible Debentures
On
October 6, 2004, the Company entered into a Subscription Agreement (the
“Agreement”) with The Erin Mills Investment Corporation (“TEMIC”) to issue an
aggregate of $15 million of secured convertible debentures (the “Debentures”)
issuable in three tranches of $5 million each, in each of October 2004, January
2005 and April 2005. The Debentures are secured by a first charge over all
of
the assets of the Company. All Debentures issued under the Agreement are due
on
October 6, 2009 and are subject to interest payable monthly at a rate of prime
plus 1% until such time as the Company’s share price reaches $1.75 for 60
consecutive trading days, at which time interest will no longer be charged.
Interest is payable in common shares of Lorus until Lorus’ shares trade at a
price of $1.00 or more after which interest will be payable in cash or common
shares at the option of the debenture holder. Common shares issued in payment
of
interest are issued at a price equal to the weighted average trading price
of
such shares for the ten trading days immediately preceding their issue in
respect of each interest payment. The $15.0 million principal amount of
Debentures is convertible at the holder’s option at any time into common shares
of the Company with a conversion price per share of $1.00. With the issuance
of
each $5.0 million debenture, the Company issued to the debt holder 1,000,000
warrants with a term of five years to purchase common shares of the Company
at a
price per share equal to $1.00.
Share
Issuances
On
July 14, 2006 we announced that we had entered into an agreement with High
Tech
Beteiligungen GmbH & Co. KG (“High Tech”) to issue 28.8 million common
shares at $0.36 per share for gross proceeds of $10.4 million. The subscription
price represented a premium of 7.5% over the closing price of the common shares
on the TSX on July 13, 2006. The closing is subject to certain conditions,
including the approval of the TSX, the AMEX and the filing and clearance of
a
prospectus in Ontario qualifying the distribution of the common shares. The
transaction must close not later than September 30, 2006.
On
July 25, 2006 we announced that we had entered into an agreement with Technifund
Inc. (“Technifund”) to issue on a private placement basis, 5 million common
shares at $0.36 per share for gross proceeds of $1.8 million. The closing is
subject to certain conditions, including the approval of the TSX, the AMEX,
and
the closing of the transaction between Lorus and High Tech as discussed above,
which must close not later than September 30, 2006.
Intellectual
Property and Protection of Confidential Information and
Technology
We
believe that our issued patents and pending applications are important in
establishing and maintaining a competitive position with respect to our products
and technology. As of May 31, 2006, we own or have rights under, in various
jurisdictions around the world, more than 31 issued or pending patent families,
48 patents that have issued, and over 60 pending patent
applications.
Immunotherapy
We
have been issued two patents in Canada, three patents in the United States
and
10 patents in other jurisdictions around the world relating to our immunotherapy
platform, which include composition of matter, method and process
claims.
Antisense
We
have been issued three patents in Canada, eight patents in the United States
and
fifteen patents in other jurisdictions around the world relating to our
antisense platform, which include composition of matter and method
claims.
Small
Molecule
We
have been issued five patents in the United States and two patents in other
jurisdictions around the world, which include composition of matter and method
claims, relating to the NuChem Analogs.
Risks
Relating to Intellectual Property
We
either own these issued patents or have the exclusive right to make, use,
market, sell or otherwise commercialize products using these patents to diagnose
and treat cancer. We cannot assure you that we will continue to have exclusive
rights to these patents.
We
cannot assure you that pending patent applications will result in issued
patents, or that issued patents will be held valid and enforceable if
challenged, or that a competitor will not be able to circumvent any such issued
patents by adoption of a competitive, though non-infringing product or process.
Interpretation and evaluation of pharmaceutical or biotechnology patent claims
present complex and often novel legal and factual questions. Our business could
be adversely affected by increased competition in the event that any patent
granted to it is held to be invalid or unenforceable or is inadequate in scope
to protect our operations.
While
we believe that our products and technology do not infringe proprietary rights
of others, we cannot assure you that third parties will not assert infringement
claims in the future or that such claims will not be successful. Furthermore,
we
could incur substantial costs in defending ourselves against patent infringement
claims brought by others or in prosecuting suits against others.
In
addition, we cannot assure you that others will not obtain patents that we
would
need to license, or that if a license is required that it would be available
to
us on reasonable terms, or that if a license is not obtained that we would
be
able to circumvent, through a reasonable investment of time and expense, such
outside patents. Whether we obtain a license would depend on the terms offered,
the degree of risk of infringement, the vulnerability of the patent to
invalidation and the ease of circumventing the patent.
Until
such time, if ever, that further patents are issued to us, we rely upon the
law
of trade secrets to the extent possible given the publication requirements
under
international patent treaty laws and/or requirements under foreign patent laws
to protect our technology and our products incorporating the technology. In
this
regard, we have adopted certain confidentiality procedures. These include:
limiting access to confidential information to certain key personnel; requiring
all directors, officers, employees and consultants and others who may have
access to our intellectual property to enter into confidentiality agreements
that prohibit the use of or disclosure of confidential information to third
parties; and implementing physical security measures designed to restrict access
to such confidential information and products. Our ability to maintain the
confidentiality of our technology is crucial to our ultimate possible commercial
success. We cannot assure you that the procedures adopted by us to protect
the
confidentiality of our technology will be effective, that third parties will
not
gain access to our trade secrets or disclose the technology, or that we can
meaningfully protect our rights to our technology. Further, by seeking the
aforementioned patent protection in various countries, it is inevitable that
a
substantial portion of our technology will become available to our competitors,
through publication of such patent applications.
Regulatory
Strategy
Our
overall regulatory strategy is to work with HC in Canada, the FDA in the United
States, the EMEA in Europe, and any other local regulatory agencies to have
drug
applications approved for the use of GTI-2040, GTI-2501 and small molecules
in
clinical trials (alone and/or in combination with chemotherapeutic compounds)
and subsequently for sale in international markets. Where possible, we intend
to
take advantage of opportunities for accelerated consideration of drugs designed
to treat rare and serious or life-threatening diseases. We also intend to pursue
priority evaluation of any application for marketing approval filed in Canada,
the United States or the European Union and to file additional drug applications
in other markets where commercial opportunities exist. We cannot assure you
that
we will be able to pursue these opportunities successfully.
Competition
The
biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. There are many companies in both
these industries that are focusing their efforts on activities similar to ours.
Some of these are companies with established positions in the pharmaceutical
industry and may have substantially more financial and technical resources,
more
extensive research and development capabilities, and greater marketing,
distribution, production and human resources than us. In addition, we may face
competition from other companies for opportunities to enter into collaborative
agreements with biotechnology and pharmaceutical companies and academic
institutions. Many of these other companies are not solely focused on cancer,
as
is the mission of our drug development. We specialize in the development of
drugs that we believe will manage cancer.
Products
that may compete with our products include chemotherapeutic agents, monoclonal
antibodies, antisense therapies and immunotherapies with novel mechanisms of
action. These are drugs that are delivered by specific means and are targeting
cancers with large disease populations. We also expect that we may experience
competition from established and emerging pharmaceutical and biotechnology
companies that have other forms of treatment for the cancers that we target.
There are many drugs currently in development for the treatment of cancer that
employ a number of novel approaches for attacking these cancers. Cancer is
a
complex disease with more than 100 indications requiring drugs for treatment.
The drugs in competition with our product candidates have specific targets
for
attacking the disease, targets which are not necessarily the same as ours.
These
competitive drugs therefore could potentially also be used together in
combination therapies with our drugs to manage the disease.
Human
Resources
As
at May 31, 2006, we employed 33 full-time persons and one part-time person
in
research and drug development and administration activities. Of our employees,
nine hold Ph.D.s. To encourage a focus on achieving long-term performance,
employees and members of the board of directors have the ability to acquire
an
ownership interest in the Company through Lorus’ stock option plan and employees
can participate in the employee share purchase plan, which was established
in
2005.
Our
ability to develop commercial products and to establish and maintain our
competitive position in light of technological developments will depend, in
part, on our ability to attract and retain qualified personnel. There is a
significant level of competition in the marketplace for such personnel. We
believe that to date we have been successful in attracting and retaining the
highly skilled personnel critical to our business. We have also chosen to
outsource activities where skills are in short supply or where it is
economically prudent to do so.
