PureTech Regulatory News (PRTC)

11 September 2018

PureTech Health plc - Half-Year Report

Significant momentum across the Affiliates and Internal divisions, including two FDA filings, a NASDAQ IPO, financings, clinical readouts, and a multiyear collaboration with Roche

Solid financial position provides PureTech Health with a strong platform for continued growth

PureTech Health plc (LSE: PRTC) ("PureTech Health," "PureTech," or "the Company"), an advanced biopharmaceutical company, today announces its half-yearly results for the six months ended 30 June 2018.

PureTech Health, which is comprised of PureTech Health plc and its subsidiaries (together, "the Consolidated Group"), and its deconsolidated affiliates (together, "the Group"), is developing novel medicines for dysfunctions of the Brain-Immune-Gut (BIG) axis. The Company has developed deep insights into the connection between the individual components of these systems and the resulting role in many chronic diseases, which have proven resistant to established therapeutic approaches. By harnessing this emerging field of human biology, PureTech Health is developing new categories of medicines with the potential to have great impact on people with serious diseases.

PureTech Health is advancing a rich pipeline of innovative therapies across two divisions: the Affiliates division (inclusive of deconsolidated affiliates) and the Internal division. Its Affiliates division includes two product candidates that have been filed with the US Food and Drug Administration (FDA) for review and several other novel clinical and pre-clinical programmes. These affiliates are developing highly innovative platforms and therapeutic candidates in collaboration with some of the world's leading experts.

PureTech's Internal division (named Ariya) is advancing a pipeline fuelled by recent discoveries in lymphatics and immune cell trafficking to modulate disease in a tissue-specific manner. These programmes leverage the transport and biodistribution of various immune system components for the targeted treatment of diseases with major unmet needs, including cancers, autoimmune and neuroimmune disorders.

Operational Highlights

PureTech Health has made significant progress across its Affiliates division.

PureTech Health is also advancing several programmes within its Internal division. To date, four of these programmes have been announced. Key developments are as follows:

The Consolidated Group continued to build its leading IP position, with more than 500 owned and licensed patents and patent applications. Key newly issued IP includes two patents issued in the US and Australia broadly covering methods of detecting physical and psychological conditions through vocal biomarker technology (Sonde), and two patents issued in the US broadly covering compositions of matter and other aspects of inflammation-targeting microfiber materials with embedded molecules of interest (Alivio).

The Consolidated Group also further strengthened its leadership with the additions of Joep Muijrers, PhD, as Chief Financial Officer of PureTech Health; Steven Paul, MD, as Chief Executive Officer and Chairman of the Board of Karuna (post-period); Harry Leider, MD, MBA, as Chief Medical Officer of Gelesis; Edward J "Tad" Stewart as President and Chief Executive Officer of Commense; Paul Fonteyne, MBA, to the Gelesis Board of Directors; and Thai Lee, MBA, to the Sonde Board of Directors .

Upcoming Milestones (next 12 months)

Over the next 12 months, the Group anticipates reaching several key milestones:

Financial Highlights

1) Group Cash Reserves is an alternative performance measure (APM) which includes cash reserves held at deconsolidated affiliates of $187.7 million that are not included in the consolidated statement of financial position. Group Cash is therefore considered to be more representative of the Group's cash available to advance product candidates within the full breadth of its operations, as the cash held at deconsolidated affiliates not included in Consolidated Cash Reserves will be invested in activities that could ultimately result in value accretion for the Group.

2) Cash reserves includes cash balances, short-term investments, and long-term investments, but does not include future committed tranches of previously closed financings which will be received in future periods.

3)  Based on GBP:USD rates at the time of the announcement of the offering of 1.3885

4) Stated before the effect of non-cash charges, including share-based payments of $3.8 million (30 June 2017: $7.1 million), depreciation of $0.9 million (30 June 2017: $0.8 million), amortisation of $0.1 million (30 June 2017: $0.2 million), impairment of tangible assets of nil (30 June 2017: $0.5 million), Finance income/(cost) - fair value accounting income of $11.1 million (30 June 2017 - cost of $4.7 million), Finance costs - subsidiary preferred shares of $0.1 million (30 June 2017 - $6.1 million), non-cash Gain on deconsolidation of subsidiary of $41.7 million (2017 - nil), non-cash Gain on the Disposal of Assets of $4.0 million (2017 - nil), Loss on investments held at fair value of $14.3m (2017 - nil), and Share of net loss of associates accounted for using the equity method of $7.0 million (2017 - nil).

Commenting on PureTech's half-yearly results, Daphne Zohar, Co-Founder and Chief Executive Officer of PureTech Health, said:

"This has been an exciting and fast-paced first half for PureTech Health, with several material advances and milestones reached in our Affiliates division, including two FDA filings, a NASDAQ IPO, significant pipeline progress, and multiple financings. We also unveiled our Internal division with a focus on lymphatics and immune cell trafficking and announced a multiyear collaboration with Roche in the post-period for a therapeutic application of one of those internal programmes.

"With an additional $100 million in funds raised and the significant progress made across both divisions, we are well-placed to execute on our mission to make a difference in human health and generate value for our shareholders."

Also commenting on PureTech's half-yearly results, Joep Muijrers, PhD, Chief Financial Officer of PureTech Health, said:

"With $416.9 million in group cash reserves at the period end, of which $196.7 million is held at the PureTech Health parent level, PureTech Health is in a strong position to execute on its business strategy and generate significant value across its Affiliates and Internal divisions."

For more information, please contact:

For more information, visit www.puretechhealth.com or connect with PureTech Health on Twitter and LinkedIn.

This half-yearly results release may contain forward-looking statements. These statements reflect the Board's current view, are subject to a number of material risks and uncertainties and could change in the future. Factors that could cause or contribute to such changes include, but are not limited to, the general economic climate and market conditions, as well as specific factors relating to the financial or commercial prospects or performance of PureTech's business units. Throughout this half-yearly results release, PureTech's ownership interests in operating companies are calculated on a diluted basis, including issued and outstanding shares, options and warrants, written commitments to issue options to purchase shares and shares to be issued upon closing of tranched financings, but excluding unallocated shares authorised to be issued pursuant to equity incentive plans and any shares issuable upon conversion of outstanding convertible promissory notes.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

Interim Management Report

Introduction

PureTech Health was founded with a vision to advance breakthrough science into promising new medicines for patients. Each programme was housed in an independent corporate entity, and cash was raised as needed from internal resources and validating third-party investors. Over the years, the Group has successfully executed against this vision by progressing new categories of medicine for dysfunctions of the BIG Axis through human proof-of-concept to regulatory review for approval. At the same time, the Group has also forged strategic relationships with major pharmaceutical companies and leading academic scientists and institutions. All of this has been achieved in a capital-efficient manner while maintaining significant ownership in each entity.

PureTech's proven track record has resulted in deep intellectual insights and financial resources that now support two paths for the advancement of new medicines. The first path is through the Affiliates division, which includes two product candidates that have been filed with the US FDA for review, as well as multiple other product candidates that have demonstrated clinical proof-of-concept. The Affiliates division has access to various avenues of funding to fuel the affiliates' continued growth, including potential private rounds of equity financing, IPOs, strategic transactions and industry partnerships at the global or regional levels. PureTech's advantageous position of having significant ownership in the Affiliates division creates near- to mid-term value as well as a source of non-dilutive funding at the parent company level.

