UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark
One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
OR
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period
from to
Commission file number: 001-37619
EDESA BIOTECH, INC.
(Exact name of registrant as specified in its charter)
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British Columbia, Canada
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N/A
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(State
or other jurisdiction of
incorporation or
organization)
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(I.R.S.
Employer
Identification
No.)
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100 Spy Court
Markham, ON, Canada
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L3R 5H6
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(Address of
principal executive offices)
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(Zip
Code)
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Registrant’s telephone number, including area code: (289)
800-9600
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange on which
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Title of each class
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Trading Symbol
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registered
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Common Shares, without par value
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EDSA
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The
Nasdaq Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large
accelerated filer ☐
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Accelerated filer
☐
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Non-accelerated
filer ☒
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Smaller reporting
company ☒
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Emerging growth
company ☒
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If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☒
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
As of March 31, 2020, the last business day of the
registrant’s most recently completed second fiscal quarter,
the aggregate market value of the registrant’s outstanding
common shares held by non-affiliates was approximately $8,422,972,
which was calculated based on 8,859,159 common shares outstanding
as of that date, of which 3,935,968 common shares were held by
non-affiliates at the closing price of the registrant’s
common shares on The Nasdaq Capital Market on such
date.
As of
December 2, 2020, the registrant had 10,523,087 common shares
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
EDESA BIOTECH, INC.
ANNUAL REPORT ON FORM 10-K
Year Ended September 30,
2020
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2
FORWARD-LOOKING STATEMENTS AND OTHER MATTERS
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the Securities Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act) and,
as such, may involve known and unknown risks, uncertainties and
assumptions. Forward-looking statements are based upon our current
expectations, speak only as of the date hereof, are subject to
change and include statements about, among other things: the
status, progress and results of our clinical programs; our ability
to obtain regulatory approvals for or successfully commercialize
any of our product candidates; our business plans, strategies and
objectives, including plans to pursue collaboration, licensing or
other similar arrangements or transactions; our expectations
regarding our liquidity and performance, including our expense
levels, sources of capital and ability to maintain our operations;
the competitive landscape of our industry; and general market,
economic and political conditions.
Forward-looking statements are those that
predict or describe future events or trends and that do not relate
solely to historical matters. You can generally identify
forward-looking statements as those statements containing the
words “anticipate,”
“believe,” “plan,” “estimate,”
“expect,” “intend,” “may,”
“will,” “would,” “could,”
“should,” “might,” “potential,”
“continue” or other similar expressions. You
should not rely on our forward-looking statements as they are not a
guarantee of future performance. There can be no assurance that
forward-looking statements will prove to be accurate because the
matters they describe are subject to assumptions, known and unknown
risks, uncertainties and other unpredictable factors, many of which
are beyond our control.
Our actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various
factors, some of which are discussed in this report in the Part I,
Item 1A. Risk Factors and elsewhere in this report. Risks and
uncertainties include, among others,
●
our ability to obtain funding for our operations;
●
our estimates regarding our expenses, revenues, anticipated capital
requirements and our needs for additional financing;
●
the timing of the commencement, progress and receipt of data from
any of our preclinical and clinical trials;
●
the expected results of any preclinical or clinical trial and the
impact on the likelihood or timing of any regulatory
approval;
●
the therapeutic benefits, effectiveness and safety of our product
candidates;
●
the timing or likelihood of regulatory filings and
approvals;
●
changes in our strategy or development plans;
●
the volatility of our common share price;
●
the rate and degree of market acceptance and clinical utility of
any future products;
●
the effect of competition;
●
our ability to protect our intellectual property as well as comply
with the terms of license agreements with third
parties;
●
our ability to identify, develop and commercialize additional
products or product candidates;
●
reliance on key personnel; and
●
general changes in economic or business conditions.
Except as required by law, we undertake no obligation to update
forward-looking statements.
As used in this Annual Report on Form 10-K, “Edesa,”
“the Company,” “we,” “us,” and
“our” refer to Edesa Biotech, Inc. and our consolidated
subsidiaries, except where the context otherwise
requires.
Our logo and other trademarks or service marks of Edesa Biotech,
Inc. appearing in this Annual Report on Form 10-K are the property
of Edesa Biotech, Inc. This Annual Report on Form 10-K contains
additional trade names, trademarks and service marks of other
companies. We do not intend our use or display of other
companies’ trade names, trademarks or service marks to imply
relationships with, or endorsement or sponsorship of us by, these
other companies.
All historical references to common shares, warrants and share
options outstanding prior to June 7, 2019 and the related exercise
prices in this Form 10-K have been adjusted to reflect the effect
of the one for six reverse split, effected at the close of market
on June 7, 2019.
3
PART I
Item 1. BUSINESS.
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) in
COVID-19 patients. ARDS is a life-threatening form of respiratory
failure, and the leading cause of death among COVID-19 patients.
ARDS can be also caused by 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 November 2020, we initiated a Phase 2/Phase 3
clinical study of EB05 and are currently enrolling
subjects.
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. We initiated a Phase 2B clinical study
evaluating EB01 for chronic ACD in the fourth calendar quarter of
2019 and are currently enrolling subjects.
In addition to our current clinical programs, we intend to expand
the utility of our technologies and clinical-stage assets across
other indications.
Competitive Strengths
We believe that we possess a number of competitive strengths that
position us to become a leading biopharmaceutical company focused
on inflammatory and immune-related diseases,
including:
●
Validated technology and
drug development capabilities. We believe that the strength of our
technologies has been validated by favorable clinical data from Phase 1 and
Phase 2 studies; and, our multiple arrangements with third parties
to develop and commercialize their clinical-stage drug
candidates.
●
Novel pipeline
addressing large underserved markets. Our product candidates include novel
clinical-stage compounds and antibodies that have significant
scientific rationale for effectiveness. By initially targeting
large markets that have significant unmet medical needs, we believe
that we can drive adoption of new products and improve our
competitive position. For example, we believe that the novel,
non-steroidal mode of action of our sPLA2 technology will be
appealing alternatives for managing the symptoms of ACD and
hemorrnoids disease (HD). These diseases impact millions of people
in the United States and Canada, and can have significant effects
on patients’ quality of life and, in the case of many chronic
ACD patients and their employers, significant workplace-related
costs and limitations.
●
Intellectual property
protection and market exclusivity. We have opportunities to develop our
competitive position through patents, trade secrets, technical
know-how and continuing technological innovation. We have exclusive
license rights in our target indications to multiple patents and
pending patent applications in the United States and in various
foreign jurisdictions. In addition to patent protection, we intend
to utilize trade secrets and market exclusivity afforded to a New
Chemical Entity, where applicable, to enhance or maintain our
competitive position.
●
Experienced
leadership. Our
leadership team possesses core capabilities in dermatology,
infectious diseases, gastrointestinal medicine, drug development
and commercialization, chemistry, manufacturing and controls, and
finance. Our founder, Chief Executive Officer, Pardeep Nijhawan,
MD, FRCPC, AGAF, is a board-certified gastroenterologist and
hepatologist with a successful track record of building life
science businesses, including Medical Futures, Inc., which was sold
to Tribute Pharmaceuticals in 2015. In addition to our internal
capabilities, we have also established a network of key opinion
leaders, contract research organizations, contract manufacturing
organizations and consultants. As a result, we believe we are well
positioned to efficiently develop novel treatments for inflammatory
and immune-related diseases.
4
Our Business Strategy
We plan to develop and commercialize innovative drug products that
address unmet medical needs for large, underserved markets where
there is limited competition. Key elements of our strategy
include:
●
Rapidly develop EB05 as
a novel therapy for hospitalized COVID-19 patients.
We intend to apply
our expertise in immune modulation and inflammation therapies and
clinical trial management to rapidly develop EB05 as a potential
treatment for ARDS. With potential investigational sites in
multiple jurisdictions, we believe there will be sufficient
patients available and that we can complete the study amid the
global health crisis. Should the antibody treatment demonstrate
promising results at the Phase 2 readout, we plan to continue with
a pivotal Phase 3 study, subject to funding and additional
regulatory approvals in certain
jurisdictions.
●
Establish EB01 as the
leading treatment for chronic ACD. Our goal is to obtain regulatory approval
for EB01 and commercialize EB01 for use in the treatment of ACD.
Based on promising clinical trial results in which patients treated
with EB01 experienced statistically significant improvements of
their symptoms with minimal side effects, we initiated a Phase 2B
clinical study evaluating EB01. The protocol includes a blinded
interim readout following the completion of the first part of the
Phase 2B study. In November 2020, we completed enrollment of more
than 50% of the patients planned for this part of a
study.
●
Selectively targeting
additional indications. In addition to our ARDS and ACD programs, we
plan to efficiently generate proof-of-concept data for other
programs where modulation of immune pathways or the inhibition of
sPLA2 activity may have therapeutic benefits. For example, we are
planning a proof-of-concept clinical study of our sPLA2 technology
as a potential treatment for patients with HD, subject to funding
and the resumption of normal, pre-pandemic operations at targeted
clinical sites.
●
In-license promising
product candidates. We
are applying our cost-effective development approach to advance and
expand our pipeline. Our current product candidates are in-licensed
from academic institutions or other biopharmaceutical companies,
and, from time to time, we plan to identify, evaluate and
potentially obtain rights to and develop additional assets. Our
objective is to maintain a well-balanced portfolio with product
candidates across various stages of development. In general, we
seek to identify product candidates and technology that represent a
novel therapeutic approach, are supported by compelling science,
target an unmet medical need, and provide a meaningful commercial
opportunity. We do not currently intend to invest significant
capital in basic research, which can be expensive and
time-consuming.
●
Capture the full
commercial potential of our product candidates. If our product candidates are successfully
developed and approved, we may build commercial infrastructure
capable of directly marketing the products in North America and
potentially other major geographies of strategic interest. We also
plan to evaluate strategic licensing arrangements with
pharmaceutical companies for the commercialization of our drugs,
where applicable, such as in territories where a partner may
contribute additional resources, infrastructure and
expertise.
Acute Respiratory Distress Syndrome (ARDS)
Acute
respiratory distress syndrome (ARDS) is a life-threatening form of
respiratory failure, and the leading cause of death among COVID-19
patients. In addition to virus-induced pneumonia, ARDS can be
caused by bacterial pneumonia, sepsis, chest injury and other
causes.
Specifically, ARDS
involves an exaggerated immune response leading to inflammation and
injury to the lungs that deprives the body of oxygen. ARDS is
classified as mild, moderate and severe by using an arterial
partial pressure of oxygen (PaO2) to fraction of inspired oxygen
(FIO2) threshold of 300, 200, and 100 mm Hg, respectively. For
moderate to severe cases, there are currently few meaningful
treatments, other than supplemental oxygen and mechanical
ventilation, and patients suffer high mortality rates. Prior to
COVID-19, ARDS accounted for 10% of intensive care unit admissions,
representing more than 3 million patients globally each year. ARDS
has historically affected approximately 200,000 patients each year
in the United States, resulting in nearly 75,000 deaths annually,
according to medical literature.
Countering the
exaggerated innate immune response in ARDS has been a key area of
interest among researchers. One of the most studied targets has
been Toll-like receptor 4 (TLR4) – a key component of the
innate immune system and an important mediator of inflammation.
Since TLR4 detects molecules found in pathogens and also binds to
endogenous molecules produced as a result of injury, it is a key
receptor on which both infectious and noninfectious stimuli
converge to induce a proinflammatory response. Specifically, TLR4
signaling activates leukocytes to secrete proinflammatory cytokines
(i.e., CXCL10, IL-6,
IFN-b, IL-1b, TNF-a), which under certain circumstances can result
in a “cytokine storm” – a severe immune reaction
in which the body releases too many cytokines into the blood too
quickly.
Such
upregulation of TLR4 and its associated cytokines has been observed
in SARS-CoV-2 as well as other respiratory infections such as
influenza. In multiple third-party studies, high serum levels of
alarmins, such as calprotectin and HMGB1(high mobility group
protein B1), that bind to and activate TLR4 are associated with
poor outcomes and disease progression in COVID-19 patients. In
addition, TLR4 inhibition (antagonism) prevents cytokine production
at a very early stage and has been shown to have a protective
effect. For example, in preclinical studies in mice, it was
demonstrated that administration of a TLR4 antagonist blocked
influenza-induced lethality and ameliorated virus-induced acute
lung injury. Antagonism of TLR4 has also been shown to modulate the
secretion of proinflammatory cytokines (IL-6, CRP, IFNb, TNF-a,
CXCL-10, IL8 and MIP-1b). Based on this data as well as previous
clinical results, we believe that the modulation of the TLR4
provides a compelling opportunity to treat ARDS.
5
EB05
Overview and Status
EB05 is a monoclonal antibody (mAb) that has been engineered to
alter inflammatory signaling by binding to and blocking the
activation of TLR4. Specifically, EB05 dampens TLR4 signaling by
blocking receptor dimerization (and subsequent intracellular
signaling cascades). The drug has demonstrated the ability to block
signaling irrespective of the presence or concentration of the
various molecules that frequently bind with TLR4, known as ligands.
Based on this broad mechanism of action, we believe that EB05 could
ameliorate TLR4-mediated inflammation cascades in ARDS patients,
thereby reducing lung injury, ventilation rates and mortality. EB05
has demonstrated the ability to resolve fever and stabilize heart
and breathing rates in human subjects that were injected with
lipopolysaccharide (LPS) – a potent inducer of the acute
systemic inflammation. In previous Phase 1 and Phase 2 clinical
studies, EB05 has demonstrated favorable safety and tolerability
profiles.
Our
Phase 2/3 protocol has been approved in Canada. We have also
received approved for the Phase 2 portion of our study in the
United States. The company is currently enrolling patients at U.S.
and Canadian hospitals.
