Edesa Biotech, Inc. — Form 10-Q summary
Reporting period: Three months ended December 31, 2021, the first quarter of fiscal 2022. Amounts are in U.S. dollars unless otherwise noted.
Business context
Edesa is a clinical-stage biopharmaceutical company developing treatments for inflammatory and immune-related diseases. Its lead candidates are EB05, being studied for COVID-19-associated acute respiratory distress syndrome (ARDS), and EB01, being studied for chronic allergic contact dermatitis. The company reported no product revenue in the period.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2021 | Comparable period / prior balance |
|---|---|---|
| Research and development expense | $3.95 million | $1.38 million; up $2.57 million |
| General and administrative expense | $1.21 million | $1.23 million; down $0.02 million |
| Operating loss | $5.16 million | $2.61 million |
| Reimbursement grant income | $0.78 million | None reported |
| Net loss | $4.38 million; $0.33 per share | $2.64 million; $0.26 per share |
| Net cash used in operations | $3.21 million | $3.01 million |
| Cash and cash equivalents | $5.88 million | $7.84 million at Sept. 30, 2021 |
| Working capital | $8.14 million | Not stated for the comparable date |
| Total assets / total liabilities | $12.34 million / $1.79 million | $14.58 million / $1.53 million at Sept. 30, 2021 |
Operating expenses increased primarily because of clinical-study activity, investigational drug costs, personnel and patent expenses. The company attributed the year-over-year increase in net loss mainly to higher research and development costs, partly offset by SIF grant income. Margins are not meaningful because the filing reports no product revenue. No material borrowings are reported; liabilities principally include accounts payable, accrued liabilities and operating lease obligations.
Liquidity, financing and commitments
- Financing activities provided $1.23 million during the quarter, principally from issuing 223,396 shares through the at-the-market program; net proceeds were approximately $1.23 million after issuance costs.
- The company reported that approximately $9.51 million remained available under its ATM program. Subsequent to quarter-end, it sold 256,455 shares for about $1.19 million in gross proceeds. Shares outstanding were 13,518,799 at Dec. 31 and 13,775,254 as of Feb. 11, 2022.
- Management planned to fund operations over the next 12 months with cash on hand, ATM sales and eligible SIF reimbursements, while also seeking additional financing. The filing cautions that funding may not be available on acceptable terms.
- The SIF agreement provides for up to C$14.05 million (approximately $11 million) in reimbursements for eligible EB05 research and development costs. The company recorded $0.78 million of grant income in the quarter and had $2.63 million of grant reimbursements receivable at period-end.
- Contracted research and other future payments totaled $4.20 million, primarily due in fiscal 2022. Separate license agreements include potential contingent milestone payments of up to $352.5 million and $68.9 million, plus royalties or sublicensing payments if applicable; these are not current debt.
Clinical outlook, risks and other matters
- Health Canada authorized the Phase 3 design for the EB05 COVID-19 study. The amended protocol targets approximately 315 evaluable critically ill patients receiving ECMO and/or invasive ventilation plus organ support. The company said it was discussing the final U.S. Phase 3 protocol with the FDA.
- Management reported that an independent data and safety monitoring board had pre-emptively unblinded the Phase 2 portion in September 2021, identified a “clinically important” mortality benefit and recommended proceeding to a confirmatory Phase 3 trial. The filing does not provide the underlying effect size or detailed results.
- The ongoing COVID-19 pandemic could affect operations, clinical timelines and financial results. Clinical development and patient recruitment costs may fluctuate substantially.
- The company disclosed unhedged foreign-exchange exposure: a 10% annual change in the Canadian/U.S. dollar exchange rate was estimated to affect loss and comprehensive loss by approximately $575,000.
- The company reported no material changes to previously disclosed risk factors, no material legal proceedings outside the ordinary course, and no material changes in internal control over financial reporting. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Obtain full EB05 Phase 2 data and monitor Phase 3 enrollment, protocol, regulatory status and results; the filing gives no quantified mortality benefit.
- Track cash burn, timing and collectability of SIF reimbursements, and the company’s ability to secure financing without substantial dilution.
- Reconcile the ATM authorization, shares sold and remaining capacity with subsequent filings; assess dilution alongside outstanding options and warrants.
- Review the timing and conditions of contracted clinical spending and contingent license milestones, royalties and other commitments.
- Monitor EB01 development progress and the effect of clinical delays or pandemic-related disruption on the company’s plans.