Edesa Biotech(EDSA) - 2024 Q3 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) The company's financial position weakened, with cash and cash equivalents decreasing from $5.4 million to $2.0 million and total shareholders' equity falling from $7.0 million to $2.9 million since September 30, 2023, while reporting a net loss of $5.2 million for the nine months ended June 30, 2024, an improvement from the prior year due to lower R&D expenses and new grant income. Condensed Interim Consolidated Balance Sheets As of June 30, 2024, total assets significantly decreased to $5.2 million from $8.9 million on September 30, 2023, primarily due to a reduction in cash and cash equivalents, while total liabilities increased and total shareholders' equity sharply declined. Condensed Consolidated Balance Sheet Highlights (in USD) | Balance Sheet Item | June 30, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,040,884 | $5,361,397 | | Total current assets | $3,046,634 | $6,436,852 | | Total assets | $5,227,722 | $8,890,437 | | Liabilities & Equity | | | | Total current liabilities | $2,360,627 | $1,821,864 | | Total liabilities | $2,360,627 | $1,841,637 | | Total shareholders' equity | $2,867,095 | $7,048,800 | Condensed Interim Consolidated Statements of Operations For the nine months ended June 30, 2024, the net loss improved to $5.2 million from $6.7 million in the prior year, primarily driven by lower research and development expenses and the recognition of $0.66 million in reimbursement grant income. Statement of Operations Summary (in USD) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $897,305 | $1,025,622 | $2,778,100 | $3,841,150 | | General and administrative | $1,035,140 | $1,038,587 | $3,232,248 | $3,011,945 | | Loss from operations | $(1,932,445) | $(2,064,209) | $(6,010,348) | $(6,853,095) | | Reimbursement grant income | $236,226 | $0 | $661,062 | $0 | | Net loss | $(1,668,212) | $(1,984,906) | $(5,207,994) | $(6,654,072) | | Loss per share | $(0.52) | $(0.68) | $(1.64) | $(2.37) | Condensed Interim Consolidated Statements of Cash Flows For the nine months ended June 30, 2024, net cash used in operating activities decreased to $3.9 million, while net cash provided by financing activities significantly declined to $0.6 million, resulting in an overall net decrease in cash and cash equivalents of $3.3 million. Cash Flow Summary (Nine Months Ended June 30, in USD) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,923,166) | $(5,168,461) | | Net cash provided by financing activities | $623,466 | $4,417,646 | | Net change in cash and cash equivalents | $(3,320,513) | $(633,749) | | Cash and cash equivalents, end of period | $2,040,884 | $6,457,170 | Notes to Condensed Interim Consolidated Financial Statements The notes detail the company's biopharmaceutical operations, including a $2.1 million intangible asset for a licensed monoclonal antibody, significant future milestone and royalty commitments up to $356 million, and recent capital structure changes such as a new C$23 million government grant and an undrawn $3.5 million related-party revolving credit facility. - The company is a biopharmaceutical firm focused on developing and commercializing drugs for inflammatory and immune-related diseases[21] - An intangible asset for a licensed monoclonal antibody ('the Constructs') is valued at $2.1 million net of amortization as of June 30, 2024[25][26] - The company has commitments for potential milestone payments up to $356 million related to its 2020 license agreement for 'the Constructs', contingent on commercial and sales milestones[31] - In October 2023, the company entered into a new agreement with the Canadian Government's Strategic Innovation Fund (SIF) for up to C$23 million in partially repayable funding to support the Phase 3 study of EB05[52] - In October 2023, the company secured a $10.0 million revolving credit agreement from an entity controlled by its CEO, with an immediate credit limit of $3.5 million, from which no funds have been drawn[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights the company's focus on developing inflammatory disease treatments, with EB05 for ARDS being the most advanced candidate, recently selected for a U.S. government-funded platform study, prompting a strategic re-evaluation of the ongoing Phase 3 trial, while financially, the company reported a reduced net loss for the nine months ended June 30, 2024, but acknowledges the need for additional financing to sustain operations given limited cash and working capital. Overview Edesa is a biopharmaceutical company developing drugs for inflammatory and immune-related diseases, with a pipeline including late-stage candidates such as EB05 for ARDS in Phase 3, EB06 for vitiligo, and EB01 for Allergic Contact Dermatitis, aiming to acquire and develop candidates with demonstrated proof-of-concept for unmet medical needs. - The company's most advanced drug candidate is EB05 (paridiprubart), a Host-Directed Therapeutic (HDT) being evaluated in a Phase 3 study for Acute Respiratory Distress Syndrome (ARDS)[71] - Other pipeline assets include EB06 for vitiligo and EB01 for chronic Allergic Contact Dermatitis (ACD), for which the company intends to seek strategic arrangements following favorable Phase 2b results[72] Recent Developments In June 2024, the company's drug candidate EB05 was selected by BARDA for a Phase 2 platform trial in hospitalized ARDS patients, prompting a re-evaluation of its broader development strategy for EB05, including potential amendments to its ongoing Canadian government-supported Phase 3 study. - In June 2024, EB05 was selected by BARDA for evaluation in a U.S. government-funded Phase 2 platform trial for hospitalized adult patients with ARDS[34][73] - Due to the BARDA study, the company is re-evaluating its development strategy for EB05, considering changes to its ongoing Phase 3 trial, which may require renegotiating its 2023 SIF Agreement with the Canadian government[74] Results of Operations For the nine months ended June 30, 2024, operating expenses decreased to $6.0 million from $6.9 million year-over-year, primarily due to a $1.0 million reduction in R&D expenses following the completion of the EB01 Phase 2 study, while total other income increased to $0.8 million due to $0.6 million in grant income, resulting in an improved net loss of $5.2 million. Comparison of Operating Results (Nine Months Ended June 30) | Item | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | R&D Expenses | $2.8M | $3.8M | ($1.0M) | | G&A Expenses | $3.2M | $3.0M | $0.2M | | Total Operating Expenses | $6.0M | $6.9M | ($0.9M) | | Grant Income | $0.6M | $0 | $0.6M | | Net Loss | ($5.2M) | ($6.7M) | $1.5M | - The decrease in R&D expenses for the nine-month period was primarily due to reduced external research costs following the completion of the EB01 phase 2 study[79] Liquidity and Capital Resources As of June 30, 2024, the company had $2.0 million in cash and cash equivalents and $0.7 million in working capital, relying on existing cash, government grants, an at-the-market equity program, and an undrawn related-party credit line to fund operations, while acknowledging the need for additional financing through equity, debt, or strategic partnerships to sustain development programs. - As of June 30, 2024, the company had $2.0 million in cash and cash equivalents and an accumulated deficit of $57.6 million[89] - The company plans to finance operations over the next year using cash on hand, its Canaccord ATM facility (approx. $6.3M available capacity), advances under its related-party Credit Agreement, and SIF grant reimbursements[87][89] - Management acknowledges the need to seek additional financing to fund future operations and meet obligations, stating that failure to do so may require significant delays or scaling back of product development[89] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide this disclosure. - As a smaller reporting company, Edesa Biotech is not required to provide disclosure under this item[93] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the quarter. - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period, June 30, 2024[94] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[94] PART II - OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings or claims outside the ordinary course of business. - The company reports that it is not currently involved in any material legal proceedings[96] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended September 30, 2023. - No material changes to the risk factors from the Annual Report on Form 10-K for the fiscal year ended September 30, 2023, have been reported[97] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period. - None reported[97] Other Information No directors or officers of the company adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2024. - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading plan during the quarter[98] Exhibits The report lists several exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act and Inline XBRL documents. - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files[100]