Eupraxia Pharmaceuticals Inc(EPRX) - 2025 Q1 - Quarterly Report

Consolidated Balance Sheets The Company's total assets decreased by approximately $5.7 million from December 31, 2024, to March 31, 2025, primarily driven by a reduction in cash. Total liabilities also decreased by about $0.9 million, while total shareholders' equity saw a decrease of approximately $4.8 million | Metric | March 31, 2025 | December 31, 2024 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | ASSETS | | | | | Cash | $27,454,598 | $33,101,294 | $(5,646,696) | | Total current assets | $28,606,412 | $34,436,678 | $(5,830,266) | | Property and equipment, net | $497,282 | $357,893 | $139,389 | | Total assets | $29,233,179 | $34,942,355 | $(5,709,176) | | LIABILITIES | | | | | Accounts payable and accrued liabilities | $2,147,217 | $3,031,527 | $(884,310) | | Total liabilities | $2,199,991 | $3,103,386 | $(903,395) | | SHAREHOLDERS' EQUITY | | | | | Total shareholders' equity | $27,033,188 | $31,838,969 | $(4,805,781) | Consolidated Statements of Operations and Comprehensive Loss For the three months ended March 31, 2025, the Company reported a net loss of $6,767,275, an increase from the $6,156,933 net loss in the prior year period. Total expenses rose, while other income decreased significantly, contributing to the higher loss. Loss per share remained constant at $(0.21) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | General and administrative expenses | $3,274,394 | $2,518,023 | +$756,371 | | Research and development expenses | $3,849,826 | $4,175,453 | -$325,627 | | Total expenses | $7,124,220 | $6,693,476 | +$430,744 | | Total other income/(loss) | $359,739 | $541,543 | -$181,804 | | Net loss for the period | $(6,767,275) | $(6,156,933) | -$(610,342) | | Comprehensive loss for the period | $(6,729,111) | $(6,189,325) | -$(539,786) | | Loss per share – basic and diluted | $(0.21) | $(0.21) | $0.00 | Consolidated Statements of Changes in Shareholders' Equity The Company's total shareholders' equity decreased from $31,838,969 at December 31, 2024, to $27,033,188 at March 31, 2025. This decline was primarily due to the net loss for the period, partially offset by share-based payments and redemptions of warrants and options | Item | December 31, 2024 | March 31, 2025 | Change | | :-------------------------------- | :---------------- | :------------- | :----- | | Preferred shares Amount | $31,705,219 | $31,705,219 | $0 | | Common shares Amount | $116,360,066 | $116,840,288 | +$480,222 | | Additional paid-in capital | $20,503,904 | $21,947,012 | +$1,443,108 | | Deficit | $(131,003,831) | $(137,766,439) | -$(6,762,608) | | Accumulated other comprehensive loss | $(4,160,555) | $(4,122,391) | +$38,164 | | Non-controlling interest | $(1,565,834) | $(1,570,501) | -$(4,667) | | Total Shareholders' Equity | $31,838,969 | $27,033,188 | -$(4,805,781) | Consolidated Statements of Cash Flows For the three months ended March 31, 2025, cash used in operating activities was $6,003,071, while investing activities used $169,044. Financing activities provided $429,923, resulting in a net decrease in cash of $5,742,192. This contrasts with the prior year period where financing activities provided significant cash, leading to a net increase in cash | Cash Flow Activity | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash used in operating activities | $(6,003,071) | $(6,136,726) | | Cash used in investing activities | $(169,044) | $(6,789) | | Cash provided by financing activities | $429,923 | $23,170,042 | | Increase (decrease) in cash | $(5,742,192) | $17,026,527 | | Cash, beginning of period | $33,101,294 | $19,341,756 | | Cash, end of period | $27,454,598 | $35,907,527 | Notes to the Consolidated Financial Statements This section details the Company's business nature, accounting policies, financial instrument risks, and specific financial statement line items, including share capital and commitments 1. Nature of Business and Going Concern Eupraxia Pharmaceuticals Inc. is a clinical-stage biotechnology company utilizing its proprietary Diffusphere™ technology for drug delivery. The Company has not yet generated revenue and incurred a net loss of $6.77 million for Q1 2025, with an accumulated deficit of $137.77 million, raising substantial doubt about its ability to continue as a going concern without additional funding - Eupraxia Pharmaceuticals Inc. is a clinical stage biotechnology company focused on optimizing drug delivery using its proprietary Diffusphere™ technology[16] - The