As
planned, our Phase 2/Phase 3 study is an adaptive, multicenter,
randomized, double-blind, placebo-controlled trial to evaluate the
efficacy and safety of EB05 in adult hospitalized COVID-19
patients. We expect to enroll approximately 316 patients. Patients
will be intravenously infused with EB05 or placebo.
Standard-of-care COVID-19 treatment will be given to all patients.
The total follow-up duration of each patient will be 28 days.
Should the drug treatment demonstrate promising results at the
Phase 2 readout, the protocol allows for enrollment to continue as
a pivotal Phase 3 study in Canada. In the U.S., we expect to have
an end of Phase 2 meeting with the U.S. Food and Drug
Administration (FDA) to finalize the Phase 3 protocol.
Previous Phase 1 and Phase 2 Clinical Studies of EB05
In a randomized, double blind, placebo-controlled, PK/PD guided
Phase 1 study, 60 healthy volunteers were given escalating, single
intravenous infusion of EB05 in the absence and presence of an in
vivo LPS challenge. Forty-eight (48) subjects were exposed to
escalating doses between 0.001 to 15 mg/kg in Part 1 of the study.
The highest dose of EB05 displayed a pharmacological effect
(defined by 80% inhibition of cytokine after ex vivo LPS challenge)
lasting up to 14 weeks. Twelve (12) subjects were exposed to an in
vivo LPS challenge (2 ng/kg) in Part 2 of the study. Of these, 3
received EB05 at a dose of 0.01 mg/kg and 9 at a dose of 0.25
mg/kg. No safety signals were identified after administration up to
a dose of 15 mg/kg.
In a previous Phase 2 clinical study, EB05 was administered to 57
rheumatoid arthritis patients and demonstrated a favorable safety
and tolerability profile. Patients received intravenous infusions
of EB05 at 5mg/kg every 2 weeks for a total of 6 doses. EB05
blocked cytokine release after ex vivo LPS challenge, with full
effect from a dose of 1 mg/kg onwards. The duration of inhibition
of cytokine release was dependent on the dose and lasted up to 14
weeks at a dose of 15 mg/kg. The pharmacological effects of EB05
after the ex vivo and in vivo LPS challenges were comparable. At a
dose of 0.25 mg/kg, EB05 prevented the laboratory and clinical
changes induced by an in vivo LPS administration, up to 22 days.
LPS effects were fully recovered between 22 and 40 days after EB05
administration.
Allergic Contact Dermatitis
Contact dermatitis is one of the most common occupational and
work-related skin conditions in the United States. The disease can
be either irritant contact dermatitis or ACD. Together, these
conditions have been estimated to cost up to $2 billion annually as
a result of lost work, reduced productivity, medical care and
disability payments. Based on published reports and U.S. insurance
claims data, we estimate that there are more than 2.5 million
people in the United States with ACD, including more than 1 million
people who have chronic ACD. Since primary care physicians do not
always distinguish between irritant and allergic contact
dermatitis, a potentially larger undiagnosed patient population may
also be present.
ACD is caused by an allergen interacting with skin and usually
occurs on areas of the body that have been directly exposed to the
environment, with a high prevalence on the hands and face. Common
allergens associated with ACD include plants, metals, plastics and
resins, rubber additives, dyes, biocides, and various cosmetics.
The disease is characterized by inflammation, erythema (redness),
pruritus (itchiness), and blistering of the skin. Inflammation can
vary from mild irritation and redness to open sores, depending on
the type of irritant, the body part affected and the degree of
sensitivity. ACD can become chronic if not treated or if the
causative allergen is not removed. In many chronic cases, the
causative allergen is unknown or difficult to avoid (as an example,
the allergen is present in the workplace).
6
The immune mechanisms involved in ACD are well documented. During
the initial contact with the offending allergen, the immune system
is sensitized. Upon subsequent contact, a delayed-type
hypersensitivity reaction (Type IV) occurs at the point of contact
between the skin and the allergen. As a cell-mediated response, the
immune reaction primarily involves the interaction of T cells with
antigens rather than an antibody response. More specifically, ACD
involves an exogenous substance binding a cell surface protein to
form a hapten that is recognized as a foreign antigen by the immune
system. Haptens are known to signal through toll-like receptors, a
family of receptors involved in the innate immune system
recognizing pathogens, leading to the induction of pro-inflammatory
cytokines such as interleukin (IL)-1b. EB01 has been shown in
preclinical studies to inhibit the production of pro-inflammatory
cytokines induced via toll-like receptor signaling (IL-1b, IL-6,
IL-8, MIP-1a, and TNFa), suggesting that EB01 may address the
underlying disease mechanism of ACD.
Current Treatments
Generally, dermatologists view chronic ACD from both a duration and
recurrence perspective, considering how often and how long symptoms
persist. Chronic disease affects patients over a prolonged period,
typically greater than six months or even years. These chronic
patients have either frequent intermittent exposure or continuous
exposure. Since inflammation in ACD is driven by external exposure
to an allergen, the severity of ACD does not necessarily correlate
with body surface area, as is often the case with other
dermatological diseases.
Current treatment plans begin by attempting to identify and remove
exposure to the allergen. However, the offending allergen(s) is
frequently not identified, and even when it is, avoiding exposure
is often not possible (e.g., present in the workplace), according
to our market research. To our knowledge, there are no drug
treatment options specifically indicated for ACD. As such,
physicians must utilize agents approved for other dermatological
conditions. Topical corticosteroids are the most commonly used
therapeutic intervention for ACD but cannot be used continuously
since they have well-known side-effects including skin thinning,
stretch marks, acne, testicular atrophy, nosebleeds, stinging,
burning and dryness. Other topical treatments for ACD include
immunomodulators such as topical calcineurin inhibitors. However,
these are less efficacious than topical corticosteroids and have an
FDA “black box warning” for risk of malignancies.
Systemic corticosteroids can be used for acute control of severe
cases of ACD but have safety concerns including
hypothalamic-pituitary-adrenal axis suppression, growth suppression
and loss of bone-density, thereby limiting the utility of steroids
for treating chronic disease. Finally, patients may be treated with
systemic immunomodulators, which have a series of “black box
warnings” and associated safety issues. Systemic therapies
also need to be tapered off each time the physician wants to patch
test allergens to identify the source of a patient’s
ACD.
EB01
Overview and Status
EB01 is a topical vanishing cream containing
a novel, non-steroidal anti-inflammatory compound. EB01 exerts its
anti-inflammatory activity through the inhibition of certain
pro-inflammatory enzymes known as secretory phospholipase 2, or
sPLA2. These enzymes are secreted by immune cells
upon their activation and produce arachidonic acid via phospholipid
hydrolysis, which, in turn, initiates a broad inflammatory cascade.
The sPLA2 enzyme family plays a key role in
initiating inflammation associated with many diseases, and we
believe that targeting the sPLA2 enzyme family with enzyme inhibitors will
have a superior anti-inflammatory therapeutic effect because the
inflammatory process will be inhibited at its inception rather than
after inflammation has occurred.
In October 2019, we initiated patient enrollment for a multi-center
Phase 2B clinical study evaluating EB01 as a monotherapy for
patients with moderate to severe chronic ACD. The double-blind,
vehicle-controlled study will primarily evaluate the safety and
efficacy of EB01 in ACD patients. Investigators will also evaluate
symptom reduction, quality of life and dose-relationships among
various strengths of EB01 cream as secondary and exploratory
measures. We plan to perform a blinded interim analysis following
the completion of the first cohort to determine the total number of
patients for the second part of the study. The sample-size adaptive
protocol contemplates up to 166 total subjects.
In April 2020, we filed a protocol amendment with the FDA. The
amendment provides for, among other changes, a reduction in the
number of in-person office visits, allowances for remote telehealth
appointments and other procedural updates to simplify enrollment
and patient care during the COVID-19 pandemic. The pandemic has
generally resulted in slower than expected enrollment due in part
to temporary closures of investigational sites and the scheduling
of fewer office visits by physicians for social distancing
purposes. In November 2020, we completed enrollment of more than
50% of the patients planned for the first part of a study. While
enrollment is now steady and ongoing, due to the changing nature of
the pandemic and potential future closures of clinical sites, we
are unable to predict with certainly the timing for the interim
analysis or the completion of the study.
Previous Results
EB01 has demonstrated anti-inflammatory
activity in a variety of in vitro
and in vivo
preclinical pharmacology models.
In addition, EB01 has demonstrated efficacy for the treatment of
ACD in two previous clinical trials.
A variety of in vitro
and in vivo preclinical pharmacology models were used to
assess the anti-inflammatory activity of EB01. Using a model for
hapten signaling indicative of ACD, lipopolysaccharide-stimulated
peripheral blood mononuclear cells were treated with EB01 and shown
to inhibit pro-inflammatory cytokines including IL-1b, IL-6, IL-8,
MIP-1a, and TNFa at the protein and mRNA expression levels.
Additionally, the safety of EB01 has been established in several
Good Laboratory Practice toxicology studies, including an
eight-week study involving topical application of 2.0% EB01 cream
to minipigs and a 6-week continuous infusion study in rats.
Overall, EB01 was well-tolerated and systemic exposure was
negligible (below the limit of detection). No genotoxicity has been
demonstrated in bacterial reverse mutation and micronucleus
testing.
7
Clinical experience with EB01 includes five clinical studies
involving a total of 176 subjects. No serious adverse reactions
were encountered during these clinical studies. Healthy volunteers
were treated with EB01 under occlusion. EB01 was classified as a
weak sensitizer by maximization assay (Grade 1) and is, therefore,
considered safe to use under any conditions. EB01 has demonstrated
efficacy for the treatment of ACD in two separate clinical trials.
Both studies were double-blind, vehicle-controlled bilateral
comparison studies to assess the safety, tolerability and efficacy
of EB01 cream applied twice daily for the treatment of ACD of the
hand and forearm as determined by the Contact Dermatitis Severity
Index (CDSI), a physician’s visual assessment. The CDSI is a
composite endpoint, which grades each symptom of the disease
(dryness, scaling, redness, pruritus, and fissures) scored from 0
(none) to 3 (severe), with a maximum severity score of 15. A
diagnosis of ACD was confirmed by a positive patch test deemed to
be clinically relevant by the investigator.
The first study (n=11) was a double-blind, placebo-controlled
clinical study to assess the safety and efficacy of topical 1.0%
EB01 cream for the treatment of ACD. Subjects selected for inclusion had
bilateral ACD. Prior to
randomization, subjects were patch tested. Patch tests were applied
to the upper part of each subjects’ back for 2 days and were
read on Days 2 and 4. Only “++” reactions were
considered clinically relevant and positive for the study. The
study was bilateral in design with one lesion treated with 1.0%
EB01 cream twice daily, while a comparable lesion was treated with
placebo cream. Disease severity was assessed before treatment (Day
0) and at Day 30 by the investigator using the
CDSI. For each
individual patient, the change in disease score in the drug-treated
hand was compared to that in the placebo-treated hand, thus making
the latter an internal control for each
patient. The mean
change from baseline for 1.0% EB01 cream treated lesions was 69.9%,
compared to 36.5% in the placebo cream lesions (p
= 0.0024). No
serious adverse events were reported.
A second, larger (n=30)
bilateral study was conducted to assess 2.0% EB01 cream applied
twice daily for 21 consecutive days in connection with the
treatment of ACD. To be included in the study, patients had to have
bilateral ACD with a CDSI score of at least 10 on each side, with
no more than a 1-point difference between lesions. At Day 21,
EB01-treated lesions had a mean improvement from baseline of 56%,
compared to 24% for those treated with placebo cream (p <
0.001). Efficacy of the 2.0% EB01 cream was maintained through Day
42 (21-days after ending treatment) with a 49% decrease in total
CDSI score for 2.0% EB01 cream-treated hands, compared to 15% in
the vehicle-treated hands (p < 0.001). Within the total CDSI
score, EB01 demonstrated statistically significant reductions for
each of the individual CDSI components (dryness, scaling, redness,
pruritus, and fissures).
Hemorrhoids Disease
Hemorrhoids disease (HD) is a common disorder, characterized by
itching, inflammation, pain, tenderness, bleeding and difficulty
defecating. According to National Institutes of Health reports, HD
affects approximately 5% of the U.S. adult population, or
approximately 12.5 million adults in the U.S. Almost half of
individuals 50 years and older have experienced symptomatic
hemorrhoids. Despite the high prevalence of hemorrhoids, we are not
aware of any prescription drugs with an approved New Drug
Application for the treatment of hemorrhoids. While there are
commonly used prescription and over-the-counter products for HD,
none has been approved by the FDA through the NDA process because
they entered the market prior to 1962. The mechanism of action of
these treatments is either general, such as steroids, or unknown,
in the case of herbal remedies, and we are not aware of any reports
published in medical journals on the efficacy of safety of any
product currently marketed in the U.S. As a result of these
factors, we believe that HD remains a significant unmet medical
need and market opportunity.
Confusion often arises because the term hemorrhoid has been used to
refer to both normal anatomic structures and pathologic structures.
Hemorrhoids are cushions of fibromuscular tissue that line the anal
canal. With HD, the muscle fibers that anchor the cushions become
attenuated, the hemorrhoids slide, become congested, bleed, and
eventually prolapse or protrude into the anal canal. The two types
of hemorrhoids, external and internal, refer to their location.
Internal hemorrhoids are typically classified as first degree
(grade I) – hemorrhoids bleed but do not protrude; second
degree (grade II) – hemorrhoids protrude but reduce on their
own; third degree (grade III) – hemorrhoids protrude and
require manual re-insertion; and fourth degree (grade IV) –
hemorrhoids are permanently prolapsed and cannot be
re-inserted.