The second path is through PureTech's newly formed Internal division, which is advancing internal research and development projects around lymphatics and immune cell trafficking. Derived from PureTech's deep understanding of the BIG Axis, these programmes are focused on novel therapeutic approaches for diseases with major needs, including cancers, autoimmune diseases and neuroimmune disorders. To date, PureTech Health has announced four of the programmes that have been consolidated into this Internal division, including two programmes that allow the administration of therapeutics directly into the lymphatic system and a programme enabling the modulation of lymphocyte trafficking and function (formerly known as Glyph, Calix, and Nybo), as well as the recently announced CNS lymphatics technology, which equity investors can access through shareholding on a PureTech Health parent company level.

PureTech's two divisions are connected through a shared focus on the BIG Axis and a mission to address some of the greatest medical needs. Together with a seasoned management team, an outstanding Board and leading scientific advisors, the Company has made excellent progress in 2018 towards executing on this vision.

A selection of notable developments across a few of the Company's Affiliates and Internal programmes follows below.

Notable Developments

Affiliates division

PureTech's Affiliates division continues to reach key development milestones, with many additional catalysts anticipated. Notably, deconsolidated affiliate Akili filed its lead product candidate, AKL-T01, with the US FDA for review. AKL-T01 is designed to be prescribed by physicians as a stand-alone treatment for children and adolescents with ADHD. If approved, AKL-T01 would be the first prescription digital treatment for paediatric ADHD.

AKL-T01 is just one of several product candidates across Akili's pipeline that employs its patented technology platform. A number of other digital treatments are in development across neurology and psychiatry, including in major depressive disorder (MDD), multiple sclerosis (MS), autism spectrum disorders and various other conditions. By the end of 2018, Akili expects results from both a Phase 2 study in MDD and a pilot study in MS.

To support this robust pipeline of prescription digital treatment candidates, Akili announced a $55 million financing round in May, and in the August 2018 post-period, Akili announced a $13 million extension of the financing, bringing the total round to $68 million.

Gelesis has also filed its lead product candidate, Gelesis100, with the US FDA for review. Gelesis100 is a new approach to weight loss that is designed to employ multiple mechanisms of action along the gastrointestinal (GI) tract to promote satiety, induce weight loss and promote GI health. In September 2017, Gelesis reported positive topline results from a pivotal trial of Gelesis100. Additional data from this study will be presented in November 2018 at ObesityWeek, the joint annual meetings of the American Society for Metabolic & Bariatric Surgery (ASMBS) and The Obesity Society (TOS).

The Gelesis mechanobiology platform also supports additional product candidates, including Gelesis200, which is currently being evaluated in a proof-of-concept study for weight loss and glycaemic control in patients with type 2 diabetes (T2DM) and prediabetes. Results from this study are expected in 2019. Additional hydrogel compositions based on the platform are being explored in other GI-related conditions such as NAFLD, NASH and intestinal mucositis. A proof-of-concept study in NASH/NAFLD is anticipated to begin in late 2018 or early 2019.

In March 2018, Gelesis announced that it had closed a $30 million financing round to support commercial-stage manufacturing, product launch preparations, company operations and clinical advancement of this broad pipeline. The funds from this financing will be drawn down by Gelesis at its discretion.

Deconsolidated affiliate resTORbio announced the pricing of its IPO on NASDAQ in January 2018, raising gross proceeds of $97.8 million. In the July 2018 post-period, resTORbio announced positive topline results from its dose-ranging Phase 2b clinical trial in elderly patients at increased risk of morbidity and mortality associated with respiratory tract infections (RTIs). In this trial, RTB101, an oral, selective, and potent inhibitor of TORC1, demonstrated a statistically significant and clinically meaningful reduction in the percentage of patients with one or more laboratory-confirmed RTIs during the 16-week treatment period compared to placebo, the primary endpoint of the study, with the 10 mg once daily dose. Greater TORC1 inhibition with RTB101 10 mg in combination with everolimus 0.1 mg did not meet the primary endpoint, suggesting that less TORC1 inhibition with RTB101 10 mg once daily may have greater benefit in high-risk elderly patients. A pre-specified analysis of patient subgroups resulted in the following decreases in the percentage of patients with laboratory-confirmed RTIs in the RTB101 10 mg once daily cohort as compared to the placebo cohort: 68.4 percent decrease in all asthma patients (p=0.0002); 66.7 percent decrease in all patients 85 years of age and older (p=0.007); and 26.9 percent decrease in all T2DM patients (p=0.020). Additionally, a 42.0 percent decrease in all patients was observed when excluding patients with chronic obstructive pulmonary disease (COPD) (p=0.002) and a 43.9 percent decrease in all patients was observed when excluding current smokers (p=0.001). No decrease was observed in either COPD patients or current smokers. All doses were observed to be well-tolerated.

Based on these results, resTORbio plans to initiate a Phase 3 study in 2019, and additional 24-week data from the Phase 2b study will be released in the second half of 2018. The company also plans to initiate a proof-of-concept study in a second indication in late 2018 or early 2019.

Karuna has made significant progress towards the initiation of a Phase 2 study in schizophrenia with its proprietary product candidate, KarXT. The company successfully completed development of a co-formulation of xanomeline and trospium chloride and anticipates initiation of the Phase 2 study in the third quarter of 2018. To support these efforts, Karuna announced the completion of a $42 million Series A financing round, including the issuance of $22 million in shares upon conversion of debt into equity, in the August 2018 post-period. The proceeds will also be used to expand Karuna's platform into other therapeutic areas, including non-opiate-based pain management. Karuna also expects to initiate a proof-of-concept clinical study for an additional indication in 2019.

Vedanta Biosciences has rapidly advanced its pipeline of rationally-defined bacterial consortia-based product candidates and expects to report results in the second half of 2018 from a Phase 1a/1b clinical trial for VE303, its lead, orally-administered candidate for the treatment of recurrent C. difficile infection (rCDI). A Phase 2 study is planned for the second half of 2018. Also, in the second half of the year, Vedanta Biosciences expects the initiation of two additional clinical studies: a Phase 1a/b in inflammatory bowel disease (VE202, in collaboration with Janssen Biotech, Inc.) and a Phase 1b/2 in food allergy (VE416). Vedanta Biosciences also plans to submit an investigational new drug (IND) application for its lead immunotherapy candidate, VE800, in the first quarter of 2019.

In the July 2018 post-period, Vedanta Biosciences announced a financial award from the Crohn's & Colitis Foundation, a non-profit organisation dedicated to finding the cures for Crohn's disease and ulcerative colitis, to advance a new microbiome-derived therapeutic programme for the treatment and potential interception of IBD. This new IBD programme, which is outside of the scope of the partnership with Janssen, aims to target pathogenic bacterial strains that are particularly abundant in Crohn's disease and may lead to the onset of IBD. The programme is being advanced in collaboration with Dr Kenya Honda, MD, PhD, Professor, Keio University School of Medicine and a scientific co-founder of Vedanta Biosciences.

In April 2018, a preclinical study of Alivio's inflammation-responsive technology was published in Nature Communications. The study showed that an immunomodulatory drug, administered locally using the Alivio inflammation-responsive technology, substantially reduced measures of arthritis disease activity. By the last day of the study (day 14), the Alivio technology had reduced nearly all of the inflammation in the affected tissue, with a 5.7-fold improvement in the clinical score vs control, as compared to only 1.4-fold for the free drug. These findings further support Alivio's proprietary therapeutics platform and provide proof-of-concept for the potential application of the technology in inflammatory arthritis.

Additionally, the United States Patent and Trademark Office granted two key patents broadly covering the Alivio platform. The patents broadly cover compositions of matter and other aspects of the inflammation-targeting microfiber materials with embedded molecules of interest and lay a strong foundation to expand the intellectual property portfolio for this technology platform.