Company has not yet generated revenue from operations and incurred a net loss of $6,767,275 for the three months ended March 31, 2025, leading to an accumulated deficit of $137,766,439[17] - The Company's continued operations are dependent on its ability to generate future cash flows or obtain additional funding, which casts substantial doubt on its ability to continue as a going concern[19] 2. Basis of Presentation These unaudited interim consolidated financial statements are presented in U.S. dollars, prepared in accordance with U.S. GAAP and SEC rules for interim financial information, and include normal recurring adjustments. They should be read in conjunction with the audited 2024 annual financial statements - Financial statements are presented in U.S. dollars and prepared in accordance with U.S. GAAP and SEC rules for interim financial information[21][22] - These statements include normal recurring adjustments and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2024[22][23] 3. Summary of Significant Accounting Policies The financial statements are prepared on a historical cost basis in U.S. dollars, with the Canadian dollar as the functional currency. Management makes estimates for accruals, stock-based compensation, and deferred taxes. The Company adopted ASU 2023-09 in 2025 for income tax disclosures - Financial statements are prepared on a historical cost basis, presented in U.S. dollars (reporting currency), with the Canadian dollar as the functional currency[24] - Management makes estimates for accruals of expenses, stock-based compensation, and valuation allowance for deferred taxes[25] - The Company adopted ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," in 2025[27] 4. Amounts Receivable Amounts receivable increased slightly to $238,531 as of March 31, 2025, primarily consisting of GST/HST recoverable and other refundable tax credits, which are R&D incentives for Eupraxia Australia | Category | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | GST/HST recoverable | $90,700 | $82,097 | | Other refundable tax credits | $147,831 | $146,775 | | Total | $238,531 | $228,872 | - Other refundable tax credits represent tax incentives for R&D costs incurred by Eupraxia Australia[30] 5. Property and Equipment The net book value of property and equipment increased to $497,282 as of March 31, 2025, from $357,893 at December 31, 2024, driven by additions, particularly in lab equipment. Depreciation expense for Q1 2025 was $28,619, with the majority allocated to research and development | Metric | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Net Book Value | $497,282 | $357,893 | - Depreciation expense for the three months ended March 31, 2025, was $28,619, with $26,815 included in research and development[32] 6. Right-of-Use Asset The right-of-use asset decreased to $49,255 as of March 31, 2025, from $67,023 at December 31, 2024, primarily due to depreciation. The Company extended its office space lease until November 30, 2025, which had increased the asset by $78,580 in 2024 | Metric | March 31, 2025 | December 31, 2024 | | :---------------- | :------------- | :---------------- | | Balance, ending | $49,255 | $67,023 | - The Company extended its office space lease until November 30, 2025, which increased the right-of-use asset by $78,580 in 2024[33] - Depreciation expense for the three months ended March 31, 2025, was $17,868, with $11,173 included in research and development[33] 7. Accounts Payable and Accrued Liabilities Total accounts payable and accrued liabilities decreased to $2,147,217 as of March 31, 2025, from $3,031,527 at December 31, 2024. This reduction was mainly due to the absence of employee bonus payable in Q1 2025, while research and development payables significantly increased | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Research and development | $1,264,405 | $573,465 | | General and administrative | $837,602 | $943,376 | | Employee bonus payable | — | $1,493,981 | | Total | $2,147,217 | $3,031,527 | 8. Loans Payable The Company's loan agreement, initially for $235,000 to purchase equipment, was fully repaid on September 19, 2024. As a result, the balance of loans payable was $0 as of March 31, 2025, and December 31, 2024 - The loan agreement, entered into on September 10, 2021, for $235,000 to purchase equipment, was fully repaid on September 19, 2024[35][36] | Metric | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Balance, ending | $— | $— | 9. Lease Liability The Company's lease liability for