What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-12-13 compared with 2023-12-15 · 188 added, 0 removed, 10 unchanged (95% of the section changed)

9 unchanged sentences

Any future determination to pay dividends will be made at the discretion of our board of directors.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10-K under the caption “Risk Factors.” Please see “Forward-Looking Statements and Other Matters” in Part I above.

We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

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.

Our clinical pipeline is focused on two therapeutic areas:

Medical Dermatology and Respiratory.

In Medical Dermatology we are developing EB06, an anti-CXCL10 monoclonal antibody candidate, as a therapy for vitiligo, a common autoimmune disorder that causes skin to lose its color in patches.

CXCL10 has been shown to play a key role in the disease, and neutralization of CXCL10 has been demonstrated to both prevent and reverse depigmentation in animal models.

To date, EB06 has demonstrated a favorable safety and tolerability profile.

We have received regulatory approval from Health Canada to conduct a Phase 2 proof of concept study of EB06 in patients with moderate-to-severe nonsegmental vitiligo and we are in discussions with the U.S.

Food and Drug Administration (FDA) for the same study.

Our medical dermatology assets also include EB01 (1.0% daniluromer cream), a Phase 3-ready asset developed for use as a potential therapy for moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition.

This asset is at the partnering stage.

Our most advanced Respiratory drug candidate is EB05 (paridiprubart).

Paridiprubart represents a new 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.

EB05 is currently being evaluated in a U.S.

government-funded platform study investigating three novel threat-agnostic HDTs in hospitalized adult patients with Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure.

Certain development expenses, including manufacturing scale-up, for our EB05 program are also eligible for reimbursement from the Government of Canada under a 2023 grant and funding award.

In addition to EB05, we are also preparing an investigational new drug application (IND) in the United States to conduct a future Phase 2 study for EB07 (paridiprubart) in patients with pulmonary fibrosis.

Operating and Financial Review and Prospects

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of the Company and our wholly owned subsidiaries, Edesa Biotech Research, Inc.

and Edesa Biotech USA, Inc.

Our operations have been funded primarily through issuances of common shares, exercises of common share purchase warrants, convertible preferred shares, convertible loans, government grants and tax incentives.

We have devoted substantially all of our efforts to research and development, including clinical trials, and have not completed the development of any of our drug candidates.

We expect that our cash and cash equivalents, at September 30, 2024, together with the proceeds from the sale of Preferred Shares to PN MPC, net proceeds from the HCW ATM and reimbursements of eligible R&D expenses under the 2023 SIF Agreement will not be sufficient to fund our operating expenses for one year after the date of this filing and therefore management has concluded that substantial doubt exists about our ability to continue as a going concern.

We will need to raise additional capital and/or reduce our operating expenses to support the Company’s operations for at least the next 12 months.

As a clinical-stage biopharmaceutical company, we expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue the development of, and seek marketing approvals for our product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company in the United States and Canada.

To fund operations, we may 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.

Results of Operations

Fiscal Year Ended September 30, 2024 Compared to the Fiscal Year Ended September 30, 2023

Our total operating expenses decreased by $2.2 million to $7.0 million for the year ended September 30, 2024 compared to $9.2 million for the prior year:

Research and development (R&D) expenses decreased by $1.9 million to $2.9 million for the year ended September 30, 2024 compared to $4.8 million for the prior year primarily due to decreased external research expenses related to the company’s completed dermatitis study and a reduction in labor costs and noncash share-based compensation, which were partially offset by an increase in expenses related to manufacturing of paridiprubart.

Our R&D expenses consist primarily of employee-related expenses, including salaries, benefits, taxes, travel, and share-based compensation expense for personnel in R&D functions;

expenses related to process development and production of product candidates paid to contract manufacturing 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.

General and administrative (G&A) expenses decreased by $0.3 million to $4.1 million for the year ended September 30, 2024 compared to $4.4 million for the prior year primarily due to a decrease in noncash share-based compensation, which was partially offset by an increase in salaries and related costs.

Our G&A expenses consist primarily of salaries and related costs for our employees in administrative, executive and finance functions.

