ESSA Pharma (EPIX) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section outlines forward-looking statements about the Company's plans, objectives, and future financial performance - The report includes forward-looking statements concerning the Company's plans, objectives, goals, strategies, future events, revenue, performance, capital expenditures, and financing needs. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[7][10][11] - Key forward-looking statements relate to maintaining operations amidst macroeconomic factors (inflation, supply chain, COVID-19), advancing product candidates through clinical trials, patient recruitment, collaborations, funding, intellectual property protection, achieving profitability, and regulatory approvals[7][14][15] Risk Factor Summary This section summarizes key investment risks, including macroeconomic factors, clinical trial uncertainties, and single product reliance - An investment in ESSA Pharma Inc. Common Shares is speculative and risky, with material factors including global macroeconomic risks (inflation, supply chain, COVID-19), clinical trial development uncertainties, reliance on third-party collaborations, and dependence on a single product candidate[13][17] - Other significant risks involve obtaining regulatory approvals, successful commercialization, potential undesirable side effects of product candidates, ability to enroll subjects in trials, manufacturing limitations, foreign operations risks, and disruptions in supply chains[17] - Financial risks include uncertainty in raising additional funding, potential dilution from financing, significant historical and anticipated losses, limited operating history, and risks related to intellectual property protection and potential infringement claims[17][18][21] PART I. FINANCIAL INFORMATION Item 1. Financial Statements and Supplementary Data This section presents ESSA Pharma Inc.'s unaudited interim financial statements for Q2 and 9 months ended June 30, 2023, with detailed notes Condensed Consolidated Interim Balance Sheets The balance sheets reflect a decrease in cash and total assets, partially offset by an increase in short-term investments - The Company's cash and cash equivalents decreased from $57.1 million to $38.5 million, while short-term investments increased from $110.2 million to $114.0 million between September 30, 2022, and June 30, 2023[28] - Total assets declined from $169.5 million to $153.7 million, and total shareholders' equity decreased from $167.1 million to $150.2 million over the nine-month period[28] ASSETS | ASSETS | | | :--- | :--- | | Current Assets | | | Cash and cash equivalents (June 30, 2023) | $38,466,991 | | Cash and cash equivalents (September 30, 2022) | $57,076,475 | | Short-term investments (June 30, 2023) | $114,001,923 | | Short-term investments (September 30, 2022) | $110,161,029 | | Total current assets (June 30, 2023) | $153,290,379 | | Total current assets (September 30, 2022) | $169,059,341 | | Total Assets | | | Total assets (June 30, 2023) | $153,650,198 | | Total assets (September 30, 2022) | $169,505,295 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | Current Liabilities | | | Accounts payable and accrued liabilities (June 30, 2023) | $3,296,377 | | Accounts payable and accrued liabilities (September 30, 2022) | $2,176,565 | | Total current liabilities (June 30, 2023) | $3,407,650 | | Total current liabilities (September 30, 2022) | $2,310,399 | | Total Liabilities | | | Total liabilities (June 30, 2023) | $3,407,650 | | Total liabilities (September 30, 2022) | $2,386,817 | | Shareholders' Equity | | | Total shareholders' equity (June 30, 2023) | $150,242,548 | | Total shareholders' equity (September 30, 2022) | $167,118,478 | Condensed Consolidated Interim Statements of Operations and Comprehensive Loss The statements show a reduced net loss for the nine months ended June 30, 2023, primarily due to lower operating expenses - For the nine months ended June 30, 2023, the net loss decreased to $21.1 million from $28.8 million in the prior year, primarily due to reduced research and development expenses[30] - Basic and diluted loss per common share improved to $(0.48) for the nine months ended June 30, 2023, compared to $(0.65) for the same period in 2022[30] OPERATING EXPENSES | OPERATING EXPENSES | | | | :--- | :--- | :--- | | For the three months ended June 30, 2023 vs 2022 | | | | Research and development | $6,271,186 (2023) | $6,394,534 (2022) | | General and administration | $2,639,381 (2023) | $2,895,542 (2022) | | Total operating expenses | $(8,912,094) (2023) | $(9,293,221) (2022) | | Net loss for the period | $(7,298,873) (2023) | $(8,826,743) (2022) | | Basic and diluted loss per common share | $(0.17) (2023) | $(0.20) (2022) | | For the nine months ended June 30, 2023 vs 2022 | | | | Research and development | $16,096,299 (2023) | $20,063,752 (2022) | | General and administration | $8,889,192 (2023) | $9,775,082 (2022) | | Total operating expenses | $(24,991,312) (2023) | $(29,849,830) (2022) | | Net loss for the period | $(21,100,994) (2023) | $(28,779,266) (2022) | | Basic and diluted loss per common share | $(0.48) (2023) | $(0.65) (2022) | Condensed Consolidated Interim Statements of Cash Flows Cash flow statements show decreased operating cash use, but overall cash and equivalents declined due to investing activities - Net cash used in operating activities decreased to $15.3 million for the nine months ended June 30, 2023, from $20.5 million in the prior year, reflecting a lower net loss[31] - Cash and cash equivalents at the end of the period were $38.5 million, a decrease from $67.9 million in the same period last year, primarily due to cash used in operating and investing activities[31] CASH FLOWS | CASH FLOWS | | | | :--- | :--- | :--- | | For the nine months ended June 30, 2023 vs 2022 | | | | Net cash used in operating activities | $(15,293,299) (2023) | $(20,521,945) (2022) | | Net cash used in investing activities | $(3,262,500) (2023) | $(49,705,530) (2022) | | Net cash provided by financing activities | $(54,509) (2023) | $287,374 (2022) | | Change in cash and cash equivalents for the period | $(18,609,484) (2023) | $(69,956,928) (2022) | | Cash and cash equivalents, end of period | $38,466,991 (2023) | $67,868,096 (2022) | Condensed Consolidated Interim Statement of Changes in Shareholders' Equity Shareholders' equity decreased due to net losses, partially offset by positive contributions from share-based payments - Total shareholders' equity decreased from $167.1 million at September 30, 2022, to $150.2 million at June 30, 2023, primarily due to net losses incurred during the period[33] - Share-based payments contributed positively to equity, totaling $4.16 million for the nine months ended June 30, 2023, reflecting the issuance of stock options and employee share purchase rights[33] SHAREHOLDERS' EQUITY | SHAREHOLDERS' EQUITY | | | | :--- | :--- | :--- | | Balance, September 30, 2022 | $167,118,478 | | | Shares issued through employee share purchase plan | $50,291 | | | Share-based payments | $1,563,608 | | | Loss for the period | $(6,712,455) | | | Balance, December 31, 2022 | $162,019,922 | | | Share-based payments | $1,437,091 | | | Loss for the period | $(7,119,354) | | | Balance, March 31, 2023 | $156,337,659 | | | Share-based payments | $1,161,073 | | | Loss for the period | $(7,256,184) | | | Balance, June 30, 2023 | $150,242,548 | | Notes to Condensed Consolidated Interim Financial Statements These notes detail ESSA Pharma Inc.'s operations, accounting policies, financial instruments, and equity activities - ESSA Pharma Inc. is a clinical-stage pharmaceutical company focused on developing small molecule drugs for prostate cancer, with no products in commercial production as of June 30, 2023[34][35] - The Company's short-term investments, classified as available-for-sale, increased to $114.0 million as of June 30, 2023, from $110.2 million at September 30, 2022, primarily driven by an increase in U.S. Treasury securities[46][48][49] - Shareholders' equity details include an Omnibus Incentive Plan with 8,410,907 common shares reserved for issuance and an Employee Share Purchase Plan (ESPP) with 217,300 common shares reserved[57][58][61] - The Company faces credit risk from cash and short-term investments, liquidity risk due to reliance on external financing, and market risk from interest rate and foreign currency fluctuations, though interest income is not central to its capital management[72][74][75][76][77] Short-term Investments (Fair Value) | Investment Type | June 30, 2023 ($) | September 30, 2022 ($) | | :--- | :--- | :--- | | U.S. Treasury securities | $72,122,617 | $11,149,183 | | GICs and Term deposits | $40,797,689 | $90,005,650 | | Corporate debt securities | $1,081,617 | $3,044,599 | | Commercial paper | — | $5,961,597 | | Total Short-term Investments | $114,001,923 | $110,161,029 | Accounts Payable and Accrued Liabilities | Category | June 30, 2023 ($) | September 30, 2022 ($) | | :--- | :--- | :--- | | Accounts payable | $2,050,602 | $954,598 | | Accrued expenses | $769,316 | $807,484 | | Accrued vacation | $476,459 | $414,483 | | Total | $3,296,377 | $2,176,565 | Stock Option Activity | Activity | Number of Options (June 30, 2023) | Weighted Average Exercise Price (June 30, 2023) ($) | | :--- | :--- | :--- | | Balance, September 30, 2022 | 7,902,061 | $5.13 | | Options granted | 300,000 | $2.97 | | Options expired/forfeited | (51,787) | $5.03 | | Balance outstanding, June 30, 2023 | 8,150,274 | $5.05 | | Balance exercisable, June 30, 2023 | 6,058,158 | $4.82 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Management discusses ESSA Pharma Inc.'s financial condition and operations, focusing on prostate cancer therapies and EPI-7386 development Overview of Business and Product Candidates ESSA is a