Exhibit
99.3
ANNUAL
INFORMATION FORM
Fiscal
year ended May 31, 2008
August
26, 2008
2
Meridian Road, Toronto, Ontario M9W 4Z7
Telephone: (416)
798-1200
Fax:
(416) 798-2200
TABLE OF
CONTENTS
THE
COMPANY
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2
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GENERAL
DEVELOPMENT OF THE BUSINESS
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5
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REGULATORY
REQUIREMENTS
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7
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BUSINESS
OF THE COMPANY
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9
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RNA-based
Therapeutics
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10
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Small
Molecule Therapies
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14
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Immunotherapy
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16
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AGREEMENT
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17
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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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22
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RISK
FACTORS
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22
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DIVIDENDS
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30
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SHARE
CAPITAL AND MARKET FOR SECURITIES
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30
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DIRECTORS
AND OFFICERS
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31
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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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35
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INTERESTS
OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
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36
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ADDITIONAL
INFORMATION
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36
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GLOSSARY
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37
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SCHEDULE
A
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40
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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;
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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,
and
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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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the
progress of our clinical
trials;
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our
ability to repay or refinance the convertible debentures at
maturity;
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our
ability to maintain compliance with the operational covenants of the
convertible debenture agreement that could result in an event of default
and the requirement for early
repayment;
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our
liability associated with the indemnification of Old Lorus and its
directors, officers and
employees
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our
ability to find and enter into agreements with potential
partners;
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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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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.
Unless
otherwise indicated, or the context requires otherwise, the information
appearing in this annual information form is stated as at May 31, 2008 and
references in this annual information form to “$” or “dollars” are to Canadian
dollars.
For
ease of reference, a glossary of terms used in this annual information form can
be found beginning on page 38.
THE
COMPANY
Lorus
Therapeutics Inc. (“Old Lorus”) 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 Old Lorus becoming a reporting
issuer (as defined under applicable securities law) in Ontario, on such
date. On August 25, 1992, Old Lorus changed its name to IMUTEC
Corporation. On November 27, 1996, Old Lorus changed its name to
Imutec Pharma Inc., and on November 19, 1998, Old Lorus changed its name to
Lorus Therapeutics Inc. On October 1, 2005, Old Lorus continued under
the Canada Business
Corporations Act.
On
July 10, 2007 (the “Arrangement Date”), Old Lorus completed a plan of
arrangement and corporate reorganization with, among others, 6650309 Canada Inc.
(“New Lorus”), 6707157 Canada Inc. and Pinnacle International Lands,
Inc. As a result of the plan of arrangement and reorganization each
common share of Old Lorus was exchanged for one common share of New
Lorus. New Lorus continued the business of Old Lorus after the
Arrangement Date with the same officers and employees and continued to be
governed by the same board of directors as Old Lorus prior to the Arrangement
Date. References in this annual information form to the Company, Lorus, “we”,
“our”, “us” and similar expressions, unless otherwise stated, are references to
Old Lorus prior to the Arrangement Date and New Lorus after the Arrangement
Date.
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 under the symbol “LOR”
and are listed on the American Stock Exchange 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 and Pharma Immune Inc. (“Pharma
Immune”), a corporation incorporated under the laws of Delaware, of which Lorus
owns 100% of the issued and outstanding share capital.
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 drug 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 drugs.
Our
objective is to maximize the therapeutic value and potential commercial success
of LOR-2040 (formerly GTI-2040) and the small molecule platform while at the
same time pursuing partnership opportunities for development of these product
candidates as well as VirulizinÒ in jurisdictions not
currently under the license agreement with ZOR Pharmaceuticals. In
the near term, we intend to pursue research and early clinical development with
our own internal resources with respect to LOR-2040 and the small molecule drug
candidates.
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.
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, if ever, 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 would 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. As a condition to
agreeing to vote in favour of the Arrangement (as discussed below), the holder
of Lorus’ secured convertible debenture required the repurchase by Lorus of its
outstanding three million common share purchase warrants at a purchase price of
$252,000.
Share
Issuances
On
July 13, 2006 the company 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 Toronto Stock
Exchange on July 13, 2006. The transaction closed on August 31, 2006.
In connection with the transaction, High Tech received demand registration
rights that will enable High Tech to request the registration or qualification
of the common shares for resale in the United States and Canada, subject to
certain restrictions. These demand registration rights expire on June 30, 2012.
In addition, High Tech received the right to nominate one nominee to the board
of directors of Lorus or, if it does not have a nominee, it will have the right
to appoint an observer to the board. Upon completion of the transaction, High
Tech held approximately 14% of the issued and outstanding common shares of
Lorus.
On
July 24, 2006 Lorus entered into an agreement with Technifund Inc. to issue on a
private placement basis, 5 million common shares at $0.36 per share for gross
proceeds of $1.8 million. The transaction closed on September 1,
2006.
Plan
of Arrangement and Corporate Reorganization
On
July 10, 2007, Old Lorus and the Company completed a plan of arrangement and
corporate reorganization with, among others, 6707157 Canada Inc. (“Investor’)
and Pinnacle International Lands, Inc. (the “Arrangement”). As part
of the Arrangement, all of the assets and liabilities of Old Lorus (including
all of the shares of its subsidiaries held by it), with the exception of certain
future tax assets were transferred, directly or indirectly, from Old Lorus to
the Company. Securityholders in Old Lorus exchanged their securities
in Old Lorus for equivalent securities in New Lorus (the "Exchange") and the
board of directors and management of Old Lorus continued as the board of
directors and management of New Lorus. New Lorus obtained
substitutional listings of its common shares on both the Toronto Stock Exchange
and the American Stock Exchange.
As
part of the Arrangement, the Company changed its name to Lorus Therapeutics Inc.
and continues as a biopharmaceutical company, specializing in the research and
development of pharmaceutical products and technologies for the management of
cancer as a continuation of the business of Old Lorus.
In
connection with the Arrangement and after the Exchange, the share capital of Old
Lorus was reorganized into voting common shares and non-voting common shares and
Investor acquired from New Lorus and Selling Shareholders (as defined below)
approximately 41% of the voting common shares and all of the non-voting common
shares of Old Lorus for a cash consideration of approximately $8.5 million on
closing of the transaction less an escrowed amount of $600,000, subject to
certain post-closing adjustments and before transaction costs. The
remaining 59% of the voting common shares of Old Lorus were distributed to the
shareholders of New Lorus who were not residents of the United States on a
pro-rata basis. Shareholders of New Lorus who were residents of the
United States received a nominal cash payment in lieu of their pro-rata share of
voting common shares of Old Lorus. After completion of the
Arrangement, New Lorus is not related to the former Lorus Therapeutics Inc.,
which was subsequently renamed Global Summit Real Estate Inc. The
monies placed into escrow were held until the first anniversary of the closing
date and were released to the Company on July 10, 2008.
As
a condition of the Arrangement, High Tech and certain other shareholders of Old
Lorus (the “Selling Shareholders”) agreed to sell to Investor the voting common
shares of Old Lorus to be received under the Arrangement at the same price per
share as was paid to shareholders who are residents of the United
States. The proceeds received by the Selling Shareholders were
nominal.
Also
as a condition of the Arrangement, the holder of Old Lorus' secured convertible
debenture agreed to vote in favour of the transaction subject to the repurchase
by New Lorus of its outstanding three million common share purchase warrants at
a purchase price of $252,000 upon closing of the Arrangement.