G&A expenses also include professional fees for legal, accounting, audit, tax and consulting services, insurance, office, and travel expenses.

Total other income was unchanged at $0.8 million for the years ended September 30, 2024 and September 30, 2023 and was composed of the following:

Grant income increased by $0.1 million to $0.7 million for the year ended September 30, 2024 compared to $0.6 million for the year ended September 30, 2023, reflecting an increase in grant income associated with reimbursable expenses under the 2023 SIF Agreement.

Interest income decreased by $0.1 million to $0.2 million for the year ended September 30, 2024 compared to $0.3 million for the prior year primarily due to lower cash balances.

Miscellaneous other income was $15,000 for the year ended September 30, 2024 related to loan forgiveness on the CEBA loan that was repaid in the year.

Foreign exchange loss was unchanged at $21,000 for both the year ended September 30, 2024 and September 30, 2023.

For the year ended September 30, 2024, our net loss was $6.2 million, or $1.93 per common share, compared to a net loss of $8.4 million, or $2.93 per common share, for the year ended September 30, 2023.

Capital Expenditures

Our capital expenditures primarily consist of computer and office equipment.

There were no significant capital expenditures for the years ended September 30, 2024 and 2023.

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.

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 timing of when we pay these expenses, as reflected in the change in accounts payable and accrued expenses.

Net cash used in operating activities was $4.9 million and $6.6 million for the years ended September 30, 2024 and 2023, respectively.

We incurred net losses of $6.2 million and $8.4 million for those same years.

In October 2024, we entered into an At The Market Offering Agreement with H.C.

Wainwright & Co., LLC as a sales agent (HCW ATM) pursuant to which we may offer and sell, from time to time, common shares through an at-the-market equity offering program for up to $3.87 million in gross proceeds.

Subsequent to September 30, 2024, we sold a total of 220,269 common shares pursuant to the agreement for net proceeds of $0.6 million after deducting sales agent commissions.

In October 2024, we entered into a Securities Purchase Agreement with Pardeep Nijhawan Medicine Professional Corporation (PN MPC), an entity controlled by Pardeep Nijhawan, the Company’s Chief Executive Officer, Secretary and member of the board of directors of the Company, pursuant to which the Company agreed to issue and sell to PN MPC in a private placement, up to $5 million of shares (Preferred Shares) of the Company’s newly designated Series A-1 Convertible Preferred Shares, stated value $10,000 per share, each of which is initially convertible into approximately 2,903 common shares (Conversion Shares), at a conversion price of $3.445 per Conversion Share, and warrants (Warrants) to purchase common shares (Warrant Shares) at an exercise price of $3.445 per Warrant Share.

The Preferred Shares and the Warrants were being sold together in a fixed combination of one Preferred Share and a Warrant to purchase a number of common shares equal to 75% of the underlying Conversion Shares at a combined purchase price of $10,272.13 per Preferred Share and related Warrants.

Under the Purchase Agreement, PN MPC has purchased 150 Preferred Shares initially convertible into an aggregate of 435,414 Conversion Shares and Warrants to purchase up to an aggregate of 326,560 Warrant Shares for an aggregate purchase price of $1,540,819.

The Warrants expire five years from the issuance date.

We have the right to require PN MPC to purchase additional Preferred Shares and Warrants (up to an aggregate investment of $5.0 million);

provided however, no more than an aggregate of $2.0 million of Preferred Shares and Warrants may be issued and sold pursuant to the Purchase Agreement without shareholder approval in accordance with applicable Canadian securities laws.

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 years ended September 30, 2024 and 2023, we recorded grant income of $0.7 million and $0.6 million respectively related to the 2023 SIF Agreement.

In October 2023, we entered into $10.0 million revolving credit agreement with PN MPC, an entity controlled by Pardeep Nijhawan, 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 bore 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 were 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 could the aggregate principal amount of all advances outstanding have exceeded the lesser of (i) the Credit Limit and (ii) an amount equal to 85% of the Borrowing Base.

The Credit Agreement was terminated in October 2024.

Prior to the termination of the Credit Agreement, we had not borrowed any funds thereunder.

