Milestone Pharmaceuticals Inc

1 Organization and Nature of Operations

Milestone Pharmaceuticals Inc. (Milestone or the Company) is a biopharmaceutical company incorporated under theBusiness Corporations Act (Québec). Milestone’s headquarters is currently located in Montréal (Québec), Canada. Our common shares began trading on The Nasdaq Global Select Market on May 9, 2019. Our common shares trade under the symbol “MIST”. Milestone is focused on the development and commercialization of cardiovascular medicines. Milestone’s lead product candidate, etripamil, is a novel, potent rapid-onset calcium channel blocker that the Company designed and is developing as a rapid-onset nasal spray to be administered by patients. The Company is developing etripamil to treat paroxysmal supraventricular tachycardia, atrial fibrillation, and other cardiovascular indications.

2 Summary of Significant Accounting Policies

a) Basis of Consolidation

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

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

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or “U.S. GAAP”, and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted or condensed. Accordingly, these unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2023.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of September 30, 2024, its statements of loss and shareholders’ equity for the three and nine months ended September 30, 2024 and 2023 and its statements of cash flows for the nine months ended September 30, 2024 and 2023.

The condensed consolidated balance sheet as of December 31, 2023, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

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

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

organizations, or “CMOs”, and clinical trial sites which in turn impact the research and development (R&D) expenses.

c) Significant Risks and Uncertainties

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

Further, the Company may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation, armed conflicts, and overall fluctuations in the financial markets in the U.S. and abroad.

d) Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board, or “FASB”, issued Accounting Standard Update, or “ASU 2023-07”, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the effect of adopting this new ASU on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, or “ASU 2023-09”. The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments also require entities on an annual basis to disclose disaggregated amounts of income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the effect of adopting this new ASU on its financial statement disclosures, but does not intend to early adopt.

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception and anticipates continuing to incur losses for the next several years. Further, in connection with the revised timeline for our New Drug Application, or “NDA”, submission, we took certain cash conservation measures to reduce spending through program deferrals and team restructuring. These cash conservation measures are substantially completed and have been partially offset by $1.1 million in termination benefits paid as a result of the team restructuring. As of September 30, 2024, the Company had cash, cash equivalents and short-term investments of $76.4 million and an accumulated deficit of $355.2 million. Management has evaluated the Company’s operating plan and future cash flow requirements against its existing cash and cash equivalents and short-term investments and determined that the Company expects to be able to support its operations for at least the next 12 months from the date of issuance of these unaudited interim condensed consolidated financial statements.

3 Revenues

The Company recordedno revenue for the three and nine months ended September 30, 2024. The Company recordedno revenue and $1.0 million in revenue for the three and nine months ended September 30, 2023, respectively. This revenue was the result of having reached a milestone pursuant to our License and Collaboration Agreement, dated May 15, 2021, with Corxel, formerly known as Ji Xing Pharmaceuticals Limited (such party “Ji Xing” and , such agreement, the “Ji Xing License Agreement”). For details on the arrangement with Corxel, see Note 3 to our audited consolidated financial statements for the year ended December 31, 2023, filed on Form 10-K.

4 Short-term Investments

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

As of September 30, 2024, $0.5 million in short-term investments were pledged as collateral for a letter of credit.

5** Debt**

On March 29, 2023, we closed the transactions contemplated by a note purchase agreement, or the “Note Purchase Agreement”, with RTW Investments LP and certain of its affiliates, or collectively, “RTW”, and issued and sold $50.0 million principal amount of 6.0% Convertible Senior Notes due 2029, or the “2029 Convertible Notes”, to the holders. For more details on the agreement with RTW, see Note 10 to our audited consolidated financial statements for the year ended December 31, 2023, filed on Form 10-K.

In accounting for the issuance of the Convertible Notes, the Company determined there were no embedded features, which require bifurcation between debt and equity components. As a result, the Convertible Notes are accounted for as a liability. As of September 30, 2024, the estimated fair value of the Convertible Notes was approximately $50.6 million based on level 2 inputs.

The net carrying amount of the Convertible Note were as follows:

The following table presents the total amount of interest cost recognized relating to the 2029 Convertible Notes:

6 Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the following:

7 Shareholders’ Equity

Authorized Share Capital

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 53,327,908 shares were issued and outstanding as September 30, 2024.