The
Company and its subsidiaries have agreed to indemnify Old Lorus and its
directors, officers and employees from and against all damages, losses, expenses
(including fines and penalties), other third party costs and legal expenses, to
which any of them may be subject arising out of any matter occurring (i) prior
to, at or after the effective time of the Arrangement (the "Effective Time") and
directly or indirectly relating to any of the assets of Old Lorus transferred to
the Company pursuant to the Arrangement (including losses for income, sales,
excise and other taxes arising in connection with the transfer of any such
asset) or conduct of the business prior to the Effective Time; (ii) prior to, at
or after the Effective Time as a result of any and all interests, rights,
liabilities and other matters relating to the assets transferred by Old Lorus to
the Company pursuant to the Arrangement; and (iii) prior to or at the Effective
Time and directly or indirectly relating to, with certain exceptions, any of the
activities of Old Lorus or the Arrangement.
In
connection with the Arrangement Lorus and the Investor entered into an escrow
agreement in which $600,000 of the purchase price payable by Investor to Lorus
under was withheld by Investor and placed into escrow with Equity Transfer &
Trust Company, as escrow agent. The monies placed into escrow were
held until the first anniversary of the Closing Date and were released to the
Company on July 10, 2008.
Rights
Offering
On
June 13, 2008 we announced a rights offering to our shareholders to raise, if
fully subscribed, gross proceeds of $7.0 million.
Under
the Rights Offering, holders of our common shares as of July 9, 2008 (the
“Record Date”) received one right for each common share held as of the Record
Date. Each four (4) rights entitled the holder thereof to purchase a unit of
Lorus (“Unit”). Each Unit consists of one common share of Lorus and a one-half
warrant to purchase additional common shares of Lorus until 2010. Rights expired
on August 7, 2008.
Total
gross proceeds of the rights offering were $3.71 million and we issued an
aggregate of 28,538,889 common shares. An additional 14,269,444 common shares
will be issued if all warrants are exercised. Each full warrant is exercisable
for the purchase of one common share at a price of $0.18 until August 7,
2010. We expect to use the net proceeds from the offering to
fund research and development activities and for general working capital
purposes.
GENERAL
DEVELOPMENT OF THE BUSINESS
Lorus
Therapeutics Inc. is a biopharmaceutical company focused on the discovery,
research and development of effective anticancer therapies with a high safety
profile. Lorus has worked to establish a diverse, marketable anticancer product
pipeline, with products in various stages of development ranging from discovery
and pre-clinical to an advanced Phase II clinical trial. A growing intellectual
property portfolio supports our diverse product pipeline.
Our
success is dependent upon several factors, including establishing the efficacy
and safety of our product candidates in clinical trials, securing strategic
partnerships, obtaining the necessary regulatory approvals to market our
products and maintaining sufficient levels of funding through public and/or
private financing.
We
believe that the future of cancer treatment and management lies in drugs that
are effective, have minimal side effects, and therefore improve a patient's
quality of life. Many of the cancer drugs currently approved for the treatment
and management of cancer are toxic with severe side effects, and we believe that
a product development plan based on effective and safe drugs could 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. We
evaluate the merits of each product candidate throughout the clinical trial
process and consider partnership when appropriate.
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 will 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”.
RNA-Targeted
Therapies
Lorus’
RNA-targeted therapeutics include LOR-2040 (formerly GTI-2040) that is in Phase
II clinical development and LOR-1284 (formerly siRNA-1284) which is in the
pre-clinical stage of development. See “-- Clinical Development” and “Business
of the Company - DNA/RNA-based Therapeutics”.
Small
Molecule
We
have small molecule drug screening technologies and preclinical scientific
expertise, which we are using to create a drug candidate pipeline. Our
proprietary group of novel small molecule compounds, which include lead
compounds LOR-253 (formerly LT-253) and LOR-220 (formerly ML-220), have unique
structures and modes of action, and are promising candidates for the development
of novel anticancer agents with high safety profiles. See “--
Clinical Development” and “Business of the Company - Small Molecule
Therapies”.
Immunotherapy
Lorus’
lead immunotherapy product candidate is Virulizin®, the development and
commercialization rights for which were recently licensed to Zor Pharmaceuticals
LLC for certain geographic areas. See “-- Clinical Development” and
“Business of the Company - Immunotherapy” for more details.
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. 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 this information is qualified in its entirety by the information
appearing elsewhere or incorporated by reference in this annual information
form.
REGULATORY
REQUIREMENTS
Overview
Regulation
by government authorities in Canada, the United States, 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, they must establish current
Good Manufacturing Practices or 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 new drugs are controlled by Health Canada
(“HC”). New drugs 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 new drug 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 new drug 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 new drug 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 new drug has value, the manufacturer submits a
new drug submission (“NDS”) application to HC for marketing
approval. The NDS contains all information known about the new drug,
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, a 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 new drug 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 new drugs for emergency treatment. Under the 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 outside Canada or such other countries.
United
States
In
the United States, the FDA controls the manufacture and sale of new
drugs. New drugs require FDA approval of a marketing application
(e.g. a New Drug
Application or NDA) 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 a 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 eligibility for
expedited review of an NDA. It also permits, although it does not
require, the FDA to issue marketing approval based on a surrogate endpoint (a
measurement intended to substitute for the clinical measurement of interest,
usually prolongation of survival) although the FDA will often 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. The current paradigm in cancer management
is a multi-modal approach that combines multiple treatment options tailored to
the specific indication and individual patient. As a result, drug regimens that
combine novel small molecule chemotherapies based on emerging understanding of
cancer development with biological agents are of considerable
interest.
Since
cancer progression is a complex process involving the accumulation of multiple
genetic alterations leading to changes in many specialized cell functions, Lorus
believes that no single drug will emerge as a cure for all
cancers. Instead, we believe that cancer will continue to be treated
by many different drugs with a variety of mechanisms of action. Since
Lorus takes a multi-mechanistic approach for the treatment of cancer, we
concentrate on the discovery and the development of different classes of
anticancer compounds.
All
of the drugs being developed by the research team at Lorus have one similar
characteristic: they are designed with the goal of being well-tolerated by
patients. For successful drug candidates, these drugs will not only provide
effective cancer treatment but may contribute to an improved quality of life for
cancer patients, and may also make Lorus’ drugs more commercially attractive as
they could more easily be investigated in combination with other leading
therapies without significantly adding to the current side effect profiles of
existing drugs.
Lorus
has product candidates in three classes of anticancer therapies: (i)
RNA-targeted (antisense) therapies; (ii) small molecule therapies; and
(iii) immunotherapeutics.
RNA-Targeted
Therapies
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). RNA-based therapeutics offer a novel approach to treatment in
that they are designed to prevent the production of proteins causing
disease.
Our
RNA-based drugs consist of RNA-targeted antisense drugs and short-interfering
RNA (siRNA). 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 product is
LOR-2040 (formerly GTI-2040). LOR-2040 targets the R2 component 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 R2 (LOR-2040) component 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.
LOR-2040
Our
lead antisense drug candidate is LOR-2040, which 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 completed a Phase I/II clinical trial of LOR-2040 for advanced
or metastatic renal cell carcinoma. We are also conducting or have
completed a multiple Phase I/II clinical trial program in cooperation with the
NCI, for the study of LOR-2040 for the treatment of Acute Myeloid Leukemia
(“AML”), breast cancer, lung cancer, colon cancer, prostate cancer, a series of
solid tumors and myelodysplastic syndrome and acute leukemia. We also recently
initiated Phase II clinical trial with LOR-2040 and high dose Ara-C in
refractory and relapsed AML.
Pre-clinical
Testing
LOR-2040
has demonstrated excellent anti-tumour activity in a number of murine models of
human cancer including xenograft tumour growth, metastasis and survival models.