We incurred no termination penalties in connection with the termination of 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, as sales agent, pursuant to which we 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 us to offer and sell common shares having an aggregate gross sales price of up to $8.4 million (Canaccord ATM).

For the fiscal year ended September 30, 2024, we sold a total of 171,916 common shares pursuant to the agreement for net proceeds of $0.6 million after deducting commissions and costs of $0.1 million.

The Canaccord ATM was terminated in October 2024.

In November 2022, we completed a private placement of units consisting of 384,475 common shares, 12-month warrants to purchase up to an aggregate of 192,248 common shares and 3-year warrants to purchase up to an aggregate of 192,248 common shares.

The gross proceeds from this offering were approximately $3.0 million, before offering expenses.

At September 30, 2024, we had an accumulated deficit of $58.6 million and negative working capital of $0.2 million, including $1.0 million in cash and cash equivalents.

Subsequent to the September 30, 2024, we received proceeds of $1.5 million from the sale of Preferred Shares to the PN MPC.

We expect that our cash and cash equivalents at September 30, 2024, together with the proceeds from the sale of Preferred Shares to the PN MPC, net proceeds from the HCW ATM and reimbursements of eligible R&D expenses under the 2023 SIF Agreement will not be sufficient to fund our operating expenses for one year after the date of this filing and therefore management has concluded that substantial doubt exists about our ability to continue as a going concern.

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.

If 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 include 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 may not be available to us on acceptable terms, or at all.

If we fail to raise capital or enter into such agreements 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 incur 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 existing 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 a 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.

Net cash used in operating activities

Net cash used in operating activities was $4.9 million for the year ended September 30, 2024 compared to $6.6 million for the year ended September 30, 2023 primarily due to a decrease in R&D and G&A expenses.

Net cash used in investing activities

There was no cash used in investing activities for the years ended September 30, 2024 and September 30, 2023.

Net cash provided by financing activities

Net cash provided by financing activities was $0.6 million for the year ended September 30, 2024 as compared to $4.8 million for the year ended September 30, 2023.

In the current year, we received proceeds of $0.7 million from the Canaccord ATM, partially offset by issuance costs of $0.1 million and the repayment of debt of $29,000.

In the comparative period, we received proceeds of $3.0 million from a private placement completed in November 2022, $1.3 million from the Canaccord ATM and $0.8 million from the exercise of warrants, partially offset by issuance costs of $0.3 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 R&D activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred.

R&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 R&D expenses were $2.9 million and $4.8 million for the years ended September 30, 2024 and 2023, respectively.

The decrease was due primarily to lower external research expenses related to our ongoing clinical studies.

Foreign Exchange Risk

Our exposure to foreign exchange risk is primarily related to fluctuations between the Canadian dollar and the U.S.

We have balances in Canadian dollars which are subject to foreign currency fluctuations relating to the impact of translating to U.S.

dollars for financial statements presentation.

We also periodically exchange U.S.

dollars for Canadian dollars since most operating expenses are incurred in Canadian dollars.

The fluctuation of the U.S.

dollar in relation to the Canadian dollar will have an impact upon our profitability and may also affect the value of our assets and the amount of shareholders’ equity.

We have not entered into any agreements or purchased any instruments to hedge possible currency risks.

At September 30, 2024, we had assets denominated in Canadian dollars of approximately C$0.04 million and the U.S.

dollar exchange rate as at this date was equal to 1.3517 Canadian dollars.

Based on the exposure at September 30, 2024, a 10% annual change in the Canadian/U.S.

exchange rate would have a nominal impact on our net loss and other comprehensive loss.

Concentration of Credit Risk

We are potentially subject to financial instrument concentration of credit risk through our cash and cash equivalents, and accounts and other receivable.

We place our cash and cash equivalents in money market mutual funds of U.S.

government securities or financial institutions believed to be credit worthy and perform periodic evaluations of their relative credit standing.

Accounts and other receivable include Harmonized Sales Tax (HST) refunds receivable from the Canada Revenue Agency and reimbursements receivable from the Canadian government’s SIF.

We assess the collectability of our accounts receivable through a review of our current aging and payment terms, as well as an analysis of our historical collection rate, general economic conditions and credit status of the government agencies.