As of September 30, 2024, there were 1,798,766 common shares available for issuance under the Employee Stock Purchase Plan, or the “ESPP”, of which 1,503,030 are available for future purchases.

On February 28, 2024, we entered into an underwriting agreement, or the “Underwriting Agreement”, related to an underwritten public offering, or the “Offering”, of 16,666,667 of our common shares, without par value, at a public offering price of $1.50 per share and, in lieu of common shares to certain investors, pre-funded warrants to purchase 3,333,333 Shares at a public offering price of $1.499 per pre-funded warrant. Each pre-funded warrant has an exercise price of $0.001 per share. The pre-funded warrants were exercisable immediately upon issuance, subject to certain beneficial ownership limitations. Under the terms of the Underwriting Agreement, we granted the underwriters party thereto, or the “Underwriters”, an option to purchase up to an additional 3,000,000 common shares at the same price per share as the other common shares sold in the Offering, which was exercised by the Underwriters in full on February 29, 2024.

On March 22, 2023, the Company entered into an exchange agreement, or the “Exchange Agreement”, with entities affiliated with RTW, or the “Exchanging Stockholders”, pursuant to which the Company exchanged an aggregate of 1,059,000 shares of the Company’s common shares owned by the Exchanging Stockholders for pre-funded warrants, or the “Exchange Warrants”, to purchase an aggregate of 1,059,000 common shares, with an exercise price of$0.001 per share and no expiration date. The Exchange Warrants are exercisable immediately andno additional cash consideration was rendered in exchange for the warrants. A holder of the Exchange Warrants (together with its affiliates and other attribution parties) may not exercise any portion of an Exchange Warrant to the extent that immediately prior to or after giving effect to such exercise the holder, together with its affiliates, would beneficially own more than 9.99% of the Company’s outstanding common shares immediately after exercise, which percentage may be increased or decreased to any other percentage specified not in excess of 9.99% at the holder's election upon 61 days' notice to the Company subject to the terms of the Exchange Warrants.

8 Share Based Compensation

Stock Options

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

On January 1, 2024, the number of the Company’s common shares reserved for issuance under the 2019 Plan automatically increased by 1,339,324 common shares. In addition,125,323 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan. Further, since the adoption of the plan,561,000 of previously issued options were cancelled and were made available for future grants. As of September 30, 2024, there were 9,522,270 common shares available for issuance under the 2019 Plan, of which 1,015,575 common shares were available for future grants.

On November 10, 2021, the Company established a 2021 Inducement Plan, or the “Inducement Plan”, through the granting of awards. This 2021 Inducement Plan is intended to help the Company provide an inducement for certain individuals to enter employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and a means by which employees may benefit from increases in value of the common shares. As of September 30, 2024, there were 1,000,000 shares available for issuance under the 2021 Inducement Plan, of which 504,000 shares were available for future grants.

The total outstanding and exercisable standard options from the 2011 Plan, 2019 Plan and Inducement Plan as of and for the nine-month period ending September 30 were as follows (excluding performance stock options and performance share units):

The weighted average remaining contractual life was 6.6 and 7.5 years for outstanding options as of September 30, 2024 and 2023, respectively. The weighted average remaining contractual life was 6.0 and 6.4 years for vested options, as of September 30, 2024 and 2023, respectively.

There was $6.5 million and $13.2 million of total unrecognized compensation cost related to standard non-vested share options as of September 30, 2024 and 2023, respectively. The share options are expected to be recognized over a remaining weighted average vesting period of 1.6 years and 2.4 years as of September 30, 2024 and 2023, respectively.

Options granted are valued using the Black-Scholes option pricing model. This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity.

The non-vested options as of and for the nine-month period ending September 30 were as follows (excluding performance stock options and performance share units):

The fair value of standard options granted for the 2011 Plan, 2019 Plan and Inducement Plan were estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted (excluding performance stock options and performance share units):

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the U.S. sovereign rates benchmark in effect at the time of grant with a remaining

term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

Performance Stock Options

On May 6, 2024, the Company, pursuant to the 2019 Plan, awarded 924,000 performance stock options to employees. The performance stock options were granted “at-the-money” and have a term of 10 years.

The original grant-date fair value of each option was estimated on the date of grant using the same option valuation model used for the options outlined above. The original grant-date fair value of $1.4 million was determined using an expected volatility of 91%, term of 10 years, strike price of $1.74, and risk-free rate of 4.49%. Compensation expense for performance-based stock options is only recognized when management determines it is probable that the awards will vest.

