Edesa Biotech, Inc. annual report, FY2022

Edesa Biotech, Inc. — FY2022 Form 10-K Summary

Reporting period: Fiscal year ended September 30, 2022; comparative period is the year ended September 30, 2021. The filing was signed December 16, 2022. Edesa is a clinical-stage biopharmaceutical company developing treatments for inflammatory and immune-related diseases. It had no approved products and no significant product revenue.

Financial performance and liquidity

Metric	FY2022	FY2021
Research and development expense	$13.34 million	$17.95 million
General and administrative expense	$5.04 million	$5.73 million
Total operating expenses	$18.37 million	$23.68 million
Reimbursement grant income	$0.78 million	$10.34 million
Net loss	$17.55 million	$13.34 million
Loss per common share, basic and diluted	$1.05	$1.10
Net cash used in operating activities	$12.28 million	$13.66 million

• At September 30, 2022, cash and cash equivalents were $7.09 million, working capital was $6.95 million, total assets were $11.58 million, total liabilities were $2.18 million, and shareholders’ equity was $9.39 million. Accumulated deficit was $44.04 million.
• Cash declined by $0.75 million during FY2022. Financing activities provided $11.63 million, mainly from equity offerings; investing cash use was $0.006 million.
• The company reported no significant capital expenditures and no material off-balance-sheet arrangements. It reported no material interest-bearing debt; liabilities primarily included accounts payable, accrued liabilities, and lease obligations.
• There is no meaningful product-sales margin to report. Operating losses are expected to continue while clinical development proceeds.

Material changes and financing

• Total operating expenses fell $5.31 million year over year, mainly due to lower milestone, clinical research, and investigational-drug manufacturing costs, partly offset by higher personnel expense. G&A declined $0.69 million, primarily because of lower noncash share-based compensation.
• Net loss increased $4.21 million despite lower operating expenses. The principal offset was the $9.56 million reduction in grant income, associated with completion of eligible clinical-study activities under the Canadian Strategic Innovation Fund (SIF) agreement.
• FY2022 operating cash use improved by $1.39 million year over year. Cash and cash equivalents decreased from $7.84 million to $7.09 million.
• In March 2022, the company completed an offering with approximately $9.01 million in net proceeds and sold shares through an at-the-market program for approximately $2.62 million net. Common shares outstanding were 16,662,014 at fiscal year-end and 19,353,351 as of December 14, 2022.
• After year-end, a November 2022 private placement generated approximately $3.0 million in gross proceeds before expenses and included 2,691,337 shares plus warrants for up to 2,691,330 additional shares.

Pipeline, outlook, and material risks

• EB05: In September 2022, Edesa reported final Phase 2 results for EB05 in hospitalized COVID-19 patients with severe or critical disease. In a small critically ill subgroup receiving ECMO or invasive mechanical ventilation plus organ support, 28-day mortality was 7.7% with EB05 plus standard of care versus 40% with placebo plus standard of care (p=0.04); 60-day mortality was 23.1% versus 45% (p=0.20). The filing describes these findings as Phase 2 results; they do not establish approval or confirmatory efficacy. The Phase 3 study was enrolling in Canada, Colombia, and Poland, while the FDA was reviewing the proposed U.S. study design.
• EB01: Enrollment in a confirmatory Phase 2b study for chronic allergic contact dermatitis was completed in September 2022. Preliminary topline results were expected by mid-January 2023, after the filing date. Earlier small studies showed improvements versus vehicle, and the company reported no serious adverse events in approximately 270 subjects across its clinical experience to date.
• Other candidates: EB02 for hemorrhoids remained an exploratory program with timing under evaluation. The company was preparing a U.S. IND for EB07 in systemic sclerosis and a Canadian CTA for EB06 in vitiligo; future studies depended on regulatory approval.
• Management stated that cash on hand, the November 2022 financing proceeds, and eligible SIF reimbursements were expected to support operations for at least 12 months. This outlook depends on expense levels, clinical-trial spending, manufacturing needs, and receipt of reimbursements. The company said additional financing may be needed and there is no assurance it will be available on acceptable terms.
• The SIF agreement provides up to C$14.05 million (approximately US$11 million) in nonrepayable funding for eligible activities, subject to compliance; the company said it had met its performance and reporting requirements as of the filing. The filing also discloses substantial contingent license milestone obligations, including up to $356 million under the NovImmune agreement and up to $69.1 million under the inventor license, largely dependent on future development, approval, or sales milestones.
• Key risks include clinical-trial failure or delay, regulatory uncertainty, continued cash burn and financing dependence, dilution from future equity issuance and warrants, reliance on third-party manufacturers and research organizations, potential supply constraints and higher costs, competition, and dependence on licensed intellectual property. The company also has unhedged Canadian-dollar exposure; management estimated that a 10% exchange-rate change would affect loss and other comprehensive loss by approximately $0.50 million.

Most important facts for investors to verify

• Current cash, monthly cash burn, SIF reimbursement timing and remaining eligible grant funding, as well as the accuracy of the stated 12-month operating runway.
• Final and complete EB05 Phase 2 data, subgroup sizes and analyses, the FDA’s Phase 3 design feedback, and subsequent Phase 3 enrollment and outcomes.
• EB01 Phase 2b topline and final results, including safety, statistical significance, and whether findings support further development.
• Actual post-year-end share and warrant dilution, including exercise terms and potential proceeds, compared with the December 14, 2022 share count.
• Clinical and supply commitments, contingent license milestones, and the conditions or events that could require additional financing or affect the company’s rights to its licensed programs.