Sonde has advanced its vocal biomarker technology, which has demonstrated the potential to effectively screen and monitor for disease using information obtained from an individual's voice on commonly-owned devices. Sonde's made its scaleable cross-platform mobile research app and administrator interface available to academic collaborators and study participants. Sonde generated and analysed voice data from over 3,000 subjects for the detection of depression, suicidality and Parkinson's disease. Sonde has also initiated research and development to expand its proprietary technology in Alzheimer's disease, respiratory and cardiovascular disease and other health and wellness conditions.

Follica has made good progress towards the initiation of a pivotal study in androgenetic alopecia. The completion of an optimisation study is anticipated in the first quarter of 2019 and a pivotal study is expected to begin shortly thereafter in the first half of 2019.

Internal division

PureTech Health has also been advancing internal research and development projects around lymphatics and immune cell trafficking for the past two years. These programmes leverage the transport and biodistribution of various immune system components for the targeted treatment of diseases with major unmet needs, including cancers, autoimmune diseases and neuroimmune disorders. This work has reached an inflection point, generating compelling preclinical data and key intellectual property, so it has been consolidated into a separate Internal division. To date, four of the programmes within this Internal division have been announced, including two programmes that allow the administration of therapeutics directly into the lymphatic system and a programme enabling the modulation of lymphocyte trafficking and function (formerly known as Glyph, Calix, and Nybo)

In the July 2018 post-period, PureTech Health announced a multiyear collaboration with Roche to advance one of these programmes - a milk exosome-based technology designed to facilitate the oral administration of complex payloads such as nucleic acids, peptides and small molecules into the lymphatic system. Under the terms of the agreement, PureTech Health will receive up to $36 million, including upfront payments, research support and early preclinical milestones, to advance this technology for the oral administration of Roche's LNA antisense oligonucleotide platform. PureTech Health is also eligible to receive development milestone payments of over $1 billion, in addition to sales milestones and royalties.

Also in the July 2018 post-period, the foundational science that underlies the Company's internal CNS lymphatics technology was published as the cover story in the prestigious scientific journal Nature. The publication revealed that modulation of lymphatic function in the brain may prevent or delay diseases associated with aging, including Alzheimer's disease, Huntington's disease and age-associated cognitive decline. The approach is based on the work of PureTech Health collaborator Jonathan Kipnis, PhD, Harrison Distinguished Teaching Professor and Chair, Department of Neuroscience, and Director, Center for Brain Immunology and Glia, at the University of Virginia (UVA) School of Medicine. Exclusively licensed from the UVA Licensing & Ventures Group, the technology will be developed by PureTech Health in collaboration with Dr Kipnis to potentially address debilitating and devastating CNS disorders.

People

PureTech Health and its affiliates continue to attract top talent at all levels across the organisation and has added more than 35 full-time team members in the first half of 2018 (excludes new hires at deconsolidated affiliates, Akili and resTORbio) to support the ongoing clinical and preclinical development within the Affiliates and Internal divisions.

The Company has also grown its leadership team with the appointment of Joep Muijrers, PhD, as Chief Financial Officer. Dr Muijrers joined PureTech Health after 11 successful years as a Partner and Portfolio Manager at LSP (Life Sciences Partners), a leading trans-Atlantic investor group with exclusive focus on life sciences. Dr Muijrers brings two decades of experience in corporate and capital finance, specifically focused on public market investment, M&A, portfolio management, strategic asset allocation, financial and regulatory reporting and fundraising. In his previous role at LSP, Dr Muijrers was responsible for investing in publicly-traded life sciences companies, a strategy that generated a total return in excess of 900 percent during the past decade, more than twice the return of the Nasdaq Biotechnology Index during the same period. Prior to joining LSP, Dr Muijrers served as Director Corporate Finance and Capital Markets at Fortis Bank, currently part of ABN AMRO. 

At the end of August 2018, the team bid farewell to Chief Innovation Officer, David Steinberg, who has been with PureTech Health since founding and has made important contributions to the Group. PureTech Health will not be seeking a replacement and Mr Steinberg's responsibilities across the two divisions will be covered by PureTech's Chief Scientific Officer, Joe Bolen, PhD, and PureTech's Chief of Research and Strategy, Eric Elenko, PhD. Steinberg will remain an esteemed member of the Company's collaborator network and the Company thanks him for all of his contributions.

PureTech Health affiliates have also welcomed distinguished leaders to their teams and boards, including:

Financial review

In the first half of 2018, PureTech Health continued to prudently deploy its cash reserves to advance both its affiliate and internal pipeline. The Company has progressed research and clinical activities across the pipeline in line with its forecasted expectations and continues to invest in infrastructure to support the potential launches (pending regulatory approval) of both Gelesis100 for the treatment of obesity and AKL-T01 for the treatment of paediatric ADHD.

Additionally, the Company continued to attract capital both at PureTech Health and the Affiliates division. $97.5 million (net) proceeds were raised at the PureTech Health level as part of the April Offering which will be used to advance both the Affiliates and Internal divisions. In addition to the PureTech raise, $187.0 million was attracted from third party, validating financial and strategic investors across the Group in the first half of 2018, resulting in total attracted capital for the Group of $284.5 million. This included resTORbio's Initial Public Offering (IPO), which generated $97.8 million of proceeds (including PureTech's $3.5 million investment).

1) Group Cash Reserves is an alternative performance measure (APM) which includes cash reserves held at deconsolidated affiliates of $187.7 million that are not included in the consolidated statement of financial position. Group Cash is therefore considered to be more representative of the Group's cash available to advance product candidates within the full breadth of its operations, as the cash held at deconsolidated affiliates not included in Consolidated Cash Reserves will be invested in activities that could ultimately result in value accretion for the Group.

2) Cash reserves includes cash balances, short-term investments and long-term investments, but does not include future committed tranches of previously closed financings which will be received in future periods.

3) Adjusted Operating Expenses and Operating Loss are alternative performance measures (APM) which represents the Operating loss stated before the effect of non-cash items, including a share-based payment of $3.8 million (30 June 2017: $7.1 million), depreciation of $0.9 million (30 June 2017: $0.8 million), amortisation of $0.1 million (30 June 2017: $0.2 million) and impairment of tangible assets of nil (30 June 2017: $0.5 million). Non-cash items are excluded due to the fact that the Group's businesses require the cash investment in order to operate and continue with their R&D activities. Adjusted Operating Loss is therefore considered to be an appropriate alternative performance measure, as it is more representative of the operating performance of the Group.

4) Adjusted Net Finance Income/(Cost) is an alternative performance measure (APM) which represents the Net finance income/(cost) stated before the effect of non-cash mark-to-market accounting including the Finance income/(cost) - fair value accounting income of $11.1 million (30 June 2017 - cost of $4.7 million), and Finance costs - subsidiary preferred shares of $0.1 million (30 June 2017 - $6.1 million).

5) Stated before the non-cash charges discussed in footnote 3 and 4 above, Adjusted Loss for the Period is also adjusted for the non-cash Gain on deconsolidation of subsidiary of $41.7 million (2017 - nil), the non-cash Gain on the Disposal of Assets of $4.0 million (2017 - nil), the Loss on investments held at fair value of $14.3 million (2017 - nil) and Share of net loss of associates accounted for using the equity method of $7.0 million (2017 - nil). Adjusted loss for the period is considered to be an appropriate alternative performance measure due to the exclusion of non-cash activity, as it is more representative of the operating performance of the Group.