its Victoria, BC facility was $52,774 as of March 31, 2025, with a weighted average remaining lease term of 0.67 years. An extension agreement was signed in May 2024, extending the lease until November 30, 2025. Lease payments for Q1 2025 were $20,368, and the Company subleased office space, reducing general and administrative expenses by $6,833 - The Company extended its operating lease for the Victoria, BC facility until November 30, 2025[38] | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Lease liability – current portion | $52,774 | $71,859 | | Weighted average remaining lease term (years) | 0.67 | 0.92 | | Weighted average discount rate | 9.02% | 9.02% | - Sublease income of $6,833 for Q1 2025 was recorded as a reduction to general and administrative expenses[41] 10. Auritec License Agreement Eupraxia LLC holds an exclusive license from Auritec Pharmaceuticals Inc. for the use of its "Plexis Platform" for fluticasone delivery in specific medical fields. The agreement includes an upfront fee, potential milestone payments up to $25 million, a 4% royalty on net sales, and a percentage of non-royalty monetization revenue ranging from 10% to 30% based on development stage - Eupraxia LLC has an exclusive license from Auritec Pharmaceuticals Inc. for the "Plexis Platform" technology for fluticasone delivery in all medical fields except otolaryngology and eye-related conditions[43] - The agreement includes an upfront fee of $5,000,000, potential milestone payments up to $25,000,000, and a 4% royalty on net sales of Licensed Products[44][46] - Eupraxia LLC also agreed to pay Auritec a percentage of Non-Royalty Monetization Revenue, ranging from 10% to 30% depending on the development stage of the most-advanced Licensed Product, up to a maximum of $100,000,000[47] 11. Convertible Debt The Company's convertible debt with Silicon Valley Bank, initially CDN$10 million, matured and was fully repaid by September 2024, resulting in a zero balance as of December 31, 2024. A new CDN$12 million convertible debt facility with Yabema Capital Limited, entered into in August 2024, was subsequently terminated and all security interests discharged on October 31, 2024, following a convertible preferred share offering - The contingent convertible debt agreement with Silicon Valley Bank (SVB) matured on June 21, 2024, and the remaining balance was fully repaid by September 11, 2024[50] - A new CDN$12 million convertible debt facility with Yabema Capital Limited, entered into on August 1, 2024, was terminated on October 31, 2024, following a convertible preferred share offering[51][53] 12. Share Capital and Other Components of Equity The Company's share capital includes unlimited authorized common and preferred shares. During Q1 2025, common shares were issued from warrant and option exercises. Convertible preferred shares, issued in October 2024, are classified as permanent equity with specific conversion and potential dividend terms. The Company also has an Amended Stock Option Plan and outstanding warrants, and Class B non-voting shares exchangeable into common shares. The calculation of loss per share for Q1 2025 includes an implied dividend on preferred shares 12(a) Authorized Shares - The Company has an unlimited number of authorized Common shares and Preferred shares, both without par value[55] 12(b) Issued Common Shares | Event (Three months ended March 31, 2025) | Common Shares Issued | Gross Proceeds | | :---------------------------------------- | :------------------- | :------------- | | Exercise of warrants | 200,000 | $416,406 | | Exercise of options | 7,750 | $13,517 | 12(b) Issued Preferred Shares - On October 31, 2024, the Company issued 8,905,638 convertible preferred shares in a non-brokered private placement for aggregate gross proceeds of $31,997,837[56] - Each Preferred Share is convertible into one common share at the holder's option and mandatorily convertible upon certain conditions (e.g., common shares trading at CDN$15.00 or 75% holder consent)[57][58] - Preferred Shares are classified as permanent equity due to the Company's control over redemption features and will not initially be entitled to dividends, but may receive quarterly dividends (1.5% PIK or 2% cash) after the third anniversary, subject to shareholder approval[59][60] 12(d) Options - The Amended Stock Option Plan allows for grants up to 18.5% of outstanding common shares, with vesting typically over three years (25% on grant, remainder annually)[62][63] | Metric | December 31, 2024 | March 31, 2025 | | :-------------------------------- | :---------------- | :------------- | | Options Outstanding | 5,307,870 | 5,572,120 | | Weighted average exercise price (CDN$) | $5.50 | $5.15 | - Share-based compensation expense for Q1 2025 was $1,493,407, significantly higher than $213,130 in Q1 2024. Unrecognized stock-based compensation expense as of March 31, 2025, was $2,399,667, to be recognized over 2.55 years[65][66] 12(e) Warrants | Metric | December 31, 2024 | March 31, 2025 | | :-------------------------------- | :---------------- | :------------- | | Warrants Outstanding | 8,807,977 | 8,607,977 | | Weighted average exercise price (CDN$) | $5.48 | $5.53 | - As of March 31, 2025, the Company had 8,607,977 warrants outstanding and exercisable, with various exercise prices and expiry dates, including a significant portion expiring in April 2026[67] 12(f) Class B Non-Voting Shares - The Company issued 225 non-voting Class B shares in Eupraxia Pharma Inc. to the Chief Scientific Officer, representing 5% equity interest in Eupraxia USA[69] - Each Class B Share is exchangeable into 2,500 common shares of the Company, with potential for forced exchange by the Company under certain conditions (e.g., after January 31, 2031, or earlier if listed and reporting issuer)[70] 12(g) Earnings (Loss) per Share - Due to the classification of Preferred Shares as increasing rate preferred stock, an implied dividend of $620,515 was included in the Q1 2025 loss per share calculation, increasing the adjusted loss attributable to owners of the Company to $(7,383,123)[71] | Metric | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Loss attributable to the Owners of the Company | $(6,762,608) | $(6,043,038) | | Less: implied dividend on Preferred Shares | $620,515 | — | | Adjusted Loss attributable to the Owners of the Company | $(7,383,123) | $(6,043,038) | | Loss per Share - Basic and Diluted | $(0.21) | $(0.21) | 13. General and Administrative Expenses General and administrative expenses increased to $3,274,394 for Q1 2025 from $2,518,023 in Q1 2024. This rise was primarily driven by a significant increase in share-based payments and higher office expenses and insurance, partially offset by lower professional fees and travel | Category | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | Change (YoY) | | :------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Office expenses | $240,116 | $111,309 | +$128,807 | | Insurance | $261,223 | $101,433 | +$159,790 | | Professional fees | $447,450 | $1,101,798 | -$654,348 | | Salaries and benefits | $709,931 | $521,876 | +$188,055 | | Share based payments | $1,127,033 | $154,627 | +$972,406 | | Total expenses | $3,274,394 | $2,518,023 | +$756,371 | 14. Research and Development Expenses Research and development expenses decreased to $3,849,826 for Q1 2025 from $4,175,453 in Q1 2024. This reduction was mainly due to lower clinical, manufacturing & analytical, and regulatory costs, despite increases in preclinical, pipeline development, and share-based payments | Category | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | Change (YoY) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Preclinical | $231,277 | $261,636 | -$30,359 | | Clinical | $704,085 | $1,032,960 | -$328,875 | | Manufacturing & analytical | $1,312,645 | $1,746,744 | -$434,099 | | Regulatory | $2,182 | $34,984 | -$32,802 | | Direct research and development | $2,250,189 | $3,076,324 | -$826,135 | | Pipeline development | $932 | — | +$932 | | Salaries and benefits | $949,276 | $867,680 | +$81,596 | | Share based payments | $366,374 | $58,503 | +$307,871 | | Total expenses | $3,849,826 | $4,175,453 | -$325,627 | 15. Commitments and Contingencies The Company has potential future obligations including milestone, royalty, and R&D funding payments under license agreements, which are not accrued due to uncertainty. It also has service contracts with cancellation clauses and customary indemnification provisions, for which no liabilities have been recognized - The Company may be required to make milestone, royalty, and R&D funding payments under agreements with third parties (e.g., Auritec License Agreement), which are contingent and not accrued due to uncertainty[78] - Service contracts with vendors may include cancellation fees (15% to 100% of next milestone), but no such fees have been triggered as of March 31, 2025[78] - The Company has indemnification provisions in service agreements, but historically has not made payments and believes the