None
of our employees are unionized, and we consider our relations with our employees
to be good.
Properties
Our
head office, which occupies 20,500 square feet, is located at 2 Meridian Road,
Toronto, Ontario. The leased premises include approximately 8,000 square feet
of
laboratory and research space. We believe that our existing facilities are
adequate to meet our requirements for the near term. Our current lease expires
on March 31, 2008.
Control
of the Issuer
As
of August 11, 2006, to the knowledge of our directors and officers, there were
no persons who beneficially owned or exercised control or direction over shares
carrying more than 10% of the voting rights attached to all shares of Lorus.
In
July 2006, Lorus entered into a subscription agreement with High Tech to issue
28.8 million common shares at $0.36 per share for gross proceeds of $10.4
million. The closing is subject to certain conditions, including the approval
of
the TSX and the AMEX and the filing and clearance of a prospectus in Ontario
qualifying the distribution of the common shares. Upon closing, High Tech will
hold approximately 14% of the issued and outstanding shares of Lorus. See “--
Financial Strategy”.
RISK
FACTORS
Before
making an investment decision with respect to our common shares, you should
carefully consider the following risk factors, in addition to the other
information included or incorporated by reference in this annual information
form. Additional risks not currently known by us or that we consider immaterial
at the present time may also impair our business, financial condition, prospects
or results of operations. If any of the following risks occur, our business,
financial condition, prospects or results of operations would likely
be
affected. In that case, the trading price of our common shares could decline
and
you may lose all or part of the money you paid to buy our common shares. The
risks set out below are not the only we currently face; other risks may arise
in
the future.
We
have a history of operating losses. We expect to incur net losses and we may
never achieve or maintain profitability
We
have not been profitable since our inception in 1986. We reported net losses
of
$17.7 million; $22.1 million and $30.3 million for the years ended May 31,
2006,
2005 and 2004, respectively. As of May 31, 2006, we had an accumulated deficit
of $164.3 million.
To
date we have only generated nominal revenues from the sale of Virulizin® in
Mexico and we stopped selling Virulizin® in Mexico in July 2005. We have not
generated any other revenue from product sales to date and it is possible that
we will never have sufficient product sales revenue to achieve profitability.
We
expect to continue to incur losses for at least the next several years as we
or
our collaborators and licensees pursue clinical trials and research and
development efforts. To become profitable, we, either alone or with our
collaborators and licensees, must successfully develop, manufacture and market
our current product candidates, particularly Virulizin® and GTI-2040, as well as
continue to identify, develop, manufacture and market new product candidates.
It
is possible that we will never have significant product sales revenue or receive
significant royalties on our licensed product candidates. If funding is
insufficient at any time in the future, we may not be able to develop or
commercialize our products, take advantage of business opportunities or respond
to competitive pressures.
Our
current and anticipated operations, particularly our product development,
requires substantial capital. We expect that our existing cash and cash
equivalents, along with the funds available to us through the subscription
agreements with High Tech and Technifund described above, will sufficiently
fund
our current and planned operations through at least the next twelve months.
However, our future capital needs will depend on many factors, including the
extent to which we enter into collaboration agreements with respect to any
of
our proprietary product candidates, receive royalty and milestone payments
from
our possible collaborators and make progress in our internally funded research
and development activities.
Our
capital requirements will also depend on the magnitude and scope of these
activities, our ability to maintain existing and establish new collaborations,
the terms of those collaborations, the success of our collaborators in
developing and marketing products under their respective collaborations with
us,
the success of our contract manufacturers in producing clinical and commercial
supplies of our product candidates on a timely basis and in sufficient
quantities to meet our requirements, competing technological and market
developments, the time and cost of obtaining regulatory approvals, the extent
to
which we choose to commercialize our future products through our own sales
and
marketing capabilities, the cost of preparing, filing, prosecuting, maintaining
and enforcing patent and other rights and our success in acquiring and
integrating complementary products, technologies or companies. We do not have
committed external sources of funding and we cannot assure you that we will
be
able to obtain additional funds on acceptable terms, if at all. If adequate
funds are not available, we may be required to:
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engage
in equity financings that would be dilutive to current
shareholders;
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delay,
reduce the scope of or eliminate one or more of our development
programs;
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obtain
funds through arrangements with collaborators or others that may
require
us to relinquish rights to technologies, product candidates or products
that we would otherwise seek to develop or commercialize ourselves;
or
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license
rights to technologies, product candidates or products on terms that
are
less favorable to us than might otherwise be
available.
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We
may be unable to obtain partnerships for one or more of our product candidates,
which could curtail future development and negatively impact our share price.
Our
product candidates require significant funding to reach regulatory approval
upon
positive clinical results. Such funding, in particular for Virulizin®, will be
very difficult, or impossible to raise in the public markets. As such, the
Company must obtain partnerships to continue the development of certain product
candidates. If such partnerships are not attainable, the development of these
product candidates may be significantly delayed or stopped altogether. The
announcement of such delay or discontinuation of development may have a negative
impact on our share price.
In
addition, our strategy for the research, development and commercialization
of
our products requires entering into various arrangements with corporate
collaborators, licensers, licensees and others, and our commercial success
is
dependent upon these outside parties performing their respective contractual
responsibilities. The amount and timing of resources that such third-parties
will devote to these activities may not be within our control. We cannot assure
you that such parties will perform their obligations as expected. We also cannot
assure you that our collaborators will devote adequate resources to our
programs. In addition, we could become involved in disputes with our
collaborators, which could result in a delay or termination of the related
development programs or result in litigation. We intend to seek additional
collaborative arrangements to develop and commercialize some of our products.
We
may not be able to negotiate collaborative arrangements on favorable terms,
or
at all, in the future, or that our current or future collaborative arrangements
will be successful.
If
we cannot negotiate collaboration, licence or partnering agreements, we may
never achieve profitability.
Clinical
trials are long, expensive and uncertain processes and HC or the FDA may
ultimately not approve any of our product candidates. We may never develop
any
commercial drugs or other products that generate
revenues.
None
of our products has received regulatory approval for commercial use and sale
in
North America. We cannot market a pharmaceutical product in any jurisdiction
until it has completed thorough preclinical testing and clinical trials in
addition to that jurisdiction’s extensive regulatory approval process. In
general, significant research and development and clinical studies are required
to demonstrate the safety and effectiveness of our products before we can submit
any regulatory applications.
Clinical
trials are long, expensive and uncertain processes. Clinical trials may not
be
commenced or completed on schedule, and HC or the FDA may not ultimately approve
our product candidates for commercial sale. Further, even if the results of
our
preclinical studies or clinical trials are initially positive, it is possible
that we will obtain different results in the later stages of drug development
or
that results seen in clinical trials will not continue with longer term
treatment. Drugs in late stages of clinical development may fail to show the
desired safety and efficacy traits despite having progressed through initial
clinical testing. For example, positive results in early Phase I or Phase II
clinical trials may not be repeated in larger Phase II or Phase III clinical
trials. A number of companies in the pharmaceutical industry, including us,
have
suffered setbacks
in advanced clinical trials, even after promising results in earlier clinical
trials. The results of our Phase III clinical trial of Virulizin® did not meet
the primary endpoint of the study despite promising preclinical and early stage
clinical data. All of our potential drug candidates are prone to the risks
of
failure inherent in drug development.
Preparing,
submitting and advancing applications for regulatory approval is complex,
expensive and time intensive and entails significant uncertainty. The results
of
our completed preclinical studies and clinical trials may not be indicative
of
future clinical trial results. A commitment of substantial resources to conduct
time-consuming research, preclinical studies and clinical trials will be
required if we are to complete development of our products. Clinical trials
of
our products require that we identify and enrol a large number of patients
with
the illness under investigation. We may not be able to enrol a sufficient number
of appropriate patients to complete our clinical trials in a timely manner
particularly in smaller indications such as acute myeloid leukemia. If we
experience difficulty in enrolling a sufficient number of patients to conduct
our clinical trials, we may need to delay or terminate ongoing clinical trials
and will not accomplish objectives material to our success that could affect
the
price of our common shares. Delays in planned patient enrolment or lower than
anticipated event rates in our current clinical trials or future clinical trials
may result in increased costs, program delays, or both.