Result of Operations

Revenue

Revenue in the first half of 2018 relates primarily to Vedanta's CARB-X grant award, Entrega's research collaboration with Eli Lilly, and deferred revenue recognition related to Entrega's collaboration with Google. Given that both the CARB-X award and Eli Lilly research collaboration were executed in the second half of 2017, they represent the majority of the increase in revenue compared to the first half of 2017. Future revenues may be earned under existing and new license and collaboration agreements (such as the Roche collaboration agreement which was executed in the second half of 2018) and may include non-refundable license fees. Management evaluates opportunities to enter new license and collaboration agreements with the aim of balancing the value of these partnerships and retaining ownership in our programmes to achieve meaningful milestones. Revenue from license and collaboration agreements during the development and approval period is typically driven by achievement of contractual milestones, which tend to be event-driven. Furthermore, grant revenues are typically associated with specific deliverables that have finite timelines. Therefore, significant period to period changes in revenue are to be expected and are not necessarily indicative of the Consolidated Group's overall revenue trend.

Operating expenses

Adjusted Operating Expenses (before the impact of the non-cash items noted in footnote 3 of the Results of Operations Schedule above) increased 7 percent on a year-over-year basis. The largest driver of the increase during the first half of 2018 related to an increase in General and Administrative spending, which is a result of the pre-launch preparations for Akili and additional costs related to Vedanta Biosciences as well as PureTech Health, which grew in line with expectations. Adjusted Research & Development Expense (APM)1 grew by 2 percent on a year-over-year basis.

The 2017 Adjusted Operating Expenses included resTORbio, which was deconsolidated as of November 2017, and six months of expense for Akili, which was deconsolidated as of 8 May 2018. Excluding these two entities in both periods, Adjusted Operating Expenses increased by 22 percent, which included a 25 percent increase to research and development expenses an 18 percent increase to general and administration costs. Research and development expense growth excluding these two subsidiaries was mainly driven by Vedanta Biosciences and the Internal division.

The Directors anticipate that operating expenses, particularly research and development-related expenses, will continue to increase as the Consolidated Group advances its pipeline. These operating expenses will include regulatory activities, preparation for the commercial launch of Gelesis, clinical and preclinical studies, intellectual property registration, and the cost of acquiring, developing, and manufacturing clinical study materials. General and administrative costs, consisting primarily of personnel-related costs, lease costs, and professional fees, are anticipated to grow as well, and are primarily attributed to both marketing and sales efforts for Gelesis as well as increases in overall corporate expenses.

1) Adjusted Research & Development Expenses is an alternative performance measures (APM) which represents the Research & Development Expense stated before the effect of non-cash items, including a share-based payment of $1.1 million (30 June 2017: $3.0 million), depreciation of $0.1 million (30 June 2017: $0.3 million), and impairment of tangible assets of nil (30 June 2017: $0.5 million). Non-cash items are excluded due to the fact that the Group's businesses require the cash investment in order to operate and continue with their R&D activities. Adjusted Research & Development Expense is therefore considered to be an appropriate alternative performance measure, as it is more representative of the research spending of the Group.

Net finance income/(cost)

The Consolidated Group's results of finance activities before consideration of the items noted in footnote 4 of the Results of Operations Schedule above, was a modest net finance income consistent with the prior year. The income in both periods is related to interest received on short-term investments held at PureTech Health and certain subsidiaries. The Consolidated Group, as described below, has adopted a conservative cash management policy and invested the significant cash reserves generated since the IPO in US Treasuries, which resulted in $1.4 million of income from interest earned on those securities.

On 1 January 2018 the Consolidated Group adopted IFRS 9. Under IFRS 9, the Consolidated Group reassessed certain financial instruments and whether it qualified for fair value accounting, and concluded that it did qualify. As a result of the adoption of IFRS 9, there was a cumulative effect adjustment to equity of $12.2 million. The net finance income in the first half of 2018 was mainly attributable to fair value adjustments associated with third-party financial instruments including preferred stock, convertible notes, and warrants held at the subsidiary level. Consistent with IAS 39, when the Consolidated Group realises a change in the value of the subsidiaries that are consolidated for accounting purposes, income or expense will be recognised when there are external preferred shareholders. The Consolidated Group continues to hold certain financial instruments at amortised cost, resulting in modest costs categorized as Finance cost - subsidiary preferred shares. These costs are expected to be insignificant in future periods.

The income generated within Finance income/(costs) - fair value accounting during 2018 is a result of the reduction of the fair value liability, which is primarily attributable to a decrease in the third-party liability for Akili. The third party liability attributable to the Akili shares decreased as a result of the Series C proceeds having first order liquidation preference, decreasing the fair value of the other outstanding preferred securities. Excluding Akili, the fair value of liabilities increased by $3.7 million, attributable to the growth in the underlying value of the subsidiaries.

The balance of subsidiary preferred stock held by external parties, and therefore the related balance of the aggregate liquidation preference, decreased during the first half of 2018 due to the deconsolidation of Akili and the asset sale of The Sync Project to Bose Corporation, which was partially offset by new issuances of Growth 2 Preferred Stock by Gelesis.

Refer to notes 9, 10, and 11 in the financial statements for more information.

Deconsolidation of Akili Interactive Labs

In May 2018, Akili completed the first closing of its Series C Preferred Stock financing, which resulted in PureTech's voting ownership percentage related to Akili reduced to 44.7 percent, triggering deconsolidation. Although PureTech Health does not control Akili, PureTech Health maintains significant influence over the company's strategy and the direction of the company by virtue of its large, albeit non-majority, ownership stake and continued representation on Akili's Board of Directors.

Upon deconsolidation, PureTech Health recognised the fair value of the Series A-1, Series A-2, and Series B Preferred Stock (collectively the "Akili Preferred Stock") held in Akili, resulting in a gain of $41.7 million. The Akili Preferred Stock was classified as an Investments held at fair value upon deconsolidation. Akili did not realise additional gains related to the growth in the fair value of the stock between the deconsolidation and 30 June 2018 given the short duration between the Series C financing and the reporting date. PureTech Health does not hold common stock in Akili and therefore is not subject to equity method accounting under IAS 28.

Subsequent to the period, on 9 August 2018, Akili completed a second closing of its Series C Preferred Stock financing, which raised an additional $13.0 million. This resulted in PureTech's voting ownership decreasing to 41.9 percent. PureTech Health will continue to account for the Akili Preferred Stock as an Investments held at fair value until such a time the Akili Preferred Stock is converted to common stock.

Refer to note 3 in the financial statements for further information.

Financial Position

1) Included in current liabilities are $202.4 million related to non-cash liabilities associated with the fair value of financial instruments held by third parties under IFRS 9 as of 30 June 2018, and $254.9 million related to non-cash liabilities related to the derivatives, warrants and preferred shares under IAS 39 at 31 December 2017.

2) Number do not add up due to rounding

Cash and short-term investments make up a significant portion of the Consolidated Group's current assets of $209.8 million. Amounts that cannot be immediately deployed have been used to purchase US Treasuries with durations of less than two years. The consolidated cash reserves, consisting of cash, cash equivalents and US Treasuries, which are classified as both long and short term, were $229.2 million at 30 June 2018 (31 December 2017 - $188.7 million). Of this amount, $196.7 million (31 December 2017 - $126.7 million) of cash reserves is held at the PureTech Health level to fund activities of the Group, including supporting future activities of the subsidiaries, progressing affiliate programmes toward meaningful milestone events, funding the internal pipeline, and maintaining an appropriate infrastructure.

