The following management's discussion and analysis of our financial condition
and results of operations should be read in conjunction with the unaudited
condensed interim consolidated financial statements and notes thereto included
in Part I, Item 1 of this Quarterly Report on Form 10-Q as of June 30, 2022 and
our audited consolidated financial statements for the year ended September 30,
2021 included in our Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on December 28, 2021.
This Quarterly Report on Form 10-Q contains forward-looking statements. When
used in this report, the words "expects," "anticipates," "suggests," "believes,"
"intends," "estimates," "plans," "projects," "continue," "ongoing," "potential,"
"expect," "predict," "believe," "intend," "may," "will," "should," "could,"
"would" and similar expressions are intended to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements for many reasons, including the risks described
in our Annual Report on Form 10-K for the year ended September 30, 2021 and
other reports we file with the Securities and Exchange Commission. Although we
believe the expectations reflected in the forward-looking statements are
reasonable, they relate only to events as of the date on which the statements
are made. We do not intend to update any of the forward-looking statements after
the date of this report to conform these statements to actual results or to
changes in our expectations, except as required by law.
The discussion and analysis of our financial condition and results of operations
are based on our unaudited condensed interim consolidated financial statements
as of June 30, 2022 and September 30, 2021, and for the three and nine months
ended June 30, 2022 and 2021 included in Part I, Item 1 of this Quarterly Report
on Form 10-Q, which we have prepared in accordance with U.S. generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported
revenues and expenses during the reporting periods. On an ongoing basis, we
evaluate such estimates and judgments, including those described in greater
detail below. We base our estimates on historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Overview
We are a biopharmaceutical company focused on acquiring, developing and
commercializing clinical-stage drugs for inflammatory and immune-related
diseases with clear unmet medical needs. Our two lead product candidates, EB05
and EB01, are in later stage clinical studies.
EB05 is a monoclonal antibody therapy that we are developing as a treatment for
Acute Respiratory Distress Syndrome (ARDS), a life-threatening form of
respiratory failure. ARDS can be caused by viral diseases (including Covid-19),
bacterial pneumonia, sepsis, chest injury and other causes. Specifically, EB05
inhibits toll-like receptor 4 (TLR4), a key immune signaling protein and an
important mediator of inflammation that has been shown to be activated by
SARS-COV2 as well as other respiratory infections such as influenza. In multiple
third-party studies, high serum levels of alarmins (damage signaling molecules)
that bind to and activate TLR4 are associated with poor outcomes and disease
progression in Covid-19 patients. Since EB05 has demonstrated the ability to
block signaling irrespective of the presence or concentration of the various
molecules that frequently bind with TLR4, we believe that EB05 could ameliorate
TLR4-mediated inflammation cascades in ARDS patients, thereby reducing lung
injury, ventilation rates and mortality. In September 2021, an independent data
and safety monitoring board pre-emptively unblinded the Phase 2 part of a Phase
2/3 study of EB05 in hospitalized Covid-19 patients and identified "a clinically
important" mortality benefit. The monitoring board further recommended
continuation of the study into a Phase 3 confirmatory trial, which is ongoing.
The Phase 2 part of the study was funded primarily by a $11 million (C$14
million) reimbursement grant that was awarded by the Canadian government's
Strategic Innovation Fund (SIF) following a multi-disciplinary technical review
of our drug technology and plans.
In addition to EB05, we are developing an sPLA2 inhibitor, designated as EB01,
as a topical treatment for chronic allergic contact dermatitis (ACD), a common,
potentially debilitating condition and occupational illness. EB01 employs a
novel, non-steroidal mechanism of action and in two clinical studies has
demonstrated statistically significant improvement of multiple symptoms in ACD
patients. EB01 is currently being evaluated in a Phase 2b clinical study.
In addition to our current clinical programs, we intend to expand the utility of
our technologies and clinical-stage assets across other indications.
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Recent Developments
EB01 Clinical Study
Based on current enrollment trends, we anticipate that we will complete
enrollment of the 210 subjects planned for our Phase 2b clinical study in
chronic ACD by the fourth calendar quarter of 2022, with preliminary topline
data available as early as the first calendar quarter of 2023.
EB05 Clinical Study
During the quarter, we initiated enrollment for a second cohort of patients in
the Phase 3 part of our Phase 2/3 study evaluating EB05 in hospitalized Covid-19
patients. The company's first study cohort is recruiting the most critically
severe patients receiving mechanical ventilation plus additional organ support,
including extracorporeal membrane oxygenation (ECMO) therapy, also known as
Level 7 patients under the World Health Organization's (WHO) Covid-19 Severity
Scale. This new, second cohort is open to hospitalized patients on invasive
mechanical ventilation alone (WHO Level 6 patients). The protocol for the Level
6 cohort calls for approximately 500 evaluable subjects. The evaluation of EB05
in both the Level 6 and Level 7 patient populations was previously approved by
regulators in Canada, Colombia and Poland. Enrollment for both cohorts is now
running in parallel, and results will be evaluated independently. For the U.S.,
we are currently preparing a Phase 2 clinical study report (CSR) for the Food
and Drug Administration (FDA) in support of their review of our Phase 3 study
design. This report, which was not part of the Phase 2/3 design or requested by
other jurisdictions, requires substantial processing and quality review, and we
anticipate submitting the CSR data package to the FDA in the third calendar
quarter of 2022.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
Total operating expenses decreased by $0.27 million to $5.80 million for the
three months ended June 30, 2022 compared to $6.07 million for the same period
last year:
· Research and development expenses increased by $0.08 million to $4.55
million for the three months ended June 30, 2022 compared to $4.46 million
for the same period last year primarily due to a contractual payment for
bulk drug product of EB05, which was substantially offset by decreased
external research expenses related to our ongoing clinical studies and
drug manufacturing.