In
addition, unacceptable toxicities or adverse side effects may occur at any
time
in the course of preclinical studies or human clinical trials or, if any
products are successfully developed and approved for marketing, during
commercial use of any approved products. The appearance of any such unacceptable
toxicities or adverse side effects could interrupt, limit, delay or abort the
development of any of our product candidates or, if previously approved,
necessitate their withdrawal from the market. Furthermore, disease resistance
or
other unforeseen factors may limit the effectiveness of our potential
products.
The
clinical trials of any of our drug candidates could be unsuccessful, which
would
prevent us from advancing, commercializing or partnering the drug.
Even
if we receive approval to market any product from any regulatory authorities
on
the basis of successful clinical studies of that product, following the market
introduction of that product we or others may discover safety and efficacy
problems not observed in the clinical studies. In this respect, as a condition
to granting approval to market any of our products or at any time after granting
such approval, one or more regulatory authorities may require us to conduct
further studies (referred to as “Phase IV studies”) to determine the safety and
efficacy of the product following market introduction. If such problems arise,
one or more regulatory authorities may withdraw the approval for that product
or
we may otherwise voluntarily withdraw the product from the market.
Despite
the time and resources expended by us, regulatory approval of drug candidates
is
never guaranteed. If any of our development programs are not successfully
completed in a timely fashion, required regulatory approvals are not obtained
in
a timely fashion, or products for which approvals are obtained are not
commercially successful or are ultimately found to not be safe or effective,
our
business could be seriously harmed.
Our
failure to develop safe, commercially viable drugs would substantially impair
our ability to generate revenues and sustain our operations and would materially
harm our business and adversely affect our share price. We may never achieve
profitability.
As
a result of intense competition and technological change in the pharmaceutical
industry, the marketplace may not accept our products or product candidates,
and
we may not be able to compete successfully against other companies in our
industry and achieve profitability.
Many
of our competitors have drug products that have already been approved or are
in
development, and operate large, well-funded research and development programs in
these fields. Many of our competitors have substantially greater financial
and
management resources, stronger intellectual property positions and greater
manufacturing, marketing and sales capabilities, areas in which we have limited
or no experience. In addition, many of our competitors have significantly
greater experience than we do in undertaking preclinical testing and clinical
trials of new or improved pharmaceutical products and obtaining required
regulatory approvals. Consequently, our competitors may obtain HC, FDA and
other
regulatory approvals for product candidates sooner and may be more successful
in
manufacturing and marketing their products than we or our collaborators are.
Existing and future products, therapies and technological approaches will
compete directly with the products we seek to develop. Current and prospective
competing products may provide greater therapeutic benefits for a specific
problem or may offer easier delivery or comparable performance at a lower cost.
Any product candidate that we develop and that obtains regulatory approval
must
then compete for market acceptance and market share. Our product candidates
may
not gain market acceptance among physicians, patients, healthcare payers and
the
medical community. Further, any products we develop may become obsolete before
we recover any expenses we incurred in connection with the development of these
products. As a result, we may never achieve profitability.
If
we fail to attract and retain key employees, the development and
commercialization of our products may be adversely affected.
We
depend heavily on the principal members of our scientific and management staff.
If we lose any of these persons, our ability to develop products and become
profitable could suffer. The risk of being unable to retain key personnel may
be
increased by the fact that we have not executed long term employment contracts
with our employees, except for our senior executives. Our future success will
also depend in large part on our ability to attract and retain other highly
qualified scientific and management personnel. We face competition for personnel
from other companies, academic institutions, government entities and other
organizations.
We
may be unable to obtain patents to protect our technologies from other companies
with competitive products, and patents of other companies could prevent us
from
manufacturing, developing or marketing our products.
Patent
protection
The
patent positions of pharmaceutical and biotechnology companies are uncertain
and
involve complex legal and factual questions. The United States (U.S.) Patent
and
Trademark Office and many other patent offices in the world have not established
a consistent policy regarding the breadth of claims that it will allow in
biotechnology patents. Further, allowable patentable subject matter and the
scope of patent protection obtainable may differ as between jurisdictions.
If a
patent office allows broad claims, the number and cost of patent interference
proceedings in the U.S. or analogous proceedings in other jurisdictions and
the
risk of infringement litigation may increase. If a patent office allows narrow
claims, the risk of infringement may decrease, but the value of our rights
under
our patents, licenses and patent applications may also decrease. In addition,
the scope of the claims in a patent application can be significantly modified
during prosecution before the patent is issued. Consequently, we cannot know
whether our pending applications will result in the issuance of patents or,
if
any patents are issued, whether they will provide us with significant
proprietary protection or will be circumvented, invalidated or found to be
unenforceable. Until recently, patent applications in the U.S. were maintained
in secrecy until the patents issued, and publication of discoveries in
scientific or patent literature often lags behind actual discoveries. Patent
applications filed in the United States after November 2000 generally will
be
published 18 months after the filing date unless the applicant certifies that
the invention will not be the subject of a foreign patent application. In many
other jurisdictions, such as Canada, patent applications are published 18 months
from the priority date. We cannot assure you that, even if published, we will
be
aware of all such literature. Accordingly, we cannot be certain that the named
inventors of our products and processes were the first to invent that product
or
process or that we were the first to file or pursue patent coverage for our
inventions.
Enforcement
of intellectual property rights
Our
commercial success depends in part on our ability to maintain and enforce our
proprietary rights. If third-parties engage in activities that infringe our
proprietary rights, our management’s focus will be diverted and we may incur
significant costs in asserting our rights. We may not be successful in asserting
our proprietary rights, which could result in our patents being held invalid
or
a court holding that the third-party is not infringing, either of which would
harm our competitive position. In addition, we cannot assure you that others
will not design around our patented technology. Moreover, we may have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office, European opposition proceedings, or other analogous
proceedings in other parts of the world to determine priority of invention
and
the validity of patent rights granted or applied for, which could result in
substantial cost and delay, even if the eventual outcome is favorable to us.
We
cannot assure you that our pending patent applications, if issued, would be
held
valid or enforceable. Additionally, many of our foreign patent applications
have
been published as part of the patent prosecution process in such
countries.
Trademark
protection
Protection
of the rights revealed in published patent applications can be complex, costly
and uncertain. In order to protect goodwill associated with our company and
product names, we rely on trademark protection for our marks. For example,
we
have registered the Virulizin® trademark with the U.S. Patent and Trademark
Office. A third-party may assert a claim that the Virulizin® mark is confusingly
similar to its mark and such claims or the failure to timely register the
Virulizin® mark or objections by the FDA could force us to select a new name for
Virulizin®, which could cause us to incur additional expense.
Trade
secrets
We
also rely on trade secrets, know-how and confidentiality provisions in our
agreements with our collaborators, employees and consultants to protect our
intellectual property. However, these and other parties may not comply with
the
terms of their agreements with us, and we might be unable to adequately enforce
our rights against these people or obtain adequate compensation for the damages
caused by their unauthorized disclosure or use. Our trade secrets or those
of
our collaborators may become known or may be independently discovered by
others.
Our
products and product candidates may infringe the intellectual property rights
of
others, which could increase our costs.
Our
success also depends on avoiding infringement of the proprietary technologies
of
others. In particular, there may be certain issued patents and patent
applications claiming subject matter that we or our collaborators may be
required to license in order to research, develop or commercialize at least
some
of our product candidates, including Virulizin®, GTI-2040, GTI-2501 and small
molecules. In addition, third-parties may assert infringement or other
intellectual property claims against us based on our patents or other
intellectual property rights. An adverse outcome in these proceedings could
subject us to significant liabilities to third-parties, require disputed rights
to be licensed from third-parties or require us to cease or modify our use
of
the technology. If we are required to license such technology, we cannot assure
you that a license under such patents and patent applications will be available
on acceptable terms or at all. Further, we may incur substantial costs defending
ourselves in lawsuits against charges of patent infringement or other unlawful
use of another’s proprietary technology.