Other significant items impacting the Consolidated Group's financial position include:

Cash Flows

As noted above, the Consolidated Group increased spending as expected, with increases in both research and development costs as well as general and administrative costs to support launch activities and corporate activities during the first half of 2018. The Directors anticipate that the Consolidated Group's funds will be sufficient to continue to progress both the deconsolidated affiliates and Affiliates division programmes to meaningful milestone events, invest in the Internal division through 2020 and to fund infrastructure costs through 2021. The Consolidated Group's net operating cash outflow reflects the payment of operating expenses which, with the exception of the non-cash charges highlighted in footnotes 3, 4, and 5 of the Results of Operations Schedule, are cash based. Offsetting operating cash inflows were primarily driven by interest earned on US Treasuries.

The net cash outflow from investing activities during the first half of 2018 relates to investments in US Treasuries with durations of less than two years as well as the deconsolidation of Akili's cash balance as of 8 May 2018 which totalled $13.4 million. In addition, PureTech Health invested $3.5 million in resTORbio's IPO and the Consolidated Group expended $2.0 million for property and equipment.

The net cash inflow from financing activities during the first half of 2018 primarily relates to the April 2018 Offering completed by PureTech Health, generating gross proceeds of £72 million (approximately $100 million based on exchange rates at the time of the announcement of the transaction). Existing shareholder, Invesco Asset Management Limited, participated in the Offering purchasing 14,365,000 ordinary shares at the placing price of 160 pence per share. Based on the exchange rates at the time of the completion of the transaction, the gross proceeds of £72 million translated into $101.2 million. There were approximately $3.7 million of transaction costs associated with the Offering, resulting in net proceeds of $97.5 million. In addition to the PureTech Offering, Gelesis received $8.5 million as part of their Series Growth 2 Preferred financing. Offsetting the two aforementioned cash inflows was an outflow of $1.1 million related to distribution to third-party Sync preferred shareholders as a result of the asset purchase by Bose Corporation.

The Consolidated Group is focused on maintaining liquidity as well as capital preservation of investments. As a result, surplus cash reserves have been placed in highly-rated, short duration vehicles, primarily US Treasuries with maturities under two years. The Consolidated Group monitors market conditions to manage any risk to the investment portfolio and investigates opportunities to increase the yield on the amounts invested, while maintaining the Consolidated Group's liquidity and capital preservation objectives. At 30 June 2018, the Consolidated Group had $1.9 million of cash reserves held in Euros. These cash reserves are used to fund the operation of Gelesis' Italian manufacturing and research and development subsidiary. The Directors believe it is prudent to have these cash reserves denominated in Euros to fund operations.

Principal Risks and Uncertainties

The principal risks and uncertainties surrounding the Group's business are set out in detail in the Risk Management section of the Strategic Report included in the 2017 Annual Report and Accounts. Those risks and uncertainties include, but are not limited to, the following factors:

Technical Risk: The science and technology being developed or commercialised by the Group's businesses may fail and/or the Group's businesses may not be able to develop their intellectual property into commercially-viable products or technologies. There is also a risk that certain businesses may fail or not succeed as anticipated, potentially resulting in significant decline of the Group's value.

Clinical Trial Risk: Clinical trials and other tests to assess the commercial viability of a product candidate are typically expensive, complex, and time consuming and have uncertain outcomes. Conditions in which clinical trials are conducted differ, and results achieved in one set of conditions could be different from the results achieved in different conditions or with different subject populations. If the Group's product candidates fail to achieve successful outcomes in their respective clinical trials, the products will not receive regulatory approval and in such event cannot be commercialised. In addition, if the Group fails to complete or experiences delays in completing clinical tests for any of its product candidates, it may not be able to obtain regulatory approval or commercialise its product candidates on a timely basis, or at all.

Regulatory Risk: The pharmaceutical industry is highly regulated. Regulatory authorities across the world enforce a range of laws and regulations which govern the testing, approval, manufacturing, labelling, and marketing of pharmaceutical products. Stringent standards are imposed which relate to the quality, safety, and efficacy of these products. These requirements are a major determinant of whether it is commercially feasible to develop a drug substance or medical device given the time, expertise, and expense which must be invested. The Group may not obtain regulatory approval for its products. Moreover, approval in one territory offers no guarantee that regulatory approval will be obtained in any other territory. Even if products are approved, subsequent regulatory difficulties may arise, or the conditions relating to the approval may be more onerous or restrictive than the Group expects.

Safety Risk: There is a risk of adverse reactions with all drugs and medical devices. If any of the Group's products are found to cause adverse reactions or unacceptable side effects, then product development may be delayed, additional expenses may be incurred if further studies are required, and, in extreme circumstances, it may prove necessary to suspend or terminate development. This may occur even after regulatory approval has been obtained, in which case additional trials may be required, the approval may be suspended or withdrawn, or additional safety warnings may have to be included on the label. Adverse events or unforeseen side effects may also potentially lead to product liability claims being raised against the Group as the developer of the products and sponsor of the relevant clinical trials.

Reimbursement and Commercial Risk: The Group may not be able to sell its products profitably if reimbursement from third-party payers such as private health insurers and government health authorities is restricted or not available because, for example, it proves difficult to build a sufficiently strong economic case based on the burden of illness and population impact. Third-party payers are increasingly attempting to curtail healthcare costs by challenging the prices that are charged for pharmaceutical products and denying or limiting coverage and the level of reimbursement. Moreover, even if the products can be sold profitably, they may not be accepted by patients and the medical community. Alternatively, the Group's competitors - many of whom have considerably greater financial and human resources - may develop safer or more effective products or be able to compete more effectively in the markets targeted by the Group. New companies may enter these markets and novel products and technologies may become available which are more commercially successful than those being developed by the Group.

Intellectual Property Risk: The Group may not be able to obtain patent protection for some of its products or maintain the secrecy of its trade secrets and know-how. If the Group is unsuccessful in doing so, others may market competitive products at significantly lower prices. Alternatively, the Group may be sued for infringement of third-party patent rights. If these actions are successful, then the Group would have to pay substantial damages and potentially remove its products from the market. The Group licenses certain intellectual property rights from third parties. If the Group fails to comply with its obligations under these agreements, it may enable the other party to terminate the agreement. This could impair the Group's freedom to operate and potentially lead to third parties preventing it from selling certain of its products.

Profitability Risk: The Group expects to continue to incur substantial expenditure in further research and development activities. There is no guarantee that the Group will become profitable, either through commercial sales, strategic partnerships or sales of a business, and, even if it does so, it may be unable to sustain profitability.

Personnel Risk: The Group operates in complex and specialised business domains and requires highly qualified and experienced management to implement its strategy successfully. The Group and many of its businesses are located in the United States which is a highly competitive employment market. Moreover, the rapid development which is envisaged by the Group may place unsupportable demands on the Group's current managers and employees, particularly if it cannot attract sufficient new employees. There is also risk that the Group may lose key personnel.

A copy of the 2017 Annual Report and Accounts is available on the Company's website at www.puretechhealth.com under "Investors - Reports & Presentations."

Condensed Consolidated Statement of Income/(Loss) and Other Comprehensive Income/(Loss)

For the Six Months Ended 30 June

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Statement of Financial Position

As of the Period Ended

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Statement of Changes in Equity

See accompanying notes to the condensed consolidated interim financial statements.

Condensed Consolidated Statements of Cash Flows

See accompanying notes to the condensed consolidated interim financial statements.

Notes to the Condensed Consolidated Interim Financial Statements

1. General Information

Reporting Entity

PureTech Health plc ("PureTech", "PureTech Health", the "Parent Company", or the "Company") is an advanced biopharmaceutical company developing novel medicines for dysfunctions of the Brain-Immune-Gut ("BIG") Axis. PureTech Health consists of the Parent and its subsidiaries (together, the "Group"). The Company's ordinary shares are admitted to the premium listing segment of the Official List of the U.K. Listing Authority and are traded on the Main Market of the London Stock Exchange.