The treatment of HD typically begins with conservative therapy
consisting of diet and lifestyle modification, fiber supplements,
sitz baths and stool softeners. In addition to this conservative
therapy, physicians may prescribe topical steroids and analgesics.
Because of the lack of effective prescription products, most
hemorrhoid patients will use over-the-counter preparations or the
prescription drugs available, which are similar to the
over-the-counter treatment, but formulated with a higher dose.
Based on public filings and reports, we estimate that as many as
4.0 million prescriptions are written and more than 20 million
over-the-counter units are sold each year in the U.S. for the
treatment of HD. Alternatives are invasive procedures, including
rubber band ligation, the injection of a sclerosing agent,
electrocoagulation, light therapy and
hemorrhoidectomy.
EB02
Overview and Status
Our
EB02 drug candidate represents a potential extension of our sPLA2
anti-inflammatory technology. Based on our analysis of clinical
data in dermatitis, we believe that EB02, which is currently
formulated as a cream, may be effective in treating the erythema,
swelling and exudation associated with HD. Specifically, sPLA2 has
been demonstrated to be a mediator of processes that characterize
hemorrhoidal pathophysiology, including inflammation and micro-
vascularization.
In September 2019, we received approval from Health Canada to begin
a clinical study of EB02 as a potential treatment for patients with
grade I-III internal hemorrhoids. Health Canada reviewed our
clinical trial application (CTA) and approved it by issuing a "no
objection letter," a standard guidance document that allows us to
proceed with our study. We believe this approval represents a
significant milestone in our goal of demonstrating the broad
potential of our novel non-steroidal anti-inflammatory
technology.
8
Our
exploratory Phase 2a study is designed to assess the safety and
efficacy of EB02 among hemorrhoid patients at investigational
centers in Canada. The study plan includes up to 48 subjects in a
randomized, double-blind, vehicle-controlled design. Should the
initial results be encouraging, we plan to transition from a proof
of concept study to a Phase 2 study of up to 80 to 400 subjects. In
light of our focus on the development of EB05, we are currently
evaluating the timing for the initiation of this planned study of
EB02.
Other Product Candidates
We are
also seeking to advance additional product candidates, including
EB06, which is an monoclonal antibody candidate that binds
specifically and selectively to chemokine ligand 10 (CXCL10) and
inhibits the interaction of CXCL10 with its receptor. In addition,
we plan to continue to identify, evaluate and potentially obtain
rights to and develop additional clinical assets across various
stages of development, focusing primarily on inflammatory and
immune-related diseases.
Intellectual Property and Key Licenses
We
have an exclusive license from Yissum Research
Development Company, the technology transfer company of Hebrew
University of Jerusalem Ltd. (Yissum), for patents and patent
applications that cover our product candidates EB01 and EB02 in the
United States, Canada, Australia and various countries in Europe.
Method of use patents, for which we hold an inbound license
from Yissum and an affiliate of Yissum, have been issued for
use in dermatologic and gastrointestinal conditions and infections
that will expire in 2024. We expect to seek patent term extension
in the United States related to time under IND, which could add up
to three to five years of additional protection. Additional patents
subject to the license agreement have been filed
by Yissum which we believe, if issued, could potentially
prevent generic substitution until after 2033.
We
also hold an exclusive license from NovImmune SA, for patents and
patent applications that cover our product candidates EB05 and EB06
in the United States, Canada and various other countries.
Composition of matter patents, for which we hold an inbound license
from NovImmune, have been issued that will expire as late as 2033
and 2028, respectively. We expect to seek patent term extension in
the United States related to time under IND, which could extend
protection. We have also filed additional method of use patent
applications which we believe, if issued, could potentially prevent
biosimilar substitution until as late as 2041.
In the
event we are successful in commercializing a new drug candidate, we
believe we would be eligible for data/market exclusivity, in
addition to exclusivity rights granted through patent protection.
We would be eligible for up to five years of exclusivity for EB01
and EB02 and up to twelve years of exclusivity for EB05 or EB06
after approval in the United States, and eight years of exclusivity
after approval in Canada and ten years of exclusivity after
approval in the European Union in any case.
We
expect patents and other proprietary intellectual property rights
to be an essential element of our business. We intend to protect
our proprietary positions by, among other methods, filing U.S. and
foreign patent applications related to our proprietary technology,
inventions, and improvements. We also rely on trade secrets,
know-how, continuing technological innovation and other
in-licensing opportunities to develop and maintain our proprietary
position. Our success will depend, in part, on our ability to
obtain and maintain proprietary protection for our product
candidates, technology, and know-how, to operate without infringing
on the proprietary rights of others, and to prevent others from
infringing our proprietary rights.
9
License Agreement with NovImmune SA
On
April 17, 2020, our wholly-owned subsidiary Edesa Biotech Research,
Inc. entered into an exclusive license agreement with NovImmune SA,
which operates under the brand Light Chain Bioscience, whereby we
obtained exclusive rights throughout the world to certain know-how,
patents and data relating to the monoclonal antibodies targeting
TLR4 and CXCL10 (the “Constructs”). Edesa will use the
exclusive rights to develop products containing these Constructs
(the “Licensed Products”) for therapeutic, prophylactic
and diagnostic applications in humans and animals. Unless earlier
terminated, the term of the license agreement will remain in effect
for twenty-five years from the date of first commercial sale of
Licensed Products. Subsequently, the license agreement will
automatically renew for five (5) year periods unless either party
terminates the agreement in accordance with its terms.
Under the license agreement, we are exclusively responsible, at our
expense, for the research, development manufacture, marketing,
distribution and commercialization of the Constructs and Licensed
Products and to obtain all necessary licenses and rights. Edesa is
required to use commercially reasonable efforts to develop and
commercialize the Constructs in accordance with the terms of a
development plan established by the parties. In exchange for the
exclusive rights to develop and commercialize the Constructs, we
issued to NovImmune $2.5 million of newly designated Series A-1
Convertible Preferred Shares pursuant to the terms of a securities
purchase agreement entered into between the parties concurrently
with the license agreement. In addition, Edesa is committed to
payments of various amounts to NovImmune upon meeting certain
development, approval and commercialization milestones as outlined
in the license agreement up to an aggregate amount of $356 million.
We also have a commitment to pay NovImmune a royalty based on net
sales of Licensed Products in countries where Edesa directly
commercializes Licensed Products and a percentage of sublicensing
revenue received by Edesa in the countries where Edesa does not
directly commercialize Licensed Products.
The license agreement provides that Light Chain will remain the
exclusive owner of existing intellectual property in the Constructs
and that Edesa will be the exclusive owner of all intellectual
property resulting from the exploitation of the Constructs pursuant
to the license. Subject to certain limitations, Edesa is
responsible for prosecuting, maintaining and enforcing all
intellectual property relating to the Constructs. During the term
of the agreement, Edesa also has the option to purchase the
licensed patents and know-how at a price to be negotiated by the
parties. If Edesa defaults or fails to perform any of the terms,
covenants, provisions or its obligations under the license
agreement, Light Chain has the option to terminate the license
agreement, subject to providing Edesa an opportunity to cure such
default. The license agreement is also terminable by Light Chain
upon the occurrence of certain bankruptcy related events pertaining
to Edesa. In connection with the license agreement and pursuant to
a purchase agreement entered into by the parties on April 17, 2020,
we acquired from NovImmune its inventory of the TLR4 antibody for
an aggregate purchase price of $5.0 million, payable in two
installments in 2021 and 2022.
License and Development Agreement with Pendopharm
License Agreement with Yissum
On June 29, 2016, our wholly owned
subsidiary, Edesa Biotech Research, Inc., entered into an exclusive
license agreement with Yissum,
which agreement was subsequently amended on each of April 3, 2017
and May 7, 2017. Pursuant to the license agreement as amended,
we obtained exclusive
rights throughout the world to certain know-how, patents and data
relating to a pharmaceutical product. We will use the exclusive
rights to develop the product for therapeutic, prophylactic and
diagnostic uses in topical dermal applications and anorectal
applications. Unless earlier terminated, the term of the license
agreement will expire on a country by country basis on the later of
(i) the date of expiry of the last valid licensed patent in such
country; (ii) the date of expiry of any period of exclusivity
granted to a product by a regulatory authority in such country or
(iii) the date that is 15 years after the first commercial sale of
a product in such country.
10
Under the license agreement, we are exclusively responsible, at our
expense, for the development of the product, including conducting
clinical trials and seeking regulatory approval for the product,
and once regulatory approval has been obtained, for the
commercialization of the product. We are required to use our
commercially reasonable efforts to develop and commercialize the
product in accordance with the terms of a development plan
established by the parties. Subject to certain conditions, we are
permitted to engage third parties to perform our activities or
obligations under the agreement. In exchange for the exclusive
rights to develop and commercialize the product topical dermal
applications and anorectal applications, we are committed to
payments of various amounts to Yissum upon meeting certain
milestones outlined in the license agreement up to an aggregate
amount of $18.6 million. In addition, upon divestiture of
substantially all of our assets, we are obligated to pay Yissum a
percentage of the valuation of the licensed technology sold as
determined by an external objective expert. We also have a
commitment to pay Yissum a royalty based on net sales of the
product in countries where we, or an affiliate of ours, directly
commercializes the product and a percentage of sublicensing revenue
received by us and our affiliates in the countries where we do not
directly commercialize the product.
The license agreement provides that Yissum shall remain the
exclusive owner of the licensed technology and that we are
responsible for preparing, filing, prosecuting and maintaining the
patents on the licensed technology in Yissum’s name.
Notwithstanding the foregoing, we will be the exclusive owner of
all patents and other intellectual property that is made by or on
our behalf after the date of the agreement, including all
improvements to the licensed technology. If we default or fail to
perform any of the terms, covenants, provisions or our obligations
under the license agreement, Yissum has the option to terminate the
license agreement, subject to providing us with an opportunity to
cure such default. We have the right to terminate the agreement if
we determine that the development and commercialization of the
product is no longer commercially viable. Subject to certain
exceptions, we have undertaken to indemnify Yissum against any
liability, including product liability, damage, loss or expense
derived from the use, development, manufacture, marketing, sale or
sublicensing of the licensed product and technology.
Manufacturing and Marketing
We rely, and expect to continue to rely for the foreseeable future,
on third party contract manufacturing organizations, or CMOs, to
produce both our synthetic chemical and biological product
candidates for clinical testing, as well as for commercial
manufacture if our product candidates receive marketing approval.
We believe that this strategy will enable us to direct operational
and financial resources to the development of our product
candidates rather than diverting resources to establishing
manufacturing infrastructure. Our arrangements with our
manufacturers are subject to industry-standard terms and conditions
and manufacturing is performed on an as-requested basis. We believe
there is sufficient supplies of raw materials and manufacturing
capacity with our current manufacturers, as well as others, to
service our current and future product needs. We do not have
current plans to establish laboratories or manufacturing facilities
for significant clinical production.
Because we are focused on the discovery and development of drugs,
we do not have any marketing or distribution capabilities, nor are
we at a stage where we would have any customers for our
investigational medicines. If we receive marketing approval in the
United States, Canada or Europe for a product candidate, we plan to
build the capabilities to commercialize the product candidate in
the applicable region with our own focused, specialized sales
force. Outside of the United States and Canada, we plan to
selectively utilize collaboration, distribution or other marketing
arrangements with third parties to commercialize our product
candidates. Also, we intend to selectively seek licensing,
collaboration or similar arrangements to assist us in furthering
the development or commercialization of product candidates
targeting large primary care markets that must be served by large
sales and marketing organizations.
Competition
The
pharmaceutical and biotechnology industry is highly competitive,
and the development and commercialization of new drugs is
influenced by rapid technological developments and innovation. We
face competition from companies developing and commercializing
products that will be competitive with our drug candidates,
including large pharmaceutical and smaller biotechnology companies,
many of which have greater financial and commercial resources than
we do. For our EB01 and EB02 product candidates, our potential
competitors include Aclaris Therapeutics, Inc., Brickell Biotech,
Inc., Citius Pharmaceuticals Inc., Dermavant Sciences, Inc. and Leo
Pharma A/S. For COVID-19, there are hundreds of competing therapies
under evaluation, including prophylactic vaccines for the SARS-Cov2
virus, experimental stem cell therapies and repurposed commercial
drugs. Our potential competitors include, among others: Aqualung
Therapeutics Corporation, Athersys, Inc., Caladrius Biosciences,
Inc., Enzychem Lifesciences Corp., Merck & Co., Inc., Mesoblast
Limited, Regeneron Pharmaceuticals, Inc. and Roche Holding AG. Some
of the competing product development programs may be based on
scientific approaches that are similar to our approach, and others
may be based on entirely different approaches. Potential
competitors also include new entrants to the market, academic
institutions, government agencies and other public and private
research organizations that conduct research, seek patent
protection and establish collaborative arrangements for research,
development, manufacturing and commercialization of products
similar to ours or that otherwise target indications that we are
pursuing. Key factors affecting the success of any approved product
will be its efficacy, safety profile, drug interactions, method of
administration, pricing, reimbursement and level of promotional
activity relative to those of competing drugs. We believe that our
product candidates will compete favorably with respect to such
factors. However, we may not be able to maintain our competitive
position against current and potential competitors.
11
Government Regulation
We plan to conduct clinical studies and seek approvals for our
product candidates in the United States, Canada and other
jurisdictions. Therefore, we currently are, and may in the future
be, subject to a variety of national and regional regulations
governing clinical trials as well as commercial sales and
distribution of our products, if approved.