clinical-stage pharmaceutical company developing novel prostate cancer therapies by disrupting the androgen receptor pathway - ESSA is a clinical-stage pharmaceutical company developing novel therapies for prostate cancer, particularly for patients whose disease progresses despite current standard-of-care treatments[80] - The Company's investigational compounds, including EPI-7386, are designed to disrupt the androgen receptor (AR) signaling pathway by selectively binding to the N-terminal domain (NTD) of the AR, a unique mechanism intended to bypass resistance mechanisms to current antiandrogens[80][81][86] - Prostate cancer is the second most frequently diagnosed cancer among men in the U.S., with a rising incidence of metastatic and non-metastatic castration-resistant prostate cancer (CRPC), representing a significant unmet therapeutic need that ESSA's Aniten series aims to address[82][88] Clinical Development of EPI-506 and Next-Generation Anitens ESSA shifted from EPI-506 to EPI-7386, a next-generation Aniten with improved potency and metabolic stability - ESSA conducted a Phase 1 clinical study for its first-generation Aniten compound, EPI-506, which demonstrated favorable safety and some anti-tumor activity at higher doses, but its pharmacokinetic limitations led to the decision to discontinue further clinical development[90][96][97] - The Company shifted focus to next-generation Aniten compounds, with EPI-7386 selected as the lead candidate due to its significantly higher potency (20x more than EPI-506), increased metabolic stability, and improved pharmaceutical properties in preclinical studies[97][98] Our Strategy and Advancing EPI-7386 ESSA's strategy advances EPI-7386 through monotherapy and combination clinical trials, alongside preclinical studies - ESSA's strategy involves completing Phase 1 clinical development of EPI-7386 as a monotherapy, combining Aniten compounds with second-generation antiandrogens in earlier lines of therapy, and continuing preclinical studies on other Aniten molecules and NTD degraders[99][100] - EPI-7386 was nominated as the lead clinical candidate in March 2019, with IND/CTA clearance in 2020, and clinical testing commenced in July 2020 for single agent and January 2022 for combination treatment with enzalutamide[102][103] - The Phase 1a monotherapy dose escalation study for EPI-7386 has completed enrollment, with patients being dosed at 600 mg QD and 1,200 mg/day (600 mg BID), both cleared as safe and tolerable, advancing to Phase 1b dose expansion[107][109] - Combination studies are underway, including a Phase 1/2 study of EPI-7386 with enzalutamide (Astellas/Pfizer collaboration) and a clinical trial support agreement with Janssen to evaluate EPI-7386 with apalutamide or abiraterone acetate/prednisone in earlier patient populations[114][115][118][119][120][121] Recent Developments and Future Clinical Program Recent developments include board appointments, new collaborations, and positive EPI-7386 clinical data, with plans for advanced trials - In 2023, ESSA appointed Lauren Merendino to its Board and entered a clinical trial support agreement with Janssen for combination studies of EPI-7386 with apalutamide or abiraterone acetate plus prednisone[127][128] - February 2023 ASCO GU Symposium presentations showed EPI-7386 monotherapy was safe and well-tolerated up to 1200 mg/day, with preliminary anti-tumor activity. Combination with enzalutamide showed a favorable safety profile and significant PSA decreases (>90%) in evaluable patients[129] - Janssen suspended enrollment in its combination study with EPI-7386 in October 2022 due to recruitment challenges, though initial clinical activity, including PSA90 reductions, was observed in some patients[130] - Future plans include potential Phase 2/3 single-agent trials for EPI-7386, contingent on identifying a predominantly AR-driven patient population, and continued randomized clinical trials for combination therapies in earlier prostate cancer stages[159][160][161][162][163] Competition and Intellectual Property The prostate cancer market is competitive, but EPI-7386's unique mechanism and extensive patent protection strengthen ESSA's position - The prostate cancer market is highly competitive, with numerous approved therapies and companies possessing greater financial resources and expertise. ESSA believes its competitive position is strong due to EPI-7386's unique mechanism of action targeting the AR-NTD, which bypasses common resistance pathways[164][165] - ESSA has an exclusive worldwide license agreement with the British Columbia Cancer Agency and the University of British Columbia for intellectual property related to compounds modulating AR activity. The Company owns rights to 66 issued patents, including 17 U.S. patents, covering its Aniten structural classes, with 6 patents specifically for EPI-7386, providing protection until 2036-2042[166][168][172] Currently