PureTech Health has developed deep insight into the connection between the individual components of the BIG Axis and the resulting role in many chronic diseases, which represent the majority of healthcare spend and have proven resistant to established therapeutic approaches. By harnessing this emerging field of human biology, PureTech Health is developing new categories of medicines with the potential to have great impact on people with serious diseases.

The Group may obtain third party validation of its programmes through strategic collaboration, industry partnerships, and grants. Use of partnerships, grants, external debt, and to a lesser extent, equity investments in its subsidiaries enables the Group to distribute development and financial risk, while preserving significant equity ownership and control of its subsidiaries.

Basis of Preparation

These interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting and should be read in conjunction with the Group's last consolidated financial statements as of and for the year ended 31 December 2017. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial information included in the annual report and accounts as of and for the year ended 31 December 2017.

Subsidiaries are fully consolidated from the date of acquisition, or the date on which the Group obtains the power to control the company, and continue to be consolidated until the date when such control ceases. The financial information of the subsidiaries is prepared for the same reporting period as the Parent, using consistent accounting policies. All intra-group balances, transactions, and unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.

Associates are entities over which the group has significant influence but not control. Investments in associates are accounted for using the equity method of accounting. The investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the acquisition date. The group's investment in associates includes goodwill identified on acquisition.

Non-controlling interests (''NCI'') are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. If there is an obligation to deliver cash or other assets, the investment is classified as subsidiary preferred shares. Changes in the Group's interest in a subsidiary that does not result in a loss of control are accounted for as equity transactions.

The financial information presented in these half-yearly results has been prepared under the historical cost convention. The reporting currency adopted by the Company is US dollar ("$") as this is the functional currency of the majority of the entities in the group.

The Company has prepared trading and cash flow forecasts for the Group covering the period to 31 December 2020. After making enquiries and considering the impact of risks and opportunities on expected cash flows, the Directors have a reasonable expectation that the Group has adequate cash to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the half-yearly results.

The financial information contained in this half-yearly report does not constitute full statutory accounts as defined in Section 434 of the Companies Act 2006. The condensed consolidated financial statements are not audited and the results for the six months ended 30 June 2018 are not necessarily indicative of results for future operating periods.

These interim financial statements are unaudited and were approved by the Board of Directors and authorised for issue on 4 September 2018.

Use of Judgments and Estimates

In preparing these consolidated financial statements, management has made judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to estimates are recognised prospectively.

Significant judgments and estimates in determining the Fair Value of Financial instruments by the Group are made when determining the appropriate methodology for valuing the subsidiary companies and then in deriving the estimated fair value including making certain estimates of the future earnings potential of the businesses and determining the appropriate discount rate.

Significant judgment is also applied in determining the following:

Accounting Policies

The accounting policies applied by the Group in these half-yearly results are the same as those applied by the Group in its consolidated financial information in its 2017 Annual Report and Accounts, with the exception of the new standards the Group adopted as of 1 January 2018, included below.

Standards issued and adopted

IFRS 9, Financial Instruments

As of 1 January 2018, the Company adopted IFRS 9, Financial Instruments ("IFRS 9"), which replaced IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income ("FVOCI"), and fair value through the profit and loss statement ("FVTPL"). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the entity's business model and of the financial asset. Investments in equity instruments are required to be measured at FVTPL with the irrevocable option at inception to present changes in fair value in other comprehensive income. There is now a new expected credit losses model that replaces the incurred loss impairment model previously used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in Other Comprehensive Income/(Loss) for liabilities designated at FVTPL. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management uses for risk management purposes. Contemporaneous documentation is still required but is different than what was prepared under IAS 39.

The Group has applied IFRS 9 retrospectively but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy. The reclassification and adjustment arising from the adoption of the new accounting policy has been recognised in the opening balance sheet as of 1 January 2018.

The accounting policy that reflects the new accounting standard for IFRS 9 is effective from 1 January 2018 and is as follows:

Financial instruments

Classification

From 1 January 2018, the Group classifies its financial assets in the following measurement categories:

The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at FVOCI.

Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets are expensed and carried at FVTPL.

Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group's management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group's right to receive payment is established.

Changes in the fair value of financial assets at FVTPL are recognised in other gain/(loss) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

Impairment

The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

The Group has reviewed the financial assets and liabilities and determined the following impact from the adoption of the new standard:

Financial Assets

The Group reviewed the financial assets reported in its Consolidated Statements of Financial Position and completed an assessment between IAS 39 and IFRS 9 to identify any accounting changes. The financial assets subject to this review were: Cash and cash equivalents, US Treasuries, Certificates of deposits, Other deposits, Trade and other receivables, and Investments held at fair value. Due to the nature of the financial assets held and their lack of complexity, the classification and measurement model, impairment, and interest income, the accounting impact on financial assets was not material.

Financial Liabilities

The Group reviewed the financial liabilities reported on its Consolidated Statements of Financial Position and completed an assessment between IAS 39 and IFRS 9 to identify any accounting changes. The financial liabilities subject to this review were the Subsidiary notes payable, Derivative liability, Warrant liability, and Preferred share liability. Based on this assessment of the classification and measurement model, impairment and interest income, the accounting impact on financial liabilities was determined not to be material. As part of the transition requirement, entities have the option upon implementation of the new standard to designate a financial liability as measured at FVTPL. The Group re-assessed its financial liabilities and has elected not to split out embedded derivatives and retrospectively recorded changes in fair value of the entire financial liability instrument through the statement of profit and loss, leading to changes in the carrying value of the instruments when looked at in the aggregate. Upon the adoption of IFRS 9, the Group recognised a cumulative adjustment of $12.2 million for all instruments which qualified, as shown in note 9.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018, and supersedes: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue-Barter Transactions Involving Advertising Services. The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognising an amount that reflects the consideration for performance obligations only when they are satisfied, and the control of goods or services is transferred.

The majority of the Group's revenue is derived from fees related to collaboration agreements, service agreements, and government grants entered into or received by the Group's subsidiaries. During 2017, the Group completed an impact assessment of IFRS 15 and concluded that the adoption of IFRS 15 does not have a material impact on its consolidated results. The Group adopted IFRS 15 with effect from 1 January 2018 using the Modified Retrospective approach.

Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, PureTech Health has entered into few transactions that meet the scope of IFRS 15. Instead, most income has been generated through collaboration agreements and grants with counterparties that do not meet the definition of a customer, and therefore the contracts fall outside the scope of IFRS 15 and have been accounted for in accordance with IAS 20. For those few agreements where the counterparty meets the definition of a customer, the contracts are accounted for in accordance with IFRS 15, and revenue is recognised at either a point-in-time or over time, depending on the nature of the services and existence of acceptance clauses.

The accounting policy that reflects the new accounting standard for IFRS 15 is effective from 1 January 2018 and is as follows:

Revenue generated by collaboration and service agreements is accounted for under IFRS 15. The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model:

Revenue generated from services agreements is determined to be recognised over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs; (b) the entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

It was determined that the Group has contracts that meet the following criteria and revenue is recognised using the input method based on labour hours, laboratory expenses and supplies. For cases where the entity does not have an enforceable right to payment due to acceptance clauses, it was determined that costs incurred to fulfill the services are to be capitalised until acceptance is received for the milestone. This resulted in PureTech Health capitalising services related expenses as of 31 December 2017 and recognising the consideration as revenue once acceptance was received in the first half of fiscal year 2018.