To
conduct clinical trials for our product candidates, we rely on
third parties, such as contract research organizations, medical
institutions, and clinical investigators. Although we have entered
into agreements with these third parties, we continue to be
responsible for confirming that each of our clinical trials is
conducted in accordance with our investigational plan or research
protocol, as well as International Conference on Harmonization Good
Clinical Practices, or GCP, which include guidelines for
conducting, recording and reporting the results of clinical
trials.
The
FDA in the United States, Health Canada in Canada, the European
Medicines Agency (EMA) in the European Union and comparable
regulatory agencies in foreign countries impose substantial
requirements on the clinical development, manufacture and marketing
of pharmaceutical products and product candidates. These agencies
and other federal, state, provincial and local entities regulate
research and development activities and the testing, manufacture,
packaging, importing, distribution, quality control, safety,
effectiveness, labeling, storage, record-keeping, approval and
promotion of our products and product candidates. All of our
product candidates will require regulatory approval before
commercialization. In particular, therapeutic product candidates
for human use are subject to rigorous preclinical and clinical
testing and other statutory and regulatory requirements of the
United States, Canada, the EU and foreign countries. Obtaining
these marketing approvals and subsequently complying with ongoing
statutory and regulatory requirements require substantial time,
effort and financial resources.
United States
In the
United States, the FDA regulates drugs under the federal Food, Drug
and Cosmetic Act as well as the Public Health Service (PHS) Act for
biological drugs. The process required by the FDA before our
product candidates may be marketed in the United States generally
involves the following:
●
Pre-clinical testing. Drug developers
complete extensive pre-clinical laboratory tests, animal studies
and formulation studies, performed in accordance with the
FDA’s Good Laboratory Practice regulations and other
applicable requirements. These studies typically assess efficacy,
toxicology and pharmacokinetics.
●
Submission to the FDA of an Investigational
New Drug application (IND), which must become effective before
human clinical trials may begin. As part of an IND
application to the FDA, trial sponsors submit the results of
pre-clinical tests, together with manufacturing information and
analytical data. The IND automatically becomes effective 30-days
after receipt by the FDA, unless the FDA, within the 30-day time
frame, has questions or concerns about the proposed study. In such
a case, the IND sponsor and the FDA must resolve any outstanding
items before the clinical trial can begin. A separate submission to
an existing IND must also be made for each successive phase of a
clinical trial conducted during product development.
●
Approval by a central or institutional review
board (IRB), or ethics committee at each clinical trial site before
each trial may be initiated. An IRB is charged with
protecting the welfare and rights of trial participants and
considers such items as whether the risks to individuals
participating in the clinical trials are minimized and are
reasonable in relation to anticipated benefits. The IRB also
approves the informed consent form that must be provided to each
clinical trial subject or his or her legal representative and must
monitor the clinical trial until completion. There are also
requirements governing the reporting of ongoing clinical trials and
completed clinical trial results to public registries.
●
Multiple Phases of Human
Clinical Trials. Drug
developers conduct adequate and well-controlled human clinical
trials that establish the safety and efficacy of the product
candidate for the intended use, typically in the following three
stages, which are often sequential but may
overlap:
o
Phase 1: The clinical trials are initially conducted in a limited
population to test the product candidate for safety, dose
tolerance, absorption, metabolism, distribution and excretion in
healthy humans or, on occasion, in patients, such as cancer
patients. Phase 1 clinical trials can be designed to evaluate the
impact of the product candidate in combination with currently
approved drugs.
o
Phase 2: These clinical trials are generally conducted in a limited
patient population to identify possible adverse effects and safety
risks, to determine the efficacy of the product candidate for
specific targeted indications and to determine dose tolerance and
optimal dosage. Multiple Phase 2 clinical trials may be conducted
by the sponsor to obtain information before beginning a larger and
more expensive Phase 3 clinical trial.
o
Phase 3: These clinical trials are commonly referred to as pivotal
clinical trials. If the Phase 2 clinical trials demonstrate that a
dose range of the product candidate is effective and has an
acceptable safety profile, Phase 3 clinical trials are then
undertaken in large patient populations to further evaluate dosage,
to provide substantial evidence of clinical efficacy and to further
test for safety in an expanded and diverse patient population at
multiple, geographically dispersed clinical trial
sites.
12
●
Manufacturing Facilities. Satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facility or facilities where the drug is produced to assess
compliance with Current Good Manufacturing Practice, or cGMP,
requirements to assure that the facilities, methods and controls
are adequate to preserve the drug’s identity, strength,
quality and purity.
●
New Drug Application (NDA) or Biologics
License Application (BLA). The results of the nonclinical
studies and clinical trials, together with other detailed
information, including extensive manufacturing information and
information on the composition of the drug and proposed labeling,
are submitted to the FDA in the form of an NDA or BLA requesting
approval to market the drug for one or more specified indications.
The FDA reviews an application to determine, among other things,
whether a drug is safe and effective for its intended use and
whether the product is being manufactured in accordance with cGMP
to assure and preserve the product's identity, strength, quality
and purity. FDA approval of an NDA or BLA must be obtained before a
drug may be offered for sale in the United States. The FDA may deny
approval of an NDA or BLA if the applicable regulatory criteria are
not satisfied, or it may require additional clinical data. Even if
such data are submitted, the FDA may ultimately decide that the
application does not satisfy the criteria for approval. Data from
clinical trials are not always conclusive and the FDA may interpret
data differently than we or our collaborators do. Once issued, the
FDA may withdraw a drug approval if ongoing regulatory requirements
are not met or if safety problems occur after the drug reaches the
market. In addition, the FDA may require further testing, including
Phase 4 clinical trials (post-marketing), and surveillance programs
to monitor the effect of approved drugs which have been
commercialized. The FDA has the power to prevent or limit further
marketing of a drug based on the results of these post-marketing
programs. Drugs may be marketed only for the approved indications
and in accordance with the provisions of the approved label.
Further, if there are any modifications to a drug, including
changes in indications, labeling or manufacturing processes or
facilities, we may be required to submit and obtain FDA approval of
a new NDA or BLA or a supplement, which may require us to develop
additional data or conduct additional pre-clinical studies and
clinical trials. In addition, under the Pediatric Research Equity
Act, or PREA, an NDA or supplement to an NDA must contain data to
assess the safety and efficacy of the drug for the claimed
indications in all relevant pediatric subpopulations and to support
dosing and administration for each pediatric subpopulation for
which the product is safe and effective. The FDA may grant
deferrals for submission of pediatric data or full or partial
waivers.
Satisfaction of
FDA regulations and requirements or similar requirements of state,
local and foreign regulatory agencies typically take several years,
and the actual time required may vary substantially based upon the
type, complexity and novelty of the product or disease. Typically,
if a product candidate is intended to treat a chronic disease, as
is the case with some of our product candidates, safety and
efficacy data must be gathered over an extended
period.
Other regulatory requirements
Any products manufactured or distributed by us or our collaborators
(pursuant to FDA approval) are subject to continuing regulation by
the FDA, including recordkeeping requirements and reporting of
adverse experiences associated with the drug. Drug manufacturers
and their subcontractors are required to register their
establishments with the FDA and certain state agencies and are
subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with ongoing regulatory requirements,
including cGMP, which impose certain procedural and documentation
requirements upon us and our third-party manufacturers. Failure to
comply with the statutory and regulatory requirements can subject a
manufacturer to possible legal or regulatory action, such as
warning letters, suspension of manufacturing, seizure of product,
injunctive action or possible civil penalties.
The FDA closely regulates the post-approval marketing and promotion
of drugs, including standards and regulations for
direct-to-consumer advertising, off-label promotion,
industry-sponsored scientific and educational activities and
promotional activities involving the Internet. A company can make
only those claims relating to safety and efficacy that are approved
by the FDA. Failure to comply with these requirements can result in
adverse publicity, warning letters, corrective advertising and
potential civil and criminal penalties. Physicians may prescribe
legally available drugs for uses that are not described in the
drug’s labeling and that differ from those tested by us and
approved by the FDA. Such off-label uses are common across medical
specialties. Physicians may believe that such off-label uses are
the best treatment for many patients in varied circumstances. The
FDA does not regulate the behavior of physicians in their choice of
treatments. The FDA does, however, impose stringent restrictions on
manufacturers’ communications regarding off-label
use.
The federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or paying remuneration, directly or indirectly, in cash
or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made, in whole or in
part, under a federal healthcare program such as Medicare and
Medicaid. This statute has been broadly interpreted to apply to
manufacturer arrangements with prescribers, purchasers and pharmacy
benefit managers, among others. Several other countries, including
the United Kingdom, have enacted similar anti-kickback laws and
regulations.
The federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program or for knowingly
and willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or services.
HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, or HITECH Act, and its implementing
regulations, also imposes obligations, including mandatory
contractual terms, with respect to safeguarding the privacy,
security and transmission of individually identifiable health
information.
13
The federal Physician Payments Sunshine Act requirements under the
Patient Protection and Affordable Care Act of 2010, as amended by
the Health Care and Education Reconciliation Act of 2010, referred
to together as the Affordable Care Act, require manufacturers of
FDA-approved drugs, devices, biologics and medical supplies covered
by Medicare or Medicaid to report to the Department of Health and
Human Services information related to payments and other transfers
of value made to or at the request of covered recipients, such as
physicians and teaching hospitals, and physician ownership and
investment interests in such manufacturers. Among other payments,
the law requires payments made to physicians and teaching hospitals
for clinical trials be disclosed.
Analogous state laws and regulations, such as state anti-kickback
and false claims laws, may apply to future potential sales or
marketing arrangements and claims involving healthcare items or
services reimbursed by nongovernmental third-party payors,
including private insurers. Some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines, or the relevant compliance
guidance promulgated by the federal government, in addition to
requiring drug manufacturers to report information related to
payments to physicians and other health care providers or marketing
expenditures to the extent that those laws impose requirements that
are more stringent than the Physician Payments Sunshine Act. State
and foreign laws also govern the privacy and security of health
information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts.
Canada
Health
Canada is the Canadian federal authority that regulates, evaluates
and monitors the safety, effectiveness, and quality of drugs,
medical devices, and other therapeutic products available to
Canadians. Health Canada’s regulatory process for review,
approval and regulatory oversight of products is similar to the
regulatory process conducted by the FDA. To initiate clinical
testing of a drug candidate in human subjects in Canada, a Clinical
Trial Application (CTA) must be filed with and approved by Health
Canada. In addition, all federally regulated trials must be
approved and monitored by research ethics boards. The review boards
study and approve study-related documents and monitor trial
data.
Prior
to being given market authorization for a drug product, a
manufacturer must present substantive scientific evidence of a
product’s safety, efficacy and quality as required by the
Food and Drugs Act (Canada) and its associated regulations,
including the Food and Drug Regulations. This information is
usually submitted in the form of a New Drug Submission (NDS).
Health Canada reviews the submitted information, sometimes using
external consultants and advisory committees, to evaluate the
potential benefits and risks of a drug. If after of the review, the
conclusion is that the patient benefits outweigh the risks
associated with the drug, the drug is issued a Drug Identification
Number (DIN), followed by a Notice of Compliance (NOC), which
permits the market authorization holder (i.e., the NOC and DIN
holder) to market the drug in Canada. Drugs granted an NOC may be
subject to additional postmarket surveillance and reporting
requirements.
All establishments engaged in the fabrication, packaging/labeling,
importation, distribution, and wholesale of drugs and operation of
a testing laboratory relating to drugs are required to hold a Drug
Establishment License to conduct one or more of the licensed
activities unless expressly exempted under the Food and Drug
Regulations. The basis for the issuance of a Drug Establishment
License is to ensure the facility complies with cGMP as stipulated
in the Food and Drug Regulations and as determined by cGMP
inspection conducted by Health Canada. An importer of
pharmaceutical products manufactured at foreign sites must also be
able to demonstrate that the foreign sites comply with cGMP, and
such foreign sites are included on the importer’s Drug
Establishment License.
Regulatory obligations and oversight continue following the initial
market approval of a pharmaceutical product. For example, every
market authorization holder must report any new information
received concerning adverse drug reactions, including timely
reporting of serious adverse drug reactions that occur in Canada
and any serious unexpected adverse drug reactions that occur
outside of Canada. The market authorization holder must also notify
Health Canada of any new safety and efficacy issues that it becomes
aware of after the launch of a product.
Employees
As of December 2, 2020, we have 12 full-time employees: five
employees are primarily engaged in research and development, and
seven employees are engaged in management, administration, business
development and finance. All employees are located in Canada or the
U.S. None of our employees are members of any labor
unions.
Legal Proceedings
We are not currently subject to any material legal
proceedings.
Business Combination
On
June 7, 2019, we completed a business combination with Edesa
Biotech Research, Inc., formerly known as Edesa Biotech Inc.
(“Edesa Research”), a company organized under the laws
of the province of Ontario in 2015, in accordance with the terms of
a Share Exchange Agreement, dated March 7, 2019, by and among the
Company, Edesa Research and the shareholders of Edesa Research. At
the closing of the transaction, we acquired the entire issued share
capital of Edesa Research, with Edesa Research becoming a wholly
owned subsidiary of ours. Also on June 7, 2019, in connection with
and following the completion of the reverse acquisition, we
effected a 1-for-6 reverse split of our Common Shares and changed
our name to “Edesa Biotech, Inc.” At the closing of the
transaction, the Edesa Research shareholders exchanged their shares
for 88% of our outstanding shares on a fully diluted
basis.
