UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended MarchDecember 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-37619
EDESA BIOTECH, INC. |
(Exact name of registrant as specified in its charter) |
British Columbia, Canada |
| N/A |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
100 Spy Court, Markham, ON, Canada L3R 5H6 |
| (289) 800-9600 |
(Address of principal executive offices and zip code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common Shares, without par value |
| EDSA |
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 10, 2023,February 9, 2024, the registrant had 20,587,7173,171,760 common shares issued and outstanding.
EDESA BIOTECH, INC.
QUARTERLY REPORT ON FORM 10-Q
Quarter Ended MarchDecember 31, 2023
Table of Contents
|
|
| Page |
|
| 3 |
| ||
|
|
|
|
|
| 3 |
| ||
| Condensed Interim Consolidated Balance Sheets – |
| 3 |
|
|
| 4 |
| |
|
| 5 |
| |
|
| 6 |
| |
| Notes to Condensed Interim Consolidated Financial Statements |
| 7 |
|
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
| |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
2 |
Table of Contents |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Edesa Biotech, Inc.
Condensed Interim Consolidated Balance Sheets
|
| March 31, 2023 |
|
| September 30, 2022 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 7,471,252 |
| $ | 7,090,919 |
|
| $ | 4,267,787 |
| $ | 5,361,397 |
| ||
Accounts and other receivable |
| 50,233 |
| 1,255,451 |
|
| 743,569 |
| 626,543 |
| ||||||
Prepaid expenses and other current assets |
|
| 608,109 |
|
|
| 745,543 |
|
|
| 404,903 |
|
|
| 448,912 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current assets |
| 8,129,594 |
| 9,091,913 |
|
| 5,416,259 |
| 6,436,852 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Property and equipment, net |
| 10,769 |
| 12,694 |
|
| 8,188 |
| 8,702 |
| ||||||
Long-term deposits |
| 174,126 |
| 171,464 |
|
| 177,731 |
| 173,490 |
| ||||||
Intangible asset, net |
| 2,230,606 |
| 2,281,192 |
|
| 2,154,727 |
| 2,180,020 |
| ||||||
Right-of-use assets |
|
| 128,390 |
|
|
| 18,465 |
|
|
| 74,885 |
|
|
| 91,373 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
| $ | 10,673,485 |
|
| $ | 11,575,728 |
|
| $ | 7,831,790 |
|
| $ | 8,890,437 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable and accrued liabilities |
| $ | 1,499,380 |
| $ | 2,121,802 |
|
| $ | 1,908,598 |
| $ | 1,747,150 |
| ||
Short-term right-of-use lease liabilities |
|
| 65,406 |
|
|
| 18,975 |
|
|
| 78,314 |
|
|
| 74,714 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total current liabilities |
| 1,564,786 |
| 2,140,777 |
|
| 1,986,912 |
| 1,821,864 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| |||||||||||
Long-term payables |
| 44,340 |
| 43,662 |
| |||||||||||
Long-term right-of-use lease liabilities |
|
| 64,422 |
|
|
| - |
|
|
| - |
|
|
| 19,773 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
| 1,673,548 |
| 2,184,439 |
|
| 1,986,912 |
| 1,841,637 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Commitments (Note 5) |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
| ||||||
Capital shares |
|
|
|
|
|
|
|
|
|
| ||||||
Authorized unlimited common and preferred shares without par value |
|
|
|
|
|
|
|
|
|
| ||||||
Issued and outstanding: |
|
|
|
|
|
|
|
|
|
| ||||||
20,058,665 common shares (September 30, 2022 - 16,662,014) |
| 45,453,733 |
| 42,473,099 |
| |||||||||||
3,164,722 common shares (September 30, 2023 - 3,075,473) |
| 46,933,895 |
| 46,643,151 |
| |||||||||||
Additional paid-in capital |
| 12,489,949 |
| 11,176,345 |
|
| 13,223,622 |
| 13,039,265 |
| ||||||
Accumulated other comprehensive loss |
| (230,026 | ) |
| (213,602 | ) |
| (215,220 | ) |
| (214,648 | ) | ||||
Accumulated deficit |
|
| (48,713,719 | ) |
|
| (44,044,553 | ) |
|
| (54,097,419 | ) |
|
| (52,418,968 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Total shareholders' equity |
|
| 8,999,937 |
|
|
| 9,391,289 |
|
|
| 5,844,878 |
|
|
| 7,048,800 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities and shareholders' equity |
| $ | 10,673,485 |
|
| $ | 11,575,728 |
|
| $ | 7,831,790 |
|
| $ | 8,890,437 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
3 |
Table of Contents |
Edesa Biotech, Inc.
Condensed Interim Consolidated Statements of Operations
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||||||||
|
| March 31, 2023 |
|
| March 31, 2022 |
|
| March 31, 2023 |
|
| March 31, 2022 |
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Research and development |
| $ | 1,458,190 |
| $ | 3,042,815 |
| $ | 2,815,528 |
| $ | 6,993,861 |
|
| $ | 704,458 |
| $ | 1,357,338 |
| ||||
General and administrative |
|
| 952,391 |
|
|
| 1,532,416 |
|
|
| 1,973,358 |
|
|
| 2,743,093 |
|
|
| 1,152,971 |
|
|
| 1,020,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss from operations |
| (2,410,581 | ) |
| (4,575,231 | ) |
| (4,788,886 | ) |
| (9,736,954 | ) |
| (1,857,429 | ) |
| (2,378,305 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Reimbursement grant income |
| - |
| - |
| - |
| 780,257 |
|
| 120,834 |
| - |
| ||||||||||
Interest income |
| 85,718 |
| 3,748 |
| 135,147 |
| 9,868 |
|
| 60,966 |
| 49,429 |
| ||||||||||
Foreign exchange gain (loss) |
|
| (8,686 | ) |
|
| 2,967 |
|
|
| (14,627 | ) |
|
| (364 | ) | ||||||||
Foreign exchange loss |
|
| (2,822 | ) |
|
| (5,941 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
| 77,032 |
|
|
| 6,715 |
|
|
| 120,520 |
|
|
| 789,761 |
|
|
| 178,978 |
|
|
| 43,488 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss before income taxes |
| (2,333,549 | ) |
| (4,568,516 | ) |
| (4,668,366 | ) |
| (8,947,193 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income tax expense |
|
| 800 |
|
|
| 800 |
|
|
| 800 |
|
|
| 800 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss |
| (2,334,349 | ) |
| (4,569,316 | ) |
| (4,669,166 | ) |
| (8,947,993 | ) |
| (1,678,451 | ) |
| (2,334,817 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Exchange differences on translation |
|
| 8,643 |
|
|
| 13,066 |
|
|
| (16,424 | ) |
|
| 44,915 |
|
|
| (572 | ) |
|
| (25,067 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net comprehensive loss |
| $ | (2,325,706 | ) |
| $ | (4,556,250 | ) |
| $ | (4,685,590 | ) |
| $ | (8,903,078 | ) |
| $ | (1,679,023 | ) |
| $ | (2,359,884 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Weighted average number of common shares |
| 19,973,319 |
| 13,867,345 |
| 19,171,939 |
| 13,610,164 |
|
| 3,128,024 |
| 2,626,847 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Loss per common share - basic and diluted |
| $ | (0.12 | ) |
| $ | (0.33 | ) |
| $ | (0.24 | ) |
| $ | (0.66 | ) |
| $ | (0.54 | ) |
| $ | (0.89 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
4 |
Table of Contents |
Edesa Biotech, Inc.