Additional studies have demonstrated combination drug efficacy in xenograft
tumour growth studies for human cancer cells, including drug resistant tumour
cell lines. Studies on dose schedule optimization for LOR-2040 in
combination with docetaxel demonstrated that the timing of these two drugs could
be optimized for efficacy. These data, which were presented at the
2007 annual meeting of the American Association for Cancer Research (AACR), may
have implications for the NCI sponsored clinical trials. More
recent preclinical studies on the anticancer activity of LOR-2040 in combination
with cytokine therapies were presented at the 2008 annual meeting of the
AACR. These studies showed that LOR-2040 significantly improved the
anticancer efficacy of an important group of cytokine immunotherapeutic agents,
including interferon alpha and interleukin-2, both of which have been used in
the treatment of solid tumors. These findings may expand the
potential avenues for development of LOR-2040. Formal pre-clinical development
of LOR-2040, including GLP toxicology studies in standard animal models, has
demonstrated that LOR-2040 is well tolerated at concentrations that exceed
commensurate therapeutic doses in humans.
In
April 2008 we announced the start of a development program aimed at expanding
the therapeutic application of LOR-2040 for the treatment of superficial bladder
cancer. The new development program will examine direct
(intravesical) administration of LOR-2040 into the bladder as a treatment for
superficial or non-invasive bladder cancer. In August 2008 we
announced the successful completion of GLP toxicology studies with LOR-2040 to
explore a novel route of administration. Two studies were conducted
to assess toxicity of LOR-2040 when administered by direct administration into
the bladder. In both studies, no evidence of toxicity was seen following single
or repeated doses of LOR-2040 given with this method of administration. Toxicity
was evaluated based on a wide range of observations including detailed
examination of urinary tract tissues.
LOR-1284
In
2003, Lorus began development of an anticancer therapeutic based on
siRNA-mediated inhibition of R2 expression. Early screening experiments have
identified lead compounds and preliminary in vitro and in vivo characterization of
these compounds has yielded promising results. LOR-1284 (formerly
siRNA-1284), the lead compound identified from the screening study, specifically
targets R2 expression. In in
vitro studies, down-regulation of R2 expression by LOR-1284 resulted in
decreased tumor cell growth (proliferation) with a concomitant
block in cell cycle progression. Furthermore, LOR-1284 demonstrates anti-tumor
activity against human kidney, skin and colon cancers in mouse experimental
models of tumor growth. We feel that the results of these studies warrant
further development of LOR-1284 as well as expansion of siRNA research to other
cancer targets.
Clinical
Development
Lorus
Sponsored Trials
Acute
Myeloid Leukemia:
In
August 2007, we announced an expansion of the LOR-2040 development program in
the AML indication with initiation of a more advanced Phase II clinical trial
with LOR-2040 and high dose Ara-C (HiDAC) in refractory and relapsed AML. This
Phase II study includes both an efficacy study and a novel additional study to
measure intracellular target activities and pharmacological synergies between
the two agents. In the first stage of the 60 patient trial, the pharmacologic
and target related activity of LOR-2040 and HiDAC will be evaluated in two
groups, to determine the contribution of each agent alone and in combination.
The second stage of the trial will provide efficacy evaluation in a larger
patient population. The decision to advance clinical development of
LOR-2040 was based on the encouraging results from our completed proof of
concept NCI-sponsored study of LOR-2040 in combination with HiDAC in patients
with refractory and relapsed AML. In June 2008 Lorus announced that the European
Medicines Agency (EMEA) had granted orphan drug designation to LOR-2040 for
development in AML.
Advanced
Renal Cell Cancer:
In
April 2005, we announced completion of a Phase I/II clinical trial of LOR-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 LOR-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. LOR-2040 was well tolerated when combined with a cytotoxic agent with
expected adverse events. In April 2008 Lorus
announced preclinical results from additional combination therapies in this
indication identifying that LOR-2040 significantly improved the anticancer
efficacy of an important group of cytokine immunotherapeutic agents, including
interferon alpha and interleukin-2. Lorus is actively searching for partnerships
to assist with the further development of LOR-2040 for the treatment of renal
cell cancer and other selected solid tumor indications.
NCI
Sponsored Trials
Much
of the clinical development for LOR-2040 was performed in conjunction
with the US NCI, which paid for the cost of the sponsored clinical
trials. See “-- Agreements - Collaboration Agreements - National
Cancer Institute”. To date we have substantially completed six
clinical trials with the NCI for LOR-2040 in patients with AML, metastatic
breast cancer, non-small cell lung cancer, solid tumors, unresectable colon
cancer, hormone refractory prostate cancer and have one study ongoing in MDS and
acute leukemia. These indications were selected based on the most
promising results from our preclinical studies. Upon receipt of the clinical
data from the ongoing NCI clinical
trials, Lorus will analyze and make decisions regarding the strategic direction
of our antisense portfolio. We do not believe that the data to be
received from these trials will be material nor impact our current development
plan of focusing on LOR-2040 in AML. Lorus continues to search for
partnerships for the future development of LOR-2040.
Acute
Myeloid Leukemia:
In
July 2003, we announced the FDA’s approval of the NCI-sponsored IND application
for a clinical trial of LOR-2040 in combination with cytarabine, in patients
with refractory or relapsed AML. Cytarabine is the current established drug for
treating AML patients. The study is part of a Phase II clinical
program to be conducted under the sponsorship of the Cancer Treatment Evaluation
Program of the NCI pursuant to a clinical trial agreement between Lorus and the
NCI.
In
August 2007, we announced the completion of this study. This clinical trial
demonstrated safety and appropriate dosing of the combination regimen and showed
promising clinical responses in patients under 60 years of
age. Moreover, the clinical responses correlated with downregulation
of R2, the cellular target of LOR-2040, and were further supported by
demonstration of intracellular LOR-2040 in circulating and bone marrow leukemic
cells. In July 2008 we announced publication of the final results of this
clinical trial by the investigators in the journal Clinical Cancer Research 14(12)
2008. The results demonstrated safety and appropriate dosing of the
combination regimen. Notably, promising clinical responses in patients under 60
years of age were obtained which included complete responses in 35% of the 23
patients and significant cytoreduction of the leukemic blasts in two others.
Moreover, the clinical responses correlated with down regulation of R2, the
cellular target of LOR-2040 in circulating and bone marrow leukemic cells.
Additionally, outcomes of complete response were associated with high
pre-treatment levels of R2, suggesting that pre-treatment R2 may be a predictor
of response and a possible basis for treatment stratification to this LOR-2040
and cytarabine combination. This proof of concept study provided the
basis for proceeding to the current larger Phase II study in with the same
regimen in patients less than 60 years of age with refractory and relapsed
AML.
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 LOR-2040 as a treatment for metastatic
breast cancer in combination with capecitabine (Xeloda, manufactured by Roche
Laboratories Inc.). In support of continued studies aimed at demonstrating R2
target down-regulation in patient samples, this study group, in collaboration
with Lorus, published preliminary results of RT-PCR studies in the May 2006
issue of Oncology
Reports. The results demonstrate that the
assay developed by Lorus can feasibly assess R2 levels in blood and tumour
tissues from patients before and after treatment. This study has
completed and we are awaiting final clinical reports and analysis which we
expect to receive in fiscal 2009.
Non-Small
Cell Lung Cancer:
In
September 2003, we received approval from Health Canada for initiation of a
clinical trial of LOR-2040 in combination with docetaxel for the treatment of
advanced non-small cell lung cancer (“NSCLC”), as part of a Phase I/II clinical
program of LOR-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. The study group published a
paper in the December 2005 issue of the Journal of Chromatography,
outlining the development of a method for determination of LOR-2040 in
human plasma samples. This highly sensitive method will be used for
pharmacokinetic studies in patient samples from the trial. This study
has completed and we are awaiting final clinical reports and analysis which we
expect to receive in fiscal 2009.
Solid
Tumors:
In
February 2004, we announced the initiation of a Phase I clinical trial examining
the use of LOR-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
LOR-2040 and its toxicity profile. At the recommended dose LOR-2040
demonstrated a manageable toxicity profile and was generally well tolerated when
given as a single agent. This study has completed and we are awaiting final
clinical reports and analysis, which we expect to receive in fiscal
2009.
