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Item 2. Management’s Discussion and Analysis

2023-02-10 compared with 2022-08-12 · 65 added, 57 removed, 35 unchanged (78% 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 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.

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed interim consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q as of December 31, 2022 and our audited consolidated financial statements for the year ended September 30, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 16, 2022.

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

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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 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.

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

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

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Actual results may differ from these estimates under different assumptions or conditions.

We are a biopharmaceutical company focused on acquiring, developing and commercializing clinical-stage drugs for inflammatory and immune-related diseases with clear unmet medical needs.

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), 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.

In multiple third-party studies, high serum levels of alarmins (damage signaling molecules) that bind to and activate TLR4 are associated with poor outcomes and disease progression in Covid-19 patients.

Since EB05 has demonstrated the ability to block signaling irrespective of the presence or concentration of the various molecules that frequently bind with TLR4, we believe that EB05 could ameliorate TLR4-mediated inflammation cascades in ARDS patients, thereby reducing lung injury, ventilation rates and mortality.

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, 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.

In addition to EB05, we are developing an sPLA2 inhibitor, designated as EB01, as a topical treatment for chronic allergic contact dermatitis (ACD), a common, potentially debilitating condition and occupational illness.

EB01 employs a novel, non-steroidal mechanism of action and in two clinical studies has demonstrated statistically significant improvement of multiple symptoms in ACD patients.

EB01 is currently being evaluated in a Phase 2b clinical study.

In addition to our current clinical programs, we intend to expand the utility of our technologies and clinical-stage assets across other indications.

We are a biopharmaceutical company developing innovative ways to treat inflammatory and immune-related diseases.

Our approach is to acquire, develop and commercialize drug candidates based on mechanisms of action that have demonstrated proof-of-concept in human subjects.

We prioritize our efforts on disease indications where there is compelling scientific rationale, no approved therapies or where there are unmet medical needs, and where there are large addressable market opportunities, among other factors.

We have multiple late-stage product candidates in our development pipeline.

Our most advanced drug candidate is EB05, a monoclonal antibody developed for acute and chronic disease indications that involve dysregulated innate immunity responses.

EB05 inhibits toll-like receptor 4 (TLR4), a key immune signaling protein and an important mediator of inflammation.

We are currently evaluating EB05 as a potential treatment for Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of respiratory failure.

In September 2022, we reported final results from the Phase 2 part of a Phase 2/Phase 3 study of EB05 in ARDS patients who were hospitalized for Covid-19-related respiratory disease.

Among the findings, EB05 demonstrated statistically significant mortality reductions in critically ill hospitalized patients treated with EB05 plus Standard of Care treatment (SOC).

We are currently enrolling patients in the Phase 3 part of the EB05 study.

In addition to EB05, we are developing product candidates for a number of chronic dermatological and inflammatory conditions.

We recently completed enrollment and reported preliminary topline results of a Phase 2b study of our EB01 drug candidate in moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational and work-related skin condition.

We are also preparing an investigational new drug application (IND) in the United States for our EB07 product candidate to conduct a future Phase 2 study in systemic sclerosis (SSc), an autoimmune rheumatic disorder that causes fibrosis (scarring/hardening) of skin and internal organs.

In Canada, we are preparing a clinical trial application (CTA) for our EB06 monoclonal antibody candidate to conduct a future Phase 2 study in vitiligo, a common autoimmune disorder that causes the skin to lose its color in patches.

Recent Developments

EB05 Clinical Study

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.

In December 2022, the U.S.

Food and Drug Administration (FDA) granted us Fast Track designation for our EB05 monoclonal antibody candidate.

The Fast Track program provides Edesa with the opportunity for more frequent communication with the agency to discuss the development path for EB05 as a treatment for ARDS in critically ill Covid-19 patients.

Investigational drugs that receive Fast Track designation are also eligible for rolling review of their marketing application as well as potential pathways for accelerated regulatory approval.

To receive this designation, drug candidates must both treat a serious disease and have non-clinical or clinical data that demonstrate the potential to address an unmet medical need.

EB01 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.

In January 2023, we reported preliminary, topline results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01, as a monotherapy for chronic moderate-to-severe ACD.

The double-blind, placebo-controlled trial evaluated the safety and efficacy of EB01 in approximately 200 subjects, who were treated for 28 days with either EB01 cream (2.0%, 1.0% or 0.2%) or a placebo/vehicle cream.

The primary efficacy outcome measurement was the mean percent improvement in symptoms from baseline at day 29 on the Contact Dermatitis Severity Index (CDSI).

A key secondary efficacy measurement was the success rate of subjects achieving a score of "clear" or "almost clear" with at least a 2-point improvement from baseline after treatment at day 29 on the Investigator's Static Global Assessment (ISGA) scale.

The 1.0% EB01 cream demonstrated statistically significant improvement over placebo.

For the primary endpoint, patients with 1.0% EB01-treated lesions demonstrated an 60% average improvement in symptoms from baseline at day 29 on the CDSI versus 39% for placebo/vehicle (p=0.02).

The effect was also observed at 15 days (44% for 1.0% EB01 vs 29% for placebo;

p=0.05) and continued at follow-up (64% for 1.0% EB01 vs.

44% for placebo;

For the ISGA secondary efficacy endpoint, 53% of patients with 1.0% EB01-treated lesions achieved a score of "clear" or "almost clear" with at least a 2-point improvement from baseline after treatment at day 29 (p=0.04).

Only 29% of patients in the placebo group reached the same endpoint.

No serious treatment-related adverse events were reported across all concentrations.

The 2.0% and 0.2% formulations did not show significant differences compared to placebo.

These topline results are preliminary in nature, and should not be considered the complete, final or definitive results of the Phase 2b study.

We are preparing for an End of Phase 2 meeting with FDA following full analysis.

EB06 Clinical Trial Application

In January 2023, Health Canada approved our clinical trial application (CTA) for our EB06 monoclonal antibody candidate to conduct a future Phase 2 study in vitiligo, a common autoimmune disorder that causes skin to lose its color in patches.

Results of Operations

Comparison of the Three Months Ended 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.

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

Total operating expenses decreased by $2.78 million to $2.38 million for the three months ended December 31, 2022 compared to $5.16 million for the same period last year:

Research and development expenses decreased by $2.59 million to $1.36 million for the three months ended December 31, 2022 compared to $3.95 million for the same period last year primarily due to decreased external research expenses related to our ongoing clinical studies and manufacturing of our investigational drugs.

General and administrative expenses decreased by $0.19 million to $1.02 million for the three months ended December 31, 2022 compared to $1.21 million for the same period last year primarily due to a decrease in noncash share-based compensation.

Total other income decreased by $0.74 million to $0.04 million for the three months ended December 31, 2022 compared to $0.78 million for the same period last year primarily due to a decrease in grant income associated with the completion of clinical study activities under our federal reimbursement grant with the Canadian government’s Strategic Innovation Fund.

For the three months ended December 31, 2022, our net loss was $2.33 million, or $0.13 per common share, compared to a net loss of $4.38 million, or $0.33 per common share, for the three months ended December 31, 2021.

Capital Expenditures

Our capital expenditures primarily consist of computer and office equipment.

There were no significant capital expenditures for the nine months ended June 30, 2022 and 2021.

There were no significant capital expenditures for the three months ended December 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 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.

For the three-month periods ended December 31, 2022 and 2021, we reported net losses of $2.33 million and $4.38 million, respectively.

In November 2022, we completed a private placement of units consisting of 2,691,337 common shares, three-year warrants to purchase up to an aggregate of 1,345,665 common shares (Class A warrants) and twelve-month warrants to purchase up to an aggregate of 1,345,665 common shares (Class B warrants).

The gross proceeds from this offering are approximately $3.03 million, before offering expenses.

Subsequent to December 31, 2022 and through the date of this filing, 705,314 shares have been issued upon the exercise of Class A and Class B warrants, with proceeds to the Company of $0.77 million.

In March 2022, we completed a registered direct offering of 1,540,000 common shares, no par value, and pre-funded warrants to purchase up to an aggregate of 1,199,727 common shares.

In a concurrent private placement, we issued common share purchase warrants to purchase an aggregate of up to 2,739,727 common shares.

After deducting the placement agent fees and offering expenses, net proceeds to the Company were approximately $9.01 million.

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.

From November 22, 2021 to March 21, 2022, we sold a total of 626,884 common shares pursuant to the agreement.

In November 2021, we entered into an equity distribution agreement with RBC Capital Markets, LLC (RBCCM), as sales agent, which was subsequently terminated in March 2022.

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

During the term of the agreement, we sold a total of 626,884 common shares.

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

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 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 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.

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.

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.

Market volatility, inflation and concerns related to the COVID-19 pandemic may have a significant impact on the availability of funding sources and the terms at which any funding may be available.

Under our contribution agreement with the Canadian government’s Strategic Innovation Fund (SIF), we were eligible to receive cash reimbursements up to C$14.05 million (approximately $11 million USD) in the aggregate for certain research and development expenses related to our EB05 clinical development program.

For the years ended September 30, 2022 and 2021, we recorded grant income of $0.78 million and $10.34 million respectively.

All grant reimbursements have been received at December 31, 2022.

At December 31, 2022, we had cash and cash equivalents of $8.27 million, working capital of $7.81 million, shareholders’ equity of $10.27 million and an accumulated deficit of $46.38 million.

We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, including proceeds from warrant exercises of $0.77 million received subsequent to December 31, 2022.

Management has flexibility to adjust this timeline by making changes to planned expenditures related to, among other factors, the size and timing of clinical trial expenditures and manufacturing campaigns, staffing levels, and the acquisition or in-licensing of new product candidates.

To help fund our operations and meet our obligations in the future, we plan to seek additional financing through the sale of equity, government grants, debt financings or other capital sources, including potential future licensing, collaboration or similar arrangements with third parties or other strategic transactions.

There is no assurance that adequate funding will be available to us or, if available, that such funding will be available on terms that we or our shareholders view as favorable.

Market volatility, inflation, interest rates, government policies and concerns related to the war in Ukraine and the Covid-19 pandemic may have a significant impact on the availability of funding sources and the terms at which any funding may be available.

Research and Development

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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, including the cost of acquiring, developing, and manufacturing research material;

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;

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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 $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.

Our research and development costs were $1.36 million and $3.95 million for the three months ended December 31, 2022 and 2021, respectively.

The decrease was due primarily to decreased external research expenses related to our ongoing clinical studies and manufacturing of our investigational drugs.

Off Balance Sheet Arrangements

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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