Edesa Biotech, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited fiscal first-quarter results for the three months ended December 31, 2020, compared with the three months ended December 31, 2019. Amounts are in U.S. dollars. Edesa is a clinical-stage biopharmaceutical company developing treatments for inflammatory and immune-related diseases. Its lead candidates are EB05, in a Phase 2/3 study for hospitalized COVID-19 patients, and EB01, in a Phase 2B study for chronic allergic contact dermatitis.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $107,800 |
| Operating expenses | $2.61 million | $1.21 million |
| Operating loss | $2.61 million | $1.11 million |
| Net loss | $2.64 million | $1.09 million |
| Loss per share, basic and diluted | $0.26 | $0.15 |
| Cash used in operating activities | $3.01 million | $0.79 million |
Gross margin is not meaningful for the quarter because there were no sales. At December 31, cash and cash equivalents were $6.31 million, current assets $7.67 million, current liabilities $0.91 million, and working capital $6.76 million. Total liabilities were $1.03 million, including $154,800 of operating lease liabilities; the filing does not show material conventional borrowings. Accumulated deficit was $15.78 million. Common shares outstanding were 10,523,087 at quarter-end and 11,048,980 as of February 12, 2021.
Material changes versus the prior comparable period
- Revenue ceased as the company wound down sales of product inventory acquired in its reverse acquisition.
- Research and development expense rose $0.85 million to $1.38 million, mainly from external clinical research, share-based compensation, personnel costs, and patent fees.
- General and administrative expense increased $0.55 million to $1.23 million, primarily due to share-based compensation, personnel, and professional services.
- Share-based compensation expense increased to $722,909 from approximately $8,755. The quarter included 430,000 newly granted options.
- Operating cash use increased to $3.01 million. The company received $1.03 million from its at-the-market share offering and $995,038 from warrant exercises.
Outlook, commentary, risks and unusual items
- Management said it planned to fund operations over the next 12 months with available cash and reimbursements under a Canadian government grant, while retaining the option to adjust spending or seek additional financing. Adequate financing on acceptable terms is not assured.
- On February 2, 2021, Canada’s Strategic Innovation Fund committed up to C$14.05 million (approximately $11 million) in nonrepayable funding for eligible costs: up to 75% of qualifying expenses for the Phase 2 portion of the EB05 study and certain preclinical work. Edesa must first incur and fund expenses before seeking reimbursement; funding is subject to performance obligations and potential suspension, termination, or repayment remedies.
- Subsequent to quarter-end through February 12, 2021, Edesa received approximately $3.13 million from at-the-market share sales and exercises of warrants and options.
- Contracted research, clinical-trial, service-provider, and drug-substance payments totaled $6.755 million at December 31, 2020. The separate license agreement includes up to $356 million of contingent milestones, primarily tied to future approval and sales, plus royalties and sublicensing payments. Another license has up to $18.6 million in milestone payments.
- The COVID-19 pandemic could disrupt operations and clinical-study timelines. The company also disclosed Canadian-dollar exposure, no hedging, and estimated that a 10% annual exchange-rate change would affect loss and other comprehensive loss by approximately $235,000.
- Management reported effective disclosure controls as of December 31, 2020, no material changes in internal control, no material legal proceedings outside the ordinary course, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Current enrollment, trial timelines, and data milestones for EB05 and EB01, including the impact of COVID-19 on study execution.
- Grant reimbursement eligibility, timing, and the company’s ability to fund qualifying expenses before reimbursement.
- Cash runway relative to operating cash burn and the $6.755 million of contractual payments.
- Potential dilution from at-the-market share issuance, outstanding warrants and options, and remaining convertible preferred shares.
- Exposure to contingent license milestones, royalties, and sublicensing obligations if programs advance or are commercialized.