Approved Prostate Cancer Therapies | Generic/Program Name | Brand Name | Company Name(s) | | :--- | :--- | :--- | | Enzalutamide | Xtandi | Astellas and Pfizer | | Abiraterone acetate | Zytiga | Johnson & Johnson | | Apalutamide (ARN-509) | Erleada | Johnson & Johnson | | Darolutamide | Nubeqa | Bayer | | Pembrolizumab | Keytrude | Merck | | Olaparib | Lynparpar | AstraZeneca | | Rucaparib | Rubraca | Clovis Oncology | | Vipivotide tetraxetan | Pluvicto | Novartis | | Talazaparib (w/ enzalutamide) | Talzenna | Pfizer | Regulatory Environment and Drug Development Process Drug development is subject to stringent global regulatory oversight, involving preclinical studies, multi-phase clinical trials, and FDA approval - The Company's R&D and manufacturing activities are subject to stringent global regulatory oversight by authorities like the FDA and Health Canada, requiring compliance with cGMP, GLP, and GCP standards[174][175][176] - The drug development process involves preclinical studies, submission of an Investigational New Drug (IND) application, and multi-phase human clinical trials (Phase 1, 2, and 3) to establish safety and efficacy[178][179][184][185][186] - Successful clinical development leads to a New Drug Application (NDA) submission, followed by FDA review, facility inspections, and potential post-approval requirements, including ongoing compliance and surveillance[188][192][195][196] - Failure to comply with regulations can result in severe administrative or judicial sanctions, including refusal of approvals, product recalls, fines, and criminal penalties[177][200] Selected Quarterly Financial Information ESSA consistently incurred net losses, with comprehensive losses of $7.26 million for the quarter and $21.09 million for the nine months - ESSA has consistently incurred net losses since its inception, with comprehensive losses of $7.26 million for the quarter ended June 30, 2023, and $21.09 million for the nine months ended June 30, 2023[205][206] - The Company expects to continue incurring significant losses as it advances its product candidate through development and seeks regulatory approvals[205] Selected Quarterly Financial Data (Last 8 Quarters) | Metric | June 30, 2023 ($) | March 31, 2023 ($) | December 31, 2022 ($) | September 30, 2022 ($) | June 30, 2022 ($) | March 31, 2022 ($) | December 31, 2021 ($) | September 30, 2021 ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Research and development expense | $6,271,186 | $4,480,863 | $5,344,250 | $4,351,494 | $6,394,534 | $7,649,459 | $6,273,052 | $6,019,759 | | General and administration | $2,639,381 | $3,730,692 | $2,519,119 | $2,769,678 | $2,895,542 | $3,817,370 | $3,062,170 | $2,942,432 | | Comprehensive loss | $(7,256,184) | $(7,119,354) | $(6,712,455) | $(6,330,969) | $(8,829,694) | $(10,903,335) | $(9,097,919) | $(8,559,499) | | Basic and diluted loss per share | $(0.17) | $(0.16) | $(0.15) | $(0.14) | $(0.20) | $(0.25) | $(0.21) | $(0.19) | | Cash and cash equivalents | $38,466,991 | $44,300,677 | $51,220,602 | $57,076,475 | $67,868,096 | $86,235,830 | $121,058,121 | $137,825,024 | | Short-term investments | $114,001,923 | $112,743,037 | $111,850,895 | $110,161,029 | $106,727,807 | $94,782,609 | $68,141,166 | $57,102,159 | | Total assets | $153,650,198 | $158,504,040 | $165,003,340 | $169,505,295 | $175,660,846 | $182,609,005 | $191,486,181 | $198,165,818 | | Working capital | $149,882,729 | $155,967,246 | $161,652,689 | $166,748,942 | $171,150,678 | $178,353,354 | $187,291,085 | $193,668,414 | Results of Operations for the Nine Months Ended June 30, 2023 and 2022 Operating results show decreased R&D and G&A expenses for the nine months ended June 30, 2023 - For the nine months ended June 30, 2023, total research and development (R&D) expense decreased to $16.1 million from $20.1 million in the prior year, reflecting ongoing clinical trials for EPI-7386[206] - General and administrative (G&A) expenses decreased to $8.9 million for the nine months ended June 30, 2023, from $9.8 million in the prior year, including a non-cash share-based payments expense of $2.02 million[213] Research and Development Expenses (Nine Months Ended June 30) | Expense Category | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Preclinical and data analysis | $4,765,110 | $6,045,555 | | Clinical | $4,230,255 | $3,731,044 | | Share-based payments | $2,140,972 | $3,253,741 | | Salaries and benefits | $2,017,145 | $1,516,507 | | Manufacturing | $1,810,716 | $3,970,564 | | Legal patents and license fees | $542,537 | $853,700 | | Consulting | $320,038 | $418,740 | | Travel and other | $119,600 | $117,798 | | Other | $87,152 | $73,618 | | Royalties | $62,774 | $82,485 | | Total R&D | $16,096,299 | $20,063,752 | General and Administrative Expenses (Nine Months Ended June 30) | Expense Category | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Salaries and benefits | $3,483,710 | $3,021,159 | | Share-based