14
Corporate Information
We are
incorporated under the laws of British Columbia, Canada, and
operate through our wholly owned subsidiaries, Edesa Biotech
Research, Inc. an Ontario, Canada corporation and Edesa Biotech
USA, Inc., a California, USA corporation founded in 1999 (formerly
known as Stellar Biotechnologies, Inc. prior to November 2020). In
June 2019, we acquired the Ontario corporation through a reverse
acquisition and changed our name from Stellar Biotechnologies, Inc.
to Edesa Biotech, Inc. We subsequently changed the name of the
Ontario subsidiary to Edesa Biotech Research, Inc. (formerly Edesa
Biotech Inc.). The California subsidiary was acquired through a
reverse merger in April 2010, when the company was organized as a
Canadian capital pool company.
Our executive offices are located at 100 Spy Court, Markham,
Ontario, L3R 5H6, Canada. Our phone number is 289-800-9600. Our
registered and records office is 2900 - 550 Burrard Street,
Vancouver, British Columbia, V6C 0A3, Canada. Our website address
is www.edesabiotech.com. The contents of our website are not part
of our SEC reports for any purpose or otherwise incorporated by
reference. Any references to website addresses contained in this
report are intended to be inactive textual references
only.
Available Information
We file or furnish periodic reports and amendments thereto,
including our annual reports on Form 10-K, our quarterly reports on
Form 10-Q and current reports on Form 8-K, proxy statements and
other information with the U.S. Securities and Exchange Commission
(SEC). Such reports and other information filed or furnished by us
with the SEC are available free of charge on our website at
www.edesabiotech.com/investors/sec-filings as soon as reasonably
practicable after such reports are available on the SEC’s
website at www.sec.gov. Our filings are also available at the
Canadian Securities Administrators’ SEDAR website at
www.sedar.com.
Smaller Reporting Company
We are currently a “smaller reporting company” as
defined by Rule 12b-2 of the Securities Exchange Act of 1934
(Exchange Act), and are thus allowed to provide simplified
executive compensation disclosures in our filings, are exempt from
the provisions of Section 404(b) of the Sarbanes-Oxley Act
requiring that an independent registered public accounting firm
provide an attestation report on the effectiveness of internal
control over financial reporting and have certain other reduced
disclosure obligations with respect to our SEC
filings.
Item 1A. RISK
FACTORS.
Certain factors may have
a material adverse effect on our business, prospects, financial
condition and results of operations. You should carefully consider
the risks and uncertainties described below together with all of
the other information contained in this Annual Report on Form 10-K,
including our financial statements and the related notes, before
deciding to invest in our common shares. The risks and
uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely
affect our business. If any of the following risks actually occurs,
our business, financial condition, results of operations and future
prospects could be materially and adversely
affected.
Risks Related to Our Business
We have incurred significant losses since our inception and expect
to continue to incur losses and may never generate profits from
operations or maintain profitability.
Since
inception, we have incurred significant operating losses. As of
September 30, 2020, we have an accumulated deficit of $13.1
million. We have historically financed operations primarily through
issuances of common shares, the exercise 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 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
the United States and Canada. The net losses we incur may fluctuate
significantly from quarter to quarter and year to
year.
Based on our current plans, we do not expect to generate
significant revenue unless and until we or a current or potential
future licensee obtains marketing approval for, and commercializes,
one or more of our product candidates, which may require several
years. Neither we nor a licensee may ever succeed in obtaining
marketing approval for, or commercializing our product candidates
and, even if marketing approval is obtained, we may never generate
revenues that are significant enough to generate profits from
operations.
15
We will need substantial additional funding to finance our
operations through regulatory approval of one or more of our
product candidates. If we are unable to raise capital when needed,
we could be forced to delay, reduce or eliminate our product
development programs or commercialization efforts.
We expect our research and development expenses to increase
substantially in the future, particularly if we advance any drug
candidates beyond Phase 2 clinical development or expand the number
of drug candidates in clinical studies. In addition, if we obtain
marketing approval for any of our product candidates that are not
then subject to licensing, collaboration or similar arrangements
with third parties, we expect to incur significant
commercialization expenses related to product sales, marketing,
distribution and manufacturing. If we are unable to raise capital
when needed, or on attractive terms, we could be forced to delay,
reduce or eliminate research and development programs or future
commercialization efforts.
We depend heavily on the success of our drug product candidates. If
we are unable to obtain regulatory approval or commercialize one or
more of these experimental treatments, or experience significant
delays in doing so, our business will be materially
harmed.
Our ability to generate product revenues, which may not occur for
multiple years, if at all, will depend heavily on the successful
development and commercialization of our drug product candidates.
The success of our product candidates will depend on a number of
factors, including the following:
●
our ability to obtain additional capital from potential future
licensing, collaboration or similar arrangements or from any future
offering of our debt or equity securities;
●
our ability to identify and enter into potential future licenses or
other collaboration arrangements with third parties and the terms
of the arrangements;
●
our timing to obtain applicable regulatory approvals;
●
successful completion of clinical development;
●
the ability to provide acceptable evidence demonstrating a product
candidates’ safety and efficacy;
●
receipt of marketing approvals from applicable regulatory
authorities and similar foreign regulatory
authorities;
●
the availability of raw materials to produce our product
candidates;
●
obtaining and maintaining commercial manufacturing arrangements
with third-party manufacturers or establishing commercial-scale
manufacturing capabilities;
●
obtaining and maintaining patent and trade secret protection and
regulatory exclusivity;
●
establishing sales, marketing and distribution
capabilities;
●
generating commercial sales of the product candidate, if and when
approved, whether alone or in collaboration with
others;
●
acceptance of the product candidate, if and when approved, by
patients, the medical community and third-party
payors;
●
effectively competing with other therapies; and
●
maintaining an acceptable safety profile of the product candidate
following approval.
If we do not achieve one or more of these factors in a timely
manner or at all, we could experience significant delays or an
inability to successfully commercialize any of our product
candidates, which would materially harm our business. Many of these
factors are beyond our control. Accordingly, we may never be able
to generate revenues through the license or sale of any of our
product candidates.
Public health threats could have an adverse effect on our
operations and financial results.
Public health threats could adversely affect our ongoing or planned
research and development activities, particularly SARS-CoV-2 (which
causes the disease now called COVID-19). The outbreak of COVID-19
has severely impacted global economic activity and caused
significant volatility and negative pressure in financial markets.
The global impact of the outbreak has been rapidly evolving and
many countries, including the United States, have reacted by
instituting quarantines, mandating business and school closures and
restricting travel. As a result, the COVID-19 pandemic is
negatively impacting almost every industry directly or indirectly.
We cannot presently predict the scope and severity of any potential
business shutdowns or disruptions, but if we or any of the third
parties with whom we engage, including the suppliers, clinical
trial sites, regulators and other third parties with whom we
conduct business, were to experience shutdowns or other business
disruptions, our ability to conduct our business in the manner and
on the timelines presently planned could be materially and
negatively impacted. Global epidemics, such as the coronavirus,
could also negatively affect site activation, as well as
recruitment and retention, at sites in a region or city whose
health care system becomes overwhelmed due to the illness, which
could have a material adverse effect on our business and our
results of operation and financial condition.
16
Our limited
operating history may make it difficult for you to evaluate the
success of our business to date and to assess our future
viability.
Our primarily operating entity, Edesa Biotech Research, Inc. was
formed in July 2015. To date, our operations have been limited to
organization and staffing, developing and securing our technology,
entering into licensing arrangements, raising capital and
undertaking preclinical studies and clinical trials of our product
candidates. We have not yet demonstrated our ability to
successfully complete development of any product candidate, obtain
marketing approval, manufacture a commercial scale product, or
arrange for a third-party to do so on our behalf, or conduct sales
and marketing activities necessary for successful product
commercialization. Assuming we obtain marketing approval for any of
our product candidates, we will need to transition from a company
with a research and development focus to a company capable of
supporting commercial activities. We may encounter unforeseen
expenses, difficulties, complications and delays and may not be
successful in such a transition. Any predictions made about our
future success or viability may not be as accurate as they could be
if we had a longer operating history.
We may not be successful in our efforts to identify and acquire or
in-license additional product candidates.
Part of our strategy involves diversifying our product development
risk by identifying and acquiring or in-licensing novel product
candidates. We may fail to identify and acquire or in-license
promising product candidates. The competition to acquire or
in-license promising product candidates is fierce, especially from
large multinational companies that have greater resources and
experience than we have. If we are unable to identify and acquire
or in-license suitable product candidates, we will be unable to
diversify our product risk. We believe that any such failure could
have a significant negative impact on our prospects because the
risk of failure of any particular development program in the
pharmaceutical field is high.
We may expend our limited resources to pursue a particular product
candidate and fail to capitalize on product candidates that may be
more profitable or for which there is a greater likelihood of
success.
Because we have limited financial and managerial resources, we
focus on specific product candidates. As a result, we may forego or
delay pursuit of opportunities with other product candidates that
later could prove to have greater commercial potential. Our
resource allocation decisions may cause us to fail to capitalize on
viable commercial products or profitable market opportunities. If
we do not accurately evaluate the commercial potential or target
market for a particular product candidate, our business may be
negatively impacted.
Our future success depends on our ability to retain key executives
and to attract, retain and motivate qualified
personnel.
We are highly dependent on Dr. Pardeep
Nijhawan, our Chief Executive Officer and Secretary; and Michael
Brooks, our President; as well as other principal members of our
management and scientific teams. Although we have employment
agreements with each of our executive officers, these agreements do
not prevent our executives from terminating their employment with
the company at any time. The unplanned loss of the services of any
of these persons could materially impact the achievement of our
research, development, financial and commercialization objectives.
Recruiting and retaining qualified personnel, including in the
United States and Canada, will also be critical to our success. We
may not be able to attract and retain these personnel on acceptable
terms given the competition among numerous biotechnology and
pharmaceutical companies for similar personnel. In addition, we
rely on consultants and advisors, including scientific and clinical
advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors may
have commitments with other entities that may limit their
availability to us.
We expect to expand our capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt
our operations.
We expect to experience growth in the number of our employees and
the scope of our operations, particularly in the areas of drug
development, regulatory affairs, finance and administration and,
potentially, sales and marketing. To manage our anticipated future
growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and
continue to recruit and train additional qualified personnel. We
may not be able to effectively manage the expansion of our
operations or recruit and train additional qualified personnel. The
physical expansion of our operations may lead to significant costs
and may divert our management and business development resources.
Any inability to manage growth could delay the execution of our
business plans or disrupt our operations.
17
We are exposed to risks related to currency exchange
rates.
We conduct a significant portion of our operations outside of the
United States. Because our financial statements are presented in
U.S. dollars, changes in currency exchange rates have had and could
have in the future a significant effect on our operating results
when our operating results are translated into U.S.
dollars.
We are subject to anti-corruption laws, as well as export control
laws, customs laws, sanctions laws and other laws governing our
operations. If we fail to comply with these laws, it could be
subject to civil or criminal penalties, other remedial measures and
legal expenses, which could adversely affect our business, results
of operations and financial condition.
Our operations are subject to anti-corruption laws, including the
U.S. Foreign Corrupt Practices Act, or the FCPA, and other
anti-corruption laws that apply in countries where we do business
and may do business in the future. The FCPA and these other laws
generally prohibit us, our officers, and our employees and
intermediaries from bribing, being bribed or making other
prohibited payments to government officials or other persons to
obtain or retain business or gain some other business advantage. We
may in the future operate in jurisdictions that pose a high risk of
potential FCPA violations, and we may participate in collaborations
and relationships with third parties whose actions could
potentially subject us to liability under the FCPA or local
anti-corruption laws. We are also subject to other laws and
regulations governing our international operations, including
regulations administered by the government of the United States and
authorities in the European Union, including applicable export
control regulations, economic sanctions on countries and persons,
customs requirements and currency exchange regulations,
collectively referred to as the Trade Control laws. There is no
assurance that we will be completely effective in ensuring our
compliance with all applicable anti-corruption laws, including the
FCPA or other legal requirements, including Trade Control laws. If
we are not in compliance with the FCPA and other anti-corruption
laws or Trade Control laws, we may be subject to criminal and civil
penalties, disgorgement and other sanctions and remedial measures,
and legal expenses, which could have an adverse impact on our
business, financial condition, results of operations and liquidity.
Likewise, any investigation of any potential violations of the
FCPA, other anti-corruption laws or Trade Control laws by U.S. or
other authorities could also have an adverse impact on our
reputation, our business, results of operations and financial
condition.
Our employees, principal investigators, consultants and commercial
partners may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements
and insider trading, which could cause significant liability for us
and harm our reputation.
We are exposed to the risk of fraud or other misconduct by our
employees, principal investigators, consultants and collaborators,
including intentional failures to comply with FDA or Office of
Inspector General regulations or similar regulations of comparable
non-U.S. regulatory authorities, provide accurate information to
the FDA or comparable non-U.S. regulatory authorities, comply with
manufacturing standards we have established, comply with federal
and state healthcare fraud and abuse laws and regulations and
similar laws and regulations established and enforced by comparable
non-U.S. regulatory authorities, report financial information or
data accurately or disclose unauthorized activities to us.
Misconduct by these parties could also involve the improper use of
information obtained in the course of clinical trials, which could
result in regulatory sanctions and serious harm to our reputation.
It is not always possible to identify and deter misconduct, and the
precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such
laws, standards or regulations. If any such actions are instituted
against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact
on our business and results of operations, including the imposition
of significant fines or other sanctions.
We rely significantly on information technology and any failure,
inadequacy, interruption or security lapse of that technology,
including any cyber security incidents, could harm our ability to
operate our business effectively.
Despite the implementation of security measures, our internal
computer systems and those of third parties with which we contract
are vulnerable to damage from cyber-attacks, computer viruses,
unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. System failures,
accidents or security breaches could cause interruptions in our
operations, and could result in a material disruption of ours
clinical and commercialization activities and business operations,
in addition to possibly requiring substantial expenditures of
resources to remedy. The loss of clinical trial data could result
in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent
that any disruption or security breach were to result in a loss of,
or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur
liability and our product research, development and
commercialization efforts could be delayed.
