EDESA BIOTECH, INC. This discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10-K under the caption "Risk Factors." Please see "Forward-Looking Statements and Other Matters" in Part I above. We do not undertake any obligation to update forward- looking statements to reflect events or circumstances occurring after the date of this Annual Report.
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Operating and Financial Review and Prospects
Overview
Our financial statements have been prepared in accordance with accounting
principles generally accepted in
Our operations have been funded primarily through issuances of common shares, exercises of common share purchase warrants, convertible preferred shares, convertible loans, government grants and tax incentives. We have devoted substantially all of our efforts to research and development, including clinical trials, and have not completed the development of any of our drug candidates. We believe our cash and cash equivalents on hand, including net proceeds from equity offering completed subsequent to the end of the fiscal year, and reimbursements of eligible research and development expenses under our contribution agreement with the Canadian government are sufficient to support the Company's operations for at least the next 12 months.
As a clinical-stage biopharmaceutical company, we expect to continue to incur
significant expenses and operating losses for the foreseeable future as we
continue the development of, and seek marketing approvals for our product
candidates, prepare for and begin the commercialization of any approved
products, and add infrastructure and personnel to support our product
development efforts and operations as a public company in
Results of Operations
Fiscal Year Ended
Our total operating expenses decreased by
· Research and development expenses decreased by $4.61 million to $13.34
million for the year ended September 30, 2022 compared to $17.95 million
for the prior year primarily due to decreased milestone payments, external
research expenses related to our clinical studies and investigational drug
product manufacturing expenses, which were partially offset by increased
personnel expenses.
· General and administrative expenses decreased by $0.69 million to $5.04
million for the year ended September 30, 2022 compared to $5.73 million
for the prior year primarily due to a decrease in noncash share-based
compensation, which was partially offset by increased public company
expenses.
Total other income decreased by
For the year ended
Capital Expenditures
Our capital expenditures primarily consist of computer and office equipment.
There were no significant capital expenditures for the years ended
Liquidity and Capital Resources
As a clinical-stage company we have not generated significant revenue, and we
expect to incur operating losses as we continue our efforts to acquire, develop,
seek regulatory approval for and commercialize product candidates and execute on
our strategic initiatives. Our operations have historically been funded through
issuances of common shares, exercises of common share purchase warrants,
convertible preferred shares, convertible loans, government grants and tax
incentives. For the years ended
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In
In
Under our contribution agreement with the Canadian government's
At
Subsequent to the fiscal year end, on
We plan to finance company operations over the course of the next twelve months
with cash and cash equivalents on hand, including net proceeds from equity
offering completed subsequent to the end of the fiscal year, and reimbursements
of eligible research and development expenses under our contribution agreement
with the Canadian government. Management has flexibility to adjust this timeline
by making changes to planned expenditures related to, among other factors, the
size and timing of clinical trial expenditures and manufacturing campaigns,
staffing levels, and the acquisition or in-licensing of new product candidates.
To help fund our operations and meet our obligations in the future, we plan to
seek additional financing through the sale of equity, government grants, debt
financings or other capital sources, including potential future licensing,
collaboration or similar arrangements with third parties or other strategic
transactions. There is no assurance that adequate funding will be available to
us or, if available, that such funding will be available on terms that we or our
shareholders view as favorable. Market volatility, inflation, interest rates,
government policies and concerns related to the war in
Research and Development
Our primary business is the development of innovative therapeutics for inflammatory and immune-related diseases with clear unmet medical needs. We focus our resources on research and development activities, including the conduct of clinical studies and product development, and expense such costs as they are incurred. Our research and development expenses have primarily consisted of employee-related expenses, including salaries, benefits, taxes, travel, and share-based compensation expense for personnel in research and development functions; expenses related to process development and production of product candidates paid to contract manufacturing organizations, including the cost of acquiring, developing, and manufacturing research material; costs associated with clinical activities, including expenses for contract research organizations; and clinical trials and activities related to regulatory filings for our product candidates, including regulatory consultants.
Research and development expenses, which have historically varied based on the
level of activity in our clinical programs, are significantly influenced by
study initiation expenses and patient recruitment rates, and as a result are
expected to continue to fluctuate, sometimes substantially. Our research and
development costs were
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Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Foreign Exchange Risk
Our exposure to foreign exchange risk is primarily related to fluctuations
between the Canadian dollar and the
Concentration of Credit Risk
We are potentially subject to financial instrument concentration of credit risk
through our cash and cash equivalents, and accounts and other receivable. We
place our cash and cash equivalents in money market mutual funds of
Accounts and other receivable include Harmonized Sales Tax (HST) refunds
receivable from the
Significant Accounting Policies and Estimates
Our consolidated financial statements, which are indexed under Item 15 of this
Annual Report on Form 10-K, have been prepared in accordance with accounting
principles generally accepted in
Accounts and other receivable
Accounts and other receivable include Harmonized Sales Tax (HST) refunds
receivable and reimbursements receivable from the Canadian government's
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Intangible assets
Intangible assets represent the exclusive world-wide rights to know-how, patents and data relating to certain monoclonal antibodies (the Constructs), including sublicensing rights, acquired by entering into a license agreement with a pharmaceutical development company. Unless earlier terminated, the term of the license agreement will remain in effect for 25 years from the date of first commercial sale of licensed products containing the Constructs. Subsequently, the license agreement will automatically renew for five-year periods unless either party terminates the agreement in accordance with its terms. We recognize intangible assets at their historical cost, amortized on a straight-line basis over their expected useful lives, which is 25 years, and subject to impairment review at the end of each reporting period.
Right-of-Use assets
We recognize operating lease right-of-use (ROU) assets and operating lease liabilities on the balance sheet for operating leases with terms longer than 12 months. We follow the ongoing practical expedient not to recognize operating lease right-of-use assets and operating lease liabilities for short-term leases. The ROU assets are initially measured at cost and amortized using the straight-line method through the end of the lease term. The lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using our incremental borrowing rate.
Share-based compensation
We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by the Company cannot be reliably estimated.
We grant options to buy common shares of the Company to our directors, officers, employees and consultants, and grant other equity-based instruments such as warrants to non- employees. The fair value of share-based compensation is measured on the date of grant, using the Black-Scholes option valuation model and is recognized over the vesting period for employees or the service period for non-employees, net of forfeitures as they occur. The provisions of our share-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. The Black-Scholes option valuation model requires the input of subjective assumptions, including price volatility of the underlying common shares, risk-free interest rate, dividend yield, and expected life of the option.
Translation of foreign currency transactions
Our reporting currency is the
For other transactions denominated in currencies other than our functional
currency, the monetary assets and liabilities are translated at the year-end
rates. Revenue and expenses are translated at rates of exchange prevailing on
the transaction dates. Non-monetary balance sheet and related income statement
accounts are remeasured into
Recent Accounting Pronouncements
Recent accounting pronouncements are contained in Note 3 to the financial statements, which are indexed under Item 15 of this Annual Report on Form 10-K.
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