Unresectable
Colon Cancer:
In
May 2004, we announced the initiation of a Phase I clinical trial examining
LOR-2040 in combination with oxaliplatin and capecitabine in the treatment of
advanced unresectable colon cancer and other solid tumors. This study
is part of a clinical trials program sponsored by the NCI. This study
has completed and we are awaiting final clinical reports and analysis, which we
expect to receive in fiscal 2009.
Hormone
Refractory Prostate Cancer:
In
November 2004, we announced the initiation of a Phase II clinical trial
examining LOR-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. These data were also presented at the 2006 annual meeting of the
American Society of Clinical Oncology (“ASCO”).
High
Grade Myelodysplastic Syndrome and acute leukemia:
Lorus
announced in June 2006 a plan for a new clinical investigation of LOR-2040 as a
single-agent in patients with high grade myelodysplastic syndrome and acute
leukemia. This trial was initiated in mid 2007. This clinical study is designed
to evaluate the safety and activity of LOR-2040 as a single agent for acute
leukemia and MDS using a novel treatment schedule. The effect on leukemic blasts
and blood count recovery will be assessed as part of a detailed investigation of
the pharmacodynamic and pharmacokinetic effects, dose-response
relationships and tolerability of LOR-2040 during multiple courses of
treatment. This clinical trial is ongoing.
Orphan
Drug Status
On
March 12, 2003, the FDA awarded Orphan Drug Status to LOR-2040 for the treatment
of renal cell carcinoma. In May 2005, Lorus received Orphan Drug designation
from the FDA for LOR-2040 in the treatment of AML. In June 2008 the
EMEA awarded Orphan Drug designation for LOR-2040 in the treatment of
AML.
Small
Molecule Therapies
Most
anticancer chemotherapeutic treatments are DNA damaging, cytotoxic agents,
designed to act on rapidly dividing cells. Treatment with these drugs
is typically associated with 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 that
have greater target specificity and are more selective against cancer
cells. 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.
LOR-253
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 in in vitro screens. The results
of characterization studies of these compounds were presented at the 2006 annual
meeting of the AACR and early formulation studies were published in the
September 2006 issue of Cancer
Chemotherapy and Pharmacology. Our studies identify the main mechanism of
action of these compounds, which involves the induction of the tumor suppressor
Krüppel-like factor 4. The down regulation of Krüppel-like factor 4 is believed
to be critical in the development and progression of certain types of cancer and
presents the possibility of exploiting a novel anticancer mechanism of
action. From these two compounds, LOR-253 (formerly LT-253) was
selected as the lead compound for development as a drug candidate for the
treatment of colon carcinoma and non-small cell lung cancer. This decision was
based on its potent in
vitro anti-proliferative activity, its efficacy in in vivo xenograft models of
human colon and lung cancer, and on its safety profile.
Recent
preclinical data on LOR-253 was presented at the 2008 annual meeting of the
AACR. In animal studies, LOR-253 showed a favorable
pharmacokinetic profile following intravenous dosing. A key finding of the study
was the tissue distribution of LOR-253, where the drug was detected in tumor
tissues in animal models, with significant affinity for lung and colon tissues.
These results strongly support the potential treatment of these cancers with
LOR-253, which has shown selective and potent anticancer activity in animal
models of non-small cell lung cancer and colon cancer.
In
March 2008 we announced the start of GLP toxicology studies for LOR-253. The
toxicology studies, which are currently underway, are designed to support the
filing of an Investigational New Drug (IND) application with the U.S. FDA for
LOR-253 to initiate a Phase I clinical study in cancer
indications. We intend to submit an IND for LOR-253 during second
half of 2008, following successful completion of the toxicology
program.
Lorus
is also pursuing other candidates at earlier stages of development. These
include:
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LOR-264,
a second generation LOR-253 derivative, is being developed for oral
administration. Like LOR-253, LOR-264 has demonstrated potent
anticancer activity in animal studies and represents the lead oral drug in
this development platform. Derivatives of LOR-264 are currently
being assessed for anticancer activity and oral bioavailability as part of
our lead optimization process.
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LOR-220
platform. Lorus is developing novel derivatives that target cancer
relevant genes, which are critical in a major signaling pathway involved
in tumorigenesis and represent important new cancer targets. LOR-220
(formerly ML-220) is a novel lead compound that targets cancer specific
genes including PI3K/mTOR that are critical in a major signal pathway
involved in tumorigenesis and malignancy. Structural optimization of
LOR-220 has yielded several novel drug candidates that show potent
anticancer activity.
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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®
Lorus
announced on April 8, 2008 that it had entered into an exclusive licensing deal
with the Zoticon Bioventures’ subsidiary, Zor Pharmaceuticals LLC (“Zor”), for
Virulizin®. The license, covering North and South America, Europe and Israel,
grants Lorus the right to receive in excess of US$10 million in upfront and
milestone payments as well as royalties on sales of between 10 and 20%. In
addition, Lorus’ wholly-owned subsidiary received a 25% equity interest in Zor.
Zor will be responsible for all future clinical developments, regulatory
submissions, and all commercial activities. See “Agreements -
Collaborative Agreements”.
Clinical
Development Program
In
2002 Lorus initiated a Phase III double-blinded, 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
survivals 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. The results of the exploratory sub-group
analyses were presented at the 2006 annual meeting of the ASCO. From these
analyses the following sub-groups were identified as having demonstrated benefit
that approached statistical significance: patients with low ECOG scores (better
overall performance), patients with metastatic disease and patients that
continued to receive study drug or best supportive care during second line
therapy. In addition, those patients that continued Virulizin® during salvage
therapy demonstrated a survival benefit that was statistically
significant.
Orphan
Drug
Lorus
received Orphan Drug designation from the United States Food and Drug
Administration (“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, Lorus announced that Virulizin® was granted
Orphan Drug status in the European Union for pancreatic cancer.
Agreements
Manufacturing
Agreements
We
currently rely upon subcontractors for the manufacture of our drug candidates.
The subcontractors manufacture clinical material according to current Good
Manufacturing Practice (“GMP”) at contract manufacturing organizations that have
been approved by our quality assurance department, following audits in relation
to the appropriate regulations.
Manufactured
product for clinical purposes is tested for conformance with product
specifications prior to release by our quality assurance department. GMP batches
of our drug candidates are subjected to prospectively designed stability test
protocols.
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 totalling US
$500,000 to Ion. The balance of up to US$3 million is payable upon
the achievement of certain milestones based on the commencement and completion
of clinical trials related to the NuChem Analogs. The company does not currently
expect to achieve any of the above milestones in fiscal years ended May 31, 2009
or 2010 and cannot reasonably predict when such milestones will be achieved, if
at all.
The
NuChem Analog patents are ancillary to the Company’s primary development
activities and do not relate to our core research and development focus, namely
LOR-2040, nor did they relate specifically to the development of
Virulizin.
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, 2008, we had provided a total of $5,760,000 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 of up to US $11.6
million assuming all milestones are achieved and a royalty of between 2.0% and
4.0% depending on the level of sales. Cyclacel is responsible for all
future drug development costs.
We
do not expect Cyclacel to achieve any of the above milestones in fiscal years
ended May 31, 2009 or 2010 and cannot reasonably predict when such milestones
will be achieved, if at all.
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.
The
University of Manitoba agreement relates specifically to antisense and related
technologies described in patent applications that were pending at the time of
the agreement. Subsequent patent amendments or advancements to these
patents remain as the property of Lorus, without license rights accruing back to
the University of Manitoba. The Company is currently pursuing its
antisense development program, primarily as a function of advancements and
amendments to the original patents. We have not yet earned any revenue from the
products covered under the agreement and have not paid any royalties under this
agreement and cannot reasonably predict the timing and amount of any future
payment. We do not expect to make any royalty payments under this
agreement in fiscal years ended May 31, 2008 or 2009.