18
The wind down of our Stellar subsidiary’s legacy business may
not deliver the expected results or may create unexpected
liabilities.
Following the business combination completed in June 2019, we
refocused our business on the development of innovative
therapeutics for inflammatory and immune-related diseases. Since
then, we have implemented plans to sell off or wind down the
principal assets and operations of our Stellar subsidiary’s
legacy business, which includes product inventory. We cannot be
sure that the sale and wind down of Stellar’s operations will
eliminate costs related to the legacy business; or result in any
unplanned expenditures or unknown, contingent or other liabilities,
including litigation arising in connection with legacy operations
or sales of Stellar’s product inventory. If our plans do not
achieve the expected results, our business and results of
operations will be adversely impacted.
Risks Related to Clinical Development, Regulatory Approval and
Commercialization
If clinical trials of our product candidates fail to demonstrate
safety and efficacy to the satisfaction of the FDA, Health Canada
(HC) or the European Medicines Agency (EMA), or do not otherwise
produce favorable results, we may incur additional costs or
experience delays in completing, or ultimately be unable to
complete, the development and commercialization our product
candidates.
In connection with obtaining marketing approval from regulatory
authorities for the sale of any product candidate, we must complete
preclinical development and then conduct extensive clinical trials
to demonstrate the safety and efficacy of our product candidates in
humans. Clinical trials are expensive, difficult to design and
implement, can take many years to complete and are uncertain as to
outcome. A failure of one or more clinical trials can occur at any
stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later
clinical trials. In particular, the small number of subjects and
patients in early clinical trials of our product candidates may
make the results of these clinical trials less predictive of the
outcome of later clinical trials. The design of a clinical trial
can determine whether our results will support approval of a
product, and flaws in the design of a clinical trial may not become
apparent until the clinical trial is well advanced or completed.
There is no assurance that we will be able to design and execute a
clinical trial to support marketing approval. Moreover, preclinical
and clinical data are often susceptible to varying interpretations
and analyses, and many companies that have believed their product
candidates performed satisfactorily in preclinical studies and
clinical trials have nonetheless failed to obtain marketing
approval of their products.
Positive results in pre-clinical studies of a product candidate may
not be predictive of similar results in humans during clinical
trials, and promising results from early clinical trials of a
product candidate may not be replicated in later clinical trials. A
number of companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in late-stage
clinical trials even after achieving promising results in
early-stage development. Accordingly, the results from completed
pre-clinical studies and clinical trials for our product candidates
may not be predictive of the results we may obtain in later stage
trials or studies. Pre-clinical studies or clinical trials may
produce negative or inconclusive results, and we may decide, or
regulators may require us, to conduct additional pre-clinical
studies or clinical trials, or to discontinue clinical trials
altogether. Ultimately, we may be unable to complete the
development and commercialization of any of our product
candidates.
Interim results, top-line, initial data may not accurately reflect
the complete results of a particular study or trial.
We may publicly disclose interim, top-line or initial data from
time to time that is based on a preliminary analysis of
then-available efficacy and safety data, and the results and
related findings and conclusions are subject to change following a
more comprehensive review of the data related to the particular
study or trial. We also make assumptions, estimates, calculations
and conclusions as part of our analyses of data, and we may not
have received or had the opportunity to fully evaluate all data.
Interim, top-line and initial data should be viewed with caution
until the final data are available. In addition, the information we
may publicly disclose regarding a particular preclinical or
clinical study is based on what is typically extensive information,
and you or others may not agree with what we determine is the
material or otherwise appropriate information to include in our
disclosure, and any information we determine not to disclose may
ultimately be deemed significant with respect to future decisions,
conclusions, views, activities or otherwise regarding a particular
drug, drug candidate or our business. If the interim, top-line or
initial data that we report differ from actual results, or if
others, including regulatory authorities, disagree with the
conclusions reached, our ability to obtain approval for, and
commercialize, our product candidates may be harmed or delayed,
which could harm our business, financial condition, operating
results or prospects.
19
If clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs
and delay our receipt of any revenue from potential product
sales.
We cannot predict whether we will encounter problems with any of
our ongoing or planned clinical trials that will cause us or any
regulatory authority to delay or suspend those clinical trials. A
number of events, including any of the following, could delay the
completion of our ongoing and planned clinical trials and
negatively impact our ability to obtain regulatory approval for,
and to market and sell, a particular product
candidate:
●
conditions imposed by the FDA or any foreign regulatory authority
regarding the scope or design of our clinical trials;
●
delays in obtaining, or the inability to obtain, required approvals
from institutional review boards, or IRBs, or other reviewing
entities at clinical sites selected for participation in our
clinical trials;
●
insufficient supply or deficient quality of product candidates
supply or materials to produce our product candidates or other
materials necessary to conduct our clinical trials;
●
delays in obtaining regulatory agreement for the conduct of the
clinical trials;
●
lower than anticipated enrollment and retention rate of subjects in
clinical trials for a variety of reasons, including size of patient
population, nature of trial protocol, the availability of approved
effective treatments for the relevant disease and competition from
other clinical trial programs for similar indications;
●
serious and unexpected drug-related side effects experienced by
patients in clinical trials;
●
failure of third-party contractors to meet their contractual
obligations in a timely manner;
●
pre-clinical or clinical trials may produce negative or
inconclusive results, which may require us or any potential future
collaborators to conduct additional pre-clinical or clinical
testing or to abandon projects that we expect to be
promising;
●
even if pre-clinical or clinical trial results are positive, the
FDA or foreign regulatory authorities could nonetheless require
unanticipated additional clinical trials;
●
regulators or institutional review boards may suspend or terminate
clinical research for various reasons, including noncompliance with
regulatory requirements;
●
product candidates may not have the desired effects;
and
●
the lack of adequate funding to continue clinical
trials.
Additionally, changes in standard of care or regulatory
requirements and guidance may occur and we may need to amend
clinical trial protocols to reflect these changes. Such amendments
may require us to resubmit our clinical trial protocols to IRBs for
re-examination, which may impact the cost, timing or successful
completion of a clinical trial. Such changes may also require us to
reassess the viability of the program in question.
We do not know whether our clinical trials will begin as planned,
will need to be restructured or will be completed on schedule, if
at all. Delays in clinical trials will result in increased
development costs for our product candidates. In addition, if we
experience delays in completion of, or if we terminate, any of our
clinical trials, the commercial prospects for our product
candidates may be affected and our ability to generate product
revenues will be delayed. Furthermore, many of the factors that
cause, or lead to, a delay in the commencement or completion of
clinical trials may also ultimately lead to the denial of
regulatory approval of a product candidate.
The clinical trial designs, endpoints and outcomes that will be
required to obtain marketing approval for our drug candidates are
uncertain. We may never receive marketing approval for our drug
candidates.
To our knowledge, there are currently no FDA-approved drug
treatment options specifically approved for many of the disease
indications we are targeting with our drug candidates. Accordingly,
there may not be well-established development paths and outcomes.
The FDA, Health Canada or any other regulatory authority outside of
the United States may determine that the designs or endpoints of
any trial that we conduct, or that the outcome shown on any
particular endpoint in any trial that we conduct, are not
sufficient to establish a clinically meaningful benefit for our
drug candidates, or otherwise, to support approval, even if the
primary endpoint(s) of the trial is met with statistical
significance. If this occurs, our business could be materially
harmed. Moreover, if the regulatory authorities require us to
conduct additional clinical trials beyond the ones that we
currently contemplate, our finances and results from operations
will be adversely impacted. If our clinical studies meet their
respective primary endpoints, we plan to request an end of Phase 2
meeting with the regulators and/or seek marketing approval. We
cannot predict whether each of these regulatory agencies will agree
that our study data and information will be sufficient to meet the
requirements for filing a marketing application or the standards
for approval. If the regulatory agencies determine that more data
and information are needed, it could delay and/or negatively impact
our ability to obtain regulatory approval to market and sell a
particular product candidate.
20
If the commercial opportunity in chronic ACD or COVID-19-induced
ARDS is smaller than we anticipate, our future revenue from EB01 or
EB05, as applicable, will be adversely affected and our business
will suffer.
It is critical to our ability to grow and become profitable that we
successfully identify patients with chronic ACD or COVID-19-induced
ARDS. Our projections of the number of people who have these
conditions as well as the subset who have the potential to benefit
from treatment with EB01 or EB05, are based on a variety of
sources, including third-party estimates and analyses in the
scientific literature, and may prove to be incorrect. Further, new
information may emerge that changes our estimate of the prevalence
of these diseases or the number of patient candidates for these
drug candidates. The effort to identify patients for our other
potential target indications is at an early stage, and we cannot
accurately predict the number of patients for whom treatment might
be possible. Additionally, the potentially addressable patient
population for our drug candidates may be limited or may not be
amenable to treatment with our drug candidates, and new patients
may become increasingly difficult to identify or access. If the
commercial opportunity for these conditions is smaller than we
anticipate, our future financial performance may be adversely
impacted.
While we have chosen to test our product candidates in specific
clinical indications based in part on our understanding of their
mechanisms of action, our understanding may be incorrect or
incomplete and, therefore, our product candidates may not be
effective against the diseases tested in our clinical
trials.
Our rationale for selecting the particular therapeutic indications
for each of our product candidates is based in part on our
understanding of the mechanism of action of these product
candidates. However, our understanding of the product
candidates’ mechanism of action may be incomplete or
incorrect, or the mechanism may not be clinically relevant to the
diseases treated. In such cases, our product candidates may prove
to be ineffective in the clinical trials for treating those
diseases, and adverse clinical trial results would likely
negatively impact our business and results from
operations.
A successful
sPLA2 drug has not been developed to date
and we can provide no assurances that we will be successful or that
there will be no adverse side effects.
Our sPLA2 product candidates employ a novel
mechanism of action. To our knowledge no drug companies have
successfully commercialized an sPLA2 inhibitor and as a result the efficacy
and long-term side effects are not known. There is no guarantee
that we will successfully develop and/or commercialize an
sPLA2 inhibitor and/or that our product
candidates will have no adverse side effects.
Even if one of our product candidates receives marketing approval,
it may fail to achieve the degree of market acceptance by
physicians, patients, third-party payors and others in the medical
community necessary for commercial success.
If any product candidate receives marketing approval, the approved
product may nonetheless fail to gain sufficient market acceptance
by physicians, patients, third-party payors and others in the
medical community. If an approved product does not achieve an
adequate level of acceptance, we may not generate significant
product revenues or any profits from operations. Our ability to
negotiate, secure and maintain third-party coverage and
reimbursement for our product candidates may be affected by
political, economic and regulatory developments in the United
States, Canada, the European Union and other jurisdictions.
Governments continue to impose cost containment measures, and
third-party payors are increasingly challenging prices charged for
medicines and examining their cost effectiveness, in addition to
their safety and efficacy. These and other similar developments
could significantly limit the degree of market acceptance of any of
our future product candidates that receive marketing
approval.
If we are
unable to establish sales and marketing capabilities or enter into
agreements with third parties to market and any of our other
current or future product candidates, we may not be successful in
commercializing the applicable product candidate if it receives
marketing approval.
We do not have a sales or marketing infrastructure and have no
experience as a company in the sale or marketing of pharmaceutical
products. To achieve commercial success for any approved product,
we must either develop a sales and marketing organization or
outsource these functions to third parties. There are risks
involved with establishing our own sales and marketing capabilities
and entering into arrangements with third parties to perform these
services. For example, recruiting and training a sales force is
expensive and time consuming and could delay any product launch. If
the commercial launch of a product candidate for which we recruit a
sales force and establish marketing capabilities is delayed or does
not occur for any reason, we would have prematurely or
unnecessarily incurred these commercialization expenses. This may
be costly, and our investment would be lost if we cannot retain or
reposition our sales and marketing personnel. If we enter into
arrangements with third parties to perform sales and marketing
services, our product revenues or the profitability of these
product revenues to us could be lower than if we were to market and
sell any products that we develop ourselves. In addition, we may
not be successful in entering into arrangements with third parties
to sell and market our product candidates or may be unable to do so
on terms that are acceptable to us. We likely will have little
control over such third parties, and any of them may fail to devote
the necessary resources and attention to sell and market our
products effectively. If we do not establish sales and marketing
capabilities successfully, either on our own or in collaboration
with third parties, we will not be successful in commercializing
our product candidates.
21
We face substantial competition, which may result in others
discovering, developing or commercializing products to treat our
target indications or markets before or more successfully than we
do.
The development and commercialization of new drug products is
highly competitive. We face competition with respect to our current
product candidates and any products we may seek to develop or
commercialize in the future from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies
worldwide. Competitors may also include academic institutions,
government agencies and other public and private research
organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development,
manufacturing and commercialization. Many of our competitors have
significantly greater financial resources and expertise in research
and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining approvals from regulatory authorities
and marketing approved products than we do. Mergers and
acquisitions in the pharmaceutical and biotechnology industries may
result in even more resources being concentrated among a smaller
number of our competitors. Our commercial opportunities could be
reduced or eliminated if our competitors develop and commercialize
products that are more effective, safer, have fewer or less severe
side effects, are approved for broader indications or patient
populations, or are more convenient or less expensive than any
products that we develop and commercializes. Our competitors may
also obtain marketing approval for their products more rapidly than
we may obtain approval for our products, which could result in our
competitors establishing a strong market position before we are
able to enter the market. If approved, our product candidates will
compete for a share of the existing market with numerous other
products being used to treat ACD, ARDS, or any other indications
for which we may receive government approval.
