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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2024-02-09 · 58 added, 38 removed, 120 unchanged (44% 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, 2023 and our audited consolidated financial statements for the year ended September 30, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on December 15, 2023.

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, 2024 and our audited consolidated financial statements for the year ended September 30, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on December 15, 2023.

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, 2023 and September 30, 2023, and for the three ended December 31, 2023 and 2022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which we have prepared in accordance with U.S.

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed interim consolidated financial statements for the three months ended March 31, 2024 and March 31, 2023, and for the six months ended March 31, 2024 and 2023 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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We have multiple late-stage product candidates in our development pipeline.

Our most advanced drug candidate is EB05.

Our most advanced drug candidate is EB05 (paridiprubart).

EB05 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.

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Recruitment in a Phase 3 study is ongoing.

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

In November 2023, we reported final results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01 , as a monotherapy for moderate-to-severe chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition.

Among the findings, 1.0% EB01 cream demonstrated statistically significant improvement over placebo for the primary endpoint and a key secondary endpoint.

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

We intend to file an investigational new drug application (IND) with the U.S.

Food and Drug Administration (FDA) for a future Phase 2 study of paridiprubart as a potential treatment for patients with progressive pulmonary fibrosis, a serious chronic disease that causes lung inflammation and scarring.

For our EB06 monoclonal candidate, we have received regulatory approval by Health Canada to conduct a future Phase 2 study in patients with moderate to severe nonsegmental vitiligo, a common autoimmune disorder that causes skin to lose its color in patches.

We are also preparing an investigational new drug application (IND) in the United States (U.S.) for our EB07 product candidate to conduct a future Phase 2 study in patients with certain fibrotic diseases.

We plan to seek regulatory approval for this vitiligo study in the U.S.

In addition, we are developing an sPLA2 inhibitor, EB01 (daniluromer), as a topical treatment for chronic Allergic Contact Dermatitis (ACD), a common occupational skin condition.

We intend to seek strategic arrangements to further develop and/or monetize this late-stage clinical asset, following favorable Phase 2b results of 1.0% EB01 cream.

Recent Developments

In November 2023, we reported final results from a Phase 2b clinical study evaluating multiple concentrations of our drug candidate, EB01, as a monotherapy for moderate-to-severe chronic ACD, Among the findings, 1.0% EB01 cream demonstrated statistically significant improvement over placebo for the primary endpoint and a key secondary endpoint.

In October 2023, we announced that Health Canada approved the company's proposal to harmonize clinical trial designs in the U.S.

and Canada for an ongoing Phase 3 study of EB05 (paridiprubart).

Our monoclonal antibody is currently being evaluated as a treatment for Covid-19 induced ARDS.

We are also exploring various approaches to evaluate our EB05 drug candidate in a general, all-cause ARDS population.

In October 2023, we secured a $10 million credit facility with our Founder (see Liquidity and Capital Resources);

In October 2023, we announced up to C$23 million in partially repayable funding from the Canadian government (see Liquidity and Capital Resources).

Phase 3 Clinical Study of EB05

During the quarter, we began transitioning the day-to-day management of our ongoing EB05 trial to a new clinical research organization (CRO).

We believe that the change will provide us access to more powerful analytical tools, expanded recruitment capabilities, greater visibility of enrollment trends, and a quicker turnaround of trial results.

Significant Accounting Policies and Estimates

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Results of Operations

Comparison of the Three Months Ended December 31, 2023 and 2022

Total operating expenses decreased by $0.5 million to $1.9 million for the three months ended December 31, 2023 compared to $2.4 million for the same period last year:

Research and development (R&D) expenses decreased by $0.7 million to $0.7 million for the three months ended December 31, 2023 compared to $1.4 million for the same period last year primarily due to decreased external research expenses related to our EB01 study, which was completed during the current period, while expenses for our ongoing EB05 clinical study remained relatively unchanged from the prior period.

Comparison of the Three Months Ended March 31, 2024 and 2023

Total operating expenses decreased by $0.2 million to $2.2 million for the three months ended March 31, 2024 compared to $2.4 million for the same period last year:

Research and development (R&D) expenses decreased by $0.3 million to $1.2 million for the three months ended March 31, 2024 compared to $1.5 million for the same period last year primarily due to decreased external research expenses related to our completed EB01 phase 2 study and a reduction in noncash share-based compensation, partially offset by an increase in expenses for our ongoing EB05 phase 3 clinical study.

