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Item 2. Management’s Discussion and Analysis

2022-05-13 compared with 2022-02-14 · 38 added, 31 removed, 53 unchanged (57% of the section changed)

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 December 31, 2021 and our audited consolidated financial statements for the year ended September 30, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 28, 2021.

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 March 31, 2022 and our audited consolidated financial statements for the year ended September 30, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 28, 2021.

This Quarterly Report on Form 10-Q contains forward-looking statements.

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We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of December 31, 2021 and September 30, 2021, and for the three months ended December 31, 2021 and 2020 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we have prepared in accordance with U.S.

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of March 31, 2022 and September 30, 2021, and for the three and six months ended March 31, 2022 and 2021 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we have prepared in accordance with U.S.

generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q.

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Recent Developments

EB05 Clinical Study in Hospitalized COVID-19 Patients

During the quarter, Health Canada authorized the study design of the Phase 3 part of our Phase 2/3 study evaluating EB05 in hospitalized COVID-19 patients.

Under the amended study protocol, we plan to assess the efficacy and safety of EB05 among critically ill COVID-19 patients receiving extracorporeal membrane oxygenation (ECMO) and/or invasive mechanical ventilation plus organ support (IMV+), defined as Level 7 on the World Health Organization's COVID-19 Severity Scale.

The amended trial protocol design calls for approximately 315 evaluable subjects.

We have filed similar protocol amendments with the U.S.

Food and Drug Administration (FDA) as well as other jurisdictions.

In the U.S., the company is currently in discussions with the FDA on the design of the final Phase 3 protocol.

Equity Offering

On March 24, 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, the Company issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares.

We received net proceeds of $9.01 million, after deducting fees to the placement agent and other offering expenses.

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.

In connection with the offering, we also 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.

The net proceeds will be used for working capital, including research and development expenses, and held in temporary investments and cash equivalents until expended.

Results of Operations

Comparison of the Three Months Ended December 31, 2021 and 2020

Total operating expenses increased by $2.55 million to $5.16 million for the three months ended December 31, 2021 compared to $2.61 million for the same period last year:

Research and development expenses increased by $2.57 million to $3.95 million for the three months ended December 31, 2021 compared to $1.38 million for the same period last year primarily due to increased external research expenses related to our ongoing clinical studies, increased investigational drug product expenses, higher salary and related personnel expenses due to increased headcount and higher patent fees, which were partially offset by a decrease in noncash share-based compensation.

General and administrative expenses decreased by $0.02 million to $1.21 million for the three months ended December 31, 2021 compared to $1.23 million for the same period last year primarily as a result of decreased noncash share-based compensation, which was partially offset by higher insurance, and legal and other professional service fees.

Total other income (loss) increased by $0.80 million to an overall gain of $0.78 million for the three months ended December 31, 2021 compared to an overall loss of $0.02 million for the same period last year primarily due to increased grant income under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.

For the three months ended December 31, 2021, our net loss was $4.38 million, or $0.33 per common share, compared to a net loss of $2.64 million, or $0.26 per common share, for the three months ended December 31, 2020.

Comparison of the Three Months Ended March 31, 2022 and 2021

Total operating expenses decreased by $4.93 million to $4.58 million for the three months ended March 31, 2022 compared to $9.51 million for the same period last year:

Research and development expenses decreased by $4.94 million to $3.04 million for the three months ended March 31, 2022 compared to $7.98 million for the same period last year primarily due to decreased milestone and bulk drug substance payments, lower license fees and decreased external research expenses, which were partially offset by higher manufacturing expenses, and increased salary and related personnel expenses.

General and administrative expenses remained relatively unchanged at $1.53 million for the three months ended March 31, 2022 compared to $1.54 million for the same period last year.

Total other income (loss) decreased by $7.24 million to an overall gain of $0.01 million for the three months ended March 31, 2022 compared to an overall gain of $7.25 million for the same period last year primarily due to a decrease in grant income associated with the completion of clinical study activities under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.

For the three months ended March 31, 2022, our net loss was $4.57 million, or $0.33 per common share, compared to a net loss of $2.26 million, or $0.19 per common share, for the three months ended March 31, 2021.

Comparison of the Six Months Ended March 31, 2022 and 2021

Total operating expenses decreased by $2.38 million to $9.74 million for the six months ended March 31, 2022 compared to $12.12 million for the same period last year:

Research and development expenses decreased by $2.36 million to $6.99 million for the six months ended March 31, 2022 compared to $9.35 million for the same period last year primarily due to decreased milestone and bulk drug substance payments and lower license fees, which were partially offset by higher external research expenses, higher manufacturing expenses and increased salary and related personnel expenses.

General and administrative expenses decreased by $0.03 million to $2.74 million for the six months ended March 31, 2022 compared to $2.77 million for the same period last year primarily due to lower salary and related personnel expenses, which were partially offset by increased legal and other professional service fees.