payments | $2,020,803 | $2,700,703 | | Insurance | $1,400,414 | $1,448,983 | | Professional fees | $846,213 | $724,153 | | Investor relations | $483,995 | $454,646 | | Office, insurance, IT and communications | $417,835 | $414,620 | | Director fees | $288,667 | $254,250 | | Regulatory fees and transfer agent | $168,199 | $192,363 | | Travel and other | $164,072 | $109,215 | | Rent | $6,786 | $8,027 | | Consulting and subcontractor fees | — | $185,292 | | Amortization/(Accretion) | $(391,502) | $261,671 | | Total G&A | $8,889,192 | $9,775,082 | Liquidity and Capital Resources ESSA maintains sufficient working capital and cash reserves for over twelve months, relying on external financing due to no revenue generation - As of June 30, 2023, ESSA had working capital of $149.9 million and available cash reserves and short-term investments of $152.5 million, which management believes is sufficient to satisfy obligations and planned expenditures for more than twelve months[221] - The Company does not generate revenue and relies on external financing, with future cash requirements subject to variability from preclinical work, strategic opportunities, and potential mergers or acquisitions[220][222] Critical Accounting Policies and Estimates & Trend Information Financial statements rely on significant management estimates, with company success dependent on prostate cancer compound commercialization - The preparation of financial statements requires management to make significant estimates and assumptions, particularly in valuing equity instruments issued for services, with actual results potentially differing from these estimates[41][223] - ESSA is a clinical development stage company with no current revenue, and its financial success is dependent on the successful development and commercialization of its prostate cancer compounds[226] Outstanding Share Data As of August 8, 2023, ESSA had 44,100,838 common shares outstanding, plus shares issuable from warrants and stock options - As of August 8, 2023, ESSA had 44,100,838 common shares issued and outstanding, with an unlimited number authorized. No preferred shares were issued[4][228] - The Company also had 2,927,477 common shares issuable from warrants and 8,150,274 common shares issuable from outstanding stock options (6,267,496 exercisable and 1,882,778 unexercisable)[228] Item 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, ESSA Pharma Inc. is exempt from detailed market risk disclosures under this item - ESSA Pharma Inc. is a smaller reporting company and is therefore exempt from providing the detailed market risk disclosures typically required under this item[231] Item 4. Controls and Procedures Management concluded the Company's disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - As of June 30, 2023, the Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level[232][233] - Management also assessed the effectiveness of internal control over financial reporting using the 2013 COSO framework and concluded it was effective as of June 30, 2023[234][235] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2023[236] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of June 30, 2023, ESSA Pharma Inc. is not involved in legal proceedings expected to materially affect its business or financials - The Company is not currently involved in any legal proceedings that are anticipated to have a material adverse effect on its business or financial condition[238] Item 1A. Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended September 30, 2022 - No material changes to the Company's risk factors have occurred since those reported in the Annual Report on Form 10-K for the year ended September 30, 2022[239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds to report[240] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities during the reporting period[241] Item 4. Mine Safety Disclosures This item is not applicable to ESSA Pharma Inc.'s operations - Mine safety disclosures are not applicable to the Company[242] Item 5. Other Information No other information was reported under this item - No other information was reported under this item[243] Item 6. Exhibits, Financial Statement Schedules This section lists all exhibits filed as part of the Form 10-Q, including certifications, XBRL documents, and other corporate filings - The report includes certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1) and various Inline XBRL Taxonomy Extension Documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF)[248] - Other exhibits include Articles of Incorporation and a specimen common share certificate, incorporated by reference from previous SEC filings[248] SIGNATURES The Form 10-Q was signed on August 8, 2023, by David Parkinson (CEO) and David Wood (CFO) for ESSA Pharma Inc - The report was signed by David Parkinson, Chief Executive Officer, and David Wood, Chief Financial Officer, on August 8, 2023[251]