Collaboration
Agreements
Zoticon
Bioventures Inc.
In
April 2008, Lorus through its wholly owned subsidiary GeneSense Technologies
Inc. signed an exclusive multinational license agreement with Zor
Pharmaceuticals LLC formed as a subsidiary of Zoticon Bioventures Inc.
(“Zoticon”), a research-driven biopharmaceutical group, to further develop and
commercialize Virulizin® for human therapeutic applications. The initial
clinical development of Virulizin® under the agreement will be in advanced
pancreatic cancer.
Under
the terms of the agreement, GeneSense will be entitled to receive payments in
excess of US$10 million upon achievement of various milestone events and
royalties that vary from 10-20% depending on achieving of sales of Virulizin®
and subject to certain other adjustments.
Zor
Pharmaceuticals will be responsible for the cost of all the clinical
development, regulatory submissions and commercialization of Virulizin® in North
and South America, Europe and Israel. We retain rights in all other countries,
including China, Japan, Australia and New Zealand.
In
addition immediately prior to executing the license agreement, we entered into a
Limited Liability Company Agreement with ZBV I, LLC, to receive 25% of the
initial equity in Zor Pharmaceuticals in exchange for a capital contribution of
$2,500. This investment will be held in a wholly owned subsidiary of Lorus,
Pharma Immune Inc. (“Pharma Immune”). The 25% will not be subject to dilution on
the first US$5 million of financing in Zor Pharmaceuticals. Thereafter, Pharma
Immune has, at its option, a right to participate in any additional financings
to maintain its ownership level.
We
have also entered into a service agreement in which we agreed to provide Zor
with 120 hours of consulting service at its own expense and thereafter will
provide services at an agreed upon rate. The agreement will last for
one year unless stated otherwise in any project assignment that extends beyond
one year but no longer than the date of termination of the License
Agreement for any reason. If we have not provided 300 hours of
consulting services after one year the agreement will renew for an additional
six months.
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 I/II
program to investigate the safety and efficacy of LOR-2040. Lorus and the NCI
signed a formal clinical trial agreement in which the NCI financially sponsors
the LOR-2040 clinical trials, while Lorus provides the clinical trial drug. The
agreement was renewed in October 2007 for an additional three
years.
NCI
carries out clinical trials on behalf of the Company at its own
cost. The rights to publish data remains with the NCI sponsored
investigator generating the information. The commercial results of
the studies, including commercialization of any products remain with Lorus with
no financial, license, or intellectual property rights accruing to the
Investigator or NCI for their participation. NCI has no rights to
exploit the research results, except through the right of investigators to
publish data accumulated by it during the testing, nor does it have any
obligation to pay or receive royalties under the agreement. Any
royalty rights on products derived from the work performed by NCI will need to
be negotiated by Lorus under a marketing agreement with third parties (if not
carried out by Lorus). It is not possible to reasonably
estimate the amount and timing of any royalty receipts, if any.
In
regards to future payment obligations, Lorus’ obligations under this agreement
are limited to the supply of drugs, the cost for which has been
incurred. The company does not currently expect any significant costs
associated with the supply of the drug in the future, depending on the outcome
of the projects.
Please
refer to ‘Clinical Development - NCI sponsored trials” above for further
detail.
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.
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, 2008, we owned or had rights to 47
issued patents and 58 pending patent applications worldwide.
RNA-targeted
Therapies
We
have been issued two patents in Canada, seven patents in the United States and
eleven patents in other jurisdictions around the world relating to our antisense
DNA/RNA-based therapeutics. These patents include composition of
matter and method claims.
Small
Molecule
We
have been issued two patents in the United States and one patent in Israel,
which include composition of matter and method claims, relating to the NuChem
small molecule platform.
Immunotherapy
We
have been issued two patents in Canada, three patents in the United States and
11 patents in other jurisdictions around the world relating to our immunotherapy
platform, which include composition of matter, method and process
claims.
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 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 will 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 which 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 LOR-2040, 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 of 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.
Competition
with our products may include chemotherapeutic agents, monoclonal antibodies,
antisense therapies, small molecules and immunotherapies with novel mechanisms
of action. These are drugs that are delivered by specific means for
treatment of cancer patients, with a potential to be used in non-cancer
indications. 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 drugs 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, 2008, we employed 25 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, 2011.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. 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 into this annual information form, as well
as our historical consolidated financial statements and related notes. The risks
set out below are not the only risks we face. If any of the following risks
occur, our business, financial condition, prospects or results of operations
would likely suffer. 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.
We
need to raise additional capital
Our
current capital resources are not sufficient to fund our long-term business
strategy or to repay our convertible debentures. We need to raise
additional capital. To obtain the necessary capital, we must rely on any or all
of; grants and tax credits, additional share issues and collaboration agreements
or corporate partnerships to provide full or partial funding for our activities.
We cannot assure you that additional funding will be available on terms which
are acceptable to us or in amounts that will enable us to carry out our business
plan.
If
we cannot obtain the necessary capital, we will have to:
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engage
in equity financings that would result in significant dilution to existing
investors;
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delay
or 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
license rights to technologies, product candidates or products on terms
that are less favourable to us than might otherwise be available;
or
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considerably
reduce, even cease our operations
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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
$6.3 million; $9.6 million and $17.9 million for the years ended May 31, 2008,
2007 and 2006, respectively. As of May 31, 2008, we had an accumulated deficit
of $180.5 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, LOR-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.
We
are an early stage development company
We
are at an early stage of development. Significant additional investment will be
necessary to complete the development of any of our products. Pre-clinical and
clinical trial work must be completed before our products could be ready for use
within the market that we have identified. We may fail to develop any products,
to obtain regulatory approvals, to enter clinical trials or to commercialize any
products. We do not know whether any of our potential product development
efforts will prove to be effective, meet applicable regulatory standards, obtain
the requisite regulatory approvals, be capable of being manufactured at a
reasonable cost or be accepted in the marketplace.
The
product candidates we are currently developing are not expected to be
commercially viable for several years and we may encounter unforeseen
difficulties or delays in commercializing our product candidates. In addition,
our products may cause undesirable side effects.
Our
product candidates require significant funding to reach regulatory approval
assuming positive clinical results. Such funding will be very
difficult, or impossible to raise in the public markets. If such
partnerships are not attainable, the development of these product candidates
maybe significantly delayed or stopped altogether. The announcement
of such delay or discontinuation of development may have a negative impact on
our share price.
Our
cash flow is not sufficient to repay our debentures at maturity.
Our
ability to repay our convertible debentures at maturity or refinance our prime
plus 1% convertible debentures due in approximately 14 months (October 2009)
will depend on our ability to generate or raise sufficient cash or refinance
them. If we cannot repay or refinance the debentures at or prior to maturity,
the lender may, at its discretion:
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take
possession of our assets;
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appoint
a receiver; and
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take
any other action permitted by law to obtain
payment.
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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 the principal and interest owing on the debentures 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.
The
Company has indemnified Old Lorus and its directors, officers and employees in
respect of the Arrangement.
Under
the Arrangement, we have agreed to indemnify Old Lorus and its directors,
officers and employees from and against all damages, losses, expenses (including
fines and penalties), other third party costs and legal expenses, to which any
of them may be subject arising out of any matter occurring
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(i)
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prior
to, at or after the effective time of the Arrangement (“Effective Time”)
and directly or indirectly relating to any of the assets of Old Lorus
transferred to New Lorus pursuant to the Arrangement (including losses for
income, sales, excise and other taxes arising in connection with the
transfer of any such asset) or conduct of the business prior to the
Effective Time;
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(ii)
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prior
to, at or after the Effective Time as a result of any and all interests,
rights, liabilities and other matters relating to the assets transferred
by Old Lorus to New Lorus pursuant to the Arrangement;
and
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(iii)
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prior
to or at the Effective Time and directly or indirectly relating to, with
certain exceptions, any of the activities of Old Lorus or the
Arrangement.
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This
indemnification could result in significant liability to us.
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
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 favourable 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 Health Canada 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 product candidates 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 product candidates
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 Health Canada or the FDA or any other
regulatory body may not ultimately approve our product candidates for commercial
sale.
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 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. Positive results in early Phase I or Phase
II clinical trials may not be repeated in larger Phase II or Phase III clinical
trials. For example, results of our Phase III clinical trial of
Virulizinâ 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. 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 product
candidates 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.
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:
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drug
products that have already been approved or are in development, and
operate large, well-funded research and development programs in these
fields;
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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;
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significantly
greater experience than we do in undertaking preclinical testing and
clinical trials of new or improved pharmaceutical products and obtaining
required regulatory approvals;
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Consequently,
our competitors may obtain Health Canada, 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;
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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.;
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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.
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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 they will allow in biotechnology patents.
Allowable
patentable subject matter and the scope of patent protection obtainable may
differ 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 it 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.
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 pursue patent coverage for our
inventions.
Enforcement
of intellectual property rights:
Protection
of the rights revealed in published patent applications can be complex, costly
and uncertain. 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.
Others
may design around our patented technology. 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 favourable to us. We cannot assure you that our
pending patent applications, if issued, would be held valid or
enforceable.
Trademark
protection:
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 of our trade secrets or know how.
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 which 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®, LOR-2040 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 LOR-2040, 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.
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.
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. We cannot assure you 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.
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 but are not limited to:
|
•
|
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;
|
|
•
|
announcements
of technological innovations or new product candidates by us, our
collaborators or our competitors;
|
|
•
|
fluctuations
in our operating results;
|
|
•
|
published
reports by securities analysts;
|
|
•
|
developments
in patent or other intellectual property
rights;
|
|
•
|
publicity
concerning discovery and development activities by our
licensees;
|
|
•
|
the
cash and short term investments held us and our ability to secure future
financing;
|
|
•
|
public
concern as to the safety and efficacy of drugs that we and our competitors
develop;
|
|
•
|
governmental
regulation and changes in medical and pharmaceutical product reimbursement
policies; and
|
|
•
|
general
market conditions.
|
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.
Conversion
of our secured convertible debentures will dilute the ownership interest of
existing shareholders.
The
conversion of some or all of our 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
maybe unable to maintain the listing requirements on one or more of the stock
exchanges our shares are currently listed on.
We
are currently not in compliance with the listing standards of the American Stock
Exchange (“AMEX”). However, we have been granted 18 months by the
AMEX to regain compliance based on a business plan approved by the AMEX in May
2008. We may be unable to reach or sustain the listing requirements
which would result in our shares being delisted from the
exchange. This would result in our shareholders only being able to
trade shares on the Toronto Stock Exchange.
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 26, 2008, there were 247,534,622 common shares issued and
outstanding. In addition, as of August 26, 2008 there were 20,475,000
common shares issuable upon the exercise of outstanding stock options and
14,269,444 common shares issuable upon the exercise of common share purchase
warrants priced at $0.18 and expiring August 7, 2010. The holders of
common shares are entitled to one vote per share at meetings of shareholders, to
receive such dividends as declared by us and to receive our remaining property
and assets upon our dissolution or winding up. Our common shares are not subject
to any future call or assessment and there are no pre-emptive, conversion or
redemption rights attached to such shares.
Market
for Securities
Our
common shares are currently listed on The Toronto Stock Exchange (“TSX”) under
the symbol “LOR” and on the American Stock Exchange under the symbol
“LRP”. The following table sets out the price ranges and trading
volumes of our common shares on the TSX for the periods indicated:
|
|
High
($)
|
|
|
Low
($)
|
|
Volume
(#)
|
|
2008
|
|
|
|
|
|
|
|
|
|
May
|
|
|
0.17 |
|
|
|
0.14 |
|
|
|
2,288,715 |
|
April
|
|
|
0.21 |
|
|
|
0.15 |
|
|
|
4,557,627 |
|
March
|
|
|
0.18 |
|
|
|
0.15 |
|
|
|
1,745,678 |
|
February
|
|
|
0.20 |
|
|
|
0.17 |
|
|
|
3,012,035 |
|
January
|
|
|
0.21 |
|
|
|
0.16 |
|
|
|
3,930,559 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
0.21 |
|
|
|
0.17 |
|
|
|
4,753,403 |
|
November
|
|
|
0.25 |
|
|
|
0.18 |
|
|
|
4,759,335 |
|
October
|
|
|
0.24 |
|
|
|
0.17 |
|
|
|
5,473,330 |
|
September
|
|
|
0.24 |
|
|
|
0.19 |
|
|
|
3,514,762 |
|
August
|
|
|
0.25 |
|
|
|
0.16 |
|
|
|
3,637,104 |
|
July
|
|
|
0.24 |
|
|
|
0.21 |
|
|
|
1,420,246 |
|
June
|
|
|
0.26 |
|
|
|
0.23 |
|
|
|
3,887,713 |
|
Principal
Shareholders
To
our knowledge, based on publicly available information, the only persons or
entities that own more than 5% of our issued and outstanding common shares are
Technifund Inc. and its related parties, which currently owns approximately
19% of our issued
and outstanding common shares and High Tech that holds, approximately 14.7% of
the issued and outstanding shares of the company. See Business
of the Company - Financial Strategy”.
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, an Environmental, Health and Safety Committee, a Corporate Governance
and Nominating Committee and a Compensation Committee the members of each such
committee are shown below. As at May 31, 2008, our directors and
executive officers, as a group, beneficially owned, directly or indirectly, or
exercised control over approximately 88,524,000 common shares or approximately
36% of our outstanding common shares.
Name
and Province/State and Country of
Residence
|
|
Position
|
|
Director or Officer
Since
|
Directors:
|
|
|
|
|
Herbert
Abramson(3)
Ontario,
Canada
|
|
Director
|
|
July
2007
|
|
|
|
|
|
J.
Kevin Buchi(1)(3)
Pennsylvania,
United States
|
|
Director
|
|
December
2002
|
|
|
|
|
|
Denis
Burger(1)(2)
Oregon,
United States
|
|
Chairman,
Director
|
|
September
2007
|
|
|
|
|
|
Susan
Koppy(2)(3)
California,
United States
|
|
Director
|
|
September
2007
|
|
|
|
|
|
Georg
Ludwig
Eschen,
Liechtenstein
|
|
Director
|
|
September
2006
|
|
|
|
|
|
Alan
Steigrod(2)(1)
Florida,
United States
|
|
Director
|
|
May
2001
|
|
|
|
|
|
Dr.
Mark Vincent(4)
Ontario,
Canada
|
|
Director
|
|
September
2007
|
|
|
|
|
|
Dr.
Jim Wright(4)
Ontario,
Canada
|
|
Director,
former President and Chief Executive Officer,
|
|
October
1999
|
|
|
|
|
|
Officers:
|
|
|
|
|
Dr.
Aiping Young(4)
Ontario,
Canada
|
|
President
and Chief Executive Officer, Director, and former Chief Operating
Officer
|
|
October
1999
|
|
|
|
|
|
Dr.
Saeid Babaei
Ontario,
Canada
|
|
Vice
President, Business Development
|
|
May
2008
|
|
|
|
|
|
Dr.
Yoon Lee
Ontario,
Canada
|
|
Vice
President Research
|
|
May
2008
|
|
|
|
|
|
Elizabeth
Williams
Ontario,
Canada
|
|
Acting
Chief Financial Officer and Director of Finance
|
|
November
2005
|
(1) Member
of Audit Committee.
(2) Member
of the Compensation Committee.
(3) Member
of the Corporate Governance and Nominating 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:
Herbert
Abramson: M. Abramson is a co-founder, Chairman and CEO of
Trapeze Capital Corp., an investment dealer and portfolio management company and
is also Chairman of Trapeze Asset Management Inc., an affiliated investment
counseling company. Mr. Abramson is a member of the Law Society
of Upper Canada and practiced corporate/securities law for 12 years before
going into the investment business.
J. Kevin Buchi: Mr. Buchi is
Executive Vice President and Chief Financial Officer of Cephalon Inc., an
international biopharmaceutical company. Mr. Buchi is responsible for
finance, strategic planning and business development 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.
Dr Denis
Burger: Dr. Burger was the past Chairman, Chief Executive
Officer and a director of AVI Biopharma Inc, an Oregon based biotechnology
company from 1992 to March 2007. Dr. Burger is also a partner in Sovereign
Ventures, a healthcare consulting and funding firm based in Portland,
Oregon. Dr. Burger received his MSc and PhD in Microbiology and
Immunology from the University of Arizona.
Susan Koppy: Ms. Koppy is a
Vice President of Corporate Development at Trancept
Pharmaceuticals. Ms. Koppy has previously held executive business
development and strategy roles at Idenix Pharmaceuticals, Applied Biosystems,
Inc. and Novartis Pharmaceuticals.
Georg Ludwig: Mr.
Ludwig is Managing Director of ConPharm Anstalt a consulting and managment
company for life science funds, located in Lechteinstein.
Alan Steigrod: Mr.
Steigrod is Managing Director of Newport Healthcare Ventures, a consulting firm
for the healthcare industry, located in Newport Beach, California.
Dr. Mark Vincent:
Dr. Mark Vincent is the co-founder and Chief Executive Officer of Sarissa,
Inc. since 2000. Dr. Vincent is an Associate Professor of
Oncology at the University of Western Ontario and a staff medical oncologist at
the London Regional Cancer Program.
Dr. Jim
Wright: Dr. Wright is presently Chief Executive Officer
of NuQuest Bio Inc. Dr. Wright co-founded GeneSense Technologies
Inc. in 1996, and served as Lorus' President, Chief Scientific Officer and
a member of the Board of Directors in October 1999 on a merger
with GeneSense. In September 2006 he stepped down as the
President and Chief Executive Officer of Lorus.
Dr. Aiping
Young: Dr. Young has been our President and Chief Executive
Officer since September 21, 2006 and was a cofounder with Dr. Wright of
GeneSense Technologies Inc. Dr. Young previously held the position of
Chief Operating Officer, Senior Vice President, Research and Development and
Chief Technical Officer at Lorus.
Dr. Saeid Babaei: Dr. Babaei
is currently Vice-President of Business Development. Dr Babaei joined
Lorus in 2006 and has held progressive positions as Associate Director of
Corporate Affairs and Director of Corporate Development. Prior to his
employment with Lorus Dr. Babaei was the Director of Corporate Development at
Northern Therapeutics Inc.
Dr. Yoon Lee: Dr. Lee is
currently Vice President of Research. Dr. Lee has been with Lorus for ten years,
most recently serving as the Director of Research. He joined Lorus in
1999 through the merger with GeneSense Technologies Inc., where he was a
Research Scientist integrally involved in the development of GeneSense
oligonucleotide therapeutics program.
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.
COMMITTEE
INFORMATION
Audit
Committee
The
charter of our audit committee is attached as Schedule A. The current
members of the audit committee are J. Kevin Buchi, Denis Burger and Alan
Steigrod. Pursuant to Canadian securities laws, our board of
directors has determined that Messrs. Buchi, Burger and Steigrod 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 an audit committee “financial
expert”. Mr. Burger, in his previous position as Chairman and CEO of
AVI Biopharma, is educated and experienced in reading and analyzing financial
statements. Mr. Burger has also served on the audit committee
of three other publicly listed biotechnology companies. Mr. Steigrod has
experience with reading and analysing financial statements as President of his
own bio pharmaceutical consulting firm. 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
Auditor’s
Fees
The
total fees billed for professional services by KPMG LLP (our independent
auditors) for the years ended May 31, 2008 and 2007 are as follows:
|
|
2008
|
|
|
2007
|
|
Audit
Fees
|
|
$ |
308,000 |
|
|
$ |
330,000 |
|
Tax
Fees
|
|
$ |
4,000 |
|
|
$ |
8,500 |
|
Total
|
|
$ |
312,000 |
|
|
$ |
338,500 |
|
Audit
fees consist of the fees paid with respect to the audit of our consolidated
annual financial statements, quarterly reviews and accounting assistance and
fees for services associated with the filing of the management proxy circular in
May 2007 and other regulatory assistance. Tax fees relate to assistance provided
with 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
services were provided by KPMG LLP under a de minimus exemption for our
fiscal years ended May 31, 2008 and 2007.
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 Investor
Services Inc. at its principal office in the City of
Toronto.
MATERIAL
CONTRACTS
Other
than the agreements described below, we have not, during our financial year
ending May 31, 2008, entered into any material agreements other than contracts
in the ordinary course of business. Agreements completed prior to
July 10, 2007 are filed on SEDAR under Global Summit Real Estate and those
completed after July 10, 2007 are filed on SEDAR under Lorus.
1.
|
Exclusive
License Agreement dated April 8, 2008 between the Company and Zor
Pharmaceuticals LLC. See “Collaboration Agreements - Zoticon Bioventures
LLC”.
|
2.
|
Independent
Contractor Services Agreement dated April 8, 2008 between the Company and
Zor Pharmaceuticals LLC. See “Collaboration Agreements - Zoticon
Bioventures LLC”.
|
3.
|
Limited
Liability Company Agreement dated April 8, 2008 between the Company and
ZBV I, LLC. See “Collaboration Agreements - Zoticon Bioventures
LLC”.
|
4.
|
Tangible
Business Assets Transfer Agreement dated July 10, 2007 between Old Lorus
and Genesense under which Old Lorus transferred certain depreciable
property to Genesense, as contemplated in the plan of
arrangement.
|
5.
|
Antisense
Patent Transfer Agreement dated July 10, 2007 between the Company and
Genesense under which Genesense transferred certain Antisense patent
assets to the Company in exchange for a demand non-interest bearing
promissory note issued by the
Company.
|
6.
|
Virulizin
and Small Molecule Patent Assets Transfer Agreement dated July 10, 2007
between Old Lorus and Genesense under which Old Lorus transferred
Virulizin and Small Molecule Patent Assets to Genesense in consideration
for the issuance by Genesense of one common share of
Genesense.
|
7.
|
Prepaid
Expenses and Receivables Transfer Agreement dated July 10, 2007 between
Old Lorus and Genesense under which Old Lorus transferred certain prepaid
expenses and receivables to Genesense in exchange for the issuance by
Genesense of one common share of
Genesense.
|
8.
|
Share
Purchase Agreement dated July 10, 2007 under which Old Lorus transferred
all of the common shares of NuChem held by it to the Company at a price
equal to their fair market value in consideration for the issuance of a
demand non-interest bearing promissory
note.
|
9.
|
Share
Purchase Agreement dated July 10, 2007 under which Old Lorus transferred
all of the common shares of Genesense held by it to the Company at a price
equal to their fair market value in exchange for the assumption by the
Company of Old Lorus’ remaining liabilities and the issuance of a demand
non-interest bearing promissory
note.
|
10.
|
Share
purchase agreement dated July 10, 2007 under which the Company transferred
certain shares of Old Lorus held by it to 6707157 Canada Inc. in
consideration of a cash payment as specified in the plan of arrangement,
subject to payment and adjustment in accordance with such agreement and a
holdback to an escrow agreement.
|
11.
|
Indemnification
Agreement dated July 10, 2007 between Old Lorus and the Company. See
“Business of the Company - Financial Strategy - Plan of Arrangement and
Corporate Reorganization”.
|
12.
|
Escrow
Agreement between 6707157 Canada Inc, the Company and Equity Transfer
& Trust Company dated July 10, 2007 providing for an escrow amount
related to the plan of arrangement. See “Business of the Company -
Financial Strategy - Plan of Arrangement and Corporate
Reorganization”.
|
13.
|
Amended
and Restated Guarantee and Indemnity between GeneSense and TEMIC dated
July 10, 2007 reaffirming TEMIC’s guaranties and indemnities in respect of
TEMIC’s Debentures.
|
14.
|
Amended
and Restated Share Pledge Agreement between the Company and TEMIC dated
July 10, 2007 reaffirming the Company’s pledge of shares in its
subsidiaries in respect of TEMIC’s
Debentures.
|
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.
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, 2008. 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.
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 Company’s management information circular dated August 26,
2008 for the October 2, 2008 annual and special meeting of shareholders (the
“Circular”). Additional financial information is provided in our
financial statements and management’s discussion and analysis for the financial
year ended May 31, 2008 (the “2008 Financial Statements”). Copies
of:
|
•
|
the
2008 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, 2008;
|
|
•
|
this
annual information form and any document or the pertinent pages of any
document incorporated by reference in this annual information form;
and
|
|
•
|
any
other documents that are incorporated by reference into a short form
prospectus or preliminary short form prospectus otherwise not referred to
therein when our securities are in the course of a distribution pursuant
to a short form prospectus or a preliminary short form
prospectus,,
|
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-proliferative:
|
preventing
cell division
|
|
|
Ara-C:
|
chemotherapy
drug most commonly used in treatment of AML, chronic myeloid leukemia,
acute lymphoid leukemia and lymphomas
|
|
|
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
|
|
|
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.
Also called complete remission.
|
|
|
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
|
|
|
Deoxyribonucleotides: |
a
nucleotide having a purine or pyrimidine base bonded to deoxyribose, which
in turn is bonded to a phosphate group.
|
|
|
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
Medicines 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
|
|
|
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
|
|
|
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)
|
|
|
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
|
|
|
Metastasis:
|
the
process by which tumor cells are spread to other parts of the
body
|
|
|
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
Analogs:
|
analogs
of CLT licensed by us for anticancer
indications
|
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
|
|
|
Pharmacodynamic:
|
the
division of pharmacology that studies the effects of drugs and their
mechanisms of action in the body.
|
|
|
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
|
|
|
ribonucleotide
reductase (RNR):
|
a
protein complex that converts ribonucleotide diphosphates (NDPs) into
corresponding deoxyribonucleotide diphosphates (dNDPs).
|
|
|
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.
|
|
|
siRNA:
|
a
short sequence of RNA that can decrease gene expression in a highly
specific manner (gene silencing).
|
|
|
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
|
|
|
Tumorigenesis:
|
the
process of initiation and progression of a tumor.
|
|
|
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:
|
1.
|
Serve
as an independent and objective party to oversee the integrity of the
Company’s financial reporting process, audits of the Company’s financial
statements and systems of internal controls regarding finance, accounting,
and legal compliance;
|
|
2.
|
Identify
and monitor the management of the principal risks that could impact the
financial reporting of the Company;
|
|
3.
|
Monitor
the independence and performance of the Company’s independent
auditors;
|
|
4.
|
Provide
an avenue of communication among the independent auditors, management, and
the Board; and
|
|
5.
|
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. The
Company shall also provide appropriate funding, as determined by the Audit
Committee, for payment of compensation to any external auditor engaged for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Company, and ordinary administrative expenses
of the Audit Committee that are necessary or appropriate in carrying out its
duties.
II.
|
COMPOSITION
AND MEETINGS
|
Audit
Committee members shall meet the requirements of the Canadian securities
regulatory authorities, United States securities laws and applicable stock
exchange requirements.
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 MI 52-110-Audit
Committees, U.S. 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,
including a balance sheet, income statement and cash flows statement and at
least one member of the Committee shall have accounting or related financial
management expertise and be “financially sophisticated” within the meaning of
applicable stock exchange rules.
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 and the external auditors at
least quarterly to review the Company’s financial statements.
III
|
RESPONSIBILITIES
AND DUTIES
|
|
1)
|
Maintain
a Charter that sets out the Audit Committees mandate and
responsibilities. Review and reassess the adequacy of this
Charter at least annually.
|
|
2)
|
Review
and discuss with management and the external auditors 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 minority
practices.
|
|
3)
|
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.
|
|
4)
|
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.
|
|
5)
|
The
Audit Committee is directly responsible for overseeing the work of the
independent auditors including the review of any disagreements among
management and the independent auditors in connection with financial
statements, and overseeing the resolution of any such
disagreements.
|
|
6)
|
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.
|
|
7)
|
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.
|
|
1)
|
The
independent auditors are 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:
|
|
1)
|
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;
|
|
2)
|
The
compensation of such external auditor;
and
|
|
3)
|
To
approve any discharge of such external auditors when circumstances
warrant.
|
|
2)
|
Pre-approve
all audit fees and terms and all permitted non-audit services (including
the fees and terms thereof) to be 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 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 Schedule “A”
hereto).
|
|
3)
|
On
an annual basis, the Audit Committee should review and discuss with the
external auditors all relationships they have with the Company that could
impair the auditors’ independence. In particular, the Audit Committee is
responsible for ensuring its receipt from the external auditors of a
formal written statement delineating all relationships between the
external auditors and the Company, consistent with applicable regulations,
actively engaging in a dialogue with the external auditors with respect to
any disclosed relationships or services that may impact the objectivity
and independence of the external auditors, and taking, or recommending
that the full Board take, appropriate action to oversee the independence
of the outside auditors.
|
|
4)
|
Review
the external auditors’ audit plan - discuss scope, staffing, locations,
reliance upon management and general audit
approach.
|
|
5)
|
Consider
the external auditors’ judgments about the quality and appropriateness of
the Company’s accounting principles as applied in its financial
reporting.
|
|
6)
|
Prior
to releasing the year-end results, discuss the results of the audit with
the external auditors. Discuss with management and the external
auditors matters required to be communicated to audit committees in
accordance with the standards established by the Canadian Institute of
Chartered Accountants.
|
|
7)
|
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.
|
|
8)
|
Review
and discuss quarterly reports from the external auditors
on:
|
|
i.
|
All
critical accounting policies and practices to be
used;
|
|
ii.
|
All
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the external auditor;
and
|
|
iii.
|
Other
material written communications between the external auditor and
management, such as any management letter or schedule of unadjusted
differences.
|
C. Ethical
and Legal Compliance
|
1)
|
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.
|
|
2)
|
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.
|
D. Whistle
Blowing
The
Audit Committee shall put in place procedures for:
|
1)
|
The
receipt, retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters;
and
|
|
2)
|
The
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing
matters.
|
E.
Other Audit Committee
Responsibilities
|
|
1)
|
Create
an agenda for the ensuing year.
|
|
2)
|
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 52-110F1.
|
|
3)
|
Submit
the minutes of all meetings of the Audit Committee to the
Board.
|
|
4)
|
Provide
any other disclosure required to be included with respect to the Audit
Committee or the Company’s securities law
filings.
|
Schedule
“A”
Non-Audit
Services Request Form
LORUS
THERAPEUTICS INC.
Non-Audit
Services Request Form
The
Audit Committee pre-approves all audit fees and terms and all permitted
non-audit services (including the fees and terms thereof) to be provided by the
independent auditor and considers 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
|
|
|
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
|
|
|
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