Edesa Biotech, Inc. — Form 10-Q summary
Business context and period. Edesa is a clinical-stage biopharmaceutical company developing treatments for inflammatory and immune-related diseases. This filing covers the fiscal third quarter and nine months ended June 30, 2021; financial statements are unaudited and amounts are in U.S. dollars. Its lead programs are EB05, in a Phase 2/3 study for COVID-19-related ARDS, and EB01, in a Phase 2b study for chronic allergic contact dermatitis.
Financial highlights
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $6.07 million | $18.20 million |
| Net loss | $4.76 million; $0.36 per share | $9.66 million; $0.83 per share |
| Reimbursement grant income | $1.31 million | $8.48 million |
| Net cash used in operating activities | Not presented for the quarter | $13.31 million |
- Expenses and margins: Research and development was $4.46 million for the quarter and $13.82 million year to date. With no current product revenue, operating and gross margins are not meaningful.
- Liquidity: June 30 cash and cash equivalents were $8.05 million, versus $7.21 million at September 30, 2020. Working capital was $13.35 million; total assets were $16.88 million.
- Funding: Nine-month financing cash flow was $13.95 million, including equity-offering proceeds, warrant exercises and option exercises. The March public offering generated $8.85 million net proceeds; share sales under the equity distribution agreement and exercises generated a further $4.97 million net.
- Debt and obligations: The balance sheet reports no borrowings at June 30. Total liabilities were $1.07 million, including $121,228 of operating lease liabilities. Contracted research and other future payments totaled $4.285 million. Additional license milestone obligations are contingent and potentially substantial.
Changes versus prior comparable periods
- Quarterly revenue fell to zero from $109,985; nine-month revenue fell to zero from $328,301, reflecting the winddown of legacy product sales.
- Quarterly net loss increased from $1.77 million to $4.76 million; nine-month net loss increased from $4.35 million to $9.66 million. Loss per share increased from $0.20 to $0.36 for the quarter and from $0.52 to $0.83 year to date.
- Quarterly R&D expense rose to $4.46 million from $1.14 million; nine-month R&D rose to $13.82 million from $2.17 million. The filing attributes the increase mainly to clinical-program milestone costs, study activity and enrollment, investigational drug product costs, and share-based compensation.
- Grant income rose to $8.48 million year to date from none in the prior-year period, partly offsetting higher operating expenses. The company recorded $3.99 million of grant reimbursements receivable at June 30.
- Common shares outstanding increased to 13,255,559 from 9,615,119 at September 30, 2020, reflecting equity offerings, warrant and option exercises, and conversion of preferred shares.
Outlook, developments and risks
- In June, the EB05 independent monitoring board recommended continuing enrollment after a planned interim review of the first patient cohort. Edesa planned an end-of-Phase-2 interim analysis as early as the third calendar quarter of 2021; enrollment was ongoing. The filing does not report an efficacy conclusion from this blinded review.
- For EB01, the monitoring board said the first-cohort blinded interim data met key study parameters. Edesa planned an additional cohort of at least 120 evaluable subjects, with active treatment at three concentrations or placebo; recruitment expanded to Canada and an optional open-label extension was added.
- The Canadian Strategic Innovation Fund agreement provides up to C$14.05 million (approximately $11 million) in nonrepayable funding for eligible EB05-related costs and certain preclinical work. The company must initially fund costs and seek reimbursement; the filing warns that breaches of agreement obligations could result in funding suspension or termination and potential repayment.
- Management said it planned to fund operations over the next 12 months with cash on hand and eligible SIF reimbursements. It may adjust spending or seek additional equity, grants, debt, collaborations or other financing; adequate funding on acceptable terms is not assured. Operating losses and cash use are expected to continue.
- The company recorded $3.5 million of license milestone expense during the nine months. Remaining contingent payments under the relevant license may total up to $352.5 million; another license has up to $69.1 million of contingent payments. In July and August 2021, Edesa entered additional licenses with future contingent milestones, sublicensing fees and royalties.
- COVID-19 may affect operations, clinical-study timelines and financial results. The company also disclosed unhedged foreign-exchange exposure: management estimated a 10% annual change in the Canadian/U.S. exchange rate could affect loss and comprehensive loss by approximately $0.89 million.
- No material changes to previously disclosed risk factors were reported; no material legal proceedings outside the ordinary course were reported. Management concluded disclosure controls were effective as of June 30, 2021.
Important facts for investors to verify
- Timing and outcome of the planned EB05 interim analysis, ongoing enrollment, and any resulting changes to trial design or endpoints.
- EB01 enrollment progress and eventual results; the reported interim review was based on blinded data and is not an efficacy result.
- Timing and collectability of SIF reimbursements, including the $3.99 million receivable, and remaining grant availability and compliance requirements.
- Cash runway against the $13.31 million nine-month operating cash outflow, contracted commitments, and management’s 12-month funding plan.
- Potential dilution from further financing and the scale, timing and conditions of contingent license milestone, royalty and sublicensing obligations.