fair value of these obligations is minimal[75][78] 16. Segmented Information The Company operates as a single reportable segment, with the CEO acting as the Chief Operating Decision Maker (CODM). Performance is assessed through preclinical and clinical research goals and net loss, with resources allocated on a total company basis. The majority of assets are located in Canada - The Company operates as a single reportable segment, with the Chief Executive Officer (CEO) as the Chief Operating Decision Maker (CODM)[76] - The CODM assesses performance through the achievement of pre-clinical and clinical research goals and monitors net loss and cash flows[77][78] - A majority of the Company's assets are located in Canada[78] | Segment Expense Category | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Direct external research and development costs | | | | EP-104IAR | $9,764 | $2,075,762 | | EP-104GI | $1,982,822 | $738,926 | | Pre-clinical | $258,536 | $261,636 | | Salaries and benefits | $1,659,207 | $1,389,556 | | Share based payments | $1,493,407 | $213,130 | | Other Research and Development expenses | $283,054 | $172,946 | | Other General and Administrative expenses | $1,437,430 | $1,841,520 | | Total segment expenses | $7,124,220 | $6,693,476 | 17. Financial Instruments The Company's financial instruments include cash, amounts receivable, and accounts payable. It faces credit risk (minimal due to cash held with a large Canadian bank), liquidity risk (managing cash to meet liabilities, actively seeking additional funding), and market risk (interest rate, currency, and other price risk). The carrying values of financial instruments approximate their fair values due to short-term maturities Credit Risk - The Company believes it has no significant credit risk, as its primary exposure (cash and cash equivalents) is held with a large Canadian bank[80] Liquidity Risk - As of March 31, 2025, the Company had cash of $27,454,598 and current liabilities of $2,199,991[81] - Management is actively pursuing strategic alternatives, including raising additional capital, but there is no assurance that future funding will be available on a timely or acceptable basis[81][82] Market Risk - Market risk encompasses interest rate risk, currency risk, and other price risk[83] Interest Rate Risk - The Company is exposed to interest rate cash flow risk and interest rate price risk due to potential fluctuations in market interest rates affecting its monetary assets and liabilities[84] Currency Risk - The Company is exposed to currency risk due to frequent transactions in US dollars and Australian dollars, but does not use derivatives to hedge this risk[85][86] - A 10% change in exchange rates would impact profit or loss by approximately $1,574,241 for US dollar denominated assets/liabilities and $32,736 for Australian dollar denominated assets/liabilities as of March 31, 2025[86] Other Price Risk - The Company is not exposed to significant price risk related to commodity or equity prices[87] Fair Value Measurement - Financial instruments are categorized into Level 1, 2, or 3 based on observable inputs, and their carrying values approximate fair values due to short-term maturities[88] | Financial Instrument | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | Cash | $27,454,598 | $33,101,294 | | Amounts receivable | $238,531 | $228,872 | | Accounts payable and accrued liabilities | $2,199,991 | $3,031,527 | 18. Interest Expense The Company reported no interest expense for the three months ended March 31, 2025, compared to $321,140 in the prior year period. This change is primarily due to the full repayment of the SVB debt facility in 2024 | Category | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Interest on SVB debt facility | $— | $320,318 | | Total Interest Expense | $— | $321,140 | - The absence of interest expense in Q1 2025 is due to the full repayment of the SVB debt facility in 2024[90] 19. Supplemental Disclosure with Respect to Cash Flows For the three months ended March 31, 2025, the Company paid no interest, a decrease from $162,195 in the prior year, and received $308,188 in interest, an increase from $236,369. There were no non-cash transactions in either period | Metric | Three Months ended March 31, 2025 | Three Months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Interest paid | $nil | $162,195 | | Interest received | $308,188 | $236,369 | - The Company had no non-cash transactions for the three months ended March 31, 2025, and March 31, 2024[91]