If
product liability claims are brought against us or we are unable to obtain
or
maintain product liability insurance, we may incur substantial liabilities
that
could reduce our financial resources.
The
clinical testing and commercial use of pharmaceutical products involves
significant exposure to product liability claims. We have obtained limited
product liability insurance coverage for our clinical trials on humans; however,
our insurance coverage may be insufficient to protect us against all product
liability damages. Further, liability insurance coverage is becoming
increasingly expensive and we might not be able to obtain or maintain product
liability insurance in the future on acceptable terms or in sufficient amounts
to protect us against product liability damages. Regardless of merit or eventual
outcome, liability claims may result in decreased demand for a future product,
injury to reputation, withdrawal of clinical trial volunteers, loss of revenue,
costs of litigation, distraction of management and substantial monetary awards
to plaintiffs. Additionally, if we are required to pay a product liability
claim, we may not have sufficient financial resources to complete development
or
commercialization of any of our product candidates and our business and results
of operations will be adversely affected.
We
have
no manufacturing capabilities. We depend on third parties, including a number
of
sole suppliers, for manufacturing and storage of our product candidates used
in
our clinical trials. Product introductions may be delayed or suspended if the
manufacture of our products is interrupted
or discontinued.
We
do not have manufacturing facilities to produce supplies of Virulizin®,
GTI-2040, GTI-2501, small molecule or any of our other product candidates to
support clinical trials or commercial launch of these products, if they are
approved. We are dependent on third parties for manufacturing and storage of
our
product candidates. If we are unable to contract for a sufficient supply of
our
product candidates on acceptable terms, or if we encounter delays or
difficulties in the manufacturing process or our relationships with our
manufacturers, we may not have sufficient product to conduct or complete our
clinical trials or support preparations for the commercial launch of our product
candidates, if approved.
Dependence
on contract manufacturers for commercial production involves a number of risks,
many of which are outside our control. These risks include potential delays
in
transferring technology, and the inability of our contract manufacturer to
scale
production on a timely basis, to manufacture commercial quantities at reasonable
costs, to comply with cGMP and to implement procedures that result in the
production of drugs that meet our specifications and regulatory
requirements.
Our
reliance on contract manufacturers exposes us to additional risks,
including
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there
may be delays in scale-up to quantities needed for clinical trials
and
commercial launch or failure to manufacture such quantities to our
specifications, or to deliver such quantities on the dates we
require;
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our
current and future manufacturers are subject to ongoing, periodic,
unannounced inspection by the FDA and corresponding Canadian and
international regulatory authorities for compliance with strictly
enforced
cGMP regulations and similar standards, and we do not have control
over
our contract manufacturers’ compliance with these regulations and
standards;
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our
current and future manufacturers may not be able to comply with applicable
regulatory requirements, which would prohibit them from manufacturing
products for us;
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if
we need to change to other commercial manufacturing contractors,
the FDA
and comparable foreign regulators must approve these contractors
prior to
our use, which would require new testing and compliance inspections,
and
the new manufacturers would have to be educated in, or themselves
develop
substantially equivalent processes necessary for the production or
our
products; and
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our
manufacturers might not be able to fulfill our commercial needs,
which
would require us to seek new manufacturing arrangements and may result
in
substantial delays in meeting market
demand.
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Any
of these factors could cause us to delay or suspend clinical trials, regulatory
submission, required approvals or commercialization of our products under
development, entail higher costs and result in our being unable to effectively
commercialize our products. We do not currently intend to manufacture any of
our
product candidates, although we may choose to do so in the future. If we decide
to manufacture our products, we would be subject to the regulatory risks and
requirements described above. We would also be subject to similar risks
regarding delays or difficulties encountered in manufacturing our pharmaceutical
products and we would require additional facilities and substantial additional
capital. We cannot assure you that we would be able to manufacture any of our
products successfully in accordance with regulatory requirements and in a cost
effective manner.
Our
operations involve hazardous materials and we must comply with environmental
laws and regulations, which can he expensive and restrict how we do business.
Our
research and development activities involve the controlled use of hazardous
materials, radioactive compounds and other potentially dangerous chemicals
and
biological agents. Although we believe our safety procedures for these materials
comply with governmental standards, we cannot entirely eliminate the risk of
accidental contamination or injury from these materials. We currently have
insurance, in amounts and on terms typical for companies in businesses that
are
similarly situated, that could coverall or a portion of a damage claim arising
from our use of hazardous and other materials. However, if an accident or
environmental discharge occurs, and we are held liable for any resulting
damages, the associated liability could exceed our insurance coverage and our
financial resources.
We
have limited sales, marketing and distribution
experience.
We
have very limited experience in the sales, marketing and distribution of
pharmaceutical products. There can be no assurance that we will be able to
establish sales, marketing, and distribution capabilities or make arrangements
with our collaborators, licensees or others to perform such activities or that
such efforts will be successful. If we decide to market any of our products
directly, we must either acquire or internally develop a marketing and sales
force with technical expertise and with supporting distribution capabilities.
The acquisition or development of a sales and distribution infrastructure would
require substantial resources, which may divert the attention of our management
and key personnel and have a negative impact on our product development efforts.
If we contract with third-parties for the sales and marketing of our products,
our revenues will be dependent on the efforts of these third-parties, whose
efforts may not be successful. If we fail to establish successful marketing
and
sales capabilities or to make arrangements with third-parties, our business,
financial condition and results of operations will be materially adversely
affected.
Our
interest income is subject to fluctuations of interest rates in our investment
portfolio.
Our
investments are held to maturity and have staggered maturities to minimize
interest rate risk. There can be no assurance that interest income fluctuations
will not have an adverse impact on our financial condition. We maintain all
our
accounts in Canadian dollars, but a portion of our expenditures are in foreign
currencies. We do not currently engage in hedging our foreign currency
requirements to reduce exchange rate risk.
Because
of the uncertainty of pharmaceutical pricing, reimbursement and healthcare
reform measures, if any of our product candidates are approved for sale to
the
public, we may be unable to sell our products
profitably.
The
availability of reimbursement by governmental and other third-party payers
affects the market for any pharmaceutical product. These third-party payers
continually attempt to contain or reduce the costs of healthcare. There have
been a number of legislative and regulatory proposals to change the healthcare
system and further proposals are likely. Significant uncertainty exists with
respect to the reimbursement status of newly approved healthcare products.
In
addition, third-party payers are increasingly challenging the price and cost
effectiveness of medical products and services. We might not be able to sell
our
products profitably or recoup the value of our investment in product development
if reimbursement is unavailable or limited in scope.
RISKS
RELATED TO OUR COMMON SHARES AND CONVERTIBLE DEBENTURES
Our
share price has been and may continue to be volatile and an investment in our
common shares could suffer a decline in value.
You
should consider an investment in our common shares as risky and invest only
if
you can withstand a significant loss and wide fluctuations in the market value
of your investment. We receive only limited attention by securities analysts
and
frequently experience an imbalance between supply and demand for our common
shares. The market price of our common shares has been highly volatile and
is
likely to continue to be volatile. Factors affecting our common share price
include:
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announcements
concerning the results or clinical trials for our drug
candidates;
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the
progress of our and our collaborators’ clinical trials, including our and
our collaborators’ ability to produce clinical supplies of our product
candidates on a timely basis and in sufficient quantities to meet
our
clinical trial requirements;
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announcements
of technological innovations or new product candidates by us, our
collaborators or our competitors;
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announcements
concerning our competitors or the life sciences industry in
general;
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fluctuations
in our operating results;
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published
reports by securities analysts;
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developments
in patent or other intellectual property
rights;
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publicity
concerning discovery and development activities by our
licensees;
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the
cash and short term investments held us and our ability to secure
future
financing;
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public
concern as to the safety and efficacy of drugs that we and our competitors
develop;
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governmental
regulation and changes in medical and pharmaceutical product reimbursement
policies; and
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general
market conditions.
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Future
sales of our common shares by us or by our existing shareholders could cause
our
share price to fall.
Additional
equity financings or other share issuances by us could adversely affect the
market price of our common shares. Sales by existing shareholders of a large
number of shares of our common shares in the public market and the sale of
shares issued in connection with strategic alliances, or the perception that
such additional sales could occur, could cause the market price of our common
shares to drop.