Total other income (loss) decreased by $6.44 million to an overall gain of $0.79 million for the six months ended March 31, 2022 compared to an overall gain of $7.23 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 six months ended March 31, 2022, our net loss was $8.95 million, or $0.66 per common share, compared to a net loss of $4.90 million, or $0.45 per common share, for the six months ended March 31, 2021.

Capital Expenditures

Our capital expenditures primarily consist of computer and office equipment.

There were no significant capital expenditures for the three months ended December 31, 2021 and 2020.

There were no significant capital expenditures for the six months ended March 31, 2022 and 2021.

Liquidity and Capital Resources

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

For the three-month periods ended December 31, 2021 and 2020, we reported net losses of $4.38 million and $2.64 million, respectively.

For the six-month periods ended March 31, 2022 and 2021, we reported net losses of $8.95 million and $4.90 million, respectively.

On March 24, 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.

On November 22, 2021, we entered into an equity distribution agreement with RBC Capital Markets, LLC (RBCCM), as sales agent.

Pursuant to the terms of the agreement, as amended March 4, 2022, the Company could offer and sell, from time to time, common shares through an at-the-market offering program for up to $15.4 million in gross cash proceeds.

For the six months ended March 21, 2022, we sold a total of 626,884 common shares pursuant to the agreement.

After deducting commissions and direct costs, net proceeds totaled approximately $2.62 million.

On March 21, 2022, the Company and RBCCM entered into an agreement terminating the agreement effective March 21, 2022.

Under our contribution agreement with the Canadian government’s Strategic Innovation Fund (SIF), we are 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 year ended September 30, 2021, we recorded $10.34 million in grant income, and for the three months ended December 31, 2021, we recorded $0.78 million in grant income.

On November 22, 2021, we entered into an equity distribution agreement with RBC Capital Markets, LLC (RBCCM), 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 $15.0 million in gross cash proceeds.

RBCCM will use commercially reasonable efforts to sell the common shares from time to time, based upon our instructions.

We have no obligation to sell any of the shares, and may at any time suspend sales under the distribution agreement or terminate the agreement in accordance with its terms.

The total amount of cash that may be generated under this distribution agreement is uncertain and depends on a variety of factors, including market conditions and the trading price of our common shares.

During the three months ended December 31, 2021, 223,396 common shares were sold under the distribution agreement, resulting in $1.29 million in gross proceeds.

The commissions and direct costs of the offering program totaled $0.06 million and were recorded as an offset against gross proceeds.

On December 28, 2021, we reset the size of the at-the-market equity offering program with RBCCM, such that we may offer and sell, from time to time, common shares having an aggregate offering price of up to $10.7 million.

For the year ended September 30, 2021, we recorded $10.34 million in grant income, and for the six months ended March 31, 2022, we recorded $0.78 million in grant income.

On March 2, 2021, we completed a registered public offering of an aggregate of 1,562,500 common shares, no par value, of the Company at an offering price of $6.40 per share for net proceeds of $8.89 million, after deducting underwriter fees and related offering expenses.

For the year ended September 30, 2021, the exercise of warrants and options as well as sales under an equity distribution agreement with RBCCM resulted in the issuance of 987,859 common shares and net cash proceeds to the Company of $5.12 million.

At December 31, 2021, we had cash and cash equivalents of $5.88 million, working capital of $8.14 million, shareholders’ equity of $10.55 million and an accumulated deficit of $30.87 million.

Subsequent to December 31, 2021, we sold 256,455 common shares under the current distribution agreement with RBCCM for gross proceeds of approximately $1.19 million.

We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, equity sales under the at-the-market offering program and reimbursements of eligible research and development expenses under our contribution agreement with the Canadian government.

At March 31, 2022, we had cash and cash equivalents of $15.89 million, working capital of $14.66 million, shareholders’ equity of $17.02 million and an accumulated deficit of $35.44 million.

We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand and reimbursements of eligible research and development expenses under our contribution 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, 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 are planning to seek additional financing through government grants, equity sales, debt financings or other capital sources, including potential future licensing, collaboration or similar arrangements with third parties or other strategic transactions.

There is approximately $9.51 million available under the current equity distribution agreement with RBCCM.

If we determine it is advisable to raise additional funds, there is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our shareholders view as favorable.

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Research and development expenses, which have historically varied based on the level of activity in our clinical programs, are significantly influenced by study initiation expenses and patient recruitment rates, and as a result are expected to continue to fluctuate, sometimes substantially.

Our research and development costs were $3.95 million and $1.38 million for the three months ended December 31, 2021 and 2020, respectively.

The increase was due primarily to increased activities and preparations related to the ongoing Phase 2/Phase 3 clinical study of our EB05 drug candidate.

Our research and development costs were $6.99 million and $9.35 million for the six months ended March 31, 2022 and 2021, respectively.

The decrease was due primarily to decreased milestone and bulk drug substance payments and lower license fees, which were partially offset by higher external research expenses related to the ongoing Phase 2/Phase 3 clinical study of our EB05 drug candidate, higher manufacturing expenses and increased salary and related personnel expenses.

Off Balance Sheet Arrangements

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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-Q

Item 2. Management’s Discussion and Analysis