Condensed Interim Consolidated Statements of Cash Flows
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| March 31, 2023 |
|
| March 31, 2022 |
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
| $ | (4,669,166 | ) |
| $ | (8,947,993 | ) |
| $ | (1,678,451 | ) |
| $ | (2,334,817 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| 54,502 |
| 59,633 |
|
| 45,031 |
| 27,197 |
| ||||||
Share-based compensation |
| 621,221 |
| 1,239,286 |
|
| 184,357 |
| 333,675 |
| ||||||
Changes in working capital items: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts and other receivable |
| 1,137,833 |
| 2,068,473 |
|
| (99,585 | ) |
| 1,060,378 |
| |||||
Prepaid expenses and other current assets |
| 140,852 |
| 97,209 |
|
| 38,664 |
| 57,722 |
| ||||||
Accounts payable and accrued liabilities |
| (648,482 | ) |
| 1,859,124 |
|
|
| 103,456 |
|
|
| (935,250 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used in operating activities |
|
| (3,363,240 | ) |
|
| (3,624,268 | ) |
|
| (1,406,528 | ) |
|
| (1,791,095 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Purchase of property and equipment |
| - |
| (4,339 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash used in investing activities |
|
| - |
|
|
| (4,339 | ) |
| - |
| - |
| |||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from issuance of common shares and warrants |
| 3,027,496 |
| 11,957,567 |
|
| 315,201 |
| 3,027,496 |
| ||||||
Proceeds from exercise of warrants |
| 770,531 |
| - |
| |||||||||||
Payments for issuance costs of common shares and warrants |
|
| (121,612 | ) |
|
| (327,653 | ) |
|
| (9,459 | ) |
|
| (115,721 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net cash provided by financing activities |
| 3,676,415 |
| 11,629,914 |
|
| 305,742 |
| 2,911,775 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 67,158 |
|
|
| 46,633 |
|
|
| 7,176 |
|
|
| 58,608 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net change in cash and cash equivalents |
| 380,333 |
| 8,047,940 |
|
| (1,093,610 | ) |
| 1,179,288 |
| |||||
Cash and cash equivalents, beginning of period |
|
| 7,090,919 |
|
|
| 7,839,259 |
|
|
| 5,361,397 |
|
|
| 7,090,919 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents, end of period |
| $ | 7,471,252 |
|
| $ | 15,887,199 |
|
| $ | 4,267,787 |
|
| $ | 8,270,207 |
|
|
|
|
|
|
| |||||||||||
Supplemental Disclosure of Noncash Financing Activities: |
|
|
|
|
| |||||||||||
Issuance costs withheld from gross proceeds from issuance of common shares and warrants |
| $ | - |
| $ | 393,461 |
| |||||||||
Fair value of placement agent warrants |
| - |
| 408,059 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
5 |
Table of Contents |
Edesa Biotech, Inc.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
|
| Shares |
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total |
| ||||||
Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - December 31, 2022 |
|
| 19,353,351 |
|
| $ | 44,473,823 |
|
| $ | 12,417,672 |
|
| $ | (238,669 | ) |
| $ | (46,379,370 | ) |
| $ | 10,273,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares upon exercise of warrants |
|
| 705,314 |
|
|
| 994,618 |
|
|
| (224,087 | ) |
|
| - |
|
|
| - |
|
|
| 770,531 |
|
Issuance costs |
|
| - |
|
|
| (14,708 | ) |
|
| 8,817 |
|
|
| - |
|
|
| - |
|
|
| (5,891 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 287,547 |
|
|
| - |
|
|
| - |
|
|
| 287,547 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,643 |
|
|
| (2,334,349 | ) |
|
| (2,325,706 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2023 |
|
| 20,058,665 |
|
| $ | 45,453,733 |
|
| $ | 12,489,949 |
|
| $ | (230,026 | ) |
| $ | (48,713,719 | ) |
| $ | 8,999,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2021 |
|
| 13,518,799 |
|
| $ | 36,116,225 |
|
| $ | 5,480,739 |
|
| $ | (173,413 | ) |
| $ | (30,874,306 | ) |
| $ | 10,549,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 1,943,488 |
|
|
| 4,952,013 |
|
|
| 6,702,293 |
|
|
| - |
|
|
| - |
|
|
| 11,654,306 |
|
Issuance costs including fair value of placement agent warrants |
|
| - |
|
|
| (804,158 | ) |
|
| (448,738 | ) |
|
| - |
|
|
| - |
|
|
| (1,252,896 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 630,008 |
|
|
| - |
|
|
| - |
|
|
| 630,008 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,066 |
|
|
| (4,569,316 | ) |
|
| (4,556,250 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 15,462,287 |
|
| $ | 40,264,080 |
|
| $ | 12,364,302 |
|
| $ | (160,347 | ) |
| $ | (35,443,622 | ) |
| $ | 17,024,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 16,662,014 |
|
| $ | 42,473,099 |
|
| $ | 11,176,345 |
|
| $ | (213,602 | ) |
| $ | (44,044,553 | ) |
| $ | 9,391,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 2,691,337 |
|
|
| 2,082,669 |
|
|
| 944,827 |
|
|
| - |
|
|
| - |
|
|
| 3,027,496 |
|
Issuance of common shares upon exercise of warrants |
|
| 705,314 |
|
|
| 994,618 |
|
|
| (224,087 | ) |
|
| - |
|
|
| - |
|
|
| 770,531 |
|
Issuance costs |
|
| - |
|
|
| (96,653 | ) |
|
| (28,357 | ) |
|
| - |
|
|
| - |
|
|
| (125,010 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 621,221 |
|
|
| - |
|
|
| - |
|
|
| 621,221 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (16,424 | ) |
|
| (4,669,166 | ) |
|
| (4,685,590 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2023 |
|
| 20,058,665 |
|
| $ | 45,453,733 |
|
| $ | 12,489,949 |
|
| $ | (230,026 | ) |
| $ | (48,713,719 | ) |
| $ | 8,999,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 13,295,403 |
|
| $ | 34,887,721 |
|
| $ | 4,871,461 |
|
| $ | (205,262 | ) |
| $ | (26,495,629 | ) |
| $ | 13,058,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants in equity offering |
|
| 2,166,884 |
|
|
| 6,239,180 |
|
|
| 6,702,293 |
|
|
| - |
|
|
| - |
|
|
| 12,941,473 |
|
Issuance costs including fair value of placement agent warrants |
|
| - |
|
|
| (862,821 | ) |
|
| (448,738 | ) |
|
| - |
|
|
| - |
|
|
| (1,311,559 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 1,239,286 |
|
|
| - |
|
|
| - |
|
|
| 1,239,286 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 44,915 |
|
|
| (8,947,993 | ) |
|
| (8,903,078 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 15,462,287 |
|
| $ | 40,264,080 |
|
| $ | 12,364,302 |
|
| $ | (160,347 | ) |
| $ | (35,443,622 | ) |
| $ | 17,024,413 |
|
|
| Shares # |
|
| Common Shares |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total Shareholders' Equity |
| ||||||
Three Months Ended December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - September 30, 2023 |
|
| 3,075,473 |
|
| $ | 46,643,151 |
|
| $ | 13,039,265 |
|
| $ | (214,648 | ) |
| $ | (52,418,968 | ) |
| $ | 7,048,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares |
|
| 89,249 |
|
|
| 315,201 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 315,201 |
|
Issuance costs |
|
| - |
|
|
| (24,457 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (24,457 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 184,357 |
|
|
| - |
|
|
| - |
|
|
| 184,357 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (572 | ) |
|
| (1,678,451 | ) |
|
| (1,679,023 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
| 3,164,722 |
|
| $ | 46,933,895 |
|
| $ | 13,223,622 |
|
| $ | (215,220 | ) |
| $ | (54,097,419 | ) |
| $ | 5,844,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 2,380,280 |
|
| $ | 42,473,099 |
|
| $ | 11,176,345 |
|
| $ | (213,602 | ) |
| $ | (44,044,553 | ) |
| $ | 9,391,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares and warrants |
|
| 384,477 |
|
|
| 2,082,669 |
|
|
| 944,827 |
|
|
| - |
|
|
| - |
|
|
| 3,027,496 |
|
Issuance costs |
|
| - |
|
|
| (81,945 | ) |
|
| (37,175 | ) |
|
| - |
|
|
| - |
|
|
| (119,120 | ) |
Share-based compensation |
|
| - |
|
|
| - |
|
|
| 333,675 |
|
|
| - |
|
|
| - |
|
|
| 333,675 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (25,067 | ) |
|
| (2,334,817 | ) |
|
| (2,359,884 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
| 2,764,757 |
|
| $ | 44,473,823 |
|
| $ | 12,417,672 |
|
| $ | (238,669 | ) |
| $ | (46,379,370 | ) |
| $ | 10,273,456 |
|
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
6 |
Table of Contents |
Edesa Biotech, Inc.
Notes to Condensed Interim Consolidated Financial Statements
(Unaudited)
1. Nature of Operations
Edesa Biotech, Inc. (the Company or Edesa) is a biopharmaceutical company focused on acquiring, developing and commercializing clinical-stageclinical stage drugs for inflammatory and immune-related diseases with clear unmet medical needs. The Company is organized under the laws of British Columbia, Canada and is headquartered in Markham, Ontario. It operates under its wholly owned subsidiaries, Edesa Biotech Research, Inc., an Ontario, Canada corporation, and Edesa Biotech USA, Inc., a California, USA corporation.
The Company’s common shares trade on The Nasdaq Capital Market in the United States under the symbol “EDSA”.
2. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These unaudited condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022,2023, which was filed with the Securities and Exchange Commission (SEC) on December 16, 2022.15, 2023.
The accompanying unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. All adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods. Operating results for the three and six months ended MarchDecember 31, 2023 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending September 30, 2023.2024.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period or year. Actual results could differ from those estimates. Areas where significant judgment is involved in making estimates are valuation of accounts and other receivable; valuation and useful lives of property and equipment; intangible assets; operating lease right-of-use assets; deferred income taxes; the determination of fair value of share-based compensation; the determination of fair value of warrants in order to allocate proceeds from equity issuances; and forecasting future cash flows for assessing the going concern assumption.
Functional and reporting currencies
The consolidated financial statements of the Company are presented in U.S. dollars, unless otherwise stated, which is the Company’s and its wholly owned subsidiary’s, Edesa Biotech USA, Inc., functional currency. The functional currency of the Company’s wholly owned subsidiary, Edesa Biotech Research, Inc., as determined by management, is Canadian dollars.
3. Intangible Assets
Acquired Licenselicense
In April 2020, the Company entered into a license agreement with a pharmaceutical development company to obtain exclusive world-wide rights to know-how, patents and data relating to certain monoclonal antibodies (the Constructs), including sublicensing rights. Unless earlier terminated, the term of the license agreement will remain in effect for 25 years from the date of first commercial sale of licensed products containing the Constructs. Subsequently, the license agreement will automatically renew for five-year periods unless either party terminates the agreement in accordance with its terms.
Under the license agreement, the Company is exclusively responsible, at its expense, for the research, development, manufacture, marketing, distribution and commercialization of the Constructs and licensed products and to obtain all necessary licenses and rights. The Company is required to use commercially reasonable efforts to develop and commercialize the Constructs in accordance with the terms of a development plan established by the parties.
7 |
Table of Contents |
The Company has determined that the license has multiple alternative future uses in research and development projects and sublicensing in other countries or for other disease indications. The value of the acquired license is recorded as an intangible asset with amortization over the estimated useful life of 25 years and evaluation for impairment at the end of each reporting period.
The required upfront license payment of $2.5 million was paid by issuance of Series A-1 Convertible Preferred Shares, which have been fully converted to common shares. The value of the license includes acquisition legal costs. See Note 5 for license commitments.
Intangible assets, net consisted of the following:
|
| March 31, 2023 |
|
| September 30, 2022 |
|
| December 31, 2023 |
|
| September 30, 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
The Constructs |
| $ | 2,529,483 |
| $ | 2,529,483 |
|
| $ | 2,529,483 |
| $ | 2,529,483 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Less: accumulated amortization |
|
| (298,877 | ) |
|
| (248,291 | ) |
|
| (374,756 | ) |
|
| (349,463 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Total intangible assets, net |
| $ | 2,230,606 |
|
| $ | 2,281,192 |
|
| $ | 2,154,727 |
|
| $ | 2,180,020 |
|
Amortization expense amounted to $0.03 million for each of the three months ended MarchDecember 31, 2023 and 2022 and $0.05 million for each of the six months ended March 31, 2023 and 2022 ., respectively.
Total estimated future amortization of intangible assets for each fiscal year is as follows:
Year Ending |
|
|
|
|
|
| ||
September 30, 2023 |
| $ | 50,586 |
| ||||
September 30, 2024 |
| 101,172 |
|
| 75,879 |
| ||
September 30, 2025 |
| 101,172 |
|
| 101,172 |
| ||
September 30, 2026 |
| 101,172 |
|
| 101,172 |
| ||
September 30, 2027 |
| 101,172 |
|
| 101,172 |
| ||
September 30, 2028 |
| 101,172 |
| |||||
Thereafter |
|
| 1,775,332 |
|
|
| 1,674,160 |
|
|
|
|
|
|
|
| ||
|
| $ | 2,230,606 |
|
| $ | 2,154,727 |
|
4. Right-of-Use Lease with Related Party
The Company leases a facility used for executive offices from a related company. The original lease expired in December 2022 and the Company executed a two-year extension through December 2024.
The components of right-of-use lease cost were as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| March 31, 2023 |
|
| March 31, 2022 |
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||||
Right-of-use lease cost, included in general and administrative on the Statements of Operations |
| $ | 21,443 |
|
| $ | 20,255 |
|
| $ | 40,342 |
|
| $ | 40,608 |
|
|
| Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Right-of-use lease cost, included in general and administrative on the Statements of Operations |
| $ | 20,116 |
|
| $ | 18,898 |
|
Lease terms and discount rates were as follows:
|
|
2023 | September 30, 2023 |
| ||||
Remaining lease term (months): |
|
|
|
|
|
| ||
Estimated incremental borrowing rate: |
|
| 9.2 | % |
|
| % |
8 |
Table of Contents |
The future minimum lease payments under right-of-use leases at MarchDecember 31, 2023 were as follows:
Year Ending |
|
|
|
|
|
|
|
| ||||
September 30, 2023 |
| $ | 39,995 |
| ||||||||
September 30, 2024 |
| 79,989 |
|
|
|
| $ | 61,234 |
| |||
September 30, 2025 |
|
| 19,997 |
|
|
|
|
| 20,411 |
| ||
|
|
|
|
|
|
|
|
| ||||
Total lease payments |
| 139,981 |
|
|
|
| 81,645 |
| ||||
Less imputed interest |
|
| 10,153 |
|
|
|
|
| 3,331 |
| ||
|
|
|
|
|
|
|
|
| ||||
Present value of right-of-use lease liabilities |
| 129,828 |
|
|
|
| 78,314 |
| ||||
Present value included in current liabilities |
|
| 65,406 |
|
|
|
|
| 78,314 |
| ||
|
|
|
|
|
|
|
|
| ||||
Present value included in long-term liabilities |
| $ | 64,422 |
|
|
|
| $ | - |
|
Cash flow information was as follows:
|
| Six Months Ended |
| |||||
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||
Cash paid for amounts included in the measurement of right-of-use lease liabilities, included in accounts payable and accrued liabilities on the Statements of Cash Flow. |
| $ | 38,907 |
|
| $ | 40,610 |
|
|
| Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Cash paid for amounts included in the measurement of right-of-use lease liabilities, included in accounts payable and accrued liabilities on the Statements of Cash Flow. |
| $ | 20,116 |
|
| $ | 18,899 |
|
5. Commitments
Research and other commitments
The Company has commitments for contracted research organizations who perform clinical trials for the Company’s ongoing clinical studies and other service providers. Approximate aggregate future contractual payments at MarchDecember 31, 2023 are as follows:
Year Ending |
|
|
|
|
|
| ||
September 30, 2023 |
| $ | 1,670,600 |
| ||||
|
|
|
| |||||
September 30, 2024 |
| 400,000 |
|
| $ | 1,540,000 |
| |
September 30, 2025 |
| 48,000 |
|
| 49,000 |
| ||
September 30, 2026 |
| 35,000 |
|
| 36,000 |
| ||
September 30, 2027 |
| 11,000 |
|
| 42,000 |
| ||
September 30, 2028 |
|
| - |
| ||||
|
|
|
|
|
|
| ||
|
| $ | 2,164,600 |
|
| $ | 1,667,000 |
|
License and royalty commitments
In April 2020, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive world-wide rights to certain know-how, patents and data relating to certain monoclonal antibodies (the Constructs),the Constructs, including sublicensing rights. An intangible asset for the acquired license has been recognized. See Note 35 for intangible assets. Under the license agreement, the Company is committed to payments of up to an aggregate amount of $356 million contingent upon meeting certain milestones outlined in the license agreement, primarily relating to future potential commercial approval and sales milestones. The Company also has a commitment to pay royalties based on any net sales of products containing the Constructs in the countries where the Company directly commercializes the products containing the Constructs and a percentage of any sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the products containing the Constructs. No milestone, royalty or sublicensing payments were made to the third party during the three and six months ended MarchDecember 31, 2023 and 2022.