Our
cash flow may not be sufficient to cover interest payments on our secured
convertible debentures or to repay the debentures at maturity.
Our
ability to make interest payments, if required to be paid in cash, and to repay
at maturity or refinance our prime +1% convertible debentures due in 2009 will
depend on our ability to generate sufficient cash or refinance them. We have
never generated positive annual cash flow from our operating activities, and
we
may not generate or sustain positive cash flows from operations in the future.
Our ability to generate sufficient cash flow will depend on our ability, or
the
ability of our strategic partners, to successfully develop and obtain regulatory
approval for new products and to successfully market these products, as well
as
the results of our research and development efforts and other factors, including
general economic, financial, competitive, legislative and regulatory conditions,
many of which are outside of our control.
Conversion
of our secured convertible debentures will dilute the ownership interest of
existing shareholders.
The
conversion of some or all of the convertible debentures will dilute the
ownership interests of existing shareholders. Any sales in the public market
of
the common shares issuable upon such conversion could adversely affect
prevailing market prices of our common shares. In addition, the existence of
the
secured convertible debentures may encourage short selling by market
participants.
We
may violate one or more of the operational covenants related to our convertible
debentures that could result in an event of default and the requirement for
early payment of our convertible debentures.
Our
convertible debentures are subject to certain operational covenants. In the
event that one of those covenants is breached by us, an event of default could
be declared requiring the immediate payment of the face value of the debentures.
This could result in our inability to pay and insolvency of the Company, a
dilutive equity financing in attempt to raise funds to repay the debentures,
or
a significant reduction in cash available for us to use towards the development
of our product candidates.
DIVIDENDS
Dividends
on our common shares are declared at the discretion of our board of directors.
To date, we have not paid any dividends and do not expect to do so in the
foreseeable future.
SHARE
CAPITAL AND MARKET FOR SECURITIES
Share
Capital
We
are authorized to issue an unlimited number of common shares. As of August
11,
2006, there were 175,262,548 common shares issued and outstanding. In addition,
as of August 11, 2006 there were 13,470,000 common shares issuable upon the
exercise of outstanding stock options at a weighted average exercise price
of
$0.48 per share, 4,662,390 common shares reserved for future grant or issuance
under our stock option plan and 3,000,000 common shares issuable upon the
exercise of outstanding warrants at a weighted-average exercise price of $1.00
per share. The holders of common shares are entitled to one vote per share
at
meetings of shareholders, to receive such dividends as declared by us and to
receive our remaining property and assets upon our dissolution or winding up.
Our common shares are not subject to any future call or assessment and there
are
no pre-emptive, conversion or redemption rights attached to such
shares.
Market
for Securities
Our
common shares are currently listed on the TSX under the symbol “LOR” and on the
AMEX under the symbol “LRP”. The following table sets out the price ranges and
trading volumes of our common shares on the TSX for the periods
indicated:
| |
High
($)
|
|
Low
($)
|
|
Volume
(#)
|
|
2006
|
|
|
|
|
|
|
May
|
0.38
|
|
0.34
|
|
3,532,000
|
|
April
|
0.42
|
|
0.35
|
|
5,824,200
|
|
March
|
0.40
|
|
0.34
|
|
3,868,200
|
|
February
|
0.45
|
|
0.33
|
|
10,694,300
|
|
January
|
0.49
|
|
0.30
|
|
17,202,000
|
|
2005
|
|
|
|
|
|
|
December
|
0.35
|
|
0.22
|
|
15,619,900
|
|
November
|
0.39
|
|
0.25
|
|
11,770,400
|
|
October
|
0.92
|
|
0.31
|
|
26,292,200
|
|
September
|
0.74
|
|
0.65
|
|
3,094,300
|
|
August
|
0.74
|
|
0.60
|
|
2,983,100
|
|
July
|
0.82
|
|
0.73
|
|
3,224,600
|
|
June
|
0.84
|
|
0.69
|
|
5,201,500
|
| |
|
|
|
|
|
DIRECTORS
AND OFFICERS
The
following table and notes thereto provide the name, province or state and
country of residence, positions with the Company and term of office of each
person who serves as a director or executive officer of Lorus as at the date
hereof.
Each
director has been elected or appointed to serve until the next annual meeting
or
until a successor is elected or appointed. We have an Audit Committee, a
Corporate Governance and Nominating Committee, a Compensation Committee and
an
Environment, Health and Safety Committee; the members of each such committee
are
shown below. As at May 31, 2006, our directors and executive officers, as a
group, beneficially owned, directly or indirectly, or exercised control over
4,631,000 or approximately 2.7% of our common shares.
|
Name,
Province/State and Country
of Residence
|
Position
|
Director
or Officer Since
|
| |
|
|
|
J.
Kevin Buchi(1)
Pennsylvania,
United States
|
Director
|
December
2002
|
| |
|
|
|
Donald
W. Paterson(1)(3)
Ontario,
Canada
|
Director
|
July
1991
|
|
Alan
Steigrod(2)
Florida,
United States
|
Director
|
May
2001
|
| |
|
|
|
Graham
Strachan(1)(2)(3)(4)
Ontario,
Canada
|
Chairman,
Director
|
May
2001
|
| |
|
|
|
Dr.
Jim Wright
Ontario,
Canada
|
President
and Chief Executive
Officer,
Director
|
October
1999
|
| |
|
|
|
Dr.
Aiping Young(4)
Ontario,
Canada
|
Chief
Operating Officer
|
October
1999
|
| |
|
|
|
Elizabeth
Williams
Ontario,
Canada
|
Director
of Finance and Acting
Chief
Financial Officer
|
November
2005
|
| |
|
|
(1) Member
of Audit Committee
(2) Member
of the Compensation Committee.
(3) Member
of the Corporate Governance Committee.
(4) Member
of Environment, Health and Safety Committee.
The
principal occupation and employment of each of the foregoing persons for the
past five years is set forth below:
J.
Kevin Buchi:
Mr. Buchi is senior vice president and chief financial officer of Cephalon,
Inc., an international biopharmaceutical company. Mr. Buchi is responsible
for
finance, accounting, manufacturing and information systems and has been involved
in raising significant financing for Cephalon. He is a certified public
accountant and has received a master’s degree in management from the J.L.
Kellogg Graduate School of Management at Northwestern University.
Donald
W. Paterson:
Mr. Paterson is President of Cavandale Corporation, a corporation principally
engaged in providing strategic corporate consulting to emerging growth companies
within the technology industry.
Alan
Steigrod:
Mr. Steigrod is Managing Director of Newport Healthcare Ventures, a consulting
firm for the healthcare industry, located in Newport Beach, California.
Graham
Strachan:
From 2002 to the present, Mr. Strachan has been the President of GLS Business
Development Inc., a life-science consulting firm located in Etobicoke, Ontario.
From 1986 to 2002, Mr. Strachan was the President and Chief Executive Officer
of
Allelix Biopharmaceuticals Inc.
Dr.
Jim Wright:
Dr. Wright’s present principal occupation is President and Chief Executive
Officer of Lorus. Dr. Wright co-founded GeneSense in 1996, and served as its
President, Chief Scientific Officer and a director before becoming our President
and Chief Scientific Officer in October 1999 on our acquisition of
GeneSense.
Dr.
Aiping Young:
Dr. Young has been our Chief Operating Officer since November 20, 2003 and
was a
cofounder with Dr. Wright of GeneSense Technologies Inc. Dr. Young previously
held the position of Senior Vice President, Research and Development and Chief
Technical Officer at Lorus.
Elizabeth
Williams:
Prior to joining Lorus in July 2004, Ms. Williams was an Audit Manager with
Ernst and Young LLP. Ms. Williams is a chartered accountant and has received
a
bachelor’s degree in business administration. Ms. Williams lectured on
introductory auditing at Wilfrid Laurier University during 2005.
MEDICAL
SCIENTIFIC AND ADVISORY BOARD
We
have a Medical and Scientific Advisory Board, which is currently comprised
of
seven members, all of whom are members of the scientific community. The members
of the Medical and Scientific Advisory Board assist, consult and advise us
with
respect to technology, products, process and other opportunities associated
with
the biotechnology industry that may be of interest to us.
