The following management's discussion and analysis of our financial condition
and results of operations should be read in conjunction with the unaudited
condensed interim consolidated financial statements and notes thereto included
in Part I, Item 1 of this Quarterly Report on Form 10-Q as of December 31, 2022
and our audited consolidated financial statements for the year ended September
30, 2022 included in our Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on December 16, 2022.
This Quarterly Report on Form 10-Q contains forward-looking statements. When
used in this report, the words "expects," "anticipates," "suggests," "believes,"
"intends," "estimates," "plans," "projects," "continue," "ongoing," "potential,"
"expect," "predict," "believe," "intend," "may," "will," "should," "could,"
"would" and similar expressions are intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements for many reasons, including the risks described
in our Annual Report on Form 10-K for the year ended September 30, 2022 and
other reports we file with the Securities and Exchange Commission. Although we
believe the expectations reflected in the forward-looking statements are
reasonable, they relate only to events as of the date on which the statements
are made. We do not intend to update any of the forward-looking statements after
the date of this report to conform these statements to actual results or to
changes in our expectations, except as required by law.
The discussion and analysis of our financial condition and results of operations
are based on our unaudited condensed interim consolidated financial statements
as of December 31, 2022 and September 30, 2022, and for the three months ended
December 31, 2022 and 2021 included in Part I, Item 1 of this Quarterly Report
on Form 10-Q, which we have prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
revenues and expenses during the reporting periods. On an ongoing basis, we
evaluate such estimates and judgments, including those described in greater
detail below. We base our estimates on historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Overview
We are a biopharmaceutical company developing innovative ways to treat
inflammatory and immune-related diseases.
Our approach is to acquire, develop and commercialize drug candidates based on
mechanisms of action that have demonstrated proof-of-concept in human subjects.
We prioritize our efforts on disease indications where there is compelling
scientific rationale, no approved therapies or where there are unmet medical
needs, and where there are large addressable market opportunities, among other
factors. We have multiple late-stage product candidates in our development
pipeline.
Our most advanced drug candidate is EB05, a monoclonal antibody developed for
acute and chronic disease indications that involve dysregulated innate immunity
responses. EB05 inhibits toll-like receptor 4 (TLR4), a key immune signaling
protein and an important mediator of inflammation. We are currently evaluating
EB05 as a potential treatment for Acute Respiratory Distress Syndrome (ARDS), a
life-threatening form of respiratory failure. In September 2022, we reported
final results from the Phase 2 part of a Phase 2/Phase 3 study of EB05 in ARDS
patients who were hospitalized for Covid-19-related respiratory disease. Among
the findings, EB05 demonstrated statistically significant mortality reductions
in critically ill hospitalized patients treated with EB05 plus Standard of Care
treatment (SOC). We are currently enrolling patients in the Phase 3 part of the
EB05 study.
In addition to EB05, we are developing product candidates for a number of
chronic dermatological and inflammatory conditions. We recently completed
enrollment and reported preliminary topline results of a Phase 2b study of our
EB01 drug candidate in moderate-to-severe chronic Allergic Contact Dermatitis
(ACD), a common occupational and work-related skin condition. We are also
preparing an investigational new drug application (IND) in the United States for
our EB07 product candidate to conduct a future Phase 2 study in systemic
sclerosis (SSc), an autoimmune rheumatic disorder that causes fibrosis
(scarring/hardening) of skin and internal organs. In Canada, we are preparing a
clinical trial application (CTA) for our EB06 monoclonal antibody candidate to
conduct a future Phase 2 study in vitiligo, a common autoimmune disorder that
causes the skin to lose its color in patches.
Recent Developments
EB05 Clinical Study
In December 2022, the U.S. Food and Drug Administration (FDA) granted us Fast
Track designation for our EB05 monoclonal antibody candidate. The Fast Track
program provides Edesa with the opportunity for more frequent communication with
the agency to discuss the development path for EB05 as a treatment for ARDS in
critically ill Covid-19 patients. Investigational drugs that receive Fast Track
designation are also eligible for rolling review of their marketing application
as well as potential pathways for accelerated regulatory approval. To receive
this designation, drug candidates must both treat a serious disease and have
non-clinical or clinical data that demonstrate the potential to address an unmet
medical need.