In 2016, through its Ontario subsidiary, the Company entered into a license agreement with a third party to obtain exclusive rights to certain know- how,know-how, patents and data relating to a pharmaceutical product. The Company will use the exclusive rights to develop the product for therapeutic, prophylactic and diagnostic uses in topical dermal applications and anorectal applications. No intangible assets have been recognized under the license agreement with the third party. Under the license agreement, the Company is committed to payments of various amounts to the third party upon meeting certain milestones outlined in the license agreement, up to an aggregate amount of $18.4 million after deducting $0.08 million that is included in the commitments table above for the year ending September 30, 2023.million. Upon divestiture of substantially all of the assets of the Company, the Company wouldshall pay the third party a percentage of the valuation of the licensed technology sold as determined by an external objective expert. The Company also has a commitment to pay the third party a royalty based on net sales of the product in countries where the Company, or an affiliate, directly commercializes the product and a percentage of sublicensing revenue received by the Company and its affiliates in the countries where it does not directly commercialize the product. Milestone payments totaling $0.06A milestone payment of $0.1 million and $0.12 million werewas made to the third party during the three and six months ended MarchDecember 31, 2023, respectively. No milestones2022 and no milestone payments were metmade during the three and six months ended MarchDecember 31, 2022. No royalty or sublicensing payments were made to the third party during the three and six months ended March 31, 2023 and 2022.2023.
9 |
Table of Contents |
In March 2021, through its Ontario subsidiary, the Company entered into a license agreement with the inventor of the same pharmaceutical product to acquire global rights for all fields of use beyond those named under the 2016 license agreement. Milestone payments of $0.03 million were made under the 2021 agreement during the six months ended March 31, 2022. No milestones were met during the three and six months ended March 31, 2023 or the three months ended March 31, 2022. The Company is committed to remaining milestone payments of up to an aggregate amount of $68.9 million, primarily relating to future potential commercial approval and sales milestones. In addition, if the Company fails to file an investigational new drug application or foreign equivalent (IND) for the product within a certain period of time following the date of the agreement, the Company is required to remit to the inventor a fixed or prorated license fee annuallyquarterly as long as the requirement to file an IND remains unfulfilled. For the three months ended December 31, 2023, the Company recorded an expense of $25,000 as a result of meeting milestones outlined in the 2021 license agreement. There were no milestones achieved in the three months ended December 31, 2022 and no expenses were incurred.
6. Capital Shares
Equity Distribution Agreementsofferings
On November 2, 2022, the Company completed a private placement of units consisting of 384,475 common shares, Class A warrants to purchase up to an aggregate of 192,248 common shares and Class B warrants to purchase up to an aggregate of 192,248 common shares. Net proceeds from the offering were $2.9 million, which were allocated between the relative fair values of the common shares (using a fair value of $2.7 million) and the common share purchase warrants (using a total fair value of $1.2 million). The warrants became exercisable December 23, 2022. The Class A warrants have an exercise price of $10.50 per share and will expire on December 23, 2025. The Class B warrants have an exercise price of $7.00 per share and expired on December 23, 2023. The warrants are considered contracts on the Company’s own shares and are classified as equity.
Equity distribution agreement
On March 27, 2023, the Company entered into an equity distribution agreement with Canaccord, Genuity LLC (Canaccord), as sales agent, pursuant to which the Company may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $20 million in gross proceeds, subject to certain offering limitations that currently allow the Company to offer and sell common shares having an aggregate gross sales price of up to $8.37$8.4 million. The Company has no obligation to sell any of the common shares and may at any time suspend sales or terminate the equity distribution agreement in accordance with its terms. During the three months ended MarchDecember 31, 2023, there were no sales under the equity distribution agreement.
From November 22, 2021 until terminated March 21, 2022, the Company had an equity distribution agreement for an at-the-market equity offering program with another sales agent. During the six months ended March 31, 2022, the Company sold a total of 626,88489,249 common shares pursuant to the agreement for netgross proceeds of $2.62 million.
Equity offerings
On November 2, 2022, the Company completed a private placement of units consisting of 2,691,337 common shares, Class A warrants to purchase up to an aggregate of 1,345,665 common sharesapproximately $0.3 million after deducting commissions and Class B warrants to purchase up to an aggregate of 1,345,665 common shares. Net proceeds from the offering were $2.91 million, which were allocated between the relative fair values of the common shares (using a fair value of $2.69 million) and the common share purchase warrants (using a total fair value of $1.22 million). The warrants became exercisable December 23, 2022. The Class A warrants have an exercise price of $1.50 per share and will expire on December 23, 2025. The Class B warrants have an exercise price of $1.00 per share and will expire on December 23, 2023. The warrants are considered contracts on the Company’s own shares and are classified as equity.
On March 24, 2022, the Company 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, the Company issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares. Net proceeds from the offering were $9.01 million, which were allocated between the relative fair values of the common shares and pre-funded warrants (using a total fair value of $5.87 million) and the common share purchase warrants (using a total fair value of $4.13 million). The common share purchase warrants were immediately exercisable at an exercise price of $3.52 per share and will expire on September 24, 2027. The pre-funded warrants were immediately exercisable at an exercise price of $0.0001 per share and do not expire. The warrants are considered contracts on the Company’s own shares and are classified as equity. In connection with the offering, the Company issued warrants to purchase an aggregate of 191,780 common shares to certain affiliated designees of the placement agent as part of the placement agent’s compensation. The placement agent warrants are exercisable on or after March 24, 2022, at an exercise price of $4.5625 per share, and will expire on March 21, 2027 with a fair value of $0.41 million.costs.
Black-Scholes option valuation model
The Company uses the Black-Scholes option valuation model to determine the fair value of share-based compensation for share options and compensation warrants granted and the fair value of warrants issued. Option valuation models require the input of highly subjective assumptions including the expected price volatility. The Company calculates expected volatility based on historical volatility of the Company’s share price. When there is insufficient data available, the Company uses a peer group that is publicly traded to calculate expected volatility. The Company adopted interest-free rates by reference to the U.S. treasury yield rates. The Company calculated the fair value of share options granted based on the expected life of 5 years considering expected forfeitures during the option term of 10 years. Expected life of warrants is based on warrant terms. The Company did not and is not expected to declare any dividends. Changes in the subjective input assumptions can materially affect the fair value estimates, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s warrants and share options.
10 |
Table of Contents |
Warrants
A summary of the Company’s warrants activity is as follows:
|
| Number of Warrant Shares (#) |
|
| Weighted Average Exercise Price |
| ||
Six Months Ended March 31, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2022 |
|
| 3,651,953 |
|
| $ | 4.00 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 2,691,330 |
|
|
| 1.25 |
|
Exercised |
|
| (705,314 | ) |
|
| 1.09 |
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2023 |
|
| 5,637,969 |
|
| $ | 3.05 |
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 720,446 |
|
| $ | 5.69 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 2,931,507 |
|
|
| 3.59 |
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 3,651,953 |
|
| $ | 4.00 |
|
|
| Number of Warrant Shares (#) |
|
| Weighted Average Exercise Price |
| ||
Three Months Ended December 31, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2023 |
|
| 720,909 |
|
| $ | 19.51 |
|
|
|
|
|
|
|
|
|
|
Expired |
|
| (110,122 | ) |
|
| 7.00 |
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
| 610,787 |
|
| $ | 21.76 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 521,718 |
|
| $ | 28.00 |
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 384,496 |
|
|
| 8.75 |
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
| 906,214 |
|
| $ | 19.88 |
|
The weighted average contractual life remaining on the outstanding warrants at MarchDecember 31, 2023 is 3738 months.