· General and administrative expenses decreased by $0.36 million to $1.25
million for the three months ended June 30, 2022 compared to $1.61 million
for the same period last year primarily due to a decrease in noncash
share-based compensation.
Total other income decreased by $1.30 million to $0.01 million for the three
months ended June 30, 2022 compared to $1.31 million for the same period last
year primarily due to a decrease in grant income associated with the completion
of clinical study activities under our federal reimbursement grant with the
Canadian government's Strategic Innovation Fund.
For the three months ended June 30, 2022, our net loss was $5.79 million, or
$0.37 per common share, compared to a net loss of $4.76 million, or $0.36 per
common share, for the three months ended June 30, 2021.
Comparison of the Nine Months Ended June 30, 2022 and 2021
Total operating expenses decreased by $2.67 million to $15.53 million for the
nine months ended June 30, 2022 compared to $18.20 million for the same period
last year:
· Research and development expenses decreased by $2.28 million to $11.54
million for the nine months ended June 30, 2022 compared to $13.82 million
for the same period last year primarily due to decreased milestone
payments, which were partially offset by higher external research expenses
related to our ongoing clinical studies, and increased personnel expenses.
· General and administrative expenses decreased by $0.39 million to $3.99
million for the nine months ended June 30, 2022 compared to $4.38 million
for the same period last year primarily due to a decrease in noncash
share-based compensation.
Total other income decreased by $7.74 million to $0.80 million for the nine
months ended June 30, 2022 compared to $8.54 million for the same period last
year primarily due to a decrease in grant income associated with the completion
of clinical study activities under our federal reimbursement grant with the
Canadian government's Strategic Innovation Fund.
For the nine months ended June 30, 2022, our net loss was $14.74 million, or
$1.04 per common share, compared to a net loss of $9.66 million, or $0.83 per
common share, for the nine months ended June 30, 2021.
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Capital Expenditures
Our capital expenditures primarily consist of computer and office equipment.
There were no significant capital expenditures for the nine months ended June
30, 2022 and 2021.
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 nine-month periods ended June 30, 2022 and 2021, we reported
net losses of $14.73 million and $9.66 million, respectively.
On March 24, 2022, we completed a registered direct offering of 1,540,000 common
shares, no par value, and pre-funded warrants to purchase up to an aggregate of
1,199,727 common shares. In a concurrent private placement, we issued common
share purchase warrants to purchase an aggregate of up to 2,739,727 common
shares. After deducting the placement agent fees and offering expenses, net
proceeds to the Company were approximately $9.01 million.
On November 22, 2021, we entered into an equity distribution agreement with RBC
Capital Markets, LLC (RBCCM), as sales agent. Pursuant to the terms of the
agreement, as amended March 4, 2022, the Company could offer and sell, from time
to time, common shares through an at-the-market offering program for up to $15.4
million in gross cash proceeds. From November 22, 2021 to March 21, 2022, we
sold a total of 626,884 common shares pursuant to the agreement. After deducting
commissions and direct costs, net proceeds totaled approximately $2.62 million.
On March 21, 2022, the Company and RBCCM entered into an agreement terminating
the agreement effective March 21, 2022.
Under our contribution agreement with the Canadian government's Strategic
Innovation Fund (SIF), we are eligible to receive cash reimbursements up to
C$14.05 million (approximately $11 million USD) in the aggregate for certain
research and development expenses related to our EB05 clinical development
program. For the year ended September 30, 2021, we recorded $10.34 million in
grant income, and for the nine months ended June 30, 2022, we recorded $0.78
million in grant income.
On March 2, 2021, we completed a registered public offering of an aggregate of
1,562,500 common shares, no par value, of the Company at an offering price of
$6.40 per share for net proceeds of $8.89 million, after deducting underwriter
fees and related offering expenses.
For the year ended September 30, 2021, the exercise of warrants and options as
well as sales under an equity distribution agreement with RBCCM resulted in the
issuance of 987,859 common shares and net cash proceeds to the Company of $5.12
million.
At June 30, 2022, we had cash and cash equivalents of $12.81 million, working
capital of $9.52 million, shareholders' equity of $11.84 million and an
accumulated deficit of $41.23 million. We plan to finance company operations
over the course of the next twelve months with cash and cash equivalents on hand
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,
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 are
planning to seek additional financing through government grants, equity sales,
debt financings or other capital sources, including potential future licensing,
collaboration or similar arrangements with third parties or other strategic
transactions. If we determine it is advisable to raise additional funds, 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 and concerns related to the COVID-19
pandemic may have a significant impact on the availability of funding sources
and the terms at which any funding may be available.
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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 $11.54 million and $13.82 million for the nine months
ended June 30, 2022 and 2021, respectively. The decrease was due primarily to
decreased milestone and bulk drug substance payments and lower license fees,
which were partially offset by higher external research expenses related to the
ongoing Phase 2/Phase 3 clinical study of our EB05 drug candidate, higher
manufacturing expenses and increased salary and related personnel expenses.
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.
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