IFRS 16, Leases

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard is effective for annual periods beginning on or after 1 January 2019, and supersedes: IAS 17 Leases; IFRIC 4 Determining whether an Arrangement contains a Lease; SIC-15 Operating Leases - Incentives; and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard introduces a single, on-balance sheet accounting model, which requires the lessee to recognise assets representative of the right to use the leased item, and liabilities to pay rentals for all leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the entity. The Group has set up a project team which is in the process of reviewing all of the Group's lease arrangements. The Group is currently evaluating the potential impact and has concluded that the standard will primarily affect the accounting for the Group's operating leases.

There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

2. Segment Information

Basis for Segmentation

The Directors are the Group's strategic decision-makers. The Group's operating segments are reported based on the financial information provided to the Directors at least quarterly for the purposes of allocating resources and assessing performance. The Directors monitor the results of three operating segments. Each operating segment is considered a distinct unit by the Directors. The Group's operating segments, which are also reportable segments, are outlined below. Substantially, all of the revenue and profit generating activities of the Group are generated within the US and accordingly, no geographical disclosures are provided.

During the six months ended 30 June 2018, the Company revised its definition of operating segments. The change reflects how the Company's Board of Directors review the Group's results, allocates resources and assesses performance. This change has been adjusted in both the current period and the prior period in the tables below.

Internal

The Internal division (the "Internal division"), is advancing a pipeline fuelled by recent discoveries in lymphatics and immune cell trafficking to modulate disease in a tissue-specific manner. These programmes leverage the transport and biodistribution of various immune system components for the targeted treatment of diseases with major unmet needs, including cancers, autoimmune diseases, and neuroimmune disorders. The Internal division is comprised of the technologies that will be advanced through either PureTech Health funding or non-dilutive sources of financing in the near-term. The operational management of the Internal division will be conducted by the PureTech Health team, who will be responsible for the strategy, business development, and research and development. As of 30 June 2018, this segment included Ariya Therapeutics, Inc., Calix Biopharma, Inc., Glyph Biosciences, Inc., and Nybo Therapeutics, Inc.

Affiliates

The Affiliate segment (the "Affiliate segment") is comprised of the programmes within PureTech's Affiliates division that are currently consolidated operational subsidiaries that either have, or have plans to hire, independent management teams and currently have already raised, or are currently in the process of raising, third-party dilutive capital. Currently, these subsidiaries have active research and development programmes and either have entered into or plan to seek a strategic partnership with an equity or debt investment partner, who will provide additional industry knowledge and networks, as well as additional funding to continue the pursued growth of the company. As of 30 June 2018, this segment included Alivio Therapeutics, Inc., Entrega, Inc., Follica, Inc., Karuna Pharmaceuticals, Inc., Gelesis Inc. and subsidiaries, Sonde Health, Inc., CommenSe, Inc., Vedanta Biosciences, Inc. and Vor Biopharma, Inc.

Deconsolidated Affiliates

The Deconsolidated Affiliates segment (the "Deconsolidated Affiliates segment") is comprised of the programmes within PureTech's Affiliates division in respect of which PureTech Health (i) no longer holds majority voting control as a shareholder and (ii) no longer has the right to elect a majority of the members of the affiliate's Board of Directors. As of 30 June 2018, resTORbio, Inc. ("resTORbio") and Akili Interactive Labs, Inc. ("Akili") are Deconsolidated Affiliates. PureTech utilizes the equity method of accounting when it owns common stock in this segment. For the six months ending 30 June 2018, the spend and loss from continuing operations before taxes in the Deconsolidated Affiliates segment solely reflects Akili.

Information About Reportable Segments

The Group has retrospectively restated its 2017 segment amounts to reflect the new segment designation described above.

The activity between the Parent Company and the reporting segments has been eliminated in consolidation. These elimination amounts are included in the Parent Company and other amounts shown above.

3. Investments in Associates

resTORbio

As of November 2017, resTORbio was deconsolidated from the Group's financial statements, resulting in only the profits and losses generated by resTORbio through November 2017 being included in the Group's Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss). Upon the date of deconsolidation, PureTech Health recognised an investment in resTORbio related to its common shares of $17.6 million and an investment held at fair value related to its Series A Preferred Shares of $72.2 million. As a result of the deconsolidation and fair value accounting for investments held on the date of deconsolidation, PureTech Health recorded an unrealised gain of $85.0 million in the Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss).

As of 31 December 2017, PureTech's investment in resTORbio was subject to equity method accounting. In accordance with IAS 28, PureTech's investment was adjusted by the share of profits and losses generated by resTORbio subsequent to the date of deconsolidation. resTORbio's loss for December 2017 was greater than the initial investment recorded by PureTech Health upon deconsolidation; therefore, the share of net loss was accounted for using the equity method and will be constrained to the investment recognised upon deconsolidation. PureTech Health recognised $17.6 million as its share of loss from resTORbio through the Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss), bringing PureTech's investment to zero.

On 31 January 2018, resTORbio, Inc., closed its initial public offering of 6,516,667 shares of common stock at a public offering price of $15.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 850,000 additional shares. The gross proceeds from the offering were $97.8 million, before deducting underwriting discounts and commissions and estimated offering expenses. The shares commenced trading on the Nasdaq Global Select Market on 26 January 2018 under the ticker symbol TORC.

Prior to the resTORbio IPO, PureTech Health recorded a loss of $14.3 million to adjust the investment held at fair value related to its resTORbio Series A Preferred Share investment. Upon completion of the public offering, the resTORbio Series A Preferred Shares held by PureTech Health converted to common shares. In light of PureTech's common stock holdings in resTORbio and corresponding voting rights, PureTech Health had a basis to account for its investment in resTORbio under IAS 28. The preferred stock investment held at fair value was therefore reclassified to investment in associate upon the completion of the conversion.

On 30 June 2018, the Company re-evaluated if it maintains significant influence over resTORbio. It was concluded that there have been no changes to the facts present as of 31 December 2017 and therefore, significant influence was maintained. As a result, PureTech Health continued to account for the investment in resTORbio under IAS 28 and recognised its share of resTORbio's earnings or losses in income. PureTech Health utilises the financial statements of its associates for a period ending within three months of the Group's reporting period to calculate its share of the associates income or loss. PureTech Health utilised resTORbio's 31 March 2018 financial statements to calculate its share of net loss of associates as of 30 June 2018. PureTech Health also adjusted its share of resTORbio's earnings and basis differences as appropriate. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. For the six months ended 30 June 2018, PureTech Health recognised $7.0 million as its share of loss from resTORbio through the Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss), bringing PureTech's investment to $111.7 million. PureTech Health reviewed the investment at year end for any indication of impairment, noting none. As of 7 September 2018, the closing share price for resTORbio stock was $11.77.

Akili

Akili was founded by PureTech Health in 2011 and raised funding through several rounds of Series A Preferred Stock financings as well as over $42.0 million in Series B Preferred Stock financing throughout 2016. As of 31 December 2017, PureTech Health maintained control of Akili and the subsidiary's financial results were fully consolidated in the Group's annual report.

On 8 May 2018, Akili completed the first close of a Series C Preferred Stock financing with Temasek, Baillie Gifford, and certain other existing investors. PureTech Health did not participate in this investment round. The financing provided for the purchase of 6,465,037 shares of Akili's Series C Preferred Stock at a purchase price of $8.5073 per share. Each investor in the Series C Preferred Stock financing is entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series C Preferred Stock held by such investor are convertible.