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;

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and clinical trials and activities related to regulatory filings for our product candidates, including regulatory consultants.

General and administrative (G&A) expenses increased by $0.1 million to $1.1 million for the three months ended December 31, 2023 compared to $1.0 million for the same period last year primarily due to increased fees for professional services and noncash share-based compensation.

General and administrative (G&A) expenses increased by $0.1 million to $1.0 million for the three months ended March 31, 2024 compared to $0.9 million for the same period last year primarily due to increased fees for professional services, partially offset by a decrease in noncash share-based compensation.

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 increased by $136,000 to $179,000 for the three months ended December 31, 2023 compared to $43,000 for the same period last year and was composed of the following:

Grant income increased by $0.1 million to $0.1 million the three months ended December 31, 2023.

Total other income increased by $283,000 to $360,000 for the three months ended March 31, 2024 compared to $77,000 for the same period last year and was composed of the following:

Grant income increased by $0.3 million to $0.3 million for the three months ended March 31, 2024.

There was no grant income in the comparative period.

The increase is related to the grant income associated with the activities under the 2023 SIF Agreement.

Interest income increased by $12,000 to $61,000 the three months ended December 31, 2023 compared to $49,000 for the same period last year primarily due to an increase in interest rates.

Foreign exchange gain was $2,800 for the three months ended December 31, 2023 compared to a gain of $5,900 for the three months ended December 31, 2022.

For the three months ended December 31, 2023, our net loss was $1.7 million, or $0.54 per common share, compared to a net loss of $2.3 million, or $0.89 per common share for the three months ended December 31, 2022.

Interest income decreased by $43,000 to $43,000 for the three months ended March 31, 2024 compared to $86,000 for the same period last year primarily due to lower cash balances.

Miscellaneous other income was $15,000 for the three months ended March 31, 2024 related to loan forgiveness on a Canada Emergeny Business Account (CEBA) loan that was repaid in the quarter.

Foreign exchange loss was $2,000 for the three months ended March 31, 2024 compared to a loss of $9,000 for the three months ended March 31, 2023.

For the three months ended March 31, 2024, our net loss was $1.9 million, or $0.58 per common share, compared to a net loss of $2.3 million, or $0.82 per common share for the three months ended March 31, 2023.

Comparison of the Six Months Ended March 31, 2024 and 2023

Total operating expenses decreased by $0.7 million to $4.1 million for the six months ended March 31, 2024 compared to $4.8 million for the same period last year:

R&D expenses decreased by $0.9 million to $1.9 million for the six months ended March 31, 2024 compared to $2.8 million for the same period last year primarily due to decreased external research expenses related to our completed EB01 phase 2 study and a decrease in non-cash share-based compensation and labor costs, partially offset by an increase in expenses for our ongoing EB05 phase 3 clinical study.

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.

G&A expenses increased by $0.2 million to $2.2 million for the six months ended March 31, 2024 compared to $2.0 million for the same period last year primarily due to increased fees for professional services, partially offset by a decrease in non-cash share-based compensation.

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 increased by $0.4 million to $0.5 million for the six months ended March 31, 2024 compared to $0.1 million for the same period last year and was composed of the following:

Grant income increased by $0.4 million to $0.4 million for the six months ended March 31, 2024.

There was no grant income in the comparative period.

The increase is related to the grant income associated with the activities under the 2023 SIF Agreement.

Interest income decreased by $31,000 to $104,000 for the six months ended March 31, 2024 compared to $135,000 for the same period last year primarily due to a decrease in cash balances.

Miscellaneous other income was $15,000 for the six months ended March 31, 2024 related to loan forgiveness on the CEBA loan that was repaid in the quarter.

Foreign exchange loss was $4,800 for the six months ended March 31, 2024 compared to a loss of $14,600 for the six months ended March 31, 2023.

For the six months ended March 31, 2024, our net loss was $3.5 million, or $1.12 per common share, compared to a net loss of $4.7 million, or $1.70 per common share for the six months ended March 31, 2023.

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, 2023 and 2022.

There were no significant capital expenditures for the three and six months ended March 31, 2024 and 2023.

Liquidity and Capital Resources

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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 $1.4 million and $1.8 million for the three months ended December 31, 2023 and 2022, respectively.

We incurred net losses of $1.7 million and $2.3 million for those same quarters.

Net cash used in operating activities was $3.1 million and $3.4 million for the six months ended March 31, 2024 and 2023, respectively.

We incurred net losses of $3.5 million and $4.7 million for the six months ended March 31, 2024 and 2023.

In October 2023, we entered into the 2023 SIF Agreement with the Canadian Government’s SIF.

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All potential funding available under the 2021 SIF Agreement has been received.

For the three months ended December 31, 2023 we recorded grant income of $0.1 million related to the 2023 SIF Agreement.

The was no grant income recognized in the comparative period.

For the three and six months ended March 31, 2024 we recorded grant income of $0.3 million and $0.4 million respectively, related to the 2023 SIF Agreement.

There was no grant income recognized in the comparative periods.

In October 2023, we entered into $10.0 million revolving credit agreement with Pardeep Nijhawan Medicine Professional Corporation, an entity controlled by Dr.

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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).

There was approximately $6.7 million of available capacity on the Canaccord ATM as of December 31, 2023.We have no obligation to sell any of the common shares and may at any time suspend sales or terminate the equity distribution agreement in accordance with its terms.

For the three months ended December 31, 2023, we sold a total of 89,249 common shares pursuant to the agreement for net proceeds of $0.3 million after deducting commissions and costs of $24,000.

Subsequent to December 31, 2023, we sold a total of 7,038 common shares pursuant to the agreement for net proceeds of $33,000 after deducting sales agent commissions.

There was approximately $6.5 million of available capacity on the Canaccord ATM as of March 31, 2024.

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

For the three months ended March 31, 2024, we sold a total of 51,246 common shares pursuant to the agreement for net proceeds of $0.2 million after deducting commissions and costs of $70,000.

For the six months ended March 31, 2024, we sold a total of 140,495 common shares pursuant to the agreement for net proceeds of $0.5 million after deducting commissions and costs of $100,000.

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 December 31, 2023, we had an accumulated deficit of $54.1 million and working capital of $3.4 million, including $4.3 million in cash and cash equivalents.

At March 31, 2024, we had an accumulated deficit of $56.0 million and working capital of $2.1 million, including $2.8 million in cash and cash equivalents.

Subsequent to the quarter, we collected the receivable from 2023 SIF Agreement for $0.7 million from Canadian government.

We plan to finance company operations over the course of the next twelve months with cash and cash equivalents on hand, including net proceeds from the Canaccord ATM, advances under the Credit Agreement and reimbursements of eligible R&D expenses under the 2023 SIF Agreement with the Canadian government.

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Net cash used in operating activities

Net cash used in operating activities was $1.4 million for the three months ended December 31, 2023 compared to $1.8 million for the three months ended December 31, 2022, primarily due to a decrease in R&D expenses of $0.7 million, partially offset by a reduction in non-cash stock based compensation of $0.1 million and the reduction in the recovery of working capital of $0.1 million.

Net cash used in operating activities was $3.1 million for the six months ended March 31, 2024 compared to $3.4 million for the six months ended March 31, 2023, primarily due to a decrease in R&D expenses of $0.9 million, partially offset by a reduction in non-cash stock based compensation of $0.3 million and a reduction of $0.6 million in the recovery of working capital.

Net cash used in investing activities

There was no cash used in investing activities for the three months ended December 31, 2023 and 2022, respectively.

There was no cash used in investing activities for the six months ended March 31, 2024 and 2023, respectively.

Net cash provided by financing activities

Net cash provided by financing activities was $0.3 million for the three months ended December 31, 2023 as compared to $2.9 million for the three months ended December 31, 2022.

In the current quarter, we received proceeds of $0.3 million from the Canaccord ATM, partially offset by issuance costs of $9,500.

In the comparative quarter, we received proceeds of $3.0 million from a private placement in November 2022 and incurred issuance costs of $0.1 million for net proceeds of $2.9 million.

Net cash provided by financing activities was $0.5 million for the six months ended March 31, 2024 as compared to $3.7 million for the six months ended March 31, 2023.

In the current period, we received proceeds of $0.6 million from the Canaccord ATM, partially offset by issuance costs of $44,000 and the repayment of debt of $29,500.

In the comparative period, we received proceeds of $3.0 million from a private placement in November 2022, offset by issuance costs of $0.1 million for net proceeds of $2.9 million.

We also received $0.8 million in proceeds from the exercise of warrants.

Research and Development

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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 $0.7 million and $1.4 million for the three months ended December 31, 2023 and 2022, respectively.

Our R&D expenses were $1.2 million and $1.9 million for the three and six months ended March 31, 2024 compared to $1.5 million and $2.8 million for the three and six months ended March 31, 2023.

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

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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