As of September 30, 2024 and 2023, all outstanding accounts and other receivable were deemed to be fully collectible, and therefore, no allowance for doubtful accounts was recorded.

Significant Accounting Policies and Estimates

Our consolidated financial statements, which are indexed under Item 15 of this Annual Report on Form 10-K, have been prepared in accordance with accounting principles generally accepted in the United States, which require that the management make certain assumptions and estimates and, in connection therewith, adopt certain accounting policies.

Our significant accounting policies are set forth in Note 3 in the Notes to Consolidated Financial Statements.

Of those policies, we believe that the policies discussed below may involve a higher degree of judgment or may otherwise be more relevant to our financial condition and results of operations.

Accounts and other receivables

Accounts and other receivables include HST refunds receivable and reimbursements receivable from the Canadian government’s SIF.

As of September 30, 2024, all outstanding accounts, grants and HST refunds receivable were deemed to be fully collectible, and therefore, no allowance for doubtful accounts was recorded.

Intangible assets

Intangible assets represent the exclusive world-wide rights to know-how, patents and data relating to certain monoclonal antibodies (the Constructs), including sublicensing rights, acquired by entering into the NovImmune License Agreement.

Unless earlier terminated, the term of the NovImmune License Agreement will remain in effect for 25 years from the date of first commercial sale of licensed products containing the Constructs.

Subsequently, the NovImmune License Agreement will automatically renew for 5-year periods unless either party terminates the agreement in accordance with its terms.

We recognize intangible assets at their historical cost, amortized on a straight-line basis over their expected useful lives, which is 25 years, and subject to impairment review at the end of each reporting period.

Right-of-Use assets

We recognize operating lease right-of-use (ROU) assets and operating lease liabilities on the balance sheet for operating leases with terms longer than 12 months.

We follow the ongoing practical expedient not to recognize operating lease right-of-use assets and operating lease liabilities for short-term leases.

The ROU assets are initially measured at cost and amortized using the straight-line method through the end of the lease term.

The lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using our incremental borrowing rate.

Share-based compensation

We have equity incentive plans under which various types of equity-based awards including share options, restricted shares and restricted share unit awards may be granted to employees, non-employee directors and non-employee consultants and warrants that may be granted as compensation to non-employees.

We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted.

We recognize compensation expense for all share-based awards based on the estimated grant-date fair values.

For restricted share unit awards to employees, the fair value is based on the 5-day volume weighted average price (VWAP) of our common shares up to the date of grant.

The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period.

The fair value of share options is determined using the Black-Scholes option pricing model.

We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends.

We elected an accounting policy to record forfeitures as they occur.

See Note 8 for a discussion of the assumptions used by us in determining the grant date fair value of options granted under the Black-Scholes option pricing model, as well as a summary of the share option activity under our share-based compensation plan for all years presented.

The provisions of our share-based compensation plans do not require us to settle any options or restricted share units by transferring cash or other assets, and therefore we classify the awards as equity.

Translation of foreign currency transactions

Our reporting currency is the U.S.

The financial statements of our wholly owned Canadian subsidiary is measured using the Canadian dollar as the functional currency.

Assets and liabilities of the Canadian operation have been translated at year-end exchange rates and related revenue and expenses have been translated at average exchange rates for the year.

Accumulated gains and losses resulting from the translation of the financial statements of the Canadian operation are included as part of accumulated other comprehensive loss, a separate component of shareholders' equity.

For other transactions denominated in currencies other than our functional currency, the monetary assets and liabilities are translated at the year-end rates.

Revenue and expenses are translated at rates of exchange prevailing on the transaction dates.

Non-monetary balance sheet and related income statement accounts are remeasured into U.S.

dollar using historical exchange rates.

All of the exchange gains or losses resulting from these other transactions are recognized in the statements of operations and comprehensive loss.

Recent Accounting Pronouncements

Recent accounting pronouncements are contained in Note 3 to the financial statements, which are indexed under Item 15 of this Annual Report on Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company and are not required to provide disclosure under this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and related financial information required to be filed hereunder are indexed under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity