Edesa Biotech, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020; filed August 12, 2020. The company is a clinical-stage biopharmaceutical developer focused on inflammatory and immune-related diseases. Its principal programs include EB01 for allergic contact dermatitis and EB05, a TLR4-targeting antibody being advanced as a potential treatment for COVID-19-related acute respiratory distress syndrome (ARDS).
Financial performance and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $109,985 (2019: $500) | $328,301 (2019: $500) |
| Operating expenses | $1.88 million (2019: $1.32 million) | $4.72 million (2019: $2.27 million) |
| Net loss | $1.77 million (2019: $1.29 million) | $4.35 million (2019: $2.19 million) |
| Loss per share, basic and diluted | $0.20 (2019: $0.30) | $0.52 (2019: $0.61) |
| Cash used in operations | Not separately stated | $3.31 million (2019: $3.90 million) |
- Revenue came from sales of product inventory acquired in the June 2019 reverse acquisition; the company says it has not generated revenue from its drug candidates. Revenue is too limited for a meaningful margin assessment.
- At June 30, cash and cash equivalents were $5.64 million, current assets $6.22 million, current liabilities $0.98 million and working capital $5.24 million. Total assets were $8.92 million.
- Total liabilities were $1.12 million, including $176,876 of operating lease liabilities. The filing reports $29,660 of borrowing proceeds and $29,320 of long-term payables; it does not describe material conventional debt.
- Cash rose $0.61 million from September 30, 2019. The company raised $4.36 million gross in a January 2020 share-and-warrant offering, with approximately $3.89 million net proceeds. Operating cash use was partly offset by financing proceeds.
- After quarter-end and through August 10, warrant exercises issued 552,383 shares and generated approximately $2.42 million. Shares outstanding were 8,861,895 at June 30 and 9,414,278 as of August 10.
Changes versus the prior comparable periods
- Nine-month R&D expense increased to $2.17 million from $0.87 million, primarily reflecting EB01 clinical work, preparation for the EB05 study, and higher personnel costs.
- Nine-month general and administrative expense rose to $2.53 million from $1.40 million, driven mainly by personnel, legal and professional fees, and public-company costs.
- Quarterly R&D expense rose to $1.14 million from $0.50 million; quarterly G&A declined to $0.73 million from $0.82 million, primarily due to lower legal fees.
- Net loss increased in dollars, while loss per share narrowed because the weighted-average share count was higher following the reverse acquisition and subsequent equity issuance.
Outlook, risks and notable items
- Management said it planned to fund operations over the following 12 months with cash on hand, while retaining flexibility to adjust spending. It may seek additional equity, grants, debt, licensing, collaboration or other financing; adequate funding on acceptable terms is not assured.
- Health Canada approved initiation of an adaptive Phase 2/Phase 3 EB05 study in hospitalized COVID-19 patients in June 2020. The company planned to enroll up to 450 patients in the first phase. A new FDA IND filed in July was pending review.
- COVID-19 disruptions led at least five EB01 study sites to pause new patient randomization temporarily. The company amended the protocol to facilitate remote visits and enrollment; the blinded interim readout was expected later than originally anticipated, and the ultimate effect on completion timing was uncertain.
- The April 2020 NovImmune license provided worldwide rights to the EB05/EB06 antibody constructs. Consideration included $2.5 million of Series A-1 preferred shares. The agreement includes up to $363.5 million in contingent development, approval and commercial milestones, plus royalties or sublicensing payments. A separate $5.0 million TLR4 drug-substance purchase is payable in future installments.
- Contractual research and other commitments totaled $11.804 million at June 30. The filing also describes contingent milestone obligations under two earlier licenses of up to $18.6 million and $18.5 million, respectively.
- The Series A-1 preferred shares are temporary equity, rank senior to common shares in specified circumstances, accrue a 3% annual return, and may become redeemable at the holder’s option beginning 18 months after issuance if a specified share-price condition is met.
- COVID-19’s effects on operations, clinical timelines and financial results remained uncertain. The company also disclosed foreign-exchange exposure: a 10% annual change in the Canadian/U.S. exchange rate was estimated to affect loss and comprehensive loss by approximately $192,000.
- No material legal proceedings outside the ordinary course, material changes to previously reported risk factors, or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective as of June 30, 2020.
Key facts for investors to verify
- Whether EB01 enrollment and its delayed blinded interim readout progress as anticipated, and whether COVID-19 continues to affect trial sites.
- FDA review and study initiation status for EB05, along with the trial’s funding needs and clinical milestones.
- Cash runway assumptions against the $11.804 million of contractual commitments and potential additional financing requirements.
- Potential dilution from outstanding warrants and options, including post-quarter warrant exercises, and the terms and redemption features of the preferred shares.
- Potential future costs under NovImmune and other license agreements, distinguishing contingent milestones and royalties from currently due obligations.