Quantum Biopharma Ltd. annual report, Q4 FY2022

FSD Pharma Inc. — Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2022, with comparative years ended December 31, 2021 and 2020. The filing identifies the registrant as FSD Pharma Inc., not Quantum Biopharma Ltd.; the company name in the request does not match the filing text. Financial statements are audited and prepared under IFRS in U.S. dollars.

Business context

FSD is an early-stage biotechnology company with no commercialized pharmaceutical products or product revenue. Its principal candidates are FSD-PEA, Lucid-MS and Lucid-PSYCH. The company exited cannabis operations, surrendered its cannabis licenses in 2020, and completed the sale of its former Cobourg facility and property on May 6, 2022. A new strategic-investments subsidiary began making real-estate-secured loans during 2022.

Financial performance and position

Metric20222021Change
Revenue from continuing operationsNone reportedNone reportedNo commercial product revenue
Operating expensesUS$27.4 millionUS$33.7 millionDown US$6.3 million
Net loss from continuing operationsUS$26.7 millionUS$33.9 millionLoss narrowed US$7.2 million
Net lossUS$23.6 millionUS$35.3 millionLoss narrowed US$11.7 million
Cash used in operating activitiesUS$28.3 millionUS$20.7 millionUse increased US$7.6 million
Cash and cash equivalentsUS$17.0 millionUS$35.3 millionDown US$18.3 million
Total assetsUS$38.4 millionUS$63.0 millionDown US$24.6 million
Shareholders’ equityUS$30.5 millionUS$54.1 millionDown US$23.6 million

Basic and diluted loss per share from continuing operations was US$0.69 in 2022 versus US$0.97 in 2021. Basic and diluted loss per share from discontinued operations was US$0.08 in 2022 versus a loss of US$0.04 in 2021.

Research and development-related expenses included US$6.9 million of external research and development fees. General and administrative expense was US$14.5 million, share-based compensation was US$1.5 million, and depreciation and amortization was US$4.5 million. The filing does not present a meaningful operating margin because the company had no revenue.

Liquidity, debt and capital resources

  • Cash declined primarily because US$28.3 million was used in operations, partially offset by US$12.7 million of proceeds from the Cobourg property sale.
  • The company held US$7.4 million of finance receivables at year-end from loans secured by first collateral mortgages, generally issued at up to 55% of appraised property value.
  • Current liabilities were US$7.8 million, including US$7.1 million of trade and other payables, US$0.3 million of notes payable and US$0.2 million of lease obligations.
  • The company reported no long-term debt. Notes payable assumed in the Prismic acquisition are due on demand.
  • The company repurchased and cancelled 1,999,800 Class B shares for approximately C$2.4 million, or about C$1.20 per share, under its 2022 normal-course issuer bid.
  • Management states that additional financing may be required to fund research, clinical trials and operations. The filing provides no clear quantified cash-runway estimate.

Material changes versus the prior period

  • The Cobourg facility and property sale generated gross proceeds of C$16.4 million and a recognized gain of US$4.25 million, reported in discontinued operations.
  • Strategic Investments generated US$0.18 million of interest income and held US$7.4 million of secured finance receivables at year-end.
  • Operating expenses decreased, driven in part by lower professional, consulting and share-based compensation expenses, although operating cash use increased because of the finance-receivable investments and working-capital movements.
  • The company cancelled 2.82 million options and issued an equal number of performance share units. Of those PSUs, 400,000 vested after the FSD-PEA Phase 2 trial received required regulatory clearance; the remaining PSUs vested after submission of the Lucid-MS Phase 1 application in January 2023.
  • Outstanding Class B shares declined from 40.45 million at December 31, 2021 to 38.50 million at December 31, 2022, primarily because of the share repurchase and cancellation activity.

Development status, outlook and risks

  • FSD-PEA received FDA and Health Canada clearance in September 2022 for a Phase 2 trial targeting chronic pain associated with idiopathic mast-cell activation syndrome; the trial began in January 2023.
  • Lucid-MS remained preclinical at year-end. Health Canada clearance to begin a Phase 1 trial was received in February 2023, after the reporting period.
  • Lucid-PSYCH remained in preclinical and Phase 1-enabling development. Australian ethics approval for a Phase 1 trial was received in March 2023, after year-end.
  • The company expects continued losses and negative operating cash flow until regulatory approval and commercialization of a product, if ever. It has no stated revenue or profitability guidance.
  • Key risks include clinical and regulatory failure, controlled-substance restrictions for Lucid-PSYCH, dependence on third-party research and manufacturing organizations, single-source supply arrangements, intellectual-property challenges, difficulty obtaining additional capital, potential dilution, litigation, Nasdaq listing compliance and substantial share-price volatility.
  • The company disclosed ongoing disputes, including arbitration with Syneos regarding clinical-trial services and court proceedings involving former CEO Raza Bokhari. The Bokhari arbitration claim was dismissed, but a set-aside application and enforcement proceedings remained pending. The CRO arbitration outcome was not determined at filing.
  • The company believes it may have been a passive foreign investment company for U.S. tax purposes in 2022 and may remain one in future years, which could create adverse tax consequences for U.S. holders.

Investor verification checklist

  • Confirm that the filing relates to FSD Pharma Inc. and not Quantum Biopharma Ltd., and verify the correct issuer, ticker and reporting period.
  • Reconcile the US$17.0 million year-end cash balance with ongoing operating cash burn and expected clinical-trial expenditures.
  • Review the full MD&A for management’s liquidity assessment, financing plans and any going-concern discussion not included in the supplied filing text.
  • Verify the scope, enrollment, endpoints, timing and costs of the FSD-PEA, Lucid-MS and Lucid-PSYCH clinical programs.
  • Assess the recoverability and risk concentration of the US$7.4 million real-estate-secured finance receivables.
  • Review the status, provisioning and potential exposure from the Syneos arbitration and remaining Bokhari proceedings.
  • Quantify potential dilution from 6.48 million outstanding warrants, 418,529 options and 2.42 million PSUs outstanding at December 31, 2022, together with post-year-end issuances.
  • Confirm continued Nasdaq compliance and the effect of the dual-class share structure, under which Class A shares carry 276,660 votes per share.