AUDIT
COMMITTEE INFORMATION
The
charter of our audit committee is attached as Schedule A. The current members
of
the audit committee are J. Kevin Buchi, Donald W. Paterson and Graham Strachan.
Pursuant to Canadian securities laws, our board of directors has determined
that
Messrs. Buchi, Paterson and Strachan are financially literate, as all have
experience in reviewing and analysing the financial reports and ascertaining
the
financial position of a corporation. Mr. Buchi is a certified public accountant
and holds the position of Chief Financial Officer in a public pharmaceutical
company. Pursuant to United States securities laws, Mr. Buchi is also a
“financial expert”. Mr. Paterson, in his position as President of Cavandale
Corporation, is educated and experienced in reading and analyzing financial
statements. Mr. Strachan has experience reading and analysing financial
statements both as President of his own life science consulting firm and in
a
prior position as President, Chief Executive Officer and a director of a
biopharmaceutical company. Additionally, we believe that all three members
of
the audit committee qualify as “independent” as that term is defined in the
relevant Canadian and United States securities laws relating to the composition
of the audit committee.
Independent
Auditors
Auditors’
Fees
The
total fees billed for professional services by KPMG LLP (our independent
auditors) for the years ended May 31, 2006 and 2005 are as follows:
| |
2006
|
|
2005
|
|
Audit
Fees
|
$198,500
|
|
$167,326
|
|
Audit-Related
Fees
|
-
|
|
-
|
|
Tax
Fees
|
$13,100
|
|
$24,400
|
|
All
Other Fees
|
-
|
|
-
|
|
Total
|
$211,600
|
|
$191,726
|
| |
|
|
|
Audit
fees consist of the fees paid with respect to the audit of our consolidated
annual financial statements, quarterly reviews and accounting assistance. Tax
fees relate to assistance provided with respect of proposed transactions and
review of tax returns.
Pre-Approval
Policies and Procedures
The
audit committee of our board of directors has, pursuant to the audit committee
charter, adopted specific responsibilities and duties regarding the provision
of
services by our external auditors, currently KPMG LLP. Our charter requires
audit committee pre-approval of all permitted audit and audit-related services.
Any non-audit services must be submitted to the audit committee for review
and
approval. Under the charter, all permitted services to be provided by KPMG
LLP
must be pre-approved by the audit committee.
Subject
to the charter, the audit committee may establish fee thresholds for a group
of
pre-approved services. The audit committee then recommends to the board of
directors approval of the fees and other significant compensation to be paid
to
the independent auditors.
No
audit-related services were provided under a de
minimus exemption
for our fiscal year ended May 31, 2006.
LEGAL
PROCEEDINGS
We
are not a party to, nor the subject of, any outstanding legal proceedings,
nor
are we aware of any contemplated proceedings.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for our common shares is Computershare Trust
Company of Canada at its principal office in the City of Toronto.
MATERIAL
CONTRACTS
Please
refer to “Business of the Company - Financial Strategy - Share Issuances” for
details of the subscription agreements entered into with each of High Tech
and
Technifund. Please refer to “Business of the Company - Financial Strategy -
Secured Convertible Debentures” for details of the subscription agreement,
debentures and warrants entered into with TEMIC.
Other
than the agreements described in the preceding paragraph, we have not, during
our financial year ending May 31, 2006, entered into any material contracts
other than contracts in the ordinary course of business. The Company is not
a
party to any other material contracts entered into since January 1, 2002 and
still in effect.
INTERESTS
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
None
of our directors, executive officers or to our knowledge, principal
shareholders, or any associate or affiliate of the forgoing, has had any
material interest, direct or indirect, in any transaction within the three
most
recently completed financial years or during the current financial year prior
to
the date of this annual information form that has materially affected or will
materially affect us.
Upon
the successful completion of the transaction described under “Business of the
Company - Financial Strategy - Share Issuances” relating to the issuance of
common shares to High Tech, High Tech will hold approximately 14% of our issued
and outstanding shares. In accordance with the terms of the agreement with
High
Tech, High Tech has a right to nominate one nominee to the board of directors
of
Lorus. Georg Ludwig, the managing partner of High Tech, is the proposed nominee
to the Company’s board of directors, as described in our management information
circular dated August 11, 2006 for the September 21, 2006 annual meeting of
shareholders (the “Circular”).
Interests
of Experts
KPMG
LLP, the Company’s external auditor, has reported on the consolidated financial
statements of the Company for each of the years in the three-year period ended
May 31, 2006. KPMG LLP is independent of Lorus in accordance with the applicable
Rules of Professional Conduct/Code of Ethics of the Institute of Chartered
Accountants of Ontario, and within the meaning of the Securities Acts
administered by the United States Securities and Exchange Commission and the
requirements of the Independence Standards Board.
ADDITIONAL
INFORMATION
Additional
information relating to Lorus may be found on SEDAR at www.sedar.com.
Certain additional information, including directors’ and officers’ remuneration
and indebtedness, principal holders of our securities, and securities authorized
for issuance under our stock option plan, is contained in the Circular.
Additional financial information is provided in our financial statements and
management’s discussion and analysis for the financial year ended May 31, 2006
(the “2006 Financial Statements”). Copies of:
| |
•
|
the
2006 Financial Statements and our most recent unaudited financial
statements that have been filed, if any, for any period subsequent
to the
year ended May 31, 2006;
|
| |
•
|
this
annual information form and any document or the pertinent pages of
any
document incorporated by reference in this annual information form;
and
|
| |
•
|
when
our securities are in the course of a distribution pursuant to a
short
form prospectus or a preliminary short form prospectus, one copy
of any
other documents that are incorporated by reference into the short
form
prospectus or preliminary short form prospectus otherwise not referred
to
herein,
|
may
be obtained upon request from our Director of Finance at our offices located
at
2 Meridian Road, Toronto, Ontario, M9W 4Z7, Canada. If our securities are in
the
course of a distribution pursuant to a short form prospectus or a preliminary
short form prospectus, copies of the foregoing documents are available free
of
charge. At all other times, a reasonable fee may be charged if a person who
is
not a security holder of Lorus makes the request for copies.
GLOSSARY
The
following is a glossary of terms that are used in this annual information
form:
|
Analog:
|
a
chemical derivative or variation of a parent molecule
|
| |
|
|
Anti-metastatic:
|
the
ability to inhibit the movement of tumor cells from a primary/original
site to other organs in the body
|
| |
|
|
Anti-proliferative:
|
preventing
cell division
|
| |
|
|
Apoptosis:
|
programmed
cell death
|
| |
|
|
BCD:
|
Bureau
of Control of Drugs, the regulatory agency controlling pharmaceutical
drugs in Mexico
|
| |
|
|
Biological
response
modifier
or BRM:
|
a
substance which stimulates, modifies or enhances the body’s response,
including the response of the body’s immune and other protective cellular
and molecular systems, to certain diseases
|
| |
|
|
Carcinoma:
|
any
cancerous tumor that starts with the cells that cover the inner and
outer
body surfaces
|
| |
|
|
Clinical
trials:
|
the
investigational use of a new drug in humans: Phase I clinical trials
test
a drug for safety, Phase II clinical further test for safety and
may test
for efficacy in a relatively small sample of patients and Phase III
clinical trials test the drug for efficacy in larger numbers of patients
and compares the drug with conventional therapies
|
| |
|
|
cGMP:
|
current
good manufacturing practices, as mandated from time to time by the
HC and
the FDA and EMEA
|
| |
|
|
Chemonaive:
|
patients
who have never received chemotherapy
|
| |
|
|
Complete
response:
|
When
all signs of cancer disappear in response to treatment. This is based
on
symptoms, physical exam, and radiology and lab tests. This does not
always
mean the cancer has been cured.
|
| |
|
|
CLT:
|
clotrimazole
|
| |
|
|
Cytokine:
|
a
generic term for a non-antibody protein released by a cell population
(e.g., activated macrophages) of the immune system on contact with
chemical or biological stimuli
|
| |
|
|
Cytotoxic:
|
pertaining
to the destruction of cells
|
| |
|
|
Deoxyribonucleic
acid
(DNA):
|
DNA
is the carrier of genetic information which exists in all cells of
the
body. The building blocks of DNA are called
nucleotides
|
|
Disease
stabilization:
|
“no
change” category for clinical response, that is, no increase or decrease
in tumour dimensions or change in extent or severity of disease state
as
pre-defined in a clinical protocol. Usually requires more than one
measurement of stable disease and/or stable disease over a pre-determined
length of time
|
| |
|
|
ECOG:
|
Eastern
Cooperative Oncology Group
|
| |
|
|
Efficacy:
|
the
ability of a drug to produce a desired result
|
| |
|
|
Efficacy
evaluable population:
|
patients
that meet pre-defined protocol requirements (criteria usually found
in the
Statistical Analysis Plan) for inclusion in efficacy evaluation
datasets.
|
| |
|
|
EMEA:
|
European
Medicine Evaluation Agency
|
| |
|
|
FDA:
|
Food
and Drug Administration, the government agency which regulates the
use and
sale of diagnostic and therapeutic drug products in the United
States
|
| |
|
|
Gene
expression:
|
the
synthesis of specific proteins on the basis of inherited or acquired
genetic information
|
| |
|
|
GeneSense:
|
GeneSense
Technologies Inc.
|
| |
|
|
HC:
|
Health
Canada, the federal government department which among other
responsibilities regulates the use and sale of therapeutic drug products
in Canada
|
| |
|
|
Immune
system:
|
the
totality of organs and cells involved in the body’s immunologic response
to foreign antigens and malignant tissue
|
| |
|
|
IND:
|
investigational
new drug
|
| |
|
|
In
vitro:
|
in
the test tube; referring to chemical reactions, fermentation, etc.,
occurring therein e.g., in cell-free extracts
|
| |
|
|
In
vivo:
|
in
the living body; referring to chemical processes occurring within
cells,
etc., as distinguished from those occurring in cell-free extracts
(in
vitro)
|
| |
|
|
Krüppel-like
factor 4:
|
an
epithelial cell-enriched, zinc finger-containing transcription factor,
the
expression of which is associated with growth arrest
|
| |
|
|
Macrophage:
|
a
large scavenger white blood cell that engulfs and digests invading
micro-organisms and cell debris, and also participates in many complex
immunologic processes
|
| |
|
|
Malignant/
malignancy:
|
describes
a tumor that is cancerous. Two important qualities of malignancies
are the
tendency to invade surrounding tissues and to break off and spread
elsewhere (metastasis)
|
| |
|
|
MAP
Kinase Pathway:
|
the
pathway of mitogenic signal transduction through the cascade of
mitogen-activated protein (MAP) kinases which ultimately lead to
alteration in regulatory events such as cell proliferation,
differentiation and apoptosis.
|
| |
|
|
Metabolism:
|
the
overall biochemical reactions that take place in a living organism
including the building up of complex molecules or breakdown of molecules
to provide energy
|
| |
|
|
Metabolic:
|
of,
or relating to, the metabolism
|
| |
|
|
Metastasis:
|
the
process by which tumor cells are spread to other parts of the
body
|
| |
|
|
Monocyte:
|
a
large white blood cell with finely granulated chromatin dispersed
throughout the nucleus that is formed in the bone marrow, enters
the
blood, and migrates into the connective tissue where it differentiates
into a macrophage
|
| |
|
|
mRNA:
|
messenger,
or mRNA, is a copy of the information carried by a gene on the DNA.
The
role of mRNA is to move the information contained in DNA to the
translation machinery.
|
| |
|
|
NDA:
|
new
drug application, the application to obtain marketing approval filed
with
the FDA or BCD after completion of human clinical
trials
|
| |
|
|
NDS:
|
new
drug submission, the application to obtain marketing approval filed
with
the HC after completion of human clinical trials
|
| |
|
|
NOC:
|
Notice
of Compliance
|
| |
|
|
NuChem:
|
NuChem
Pharmaceuticals Inc.
|
| |
|
|
NuChem
Analogs:
|
analogs
of CLT licensed by us for anticancer indications
|
| |
|
|
Nucleic
acid:
|
DNA
and RNA, each of which are formed by the combination of nucleotides;
it is
found in all living cells and contains the genetic code required
to
transfer genetic information from one generation to the
next
|
| |
|
|
Nucleotide:
|
a
compound consisting of a purine or pyrimidine base, a pentose sugar
and a
phosphoric acid; they are the building blocks from which nucleic
acids
(DNA or RNA) are constructed
|
| |
|
|
Oligonucleotides:
|
oligonucleotides
are short chains of nucleotides, which are the building blocks of
DNA and
RNA
|
| |
|
|
P
value:
|
statistical
term. A measure of the probability that differences between groups
of data
generated in an experiment occurred by chance, for example, a p-value
of
0.05 would mean that there is a 1 in 20 chance the result was by
chance.
In practice the lower the p-value, the more likely the difference
between
groups was the result of treatment.
|
| |
|
|
Pharmacokinetics:
|
the
action of drugs in the body over a period of time, including the
process
of absorption, distribution, localization in tissues, biotransformation
and excretion
|
|
Pre-clinical
testing:
|
testing
that is conducted in the laboratory (chemistry and pharmacology)
and with
animals to help determine a product’s chemical, pharmacological and
pharmaceutical characteristics (including mechanism of action), toxicity,
efficacy and side effects
|
| |
|
|
Proteins:
|
large
molecules composed of long chains of sub-units of amino
acids
|
| |
|
|
PSA
response:
|
a
measured decrease in the levels of prostate specific antigen in patients
receiving treatment for prostate cancer. Clinically significant response
defined within a clinical protocol, i.e. 50% reduction in PSA levels
measured at least twice over a defined period of time. PSA is a substance
produced by the prostate that may be found in elevated amounts in
the
blood of men who have prostate cancer or other medical conditions
affecting the prostate
|
| |
|
|
R1
and R2:
|
components
of ribonucleotide reductase
|
| |
|
|
Ribonucleic
acid (RNA):
|
a
nucleic acid found in both the nucleus and the cytoplasm of all cells.
It
carries genetic information from the nucleus to the cytoplasm, where
it
also reacts as a template in association with ribosomes to synthesize
proteins
|
| |
|
|
Single-arm
pilot study:
|
a
pilot study is usually an initial study examining a new method or
treatment. A single-arm clinical study is when a drug is administered
to a
single group of patients and the results are compared to historical
data
of untreated patients. These studies do not have a control arm and
typically enrol a small number of patients.
|
| |
|
|
Stage
IV cancer:
|
distant
metastatic cancer spread
|
| |
|
|
Toxicity:
|
a
condition that results from exposure to a substance at levels causing
deleterious side effects which may be harmful to an
organism
|
| |
|
|
Tumor:
|
an
abnormal swelling or lump in the body caused by the growth of new
tissues
which differ in structure from the part of the body in which they
are
growing. A tumor may be benign or malignant
|
| |
|
|
Tumor
necrosis:
|
tumor
deterioration and death
|
| |
|
|
Xenograft:
|
an
implant of a foreign substance
|
SCHEDULE
A
CHARTER
OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF
LORUS THERAPEUTICS INC. (the “Company”)
The
Audit Committee is a committee of the board of directors of the Company (the
“Board”). The primary function of the Audit Committee is to assist the Board in
fulfilling its oversight responsibilities. The Audit Committee’s primary duties
and responsibilities are to:
| |
(a)
|
serve
as an independent and objective party to monitor the integrity of
the
Company’s financial reporting process and systems of internal controls
regarding finance, accounting, and legal
compliance;
|
| |
(b)
|
identify
and monitor the management of the principal risks that could impact
the
financial reporting of the Company;
|
| |
(c)
|
monitor
the independence and performance of the Company’s independent
auditors;
|
| |
(d)
|
provide
an avenue of communication among the independent auditors, management,
and
the Board; and
|
| |
(e)
|
encourage
continuous improvement of, and foster adherence to, the Company’s
policies, procedures and practices at all
levels.
|
The
Audit Committee has the authority to conduct any investigation appropriate
to
fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the Company. The Audit Committee has the ability
to retain, at the Company’s expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its
duties.
|
2.
|
COMPOSITION
AND MEETINGS
|
Audit
Committee members shall meet the requirements of Canadian and United States
securities laws, including the requirements of the stock exchanges on which
the
Company’s securities are listed.