The vesting of the performance-based stock options is conditional upon the U.S. Food and Drug Administration, or “FDA”, approval of etripamil. Subject to the optionholder’s continuous service as of each such date,50% of the option shares will vest on thesix-month anniversary of the approval date and the remaining 50% of the option shares will vest on theone-year anniversary of such approval date. The expense for the performance-based stock options is not recognized until the performance conditions are deemed probable of achievement. The Company did not record any expense related to the performance-based stock options during the three and nine months ended September 30, 2024 as the performance conditions were not deemed probable of being met. The weighted average grant date fair value of the performance stock options awarded during the nine months ended September 30, 2024, was $1.53 per option.

Employee Stock Purchase Plan

On July 15, 2022, the Company offered an ESPP, in which participation is available to our employees in the United States and Canada who meet certain service eligibility requirements. Eligible employees may authorize an amount up to 15% of their salary to purchase common stock at the lower of a 15% discount to the beginning price of the participation period or a 15% discount to the ending price of eachsix-month purchase interval. The ESPP also provides for an automatic reset feature to start participants on a newtwelve-month participation period in the event that the common stock market value on a purchase date is less than the common stock value on the first day of thetwelve-month offering period.

On January 1, 2024, the number of common shares reserved for issuance under the ESPP automatically increased by 334,831 shares. As of September 30, 2024, the Company has 1,798,766 common shares available for issuance under the ESPP, of which 295,736 shares of common stock have been issued. Compensation expense for purchase rights under the ESPP related to the purchase discount and the “look-back” option was determined using a Black-Scholes option pricing model.

Performance Share Units

On May 6, 2024, the Company, pursuant to the 2019 Plan, awarded 924,000 Performance Share Units, or “PSUs”, to employees. The PSUs vest subject to the satisfaction of certain performance conditions established by the Company’s Compensation Committee. The FDA approval of etripamil represents the performance condition for the vesting of these performance share units.

A summary of the Company’s PSU activity for the nine months ended September 30 is as follows:

The number of PSUs granted represents the total number of common shares that may be earned. However, the actual number of shares earned will be based on the satisfaction of the performance criteria. Upon satisfaction of the performance criteria,100% of the earned shares will vest. Stock-based compensation costs associated with these PSUs are reassessed each reporting period based on estimated performance achievement. The Company did not record any expense related to the PSUs during the three and nine months ended September 30, 2024 as the performance conditions were not deemed probable of being met. The weighted average grant date fair value of the PSUs granted during the nine months ended September 30, 2024 was $1.74.

Share-based Compensation Expense

The Company recognized total share-based compensation expense for all plans as follows:

9 Net Loss Per Share

Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period. In addition to the conversion feature on the 2029 Convertible Notes described above, which the Company reviewed and concluded that if-converted would be anti-dilutive due to the facts surrounding the feature, the following potentially dilutive securities have also been excluded from the computation of diluted weighted average shares outstanding as of September 30, as they would be anti-dilutive:

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

On March 27, 2023, we entered into a purchase and sale agreement, or the “Royalty Purchase Agreement”, with RTW.

Pursuant to the Royalty Purchase Agreement, RTW agreed to purchase, following the FDA approval of etripamil (subject to certain conditions), in exchange for a purchase price of $75.0 million, the right to receive a tiered quarterly royalty payments, or the “Royalty Interest”, on the annual net product sales of etripamil in the United States in an amount equal

to: (i)7%, or the “Initial Tier Royalty”, of annual net sales up to $500 million, (ii)4% of annual net sales greater than $500 million and less than or equal to $800 million, and (iii)1% of annual net sales greater than $800 million. If certain revenue thresholds for aggregate annual net sales are not met, the Initial Tier Royalty will increase to 9.5% beginning on January 1 of the following calendar year until a subsequent sales threshold is attained, at which time the Initial Tier Royalty would revert back to 7%.

Based on the Company’s assessment of the terms and conditions under the Royalty Purchase Agreement, there is no accounting recognition required in these interim financial statements.

11 Other** receivables**

Other receivables comprised of the following:

For the year ended December 31, 2023, the Company recognized a clinical receivable of $2.4 million for upfront payments made to CROs, which was received during the nine-months ending September 30, 2024.