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EB01 Clinical Study
In January 2023, we reported preliminary, topline results from a Phase 2b
clinical study evaluating multiple concentrations of our drug candidate, EB01,
as a monotherapy for chronic moderate-to-severe ACD. The double-blind,
placebo-controlled trial evaluated the safety and efficacy of EB01 in
approximately 200 subjects, who were treated for 28 days with either EB01 cream
(2.0%, 1.0% or 0.2%) or a placebo/vehicle cream. The primary efficacy outcome
measurement was the mean percent improvement in symptoms from baseline at day 29
on the Contact Dermatitis Severity Index (CDSI). A key secondary efficacy
measurement was the success rate of subjects achieving a score of "clear" or
"almost clear" with at least a 2-point improvement from baseline after treatment
at day 29 on the Investigator's Static Global Assessment (ISGA) scale.
The 1.0% EB01 cream demonstrated statistically significant improvement over
placebo. For the primary endpoint, patients with 1.0% EB01-treated lesions
demonstrated an 60% average improvement in symptoms from baseline at day 29 on
the CDSI versus 39% for placebo/vehicle (p=0.02). The effect was also observed
at 15 days (44% for 1.0% EB01 vs 29% for placebo; p=0.05) and continued at
follow-up (64% for 1.0% EB01 vs. 44% for placebo; p=0.04). For the ISGA
secondary efficacy endpoint, 53% of patients with 1.0% EB01-treated lesions
achieved a score of "clear" or "almost clear" with at least a 2-point
improvement from baseline after treatment at day 29 (p=0.04). Only 29% of
patients in the placebo group reached the same endpoint. No serious
treatment-related adverse events were reported across all concentrations. The
2.0% and 0.2% formulations did not show significant differences compared to
placebo. These topline results are preliminary in nature, and should not be
considered the complete, final or definitive results of the Phase 2b study. We
are preparing for an End of Phase 2 meeting with FDA following full analysis.
EB06 Clinical Trial Application
In January 2023, Health Canada approved our clinical trial application (CTA) for
our EB06 monoclonal antibody candidate to conduct a future Phase 2 study in
vitiligo, a common autoimmune disorder that causes skin to lose its color in
patches.
Results of Operations
Comparison of the Three Months Ended December 31, 2022 and 2021
Total operating expenses decreased by $2.78 million to $2.38 million for the
three months ended December 31, 2022 compared to $5.16 million for the same
period last year:
· Research and development expenses decreased by $2.59 million to $1.36
million for the three months ended December 31, 2022 compared to $3.95
million for the same period last year primarily due to decreased external
research expenses related to our ongoing clinical studies and
manufacturing of our investigational drugs.
· General and administrative expenses decreased by $0.19 million to $1.02
million for the three months ended December 31, 2022 compared to $1.21
million for the same period last year primarily due to a decrease in
noncash share-based compensation.
Total other income decreased by $0.74 million to $0.04 million for the three
months ended December 31, 2022 compared to $0.78 million for the same period
last year primarily due to a decrease in grant income associated with the
completion of clinical study activities under our federal reimbursement grant
with the Canadian government's Strategic Innovation Fund.
For the three months ended December 31, 2022, our net loss was $2.33 million, or
$0.13 per common share, compared to a net loss of $4.38 million, or $0.33 per
common share, for the three months ended December 31, 2021.
Capital Expenditures
Our capital expenditures primarily consist of computer and office equipment.
There were no significant capital expenditures for the three months ended
December 31, 2022 and 2021.
Liquidity and Capital Resources
As a clinical-stage company we have not generated significant revenue, and we
expect to incur operating losses as we continue our efforts to acquire, develop,
seek regulatory approval for and commercialize product candidates and execute on
our strategic initiatives. Our operations have historically been funded through
issuances of common shares, exercises of common share purchase warrants,
convertible preferred shares, convertible loans, government grants and tax
incentives. For the three-month periods ended December 31, 2022 and 2021, we
reported net losses of $2.33 million and $4.38 million, respectively.
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In November 2022, we completed a private placement of units consisting of
2,691,337 common shares, three-year warrants to purchase up to an aggregate of
1,345,665 common shares (Class A warrants) and twelve-month warrants to purchase
up to an aggregate of 1,345,665 common shares (Class B warrants). The gross
proceeds from this offering are approximately $3.03 million, before offering
expenses. Subsequent to December 31, 2022 and through the date of this filing,
705,314 shares have been issued upon the exercise of Class A and Class B
warrants, with proceeds to the Company of $0.77 million.
In March 2022, we completed a registered direct offering of 1,540,000 common
shares, no par value, and pre-funded warrants to purchase up to an aggregate of
1,199,727 common shares. In a concurrent private placement, we issued common
share purchase warrants to purchase an aggregate of up to 2,739,727 common
shares. After deducting the placement agent fees and offering expenses, net
proceeds to the Company were approximately $9.01 million.
In November 2021, we entered into an equity distribution agreement with RBC
Capital Markets, LLC (RBCCM), as sales agent, which was subsequently terminated
in March 2022. Pursuant to the terms of the agreement, as amended, the Company
could offer and sell, from time to time, common shares through an at-the-market
offering program for up to $15.4 million in gross cash proceeds. During the term
of the agreement, we sold a total of 626,884 common shares. After deducting
commissions and direct costs, net proceeds totaled approximately $2.62 million.
Under our contribution agreement with the Canadian government's Strategic
Innovation Fund (SIF), we were eligible to receive cash reimbursements up to
C$14.05 million (approximately $11 million USD) in the aggregate for certain
research and development expenses related to our EB05 clinical development
program. For the years ended September 30, 2022 and 2021, we recorded grant
income of $0.78 million and $10.34 million respectively. All grant
reimbursements have been received at December 31, 2022.
At December 31, 2022, we had cash and cash equivalents of $8.27 million, working
capital of $7.81 million, shareholders' equity of $10.27 million and an
accumulated deficit of $46.38 million. We plan to finance company operations
over the course of the next twelve months with cash and cash equivalents on
hand, including proceeds from warrant exercises of $0.77 million received
subsequent to December 31, 2022. Management has flexibility to adjust this
timeline by making changes to planned expenditures related to, among other
factors, the size and timing of clinical trial expenditures and manufacturing
campaigns, staffing levels, and the acquisition or in-licensing of new product
candidates. To help fund our operations and meet our obligations in the future,
we plan to seek additional financing through the sale of equity, government
grants, debt financings or other capital sources, including potential future
licensing, collaboration or similar arrangements with third parties or other
strategic transactions. There is no assurance that adequate funding will be
available to us or, if available, that such funding will be available on terms
that we or our shareholders view as favorable. Market volatility, inflation,
interest rates, government policies and concerns related to the war in Ukraine
and the Covid-19 pandemic may have a significant impact on the availability of
funding sources and the terms at which any funding may be available.
Research and Development
Our primary business is the development of innovative therapeutics for
inflammatory and immune-related diseases with clear unmet medical needs. We
focus our resources on research and development activities, including the
conduct of clinical studies and product development, and expense such costs as
they are incurred. Our research and development expenses have primarily
consisted of employee-related expenses, including salaries, benefits, taxes,
travel, and share-based compensation expense for personnel in research and
development functions; expenses related to process development and production of
product candidates paid to contract manufacturing organizations and contract
testing organizations, including the cost of acquiring, developing, and
manufacturing research material; costs associated with clinical activities,
including expenses for contract research organizations; and clinical trials and
activities related to regulatory filings for our product candidates, including
regulatory consultants.
Research and development expenses, which have historically varied based on the
level of activity in our clinical programs, are significantly influenced by
study initiation expenses and patient recruitment rates, and as a result are
expected to continue to fluctuate, sometimes substantially. Our research and
development costs were $1.36 million and $3.95 million for the three months
ended December 31, 2022 and 2021, respectively. The decrease was due primarily
to decreased external research expenses related to our ongoing clinical studies
and manufacturing of our investigational drugs.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources.
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