The
Audit Committee shall be comprised of three or more directors as determined
by
the Board, each of whom shall be independent as defined by Multilateral
Instrument 52-110 - Audit Committees of the Canadian Securities Administrators
(“MI
52-110”),
United States securities laws, and applicable stock exchange rules. All members
of the Audit Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements,
and at least one member of the Committee shall have accounting or related
financial management expertise.
Audit
Committee members shall be appointed by the Board. If an Audit Committee Chair
is not designated or present, the members of the Audit Committee may designate
a
Chair by majority vote of the Audit Committee membership.
The
Audit Committee shall meet at least four times annually, or more frequently
as
circumstances require. The Audit Committee Chair shall prepare and/or approve
an
agenda in advance of each meeting.
The
Audit Committee may ask members of management or others to attend meetings
and
provide pertinent information as necessary. The Audit Committee should meet
privately in executive session at least annually with management, the
independent auditors, and as a committee to discuss any matters that the Audit
Committee or each of these groups believe should be discussed. In addition,
the
Audit Committee should communicate with management quarterly to review the
Company’s financial statements.
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3.
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RESPONSIBILITIES
AND DUTIES
|
| |
(i)
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Maintain
a Charter that sets out the Audit Committees mandate and responsibilities.
Review and reassess the adequacy of this Charter at least
annually.
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(ii)
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Review
the Company’s financial statements, MD&A and annual and interim
results press releases prior to filing or distribution. The Audit
Committee must be satisfied that adequate procedures are in place
for the
review of the Company’s public disclosure of financial information
extracted or derived from the Company’s financial statements (other than
public disclosure of financial statements, MD&A and annual and interim
results press releases), and must periodically assess the adequacy
of
those procedures. Consider the independent auditors’ judgements about the
quality and appropriateness, not just the acceptability, of the Company’s
accounting principles and financial disclosure practices, as applied
in
its financial reporting, particularly about the degree of aggressiveness
or conservatism of its accounting principles and underlying estimates
and
whether those principles are common practices or are minority
practices.
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| |
(iii)
|
Consider
and approve, if appropriate, major changes to the Company’s accounting
principles and practices as suggested by the independent auditors
or
management and assure that the reasoning is described in determining
the
appropriateness of changes in accounting principles and
disclosures.
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(iv)
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In
consultation with the management and the independent auditors, consider
the integrity of the Company’s financial reporting processes and controls.
Discuss significant financial risk exposures and the steps management
has
taken to monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors together with management’s
responses.
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(v)
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The
Audit Committee is directly responsible for the appointment, compensation,
retention and oversight of the work of the independent auditors including
the review of any disagreements between management and the independent
auditors in connection with the preparation of the financial statements
and overseeing the resolution of any such
disagreements.
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(vi)
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Annually
review policies and procedures as well as audit results associated
with
directors’ and officers’ expense accounts and perquisites. Annually review
a summary of director and officers’ related party transactions and
potential conflicts of interest.
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(vii)
|
Annually
conduct self-assessment of Audit Committee performance including
a review
and discussion of the Audit Committee roles and responsibilities,
seeking
input from senior management, the full Board and others if
needed.
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| |
(i)
|
The
independent auditors are directly accountable to the Audit Committee
and
the Board, and shall report directly to the Audit Committee. The
Audit
Committee shall review the independence and performance of the auditors
and annually recommend to the
Board:
|
| |
A.
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The
external auditor to be nominated for the purpose of preparing or
issuing
an auditor’s report and performing other audit, review and attest services
for the Company as required;
|
| |
B.
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The
compensation of the auditor; and
|
| |
C.
|
To
approve any discharge of the auditors when circumstances
warrant.
|
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(ii)
|
Pre-approve
all audit fees and terms and all permitted non-audit services provided
by
the external auditor, and consider whether these services are compatible
with the auditors’ independence. Any member of the Audit Committee may
approve additional proposed permitted non-audit services that arise
between Audit Committee meetings provided that the decision to pre-approve
the services is presented at the next scheduled Audit Committee meeting.
The approval of all non-audit services will be evidenced by the completion
and approval of the Non-Audit Services Request Form (attached as
Appendix
“A” hereto).
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| |
(iii)
|
On
an annual basis, the Audit Committee should review and discuss with
the
independent auditors all significant relationships they have with
the
Company that could impair the auditors’
independence.
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| |
(iv)
|
Review
the independent auditors’ audit plan - discuss scope, staffing, locations,
reliance upon management and general audit
approach.
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| |
(v)
|
Consider
the independent auditors’ judgments about the quality and appropriateness
of the Company’s accounting principles as applied in its financial
reporting.
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| |
(vi)
|
Prior
to releasing the year-end results, discuss the results of the audit
with
the external auditors. Discuss certain matters required to be communicated
to audit committees in accordance with the standards established
by the
Canadian Institute of Chartered
Accountants.
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(vii)
|
Review
and approve the Company’s hiring policies regarding partners, employees
and former partners and employees of the present and former independent
auditors of the Company.
|
| |
(c)
|
Ethical
and Legal Compliance
|
| |
(i)
|
On
at least an annual basis, review with the Company’s counsel, any legal
matters that could have a significant impact on the organization’s
financial statements, the Company’s compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.
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| |
(ii)
|
Perform
any other activities consistent with this Charter, the Company’s by-laws,
and governing law, as the Audit Committee or the Board deems necessary
or
appropriate. In particular, the Audit Committee has the authority
to
engage independent counsel and other advisers, as it determines necessary
to carry out its duties. The Company will provide for appropriate
funding,
as determined by the Audit Committee, in its capacity as a committee
of
the Board, for payment of (i) compensation to the independent auditor
engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company,
(ii)
compensation to any advisers employed by the Audit Committee, and
(iii)
ordinary administrative expenses of the Audit Committee that are
necessary
or appropriate in carrying out its
duties.
|
The
Audit Committee shall put in place procedures for:
| |
(i)
|
The
receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters;
and
|
| |
(ii)
|
The
confidential, anonymous submission by employees of the Company of
concerns
regarding questionable accounting or auditing
matters.
|
| |
(e)
|
Other
Audit Committee
Responsibilities
|
| |
(i)
|
Create
an agenda for the ensuing year.
|
| |
(ii)
|
Describe
in the Company’s annual information form the Audit Committee’s composition
and responsibilities and how they were discharged in accordance with
the
requirements of MI 52-110F1.
|
| |
(iii)
|
Submit
the minutes of all meetings of the Audit Committee to the
Board.
|
Appendix
“A”
Non-Audit
Services Request Form
LORUS
THERAPEUTICS INC.
The
Audit Committee approves all audit fees and terms and all non-audit services
provided by the independent auditor and consider whether these services are
compatible with the auditor’s independence. Any member of the Audit Committee,
subject to appropriate delegation, may approve additional proposed non-audit
services that arise between Audit Committee meetings provided that the decision
to approve the service is presented at the next scheduled Audit Committee
meeting. This form documents the member’s approval of the non-audit service in a
form suitable for distribution at meetings of the Audit Committee.
Request
Made By
Detailed
Description of Non-Audit Service Requested (including
a general description of the nature of the services that may make up the
project)
Engagement
Fee or Range of Fees for this Service
Prohibited
Services
In
this section please confirm that these services are not “prohibited services”
under section 201 of the Sarbanes-Oxley Act of 2002 and other related rules
or
regulations.
|
These
services would not be considered prohibited services
|
o
|
Issues
considered in forming the conclusion above that should be considered by the
Audit Committee
Compatibility
with Auditors’ Independence
In
this section please state whether these services are compatible with the
auditors’ independence.
|
These
services are compatible with the auditors’ independence
|
o |
Issues
considered in forming the conclusion above that should be considered by the
audit committee
Management
Approval
This
form must be reviewed and approved by one authorized member of management
(either the CEO, CFO or Director of Finance before submitting this form to
an
Audit Committee member for final approval.
Audit
Committee Member Approval
S-6