As a result of the issuance of the preferred shares to third-party investors, following the first close of the Series C financing PureTech's ownership percentage and corresponding voting rights related to Akili dropped from 61.8% to 44.7%, triggering a loss of control over the entity. As of May 2018, Akili was deconsolidated from the Group's financial statements, resulting in only the profits and losses generated by Akili through May 2018 being included in the Group's Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss). While the Company no longer controls Akili, it was concluded that PureTech Health still had significant influence over Akili by virtue of its large, albeit minority, ownership stake and its continued representation on Akili's Board of Directors. PureTech Health still has the power to participate in the financial and operating policy decisions of the entity, although it does not control these policies. As PureTech Health is able to demonstrate that it has significant influence over Akili, the entity will be accounted for as an associate under IAS 28.

Upon the date of deconsolidation, PureTech Health held shares of preferred stock in Akili and no common shares. As PureTech Health did not hold common shares in Akili, the voting percentage attributable to common stock is nil. Therefore, PureTech Health had no basis to account for its investment in Akili under IAS 28, Investment in Associates and Joint Ventures. The preferred shares held by PureTech Health fall under the guidance of IFRS 9 and will be treated as a financial asset held at fair value and all movements to the value of PureTech's share in the preferred stock will be recorded through the Condensed Consolidated Statements of Income/(Loss) and Other Comprehensive Income/(Loss), in accordance with IFRS 9.

During the six months ended 30 June 2018, the Company recognised a $41.7 million gain on the deconsolidation of Akili, which was recorded to the Gain on the deconsolidation of subsidiary line item in the Condensed Consolidated Statement of Income/(Loss) and Other Comprehensive Income/(Loss).

4. Equity

On 12 March 2018, the Company raised £72.0 million, or approximately $100.0 million based on exchange rates at the time of the announcement of the transaction, before issuance costs and other expenses, by way of a Placing of 45,000,000 Placing Shares at the Placing Price of 160 pence per share with both new and existing institutional investors. The price represented a discount of approximately 3.0% to the closing mid-market price of 165 pence per Ordinary Share at the close of business on 12 March 2018 (being the latest practicable date prior to publication of the Offering Circular).

Upon Admission, the Company's Enlarged Share Capital comprised 282,429,696 Ordinary Shares with one voting right per Ordinary Share. The Placing Shares rank pari passu in all respects with each other and with the existing Ordinary Shares. The Company does not hold any shares in treasury.

The Company incurred legal and other adviser fees of $3.7 million in connection with the Placing. Costs incurred were incremental costs directly attributable to the equity transaction and therefore were accounted for as a deduction from equity.

Other

At 30 June 2018, 282,429,696 ordinary shares were outstanding, including all vested ordinary shares issued pursuant to PureTech Health LLC Incentive Compensation arrangements detailed in note 6.

5. Loss per Share

The basic and diluted loss per share has been calculated by dividing the income/(loss) for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the six months ended 30 June 2018 and 2017, respectively.

Loss attributable to ordinary shareholders

Weighted average number of ordinary shares

The following potentially dilutive securities (which are ordinary shares issued pursuant to PureTech Health LLC's Incentive Compensation arrangements prior to PureTech's IPO as detailed in note 6) have been excluded (on a weighted average basis for the period) from the computation of diluted weighted-average shares outstanding as they are subject to vesting conditions. As of 30 June 2018, all the remaining dilutive securities had vested.

The loss per share for the six months ended 30 June 2018 and 2017 is as follows

6. Share-based Payments

Share-based payments includes stock options, restricted stock units ("RSUs") and performance-based restricted share unit awards and the expense is recognised based on grant date fair value of these awards.

Share-based Payment Expense

The Group share-based payment expense for the six months ended 30 June 2018 and 2017, respectively, were comprised of charges related to the PureTech Health plc incentive stock and stock option issuances and subsidiary stock plans, as disclosed in the annual report and accounts.

The following table provides the classification of the Group's consolidated share-based payment expense as reflected in the Condensed Consolidated Statement of Income/(Loss) and Other Comprehensive Income/(Loss):

There was no income tax benefit recognised for share-based payment arrangements during the periods presented due to existence of operating losses for all issuing entities.

The Performance Share Plan

As of 30 June 2018, the Company had issued 15,241,371 RSUs and stock options under the Performance Share Plan ("PSP"), net of forfeitures.

RSUs

During the six months ended 30 June 2018, the Company issued 3,207,422 RSUs under the PSP plan. Each RSU entitles the holder to one ordinary share on vesting. Following vesting, each recipient will be required to make a payment of one pence per ordinary share on settlement of the RSUs. Vesting of the RSUs is subject to the satisfaction of performance conditions. The performance conditions attached to the RSUs are based on the achievement of total shareholder return ("TSR"), with 50% of the shares under the award vesting based on the achievement of absolute TSR targets, 12.5% of the shares under the award vesting based on TSR as compared to the FTSE SmallCap Index, 12.5% of the shares under the award vesting based on TSR as compared to the MSCI Europe Health Care Index, and 25% of the shares under the award vesting based on the achievement of strategic targets.

The Company incurred share-based payment expense for the RSUs of $1.3 million and $1.0 million for the six months ended 30 June 2018 and 2017, respectively.

Stock Options

During the six months ended 30 June 2018, the Company granted 2,566,820 stock option awards under the PSP.

The fair value of the stock options awarded by the Company was estimated at the grant date using the Black-Scholes option valuation model, taking into account the terms and conditions upon which options were granted, with the following weighted-average assumptions:

The Company incurred share-based payment expense for the stock options of $0.3 million and $0.2 million for the six months ended 30 June 2018 and 2017, respectively.

Pre-IPO Incentive Compensation

In May 2015 and August 2014, PureTech Health LLC Directors approved the issuance of shares to management, the directors and advisors of PureTech Health LLC, subject to vesting restrictions. No additional shares will be granted under this compensation arrangement. The fair value of the shares awarded was estimated as of the date of grant. The Company incurred an expense of $0.2 million and $1.1 million in share-based payment expense for the six months ended 30 June 2018 and 2017, respectively, related to PureTech Health LLC incentive compensation.

As of 30 June 2018, all shares related to the pre-IPO incentive compensation plan had fully vested.

Subsidiary Stock Plans

During the six months ended 30 June 2018, certain subsidiaries granted an aggregate of 499,978 stock option awards under the stock plans of these subsidiaries.

The fair value of the stock options awarded by each subsidiary was estimated at the grant date using the Black-Scholes option valuation model, taking into account the terms and conditions upon which options were granted, with the following weighted-average assumptions:

The subsidiaries incurred $2.1 million and $5.1 million in share-based payment expense for the six months ended 30 June 2018 and 2017, respectively.

7. Financial Costs

The following table provides the classification of finance income and costs:

8. Income Taxes

Tax benefit/(expense) is recognised based on management's best estimate of the weighted-average annual income tax rate expected for the full financial year multiplied by the pre-tax income of the interim reporting period.

The Group's consolidated effective tax rate in respect of continuing operations was 0.4% and 0.2% for the six months ended 30 June 2018 and 2017, respectively.

9. Financial Instruments

As of 1 January 2018, the Company adopted IFRS 9, which replaced IAS 39. IFRS 9 addresses the classification, measurement and recognition of financial liabilities. The Group has applied IFRS 9 retrospectively but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy. The reclassification and adjustment arising from the adoption of the new accounting policy has been recognised in the opening balance sheet as of 1 January 2018.

As part of the transition requirement, the Company had the option upon implementation of the new standard to designate a financial liability as measured at FVTPL. The Group re-assessed its financial liabilities and elected not to split out the embedded derivatives for certain instruments and retrospectively recorded changes in fair value of the entire financial liability instrument through the statement of profit and loss, leading to changes in the carrying value of the instruments which, when looked at in the aggregate, were as follows: