Edesa Biotech, Inc. — Form 10-Q summary
Reporting period: Three months ended December 31, 2019 (the company’s fiscal first quarter of 2020). Amounts are in U.S. dollars. The filing was signed February 13, 2020.
Business context
Edesa is a clinical-stage biopharmaceutical company developing treatments for dermatological and gastrointestinal conditions. Its lead candidate, EB01, entered a Phase 2B study for chronic allergic contact dermatitis in October 2019; Health Canada had approved a proof-of-concept study of EB02 for hemorrhoids disease. The company said it had not generated revenue from its product candidates.
Financial results and liquidity
- Revenue: $107,800, versus none in the prior-year quarter, from sales of inventory acquired in the June 2019 reverse acquisition—not sales of product candidates. Cost of sales was $3,778.
- Operating expenses: $1,213,482, up from $405,741. Research and development was $527,998 (prior year: $257,391); general and administrative was $681,706 (prior year: $148,350).
- Loss: Operating loss was $1,105,682; net loss was $1,094,333, or $0.15 per share, compared with a $364,849 net loss, or $0.11 per share. The reported comprehensive loss was $1,076,219.
- Cash flow: Operating cash use was $789,712 (prior year: $382,346). Investing cash use was $477,293, including $499,790 invested in short-term U.S. Treasury bills. Financing provided $45,000. Cash and cash equivalents fell by $1,203,533 to $3,827,050.
- Liquidity: Cash, cash equivalents and short-term investments totaled $4,326,840 at December 31, 2019; working capital was $4.12 million. The company reported total assets of $5.09 million and shareholders’ equity of $4.23 million.
- Debt and obligations: The balance sheet shows no borrowings. Operating lease liabilities totaled $218,145, including $66,631 current. Future contractual payments to research organizations and other service providers were $2.197 million; additional license milestone payments of up to $18.6 million and $18.5 million are contingent on specified milestones. Royalties may also be payable under the license agreements.
Changes and notable developments
- Year-over-year operating expenses rose by approximately $808,000. Management attributed higher R&D costs to clinical-study activity, including EB01, and personnel expenses; higher G&A reflected salaries, legal and professional fees, and public-company costs. Total other income declined, mainly due to Canadian-dollar exchange-rate fluctuations.
- Comparisons require context: the June 2019 reverse acquisition changed the reporting company and brought the acquired business into the consolidated results. The filing says results before June 7, 2019 reflect Edesa Biotech Research on a standalone basis.
- The company adopted the new lease accounting standard on October 1, 2019, recognizing operating right-of-use assets and lease liabilities. It reported no impact to opening accumulated deficit.
- On January 8, 2020, after quarter-end, Edesa completed an offering of 1,354,691 common shares and warrants for gross proceeds of $4.36 million, before approximately $0.44 million in fees and expenses. On February 12, it granted 352,365 options.
Outlook, risks and contingencies
Management said it planned to fund operations over the next 12 months using cash and short-term investments on hand, and noted that spending could be adjusted, including clinical-trial timing and staffing. It may seek additional equity, debt, licensing, collaboration or other financing. This is not a guarantee of runway: the company expected continuing operating losses and had substantial clinical-development commitments. No specific revenue, earnings or clinical-outcome guidance was provided.
The filing identifies foreign-exchange exposure and says the company had not hedged currency risk; a 10% annual change in the Canadian/U.S. exchange rate was estimated to affect loss and comprehensive loss by approximately $151,000. Edesa reported no material legal proceedings outside the ordinary course and no material changes to the risk factors in its prior annual filing. Management concluded disclosure controls were effective as of December 31, 2019.
Important facts for investors to verify
- Whether the post-quarter offering proceeds, net of costs, adequately extend the company’s cash runway against expected trial spending and other obligations.
- Progress, timing and costs of the EB01 Phase 2B study and the planned EB02 proof-of-concept study.
- The nature and sustainability of reported revenue, which came from acquired inventory rather than product-candidate sales.
- Potential dilution from the offering warrants, outstanding options and subsequent option grants.
- Milestone, royalty and clinical-service commitments, including amounts and timing that depend on future events.