The following table summarizes information about the warrants outstanding at MarchDecember 31, 2023:
Number of Warrants (#) |
|
| Exercise Prices |
|
| Expiry Dates | |||
| 28,124 |
|
| $ | 15.90 |
|
| May 2023 | |
| 563,685 |
|
| $ | 4.80 |
|
| July 2023 | |
| 770,786 |
|
| $ | 1.00 |
|
| December 2023 | |
| 7,484 |
|
| $ | 4.81 |
|
| June 2024 | |
| 11,778 |
|
| $ | 3.20 |
|
| January 2025 | |
| 1,215,230 |
|
| $ | 1.50 |
|
| December 2025 | |
| 109,375 |
|
| $ | 8.00 |
|
| February 2026 | |
| 191,780 |
|
| $ | 4.56 |
|
| March 2027 | |
| 2,739,727 |
|
| $ | 3.52 |
|
| September 2027 | |
| 5,637,969 |
|
|
|
|
|
|
|
Number of Warrants (#) |
|
| Exercise Prices |
|
| Expiry Dates | |||
| 1,070 |
|
| $ | 33.67 |
|
| June 2024 | |
| 1,687 |
|
| $ | 22.40 |
|
| January 2025 | |
| 173,614 |
|
| $ | 10.50 |
|
| December 2025 | |
| 15,627 |
|
| $ | 56.00 |
|
| February 2026 | |
| 27,399 |
|
| $ | 31.94 |
|
| March 2027 | |
| 391,390 |
|
| $ | 24.64 |
|
| September 2027 | |
| 610,787 |
|
|
|
|
|
|
|
The fair value of warrants granted during the sixthree months ended MarchDecember 31, 20232022 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
| Six Months Ended March 31, 2023 |
|
| Six Months Ended March 31, 2022 |
| ||||||||||
|
| Class A Warrants |
|
| Class B Warrants |
|
| Class A Warrants |
|
| Class B Warrants |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Risk free interest rate |
|
| 4.54 | % |
|
| 4.76 | % |
|
| 2.37 | % |
|
| 2.37 | % |
Expected life |
| 3.14 years |
|
| 1.14 years |
|
| 5.5 years |
|
| 5 years |
| ||||
Expected share price volatility |
|
| 90.73 | % |
|
| 89.70 | % |
|
| 87.09 | % |
|
| 87.09 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
Pre-funded Warrants
A summary of the Company’s pre-funded warrants activity is as follows:
| ||||
| ||||
| ||||
| ||||
|
There were no pre-funded warrants during the six months ended March 31, 2023.
|
| Three Months Ended December 31, 2022 |
| |||||
|
| Class A Warrants |
|
| Class B Warrants |
| ||
|
|
|
|
|
|
| ||
Risk free interest rate |
|
| 4.54 | % |
|
| 4.76 | % |
Expected life |
| 3.14 years |
|
| 1.14 years |
| ||
Expected share price volatility |
|
| 90.73 | % |
|
| 89.70 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
Share Optionsoptions
The Company adopted an Equity Incentive Compensation Plan in 2019 (the 2019 Plan) administered by the independent members of the Board of Directors, which amended and restated prior plans. Options, restricted shares and restricted share units are eligible for grant under the 2019 Plan. At March 31, 2023, theThe total number of shares available for issuance is 2,625,951 including shares available for the exercise of outstanding options under the terms of the 2019 Plan.Plan is 575,737. The remaining number of optionsshares available forto grant at MarchDecember 31, 2023 is 89,540.81,371.
The Company’s 2019 Plan allows options to be granted to directors, officers, employees and certain external consultants and advisers. Under the 2019 Plan, the option term is not to exceed 10 years and the exercise price of each option is determined by the independent members of the Board of Directors.
11 |
|
Table of Contents |
Options have been granted under the 2019 Plan allowing the holders to purchase common shares of the Company as follows:
|
| Number of Options (#) |
|
| Weighted Average Exercise Price |
|
| Weighted Average Grant Date Fair Value |
| |||
Six Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
| |||
Balance - September 30, 2022 |
|
| 2,203,699 |
|
| $ | 4.66 |
|
| $ | 3.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 332,950 |
|
|
| 1.43 |
|
|
| 1.07 |
|
Expired |
|
| (238 | ) |
|
| 304.08 |
|
|
| 304.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2023 |
|
| 2,536,411 |
|
| $ | 4.20 |
|
| $ | 3.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
| 1,776,219 |
|
| $ | 5.06 |
|
| $ | 3.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 500,083 |
|
|
| 3.66 |
|
|
| 2.48 |
|
Forfeited |
|
| (14,754 | ) |
|
| 6.48 |
|
|
| 5.06 |
|
Expired |
|
| (214 | ) |
|
| 502.68 |
|
|
| 477.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2022 |
|
| 2,261,334 |
|
| $ | 4.70 |
|
| $ | 3.45 |
|
|
| Number of Options (#) |
|
| Weighted Average Exercise Price |
|
| Weighted Average Grant Date Fair Value |
| |||
Three Months Ended December 31, 2023 |
|
|
|
|
|
|
|
|
| |||
Balance - September 30, 2023 |
|
| 420,615 |
|
| $ | 25.60 |
|
| $ | 18.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 500 |
|
|
| 4.10 |
|
|
| 3.10 |
|
Expired |
|
| (106 | ) |
|
| 960.00 |
|
|
| 960.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2023 |
|
| 421,009 |
|
| $ | 25.46 |
|
| $ | 18.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2022 |
|
| 314,853 |
|
| $ | 32.62 |
|
| $ | 23.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 500 |
|
|
| 6.72 |
|
|
| 4.97 |
|
Expired |
|
| (34 | ) |
|
| 2,129.00 |
|
|
| 2,129.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2022 |
|
| 315,319 |
|
| $ | 32.27 |
|
| $ | 23.73 |
|
During the sixthree months ended MarchDecember 31, 2023, the independent members of the Board of Directors granted 332,950 employee and new employee options pursuant to the 2019 Plan. During the six months ended March 31, 2022, the independent members of the Board of Directors granted 415,083500 employee options and 85,000no director options. The options have a term of 10 years and an exercise price equal to the Nasdaq closing price on the grant date.
The weighted average contractual life remaining on the outstanding options at MarchDecember 31, 2023 is 9483 months.
The following table summarizes information about the options under the 2019 Plan outstanding and exercisable at MarchDecember 31, 2023:
Number of Options (#) |
|
| Exercisable at March 31, 2023 (#) |
|
| Range of Exercise Prices |
|
| Expiry Dates | ||||
| 3,499 |
|
|
| 3,499 |
|
| $ | 35.28 - 93.24 |
|
| Sep 2023 - Mar 2025 | |
| 296,403 |
|
|
| 296,403 |
|
| C$ | 2.16 |
|
| Aug 2027 - Dec 2028 | |
| 323,976 |
|
|
| 323,976 |
|
| $ | 3.16 |
|
| Feb 2030 | |
| 397,000 |
|
|
| 330,736 |
|
| $ | 7.44 - 8.07 |
|
| Sep 2030 - Oct 2030 | |
| 682,500 |
|
|
| 480,624 |
|
| $ | 5.25 - 5.65 |
|
| Jan 2031 - Sep 2031 | |
| 500,083 |
|
|
| 246,378 |
|
| $ | 2.94 - 3.71 |
|
| Feb 2032 - Mar 2032 | |
| 332,950 |
|
|
| 9,539 |
|
| $ | 0.96 - 1.43 |
|
| Dec 2032 - Feb 2033 | |
| 2,536,411 |
|
|
| 1,691,155 |
|
|
|
|
|
|
|
Number of Options (#) |
|
| Exercisable at December 31, 2023 (#) |
|
| Range of Exercise Prices |
|
| Expiry Dates | ||||
| 391 |
|
|
| 391 |
|
| $ | 246.96 - 596.82 |
|
| June 2024 - Mar 2025 | |
| 42,348 |
|
|
| 42,348 |
|
| C$ | 15.12 |
|
| May 2024 - Dec 2028 | |
| 46,285 |
|
|
| 46,285 |
|
| $ | 22.12 |
|
| May 2024 - Feb 2030 | |
| 56,722 |
|
|
| 56,722 |
|
| $ | 52.08 - 56.49 |
|
| May 2024 - Oct 2030 | |
| 93,344 |
|
|
| 87,090 |
|
| $ | 36.75 - 40.18 |
|
| Apr 2024 - Sep 2031 | |
| 68,777 |
|
|
| 49,004 |
|
| $ | 20.58 - 25.97 |
|
| Apr 2024 - Feb 2032 | |
| 113,142 |
|
|
| 30,585 |
|
| $ | 5.79 - 10.01 |
|
| Apr 2024 - Jul 2033 | |
| 421,009 |
|
|
| 312,425 |
|
|
|
|
|
|
|
The options exercisable at December 31, 2023 had a weighted average exercise price of $29.99, $245 intrinsic value and a weighted average remaining life of 74 months. There were 108,584 options at December 31, 2023 that had not vested with a weighted average exercise price of $12.43, no intrinsic value and a weighted average remaining life of 109 months.
