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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-13 · 34 added, 33 removed, 58 unchanged (54% 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 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.

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 June 30, 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 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.

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements as of June 30, 2022 and September 30, 2021, and for the three and nine months ended June 30, 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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Our two lead product candidates, EB05 and EB01, are in later stage clinical studies.

EB05 is a monoclonal antibody therapy that we are developing as a treatment for Acute Respiratory Distress Syndrome (ARDS) in COVID-19 patients.

ARDS is a life-threatening form of respiratory failure, and the leading cause of death among COVID-19 patients.

ARDS can be also caused by bacterial pneumonia, sepsis, chest injury and other causes.

EB05 is a monoclonal antibody therapy that we are developing as a treatment for Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure.

ARDS can be caused by viral diseases (including Covid-19), bacterial pneumonia, sepsis, chest injury and other causes.

Specifically, EB05 inhibits toll-like receptor 4 (TLR4), a key immune signaling protein and an important mediator of inflammation that has been shown to be activated by SARS-COV2 as well as other respiratory infections such as influenza.

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In September 2021, an independent data and safety monitoring board pre-emptively unblinded the Phase 2 part of a Phase 2/3 study of EB05 in hospitalized Covid-19 patients and identified “a clinically important” mortality benefit.

The monitoring board further recommended continuation of the study into a Phase 3 confirmatory trial.

The monitoring board further recommended continuation of the study into a Phase 3 confirmatory trial, which is ongoing.

The Phase 2 part of the study was funded primarily by a $11 million (C$14 million) reimbursement grant that was awarded by the Canadian government’s Strategic Innovation Fund (SIF) following a multi-disciplinary technical review of our drug technology and plans.

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Recent Developments

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.

EB01 Clinical Study

Based on current enrollment trends, we anticipate that we will complete enrollment of the 210 subjects planned for our Phase 2b clinical study in chronic ACD by the fourth calendar quarter of 2022, with preliminary topline data available as early as the first calendar quarter of 2023.

EB05 Clinical Study

During the quarter, we initiated enrollment for a second cohort of patients in the Phase 3 part of our Phase 2/3 study evaluating EB05 in hospitalized Covid-19 patients.

The company's first study cohort is recruiting the most critically severe patients receiving mechanical ventilation plus additional organ support, including extracorporeal membrane oxygenation (ECMO) therapy, also known as Level 7 patients under the World Health Organization's (WHO) Covid-19 Severity Scale.

This new, second cohort is open to hospitalized patients on invasive mechanical ventilation alone (WHO Level 6 patients).

The protocol for the Level 6 cohort calls for approximately 500 evaluable subjects.

The evaluation of EB05 in both the Level 6 and Level 7 patient populations was previously approved by regulators in Canada, Colombia and Poland.

Enrollment for both cohorts is now running in parallel, and results will be evaluated independently.

For the U.S., we are currently preparing a Phase 2 clinical study report (CSR) for the Food and Drug Administration (FDA) in support of their review of our Phase 3 study design.

This report, which was not part of the Phase 2/3 design or requested by other jurisdictions, requires substantial processing and quality review, and we anticipate submitting the CSR data package to the FDA in the third calendar quarter of 2022.

Results of Operations

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.

Comparison of the Three Months Ended June 30, 2022 and 2021

Total operating expenses decreased by $0.27 million to $5.80 million for the three months ended June 30, 2022 compared to $6.07 million for the same period last year:

Research and development expenses increased by $0.08 million to $4.55 million for the three months ended June 30, 2022 compared to $4.46 million for the same period last year primarily due to a contractual payment for bulk drug product of EB05, which was substantially offset by decreased external research expenses related to our ongoing clinical studies and drug manufacturing.

General and administrative expenses decreased by $0.36 million to $1.25 million for the three months ended June 30, 2022 compared to $1.61 million for the same period last year primarily due to a decrease in noncash share-based compensation.

Total other income decreased by $1.30 million to $0.01 million for the three months ended June 30, 2022 compared to $1.31 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 June 30, 2022, our net loss was $5.79 million, or $0.37 per common share, compared to a net loss of $4.76 million, or $0.36 per common share, for the three months ended June 30, 2021.

Comparison of the Nine Months Ended June 30, 2022 and 2021

Total operating expenses decreased by $2.67 million to $15.53 million for the nine months ended June 30, 2022 compared to $18.20 million for the same period last year:

Research and development expenses decreased by $2.28 million to $11.54 million for the nine months ended June 30, 2022 compared to $13.82 million for the same period last year primarily due to decreased milestone payments, which were partially offset by higher external research expenses related to our ongoing clinical studies, and increased personnel expenses.

General and administrative expenses decreased by $0.39 million to $3.99 million for the nine months ended June 30, 2022 compared to $4.38 million for the same period last year primarily due to a decrease in noncash share-based compensation.

Total other income decreased by $7.74 million to $0.80 million for the nine months ended June 30, 2022 compared to $8.54 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 nine months ended June 30, 2022, our net loss was $14.74 million, or $1.04 per common share, compared to a net loss of $9.66 million, or $0.83 per common share, for the nine months ended June 30, 2021.

Capital Expenditures

Our capital expenditures primarily consist of computer and office equipment.

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

There were no significant capital expenditures for the nine months ended June 30, 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 six-month periods ended March 31, 2022 and 2021, we reported net losses of $8.95 million and $4.90 million, respectively.

For the nine-month periods ended June 30, 2022 and 2021, we reported net losses of $14.73 million and $9.66 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.

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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.

From November 22, 2021 to 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.

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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 six months ended March 31, 2022, we recorded $0.78 million in grant income.

For the year ended September 30, 2021, we recorded $10.34 million in grant income, and for the nine months ended June 30, 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 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.

At June 30, 2022, we had cash and cash equivalents of $12.81 million, working capital of $9.52 million, shareholders’ equity of $11.84 million and an accumulated deficit of $41.23 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.

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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 $6.99 million and $9.35 million for the six months ended March 31, 2022 and 2021, respectively.

Our research and development costs were $11.54 million and $13.82 million for the nine months ended June 30, 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.

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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