The fair value of options granted during the three months ended December 31, 2023 and 2022 was estimated using the Black-Scholes option valuation model using the following assumptions:
|
| Three Months Ended December 31, 2023 |
|
| Three Months Ended December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Risk free interest rate |
|
| 4.92 | % |
|
| 3.62 | % |
Expected life |
| 5 years |
|
| 5 years |
| ||
Expected share price volatility |
|
| 97.26 | % |
|
| 95.30 | % |
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
The Company recorded $0.2 million and $0.3 million of share-based compensation expenses for the three months ended December 31, 2023 and 2022, respectively.
As of December 31, 2023, the Company had approximately $0.3 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 31months.
12 |
Table of Contents |
Restricted Share Units (RSU)
The Company’s 2019 Plan allows restricted share units (RSUs) to be granted to directors, officers, employees and certain external consultants and advisers. Under the 2019 Plan, the RSU term is not to exceed 10 years. The fair value is based on the 5-day VWAP of options granted during the six months ended March 31, 2023 and 2022Company’s common shares up to the date of grant. The initial grant of RSUs was estimated using the Black-Scholes option valuation model using the following assumptions:in August 2023.
|
| Six Months Ended |
| |||||
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||
|
|
|
|
| ||||
Risk free interest rate |
| 3.62% - 4.18 | % |
| 1.71% - 2.54 | % | ||
Expected life |
| 5 years |
|
| 5 years |
| ||
Expected share price volatility |
| 95.3% - 97.34 | % |
| 85.91% - 86.59 | % | ||
Expected dividend yield |
|
| 0.00 | % |
|
| 0.00 | % |
The Company recorded $0.29 millionfollowing is a summary of changes in the status of RSUs from October 1, 2023 through December 31, 2023:
|
| Number of RSU (#) |
|
| Weighted Average Grant Date Fair Value |
| ||
Three Months Ended December 31, 2023 |
|
|
|
|
|
| ||
Balance - September 30, 2023 and December 31, 2023 |
|
| 33,045 |
|
| $ | 5.60 |
|
The following table summarizes information about the RSUs under the 2019 Plan outstanding and $0.63 million of share-basedexercisable at December 31, 2023:
Number of RSU (#) | Expiry Date | ||||||
Fully-vested RSUs | 33,045 | August 4, 2033 |
All RSUs that were granted vested immediately upon the grant date. The outstanding RSUs can be converted to common shares by the holder at any time prior to the expiry date. There is no future unrecorded compensation expensesexpense for the three months ended March 31, 2023 and 2022, respectively and $0.62 million and $1.24 million for the six months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, the Company had $0.77 million of unrecognized share-based compensation expense, which is expected to be recognized over a period of 35 months.RSUs.
7. Reimbursement Grant Income and ReceivableGovernment Contributions
Reimbursement grant income for the Company’s federal grant with the Canadian government’s Strategic Innovation Fund (SIF)SIF is recorded based on the claim period of eligible costs. At March 31,
In February 2021, the Company entered into a multi-year contribution agreement (the 2021 SIF Agreement) with the Canadian Government’s Strategic Innovation Fund. Under the 2021 SIF Agreement, the Government of Canada committed up to C$14.1 million in nonrepayable funding which was intended to support research and development related to our EB05 clinical program. No further funding will be received from the 2021 SIF Agreement.
In October 2023, the Company entered into a multi-year contribution agreement (the 2023 SIF Agreement) with the Canadian Government’s Strategic Innovation Fund. Under the 2023 SIF Agreement, the Government of Canada committed up to C$23 million in partially repayable funding toward (i) conducting and completing the Company’s Phase 3 clinical study of its experimental drug EB05 in critical-care patients with Acute Respiratory Distress Syndrome (ARDS) caused by COVID-19 or other infectious agents, (ii) submitting EB05 for governmental approvals and manufacturing scale-up, following, and subject to, completing the Phase 3 study and (iii) conducting two non-clinical safety studies to assess the potential long-term impact of EB05 exposure (the Project). Of the C$23 million committed by SIF, up to C$5.8 million is not repayable by the Company. The remaining C$17.2 million is conditionally repayable starting in 2029 only if and when the Company earns gross revenue. The repayable portion would be payable over fifteen (15) years based on a percentage rate of the Company’s annual revenue growth. The maximum amount repayable under the Agreement is 1.4 times the original repayable amount. In addition, the Company is entitled to partial reimbursement of certain eligible expenses under the Agreement.
Under the Agreement, the Company agreed to certain financial and non-financial covenants and other obligations in relation to the Project. Pursuant to the Agreement, certain customary events of default, such as the Company’s or Edesa Biotech Research’s breach of their covenants and obligations under the Agreement, their insolvency, winding up or dissolution, and other similar events, may permit the Government of Canada to declare an event of default under the Agreement. Upon an event of default, subject to applicable cure, the Government of Canada may exercise a number of remedies, including suspending or terminating funding under the Agreement, demanding repayment of funding previously received and/or terminating the Agreement.
13 |
Table of Contents |
The funding and any associated conditional repayments are not secured by any assets of Edesa Biotech Research or the Company.
The Agreement will expire on the later of December 31, 2042 or the date of the last repayment, unless earlier terminated, subject to certain provisions that extend three (3) years beyond the term or early termination of the Agreement.
Under the 2023 SIF Agreement the Company recorded grant program is complete and allincome of $0.1 million for the three months ended December 31, 2023. No grant reimbursements have been received.income was recorded under the 2023 SIF Agreement for the three months ended December 31, 2022.
8. Financial Instruments
(a) Fair values
The Company uses the fair value measurement framework for valuing financial assets and liabilities measured on a recurring basis in situations where other accounting pronouncements either permit or require fair value measurements.
The Company follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
There are three levels of inputs that may be used to measure fair value:
| · | Level 1 |
| · | Level 2 |
| · | Level 3 |
The carrying value of certain financial instruments such as cash and cash equivalents, accounts and other receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of such instruments. The fair value of lease obligations on right-of-use assets approximates carrying value due to a fixed lease rate, which represents market rate.
(b) Interest rate and credit risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a significant change in market interest rates, relative to interest rates on cash and cash equivalents due to the short-term nature of these balances.
The Company is also exposed to credit risk at period end from the carrying value of its cash and cash equivalents and accounts and other receivable. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Banks,Bank and a U.S. banksbank believed to be credit worthy and money market mutual funds of U.S. government securities. The Company’s cash is not subject to any external restrictions. The Company assesses the collectability of accounts receivable through a review of the current aging and terms, as well as an analysis of historical collection rates, general economic conditions and credit status of government agencies. Credit risk for the reimbursement grant and HST refunds receivable are not considered significant since amounts are due from the Canadian government’s SIF and the Canada Revenue Agency.
(c) Foreign exchange risk
The Company and its subsidiary have balances in Canadian dollars that give rise to exposure to foreign exchange (FX) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. At MarchDecember 31, 2023, the Company and its Canadian subsidiary had assets denominated in Canadian dollars of approximately C$5.21.9 million and the U.S. dollar exchange rate at this date was equal to 1.35321.3257 Canadian dollars. Based on the exposure at MarchDecember 31, 2023, a 10% annual change in the Canadian/U.S. exchange rate would impact the Company’s loss and other comprehensive loss by approximately $0.4$0.1 million.
(d) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.
14 |
Table of Contents |
9. Loss per Share
The Company had securities outstanding which could potentially dilute basic EPSearnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have been anti-dilutive.
10. Related Party Transactions
During each of the three and six months ended MarchDecember 31, 2023 and 2022, the Company paid cash of $0.02 million$20,000 and $0.04 million,$19,000, respectively, for a right of useROU lease from a company controlled by the Company’s CEO. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by both parties. On December 31, 2022, the Company executed a two-year lease extension through December 31, 2024 in accordance with the terms of the original lease agreement. Rent of approximately $15,000 was payable at December 31, 2023. There was no rent payable at December 31, 2022.
In October 2023, we entered into $10.0 million revolving credit agreement with Pardeep Nijhawan Medicine Professional Corporation, an entity controlled by Dr. Pardeep Nijhawan, MD, our Chief Executive Officer and Secretary and member of our board of directors (Credit Agreement), providing an unsecured revolving credit facility, with a credit limit of $3.5 million (Credit Limit) which was available immediately. The line of credit bears interest at the Canadian Imperial Bank of Commerce US Base-Interest Rate plus 3% per annum and has a maturity date of March 31, 2026, unless terminated earlier by either party with 90 days’ notice. Advances under the line of credit are tied to a borrowing base (Borrowing Base) consisting of eligible grant receivables from SIF, future potential license fee receivables and any other accounts receivable. At no time shall the aggregate principal amount of all advances outstanding exceed the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base. The Company has not drawn any funds from the Credit Agreement. During the three months ended December 31, 2023 the Company incurred a standby charge of $12,000. There was no standby charge in the three months ended December 31, 2022.
11. Subsequent Events
Subsequent to MarchDecember 31, 2023, equity sales under the Company’s “at the market”at-the-market offering program have resulted in the issuance of 562,0527,038 common shares and receipt of net cash proceeds of $0.60$0.03 million after deducting sales agent commissions.
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 MarchDecember 31, 2023 and our audited consolidated financial statements for the year ended September 30, 20222023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on December 16, 2022.15, 2023.
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, 20222023 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 MarchDecember 31, 2023 and September 30, 2022,2023, and for the three and six months ended MarchDecember 31, 2023 and 2022 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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
· | our ability to obtain funding for our operations; | |
· | our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing; | |
· | the timing of the commencement, progress and receipt of data from any of our preclinical and clinical trials; | |
· | the expected results of any preclinical or clinical trial and the impact on the likelihood or timing of any regulatory approval; | |
· | the therapeutic benefits, effectiveness and safety of our product candidates; | |
· | the timing or likelihood of regulatory filings and approvals; | |
· | changes in our strategy or development plans; | |
· | the volatility of our common share price; | |
· | the rate and degree of market acceptance and clinical utility of any future products; | |
· | the effect of competition; | |
· | our ability to protect our intellectual property as well as comply with the terms of license agreements with third parties; | |
· | our ability to identify, develop and commercialize additional products or product candidates; | |
· | reliance on key personnel; | |
· | general changes in economic or business conditions; and | |
· | other risks and uncertainties, including those listed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2023 |
16 |
Table of Contents |
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the SEC,on December 15, 2023, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC.
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. EB05 (paridiprubart),represents a monoclonal antibody developednew class of emerging therapies called Host-Directed Therapeutics (HDTs) that are designed to modulate the body’s own immune response when confronted with infectious diseases or even chemical agents. Importantly, these therapies are designed to work across multiple infectious diseases and threats, and could be stockpiled preemptively ahead of outbreaks. Because they are threat agnostic, HDTs like paridiprubart have the potential to become standard of care in Intensive Care Units (ICUs) and critical countermeasures for acuteboth pandemic preparedness 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.biodefense. 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 ofRecruitment in 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). Based in part of these findings, the U.S. Food and Drug Administration (FDA) granted us Fast Track designation. We are currently enrolling patients in the Phase 3 part of the EB05 study.is ongoing.
In addition to EB05, we are developing product candidates for a number of chronic dermatological and inflammatory conditions. We recentlyIn November 2023, we reported preliminary, toplinefinal results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01 , as a monotherapy for moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition. Among the preliminary findings, 1.0% EB01 cream demonstrated statistically significant improvement over placebo for the primary endpoint and a key secondary endpoint. We are preparing for an End of Phase 2 meeting with FDA following full analysis. In January 2023, Health Canada approved our clinical trial application (CTA) forFor our EB06 monoclonal antibody candidate, we have received regulatory approval by Health Canada to conduct a future Phase 2 study in patients with moderate to severe nonsegmental vitiligo, a common autoimmune disorder that causes skin to lose its color in patches. We are also preparing an investigational new drug application (IND) in the United States (U.S.) for our EB07 (paridiprubart) 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.patients with certain fibrotic diseases.
Table of Contents |
Recent Developments
· | In November 2023, we reported final results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01, as a monotherapy for moderate-to-severe chronic ACD, Among the findings, 1.0% EB01 cream demonstrated statistically significant improvement over placebo for the primary endpoint and a key secondary endpoint. | |
· | In October 2023, we announced that Health Canada approved the company's proposal to harmonize clinical trial designs in the U.S. and Canada for an ongoing Phase 3 study of EB05 (paridiprubart). Our monoclonal antibody is currently being evaluated as a treatment for Covid-19 induced ARDS. We are also exploring various approaches to evaluate our EB05 drug candidate in a general, all-cause ARDS population. | |
· | In October 2023, we secured a $10 million credit facility with our Founder (see Liquidity and Capital Resources); and | |
· | In October 2023, we announced up to C$23 million in partially repayable funding from the Canadian government (see Liquidity and Capital Resources). |
EB05 (Paridiprubart) Clinical Study
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
In March 2023, we announced that the company and the FDA agreedSee Note 2 to our financial statements included in our Annual Report on the primary endpoint and populationForm 10-K for the Phase 3 partyear ended September 30, 2023 for a discussion of a Phase 2/3 study evaluating our monoclonal antibody candidate, EB05, as a therapy for hospitalized Covid-19 patients with ARDS. Under the amended protocol design, Edesa will evaluate a single cohort of severely ill patients on invasive mechanical ventilation, both withsignificant accounting policies and without additional organ supportestimates. There have been no material changes to such as extracorporeal membrane oxygenation (ECMO). Edesa plans to enroll approximately 600 evaluable hospitalized subjects. The primary endpoint will be the mortality rate at 28 days. Last year, Canadian regulators approved a similar Phase 3 study of EB05 in Covid-19-induced ARDS among two separate cohorts of patients, and we are evaluating potential future harmonization of the Canadian protocol with the U.S. With recruitment now open in both the U.S. and Canada, we have discontinued recruitment at secondary sites, which were located in Poland and Colombia. In addition to Covid-19 induced ARDS, we are also exploring various approaches to evaluating EB05 in a general ARDS population.
In April 2023, we announced the World Health Organization and the United States Adopted Name (USAN) Council have adopted the international nonproprietary name "paridiprubart" for our anti-TLR4 monoclonal antibody candidate.significant accounting policies or estimates.
Results of Operations
Comparison of the Three Months Ended MarchDecember 31, 2023 and 2022
Total operating expenses decreased by $2.17$0.5 million to $2.41$1.9 million for the three months ended MarchDecember 31, 2023 compared to $4.58$2.4 million for the same period last year:
| · | Research and development (R&D) expenses decreased by |
|
|
|
| · | General and administrative (G&A) expenses |
Total other income increased by $0.07 million to $0.08 million for the three months ended March 31, 2023 compared to $0.01 million for the same period last year primarily due to an increase in interest earned on cash balances.
For the three months ended March 31, 2023, our net loss was $2.33 million, or $0.12 per common share, compared to a net loss of $4.57 million, or $0.33 per common share, for the three months ended March 31, 2022.
Comparison of the Six Months Ended March 31, 2023 and 2022
Total operating expenses decreased by $4.95 million to $4.79 million for the six months ended March 31, 2023 compared to $9.74 million for the same period last year:
| ||
|
|
|
| · |
· | Grant income increased by $0.1 million to $0.1 million the three months ended December 31, 2023. There was no grant income in the comparative period. The increase is related to the grant income associated with the activities under the 2023 SIF Agreement. | |
· | Interest income increased by $12,000 to $61,000 the three months ended December 31, 2023 compared to $49,000 for the same period last year primarily due to | |
|
|
|
· | Foreign exchange gain was $2,800 for the three months ended December 31, 2023 compared to a gain of $5,900 for the three months ended December 31, 2022. |
Total other income decreased by $0.67 million to $0.12 million for the six months ended March 31, 2023 compared to $0.79 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 sixthree months ended MarchDecember 31, 2023, our net loss was $4.67$1.7 million, or $0.24$0.54 per common share, compared to a net loss of $8.95$2.3 million, or $0.66$0.89 per common share for the sixthree months ended MarchDecember 31, 2022.
Capital Expenditures
Our capital expenditures primarily consist of computer and office equipment. There were no significant capital expenditures for the three and six months ended MarchDecember 31, 2023 and 2022.
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
Our primary use of cash is to fund our operating expenses, which consist of R&D and G&A expenditures. Cash used to fund operating expenses is impacted by the six-month periodstiming of when we pay these expenses, as reflected in the change in accounts payable and accrued expenses. Net cash used in operating activities was $1.4 million and $1.8 million for the three months ended MarchDecember 31, 2023 and 2022, we reportedrespectively. We incurred net losses of $4.67$1.7 million and $8.95$2.3 million respectively.for those same quarters.
18 |
Table of Contents |
In October 2023, we entered into the 2023 SIF Agreement with the Canadian Government’s SIF. Under the 2023 SIF Agreement, the Government of Canada committed up to C$23 million in partially repayable funding. Of the C$23 million committed by SIF, up to C$5.8 million is not repayable by us. The remaining C$17.2 million is conditionally repayable starting in 2029 only if and when we earn gross revenue. In February 2021, we entered into the 2021 SIF Agreement, pursuant to which we were eligible to receive cash reimbursements up to C$14.1 million in the aggregate for certain R&D expenses related to our EB05 clinical development program. All potential funding available under the 2021 SIF Agreement has been received. For the three months ended December 31, 2023 we recorded grant income of $0.1 million related to the 2023 SIF Agreement. The was no grant income recognized in the comparative period.
OnIn October 2023, we entered into $10.0 million revolving credit agreement with Pardeep Nijhawan Medicine Professional Corporation, an entity controlled by Dr. Pardeep Nijhawan, MD, our Chief Executive Officer and Secretary and member of our board of directors (Credit Agreement), providing an unsecured revolving credit facility, with a credit limit of $3.5 million (Credit Limit) which was available immediately. The line of credit bears interest at the Canadian Imperial Bank of Commerce US Base-Interest Rate plus 3% per annum and has a maturity date of March 27,31, 2026, unless terminated earlier by either party with 90 days’ notice. Advances under the line of credit are tied to a borrowing base (Borrowing Base) consisting of eligible grant receivables from SIF, future potential license fee receivables and any other accounts receivable. At no time shall the aggregate principal amount of all advances outstanding exceed the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base. We have not drawn any funds from the Credit Agreement.
In August 2022, we filed a $150.0 million shelf registration statement. In March 2023, we entered into an equity distribution agreement with Canaccord, Genuity LLC (Canaccord), as sales agent, pursuant to which the Companywe may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $20 million in gross cash proceeds, subject to certain offering limitations that currently allow the Companyus to offer and sell common shares having an aggregate gross sales price of up to $8.37 million.$8.4 million (Canaccord ATM). There was approximately $6.7 million of available capacity on the Canaccord will use commercially reasonable efforts to sell the common shares from time to time, based upon our instructions. WeATM as of December 31, 2023.We have no obligation to sell any of the common shares and may at any time suspend sales under the equity distribution agreement or terminate the equity distribution agreement in accordance with its terms. TheFor the three months ended December 31, 2023, we sold a total amount of cash that may be generated under this equity distribution89,249 common shares pursuant to the agreement is uncertainfor net proceeds of $0.3 million after deducting commissions and depends on a varietycosts of factors, including market conditions and the trading price of our common shares. There were no sales in the quarter ended March 31, 2023.$24,000. Subsequent to the quarter end, sales under our equity distribution agreement with Canaccord have resulted in the issuanceDecember 31, 2023, we sold a total of 562,0527,038 common shares and receipt ofpursuant to the agreement for net cash proceeds of $0.60 million$33,000 after deducting sales agent commissions.
In November 2022, we completed a private placement of units consisting of 2,691,337384,475 common shares, three-year12-month warrants to purchase up to an aggregate of 1,345,665192,248 common shares (Class A warrants) and twelve-month3-year warrants to purchase up to an aggregate of 1,345,665192,248 common shares (Class B warrants).shares. The gross proceeds from this offering arewere approximately $3.03$3.0 million, before offering expenses. During the six months ended March 31, 2023, 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.
From November 2021 to March 2022, we sold a total of 626,884 common shares under an “at-the-market” equity distribution program which resulted in net proceeds of $2.62 million after deducting commissions and direct costs.
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 were received by December 31, 2022.
At MarchDecember 31, 2023, we had cash and cash equivalents of $7.47 million, working capital of $6.56 million, shareholders’ equity of $9.0 million and an accumulated deficit of $48.71 million.$54.1 million and working capital of $3.4 million, including $4.3 million in cash and cash equivalents. We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, and equity salesincluding net proceeds from the Canaccord ATM, advances under the at-the-market offering program.Credit Agreement and reimbursements of eligible R&D expenses under the 2023 SIF Agreement with the Canadian government. 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 assuranceIf we raise additional funds by issuing equity securities, our shareholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that adequateinclude covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Adequate funding willmay not be available to us on acceptable terms, or if available, thatat all. If we fail to raise capital or enter into such fundingagreements as and when needed, we may have to significantly delay, scale back or discontinue the development of our product candidates.
We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for our product candidates, we will be available on termsincur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company. To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, clinical trials of our product candidates, and other operations and potential product acquisitions and in licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our shareholders viewexisting operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as favorable. Market volatility, inflation, interest rates, government policies and concerns relateda collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in licensing or similar strategic business transaction.
Cash Flows
Net cash used in operating activities
Net cash used in operating activities was $1.4 million for the warthree months ended December 31, 2023 compared to $1.8 million for the three months ended December 31, 2022, primarily due to a decrease in UkraineR&D expenses of $0.7 million, partially offset by a reduction in non-cash stock based compensation of $0.1 million and the Covid-19 pandemic may havereduction in the recovery of working capital of $0.1 million.
Net cash used in investing activities
There was no cash used in investing activities for the three months ended December 31, 2023 and 2022, respectively.
19 |
Table of Contents |
Net cash provided by financing activities
Net cash provided by financing activities was $0.3 million for the three months ended December 31, 2023 as compared to $2.9 million for the three months ended December 31, 2022. In the current quarter, we received proceeds of $0.3 million from the Canaccord ATM, partially offset by issuance costs of $9,500. In the comparative quarter, we received proceeds of $3.0 million from a significant impact on the availabilityprivate placement in November 2022 and incurred issuance costs of funding sources and the terms at which any funding may be available.$0.1 million for net proceeds of $2.9 million.
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 developmentR&D 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 developmentR&D 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 costsR&D expenses were $2.82$0.7 million and $6.99$1.4 million for the sixthree months ended MarchDecember 31, 2023 and 2022, respectively. The decrease was due primarily to decreasedlower external research expenses related to our ongoing clinical studies and manufacturing of our investigational drugs.studies.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company and are not required to provide disclosure under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and procedures to provide reasonable assurance that material information related to our Company, including our consolidated subsidiaries, is made known to senior management, including our Chief Executive Officer and the Chief Financial Officer, by others within those entities on a timely basis so that appropriate decisions can be made regarding public disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of 1934, as amended)Act) as of MarchDecember 31, 2023. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of MarchDecember 31, 2023, were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended MarchDecember 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Table of Contents |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in legal proceedings, claims and litigation arising in the ordinary course of business. We are not currently a party to any material legal proceedings or claims outside the ordinary course of business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2022,2023, filed with the Securities and Exchange Commission on December 16, 2022.15, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Table of Contents |
Item 6. Exhibits
EXHIBIT INDEX
Exhibit No. | Description | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
* The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Edesa Biotech, Inc. under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
@ Management contract or compensatory plan or arrangement.
+ Portions of this exhibit have been omitted pursuant to Rule 601(b)(10)(iv) of Regulation S-K.
Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| EDESA BIOTECH, INC. |
|
|
|
|
|
Date: February 9, 2024 |
| /s/ |
|
|
|
(Principal Executive Officer) |
|
|
| ||
Date: February 9, 2024 | /s/ Stephen Lemieux | ||
Stephen Lemieux, Chief Financial Officer (Principal Financial |
|