Even if we are able to commercialize one of our product candidates,
the product may become subject to unfavorable pricing regulations,
third- party reimbursement practices or healthcare reform
initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing, coverage
and reimbursement for new drug products vary widely from country to
country. Current and future legislation may significantly change
the approval requirements in ways that could involve additional
costs and cause delays in obtaining approvals. Some countries
require approval of the sale price of a drug before it can be
marketed. In many countries, the pricing review period begins after
marketing or product licensing approval is granted and, in some
markets, prescription pharmaceutical pricing remains subject to
continuing governmental control even after initial approval is
granted. As a result, we might obtain marketing approval for a
product in a particular country, but then be subject to price
regulations that delay our commercial launch of the product,
possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the product in
that country. Adverse pricing limitations may hinder our ability to
recoup our investment in one or more product candidates, even if
our product candidates obtain marketing approval.
Our ability to commercialize EB01, EB05 or any other product
candidate successfully also will depend in part on the extent to
which coverage and adequate reimbursement for these products and
related treatments will be available from government health
administration authorities, private health insurers and other
organizations. Government authorities and other third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels. Our inability to promptly obtain
coverage and adequate reimbursement rates from both
government-funded and private payors for any approved products that
we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize
products and our overall financial condition.
Product liability lawsuits against us could cause us to incur
substantial liabilities and to limit commercialization of any
products that we may develop.
We face an inherent risk of product liability exposure related to
the testing of our product candidates in human clinical trials and
will face an even greater risk if we commercially sell any products
that we may develop. If we cannot successfully defend ourselves
against claims that our product candidates or products caused
injuries, we will incur substantial liabilities. We have separate
liability insurance policies that cover each of our ongoing
clinical trials, which provide coverage in varying amounts. The
amount of insurance that we currently hold may not be adequate to
cover all liabilities that we may incur. We will need to increase
our insurance coverage when and if we begin conducting more
expansive clinical development of our product candidates. Insurance
coverage is increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost or in an amount adequate to
satisfy any liability that may arise.
We will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all of our
product candidates.
We have no direct experience in synthesizing, formulating and
manufacturing any of our product candidates, and currently lack the
resources or capability to synthesize, formulate and manufacture
any of our product candidates on a clinical or commercial scale. As
a result, we will be dependent on third parties for the synthesis,
formulation, and manufacturing, including optimization, technology
transfers and scaling up of clinical scale quantities of all our
product candidates. We believe that this strategy will enable us to
direct operational and financial resources to the development of
our product candidates rather than diverting resources to
establishing manufacturing infrastructure; however our use of third
parties to manufacture our product candidates may increase the risk
that we will not have sufficient quantities of our product
candidates or products or such quantities at an acceptable cost,
which could delay, prevent or impair our development or
commercialization efforts.
We do not currently have any agreements with third-party
manufacturers for the long-term clinical or commercial supply of
any of our product candidates and may in the future be unable to
scale-up and/or conclude agreements for commercial supply with
commercial third-party manufacturers on acceptable terms, or at
all. Even if we are able to establish and maintain arrangements
with third-party manufacturers, they may encounter difficulties in
achieving volume production, laboratory testing, quality control or
quality assurance or suffer shortages of qualified personnel, any
of which could result in our inability to manufacture sufficient
quantities to meet clinical timelines for a particular product
candidate, to obtain marketing approval for the product candidate
or to commercialize the product candidate. We may compete with
other companies for access to manufacturing facilities. There are a
limited number of manufacturers that operate under cGMP regulations
and that might be capable of manufacturing for us.
22
If the third parties that we contract to
manufacture product for our preclinical tests and clinical trials
cease to continue to do so for any reason or if we elect to change
suppliers, we likely would experience delays in advancing these
clinical trials while we identify and qualify replacement suppliers
and we may be unable to obtain replacement suppliers on terms that
are favorable to us. In addition, if we are not able to obtain
adequate supplies of our product candidates or the drug substances
used to manufacture them, it will be more difficult for us to
develop our product candidates and compete effectively. Our current
and anticipated future dependence upon others for the manufacture
of our product candidates may adversely affect our future profit
margins and our ability to develop product candidates and
commercialize any products that receive marketing approval on a
timely and competitive basis.
The manufacturing of our monoclonal antibody candidates is complex
and subject to a multitude of risks. These manufacturing
risks could substantially increase our costs and limit supply of
these drug candidates for clinical development, and
commercialization.
The manufacture of our monoclonal antibody candidates requires
processing steps that are more complex than those required for most
small molecule drugs As a result of the complexities in
manufacturing biologics, the cost to manufacture biologics in
general, and our cell product candidates in particular, is
generally higher than traditional small molecule chemical
compounds, and the manufacturing processes are less reliable and
are more difficult to reproduce. Although we are working
with third parties to develop reproducible and commercially viable
manufacturing processes for our product candidates, doing so is a
difficult and uncertain task, and there are risks associated with
scaling to the level required for advanced clinical trials or
commercialization, including, among others, cost overruns,
potential problems with process scale-out, process reproducibility,
stability issues, lot consistency, and timely availability of
reagents or raw materials.
We may make changes as we continue to evolve the manufacturing
processes for our product candidates for advanced clinical trials
and commercialization, and we cannot be sure that even minor
changes in these processes will not cause our product candidates to
perform differently and affect the results of our ongoing clinical
trials, future clinical trials, or the performance of the product
once commercialized. In some circumstances, changes in
manufacturing operations, including to our protocols,
processes, materials or facilities used, may require us to
perform additional preclinical or comparability studies, or to
collect additional clinical data from patients prior to undertaking
additional clinical studies or filing for regulatory approval for a
product candidate. These requirements may lead to delays in our
clinical development and commercialization plans for our product
candidates, and may increase our development costs
substantially.
We may also decide to transfer certain manufacturing process
know-how and certain intermediates to other contract manufacturing
organizations. Transferring manufacturing testing and processes and
know-how is complex and involves review and incorporation of both
documented and undocumented processes that may have evolved over
time. We and any CMOs or third parties that we engage for
manufacturing our product candidates will need to conduct
significant development work to transfer these processes and
manufacture each of our product candidates for clinical trials and
commercialization. In addition, we may be required to
demonstrate the comparability of material generated by any CMO or
third parties that we engage for manufacturing our product
candidates with material previously produced and used in testing.
The inability to manufacture comparable drug product by us or our
CMO could delay the continued development of our product
candidates.
We rely on third parties to conduct our clinical trials and those
third parties may not perform satisfactorily, including failing to
meet deadlines for the completion of such clinical
trials.
We do not independently conduct clinical trials for our product
candidates. We rely on third parties, such as contract research
organizations, clinical data management organizations, medical
institutions, drug distributers, clinical investigators and
government agencies, to perform this function. Any of these third
parties may terminate their engagements with us at any time. If we
need to enter into alternative arrangements, it would delay our
product development activities. If these third parties do not
successfully carry out their contractual duties, meet expected
deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be
able to obtain, or may be delayed in obtaining, marketing approvals
for our product candidates and will not be able to, or may be
delayed in our efforts to, successfully commercialize our product
candidates. Our product development costs will increase if we
experience delays in testing or obtaining marketing
approvals.
Our reliance on these third parties for clinical development
activities reduces our control over these activities but does not
relieve us of our responsibilities. For example, we remain
responsible for ensuring that each of our clinical trials is
conducted in accordance with the general investigational plan and
protocols for the clinical trial. Moreover, the FDA and foreign
regulatory authorities require us to comply with standards,
commonly referred to as Good Clinical Practice, or GCP, for
conducting, recording and reporting the results of clinical trials
to assure that data and reported results are credible and accurate
and that the rights, integrity of data and confidentiality of
clinical trial participants are protected.
If we are not able to establish additional collaborations, we may
have to alter our development and commercialization
plans.
We may decide to collaborate with pharmaceutical and biotechnology
companies for the development and potential commercialization of
our product candidates. Collaborations are complex and
time-consuming to negotiate and document and we face significant
competition in seeking appropriate collaborators. In addition,
there have been a significant number of business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators. We may not be able to
negotiate collaborations on a timely basis, on acceptable terms, or
at all. If we are unable to do so, we may have to curtail the
development of a product candidate, reduce or delay our development
program or one or more of our other development programs, delay our
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we would likely need to
obtain additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds, we
may not be able to further develop our product candidates or bring
them to market and generate product revenue.
23
Even if we complete the necessary clinical trials, the marketing
approval process is expensive, time consuming and uncertain and may
prevent us from obtaining approvals for the commercialization of
some or all of our product candidates. If we are not able to
obtain, or if there are delays in obtaining, required marketing
approvals, we will not be able to commercialize our product
candidates, and our ability to generate revenue will be materially
impaired.
Our product candidates and the activities associated with their
development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA, Health Canada and
by comparable authorities in other countries. Failure to obtain
marketing approval for a product candidate will prevent us from
commercializing the product candidate. We have not received
approval to market EB01, EB05 or any other Edesa product candidate
from regulatory authorities in any jurisdiction.
We have only limited experience in filing and supporting the
applications necessary to obtain marketing approvals for product
candidates and expect to rely on third-party contract research
organizations to assist us in this process. Securing marketing
approval requires the submission of extensive preclinical and
clinical data and supporting information to regulatory authorities
for each therapeutic indication to establish the product
candidate’s safety and effectiveness. Securing marketing
approval also requires the submission of information about the
product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities. Regulatory authorities
may determine that EB01, EB05 or any of our other product
candidates is not effective, is only moderately effective or has
undesirable or unintended side effects, toxicities, safety profiles
or other characteristics that preclude us from obtaining marketing
approval or that prevent or limit commercial use.
Regulatory authorities have substantial discretion in the approval
process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional
preclinical studies, clinical trials or other trials. In addition,
varying interpretations of the data obtained from preclinical and
clinical testing could delay, limit or prevent marketing approval
of a product candidate. Any marketing approval we ultimately obtain
may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially
viable. If we experience delays in obtaining approval or if we fail
to obtain approval of our product candidates, the commercial
prospects for our product candidates may be harmed and our ability
to generate revenues will be materially impaired.
Even if we obtain marketing approval for our product candidates,
the terms of approvals and ongoing regulation of our products may
limit how we manufacture and market our products, and compliance
with such requirements may involve substantial resources, which
could materially impair our ability to generate
revenue.
Even if marketing approval of a product candidate is granted, an
approved product and our manufacturer and marketer are subject to
ongoing review and extensive regulation, including the possible
requirement to implement a risk evaluation and mitigation strategy
or to conduct costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of the product. We
must also comply with requirements concerning advertising and
promotion for any of our product candidates for which we obtain
marketing approval. Promotional communications with respect to
prescription drugs are subject to a variety of legal and regulatory
restrictions and must be consistent with the information in the
product’s approved labeling. Thus, we will not be able to
promote any products we develop for indications or uses for which
they are not approved. In addition, manufacturers of approved
products and those manufacturers’ facilities are required to
ensure that quality control and manufacturing procedures conform to
cGMP, which include requirements relating to quality control,
quality assurance and documentation. Accordingly, assuming we
receive marketing approval for one or more of our product
candidates, we and our contract manufacturers will continue to
expend time, money and effort in all areas of regulatory
compliance, including manufacturing, production, product
surveillance and quality control. If we are not able to comply with
post-approval regulatory requirements, we could have the marketing
approvals for our products withdrawn by regulatory authorities and
our ability to market any future products could be limited, which
could adversely affect our ability to achieve or sustain
profitability. Thus, the cost of compliance with post-approval
regulations may have a negative effect on our operating results and
financial condition.
Our relationships with customers, healthcare providers and
professionals and third-party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare providers, physicians and third-party payors play a
primary role in the recommendation and prescription of any product
candidate for which we may obtain marketing approval. Our future
arrangements with customers, healthcare providers and
professionals, and third-party payors may expose us to broadly
applicable federal anti-kickback, federal and state fraud and abuse
and other healthcare laws and regulations that may constrain the
business or financial arrangements and relationships through which
we market, sell and distribute any product candidate for which we
obtain marketing approval.
Efforts to ensure that our business arrangements with third parties
will comply with applicable healthcare laws and regulations will
involve substantial costs. It is possible that governmental
authorities will conclude that our business practices may not
comply with current or future statutes, regulations or case law
involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply
to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations. Violation of
certain of these laws could also result in exclusion, suspension
and debarment from government funded healthcare programs.
Exclusion, suspension or debarment would significantly impact our
ability to commercialize, sell or distribute any product candidate
for which we obtain regulatory approval. If any of the physicians
or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs.
24
Use of social media platforms presents new risks.
We believe that our potential patient
population is active on social media. Social media practices in the
pharmaceutical and biotechnology industries are evolving, which
creates uncertainty and risk of noncompliance with regulations
applicable to our business. For example, patients may use social
media platforms to comment on the effectiveness of, or adverse
experiences with, a product candidate, which could result in
reporting obligations. In addition, there is a risk of
inappropriate disclosure of sensitive information or negative or
inaccurate posts or comments about us or our product candidates on
any social networking website. If any of these events were to occur
or we otherwise fail to comply with applicable regulations, we
could incur liability, face restrictive regulatory actions or incur
other harm to our business.
Risks Related to Our Intellectual Property
We are dependent on license relationships with third parties for
our key drug development programs.
In 2016, we entered into an exclusive license agreement with Yissum
Research Development Company of the Hebrew University of Jerusalem
to obtain exclusive rights to certain know-how, patents and data
relating to a pharmaceutical product. We are using the exclusive
rights to develop the product for therapeutic, prophylactic and
diagnostic uses in topical dermal applications and anorectal
applications, including for the development of EB01 to treat ACD
and EB02 to treat HD. Concurrently, we also entered into a
consulting agreement with an individual associated with Yissum for
the development of the product. If we default or fail to perform
any of the terms, covenants, provisions or our obligations under
the License Agreement, Yissum has the option to terminate the
License Agreement, subject to advance notice to cure such default.
Any termination of this license agreement would have a materially
adverse impact on our business and results from
operations.
In April 2020, we entered into an exclusive license agreement with
NovImmune SA to obtain exclusive rights throughout the world to
certain know-how, patents and data relating to the monoclonal
antibodies targeting TLR4 and CXCL10. We are using these rights to
develop EB05 as a potential treatment for ARDS resulting from
COVID-19. If we default or fail to perform any of the terms,
covenants, provisions or our obligations under the License
Agreement, NovImmune has the option to terminate the License
Agreement, subject to advance notice to cure such default. Any
termination of this license agreement would have a materially
adverse impact on our business and results from
operations.
If we are unable to obtain and maintain patent protection for our
licensed technology and products, or if the scope of the patent
protection is not sufficiently broad, our competitors could develop
and commercialize technology and products similar or identical to
ours, and our ability to successfully commercialize our licensed
technology and products may be adversely affected.
Our success will partially depend on our ability to obtain and
maintain patent protection in the United States and other countries
with respect to our proprietary technology and products. We intend
to protect our proprietary position by filing patent applications
in the United States, in Europe and in certain additional
jurisdictions related to our novel technologies and product
candidates that are important to our business. This process is
expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we
will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent
protection. Moreover, if we license technology or product
candidates from third parties in the future, these license
agreements may not permit us to control the preparation, filing and
prosecution of patent applications, or to maintain or enforce the
patents, covering the licensed technology or product candidates.
These agreements could also give our licensors the right to enforce
the licensed patents without our involvement, or to decide not to
enforce the patents at all. Therefore, in these circumstances,
these patents and applications may not be prosecuted or enforced in
a manner consistent with the best interests of our
business.
The patent position of biotechnology and pharmaceutical companies
generally is highly uncertain, involves complex legal and factual
questions and has been the subject of much litigation. As a result,
the issuance, scope, validity, enforceability and commercial value
of any patents issued to us will likely be highly uncertain. Patent
applications that we file may not result in patents being issued
which protect our technology or products, in whole or in part, or
which effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other
countries may also diminish the value of patents issued to us,
narrow the scope of our patent protection or make enforcement more
difficult or uncertain.
25
We may become involved in lawsuits or other enforcement proceedings
to protect or enforce our patents or other intellectual property,
which could be expensive, time consuming and potentially
unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or
other intellectual property. To counter infringement or
unauthorized use, we may be required to file claims, which can be
expensive and time consuming to prosecute. Any claims we assert
against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their
intellectual property or that our patent and other intellectual
property rights are invalid or unenforceable, including for
antitrust reasons. As a result, in a patent infringement
proceeding, a court or administrative body may decide that a patent
of ours is invalid or unenforceable, in whole or in part, or may
construe the patent’s claims narrowly and so refuse to stop
the other party from using the technology at issue on the grounds
that our patents do not cover the competitor technology in
question. Even if we are successful in a patent infringement
action, the unsuccessful party may subsequently raise antitrust
issues and bring a follow-on action thereon. Antitrust issues may
also provide a bar to settlement or constrain the permissible
settlement terms.
Third parties may initiate legal proceedings alleging that we are
infringing their intellectual property rights, the outcome of which
would be uncertain and could have a material adverse effect on the
success of our business.
Our commercial success depends upon our
ability and the ability of our collaborators to develop,
manufacture, market and sell our product candidates and use our
proprietary technologies without infringing the intellectual
property and other proprietary rights of third parties. There is
considerable intellectual property litigation in the biotechnology
and pharmaceutical industries, and we may become party to, or
threatened with, future adversarial proceedings or litigation
regarding intellectual property rights with respect to our products
and technology, including interference,
derivation, inter
partes review,
reexamination, reissue or post-grant review proceedings before the
USPTO. The risks of being involved in such litigation and office
proceedings may also increase as our product candidates approach
commercialization, and as our business gains greater visibility
operating as a publicly traded company in the United States. Third
parties may assert infringement claims against us based on existing
or future intellectual property rights and to restrict our freedom
to operate. Third parties may also seek injunctive relief against
us, whereby they would attempt to prevent us from practicing our
technologies altogether pending outcome of any litigation against
us. We may not be aware of all such intellectual property rights
potentially relating to our product candidates prior to their
assertion against us. For example, we have not conducted an
in-depth freedom-to-operate search or analysis of any of our
product candidates. Any freedom-to-operate search or analysis
previously conducted may not have uncovered all relevant patents
and pending patent applications, and there may be pending or future
patent applications that, if issued, would block us from
commercializing any of our product candidates. Thus, we do not know
with certainty whether our product candidates or our
commercialization thereof, does not and will not infringe any third
party’s intellectual property.
If we are found to infringe a third party’s intellectual
property rights, to avoid or settle litigation, we could be
required to obtain a license to enable us to continue developing
and marketing our products and technology. However, we may not be
able to obtain any required license on commercially reasonable
terms, or at all. Even if we were able to obtain a license, it
could be nonexclusive, thereby giving our competitors access to the
same technologies as are licensed to us, and could require us to
make substantial payments. Absent a license, we could be forced,
including by court order, to cease commercializing the infringing
technology or product. In addition, we could be found liable for
monetary damages, including treble damages and attorneys’
fees if we are found to have willfully infringed a patent or other
intellectual property right. A finding of infringement could
prevent us from commercializing our product candidates or force us
to cease some of our business operations, which could materially
harm our business.
Intellectual property litigation could cause us to spend
substantial resources and could distract our personnel from their
normal responsibilities.
Even if resolved in our favor, litigation or other legal
proceedings relating to intellectual property claims may cause us
to incur significant expenses and likely would distract our
technical and management personnel from their normal
responsibilities. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings or
developments that could have a substantial adverse effect on the
price of our common shares. Such litigation or proceedings could
substantially increase our operating losses and reduce the
resources available for development, sales, marketing or
distribution activities. We may not have sufficient financial or
other resources to adequately conduct such litigation or
proceedings. Some of our competitors may be able to sustain the
costs of such litigation or proceedings more effectively than we
can because of their greater financial resources. Accordingly,
costs and lost management time, as well as uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings, could have a material adverse effect on our ability to
compete in the marketplace.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position would be
harmed.
We partially rely on trade secrets and
know-how, including unpatented know-how, technology and other
proprietary and confidential information, to maintain our
competitive position. We seek to protect these trade secrets, in
part, by entering into nondisclosure and confidentiality agreements
with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract
manufacturers, consultants, advisors and other third parties.
However, we cannot guarantee that we have executed these agreements
with each party that may have or have had access to our trade
secrets or that the agreements we have executed will provide
adequate protection. Any party with whom we have executed such an
agreement may breach that agreement and disclose our proprietary or
confidential information, including our trade secrets, and we may
not be able to obtain adequate remedies for such breaches.
Enforcing a claim that a party illegally disclosed or
misappropriated a trade secret is difficult, expensive and
time-consuming, and the outcome is unpredictable. In addition, some
courts inside and outside the United States are less willing or
unwilling to protect trade secrets. If any of our trade secrets
were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them, or those to
whom they communicate it, from using that technology or information
to compete with us. If any of our trade secrets, particularly
unpatented know-how, were to be obtained or independently developed
by a competitor, our competitive position would be
harmed.
26
Risks Related to Owning Our Securities
The price of our common shares may continue to be
volatile.
Market prices for securities of early stage pharmaceutical,
biotechnology and other life sciences companies have historically
been particularly volatile, and the market price of our common
shares has been subject to significant fluctuations. This
volatility can be exacerbated by low trading volume. Some of the
factors that may cause the market price of our shares to fluctuate
include:
●
sales or potential sales of substantial amounts of our common
shares;
●
announcements about us or our competitors, including funding
announcements, corporate or business updates, updates on
manufacturing of our products, clinical trial results, regulatory
approvals or new product introductions;
●
developments concerning our product manufacturers;
●
litigation and other developments relating to our licensed patents
or other proprietary rights or those of our
competitors;
●
governmental regulation and legislation;
●
change in securities analysts’ estimates of our performance,
or failure to meet analysts’ expectations;
●
the terms and timing of any future collaborative, licensing or
other arrangements that we may establish;
●
Our ability to raise additional capital to carry through with our
development plans and current and future operations;
●
the timing of achievement of, or failure to achieve, our
manufacturing, pre-clinical, clinical, regulatory and other
milestones, such as the commencement of clinical development, the
completion of a clinical trial or the receipt of regulatory
approval;
●
actions taken by regulatory agencies with respect to our product
candidates;
●
uncontemplated problems in the supply of the raw materials used to
produce our product candidates;
●
introductions or announcements of technological innovations or new
products candidates by us, our potential future collaborators, or
our competitors, and the timing of these introductions or
announcements;
●
market conditions for equity investments in general, or the
biotechnology or pharmaceutical industries in
particular;
●
we may have limited or very low trading volume that may increase
the volatility of the market price of our common
shares;
●
actual or anticipated fluctuations in our results of
operations;
●
hedging or arbitrage trading activity that may develop regarding
our common shares;
●
regional or worldwide recession;
●
sales of our common shares by our executive officers, directors and
significant shareholders;
●
changes in accounting principles; and
●
the loss of any of our key scientific or management
personnel.
Moreover, the stock markets in general have experienced substantial
volatility that has often been unrelated to the operating
performance of individual companies. These broad market
fluctuations may also adversely affect the trading price of our
common shares. In the past, following periods of volatility in the
market price of a company’s securities, shareholders have
often instituted class action securities litigation. Such
litigation, if instituted, could result in substantial costs and
diversion of management attention and resources, which could
significantly harm our profitability and reputation.
If we fail to meet all applicable Nasdaq Capital Market
requirements and Nasdaq determines to delist our common shares, the
delisting could adversely affect the market liquidity of our common
shares and the market price of our common shares could
decrease.
Our common shares are listed on The Nasdaq Capital Market. To
maintain our listing, we must meet minimum financial, operating and
other requirements, including requirements for a minimum amount of
capital, a minimum price per share, and active operations. If we
are unable to comply with Nasdaq’s listing standards, Nasdaq
may determine to delist our common shares. If our common shares are
delisted for any reason, it could reduce the value of our common
shares and their liquidity. Delisting could also adversely affect
our ability to obtain financing for the continuation of our
operations, or to use our common shares in acquisitions. Delisting
may also result in the loss of confidence by suppliers, investors
and employees.
Raising additional capital may cause dilution to our investors,
restrict our operations or require us to relinquish rights to our
technologies or product candidates
Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs
through a combination of equity offerings, licensing, collaboration
or similar arrangements, grants and debt financings. We do not have
any committed external source of funds. To the extent that the we
raise additional capital through the sale of equity or convertible
debt securities, your ownership interest will be diluted, and the
terms of these securities may include liquidation or other
preferences that adversely affect your rights as a holder of our
common shares. Debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends or other distributions. If we
raise additional funds through licensing, collaboration or similar
arrangements, we may have to relinquish valuable rights to our
technologies, future revenue streams, research and development
programs or product candidates or to grant licenses on terms that
may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings or other arrangements when
needed, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant
rights to develop and market product candidates that we would
otherwise prefer to develop and market
ourselves.
27
Failure to maintain effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act
of 2002 could have a material adverse effect on our share
price.
Section 404 of the
Sarbanes-Oxley Act of 2002 and the related rules and regulations of
the SEC require an annual management assessment of the
effectiveness of our internal control over financial reporting. As
a smaller reporting company as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, we are currently
exempt from the auditor attestation requirement of Section 404(b).
If we lose this eligibility, we will incur increased personnel and
audit fees in connection with the additional audit requirements. If
we fail to maintain the adequacy of our internal control over
financial reporting, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC. If we cannot in the future favorably assess
the effectiveness of our internal control over financial reporting,
investor confidence in the reliability of our financial reports may
be adversely affected, which could have a material adverse effect
on our share price.
The ownership of our common shares is highly concentrated, which
may prevent you and other shareholders from influencing significant
corporate decisions and may result in conflicts of interest that
could cause our common shares price to decline.
The ownership of our common shares is highly concentrated among
insiders and affiliates. Accordingly, these shareholders will have
substantial influence over the outcome of corporate actions
requiring shareholder approval, including the election of
directors, any merger, consolidation or sale of all or
substantially all of the company’s assets or any other
significant corporate transaction. These shareholders may also
delay or prevent a change of control of the company, even if such a
change of control would benefit the other shareholders of the
company. The significant concentration of share ownership may
adversely affect the trading price of our common shares due to
investors’ perception that conflicts of interest may exist or
arise.
We may be deemed a passive foreign investment company, and as a
result, U.S. shareholders may be subject to special taxation rules
that restrict capital gains treatment, unless the shareholders make
a timely tax election to treat the company as a qualified electing
fund.
A special set of U.S. federal income tax rules applies to a foreign
corporation that is deemed a passive foreign investment company
(“PFIC”) for U.S. federal income tax purposes. Based on
our audited financial statements, income tax returns, and relevant
market and shareholder data, we believe that we likely will not be
classified as a PFIC in the September 30, 2020 taxable year. There
can be no assurance, however, that we will not be considered to be
a PFIC for any particular year in the future because PFIC status is
factual in nature, depends upon factors not wholly within our
control, generally cannot be determined until the close of the
taxable year in question, and is determined annually. If we are
deemed to be a PFIC during the current or any future taxable year,
U.S. shareholders would be subject to special taxation rules
related to gain on sale or disposition of our shares and excess
distributions unless they make a timely election to treat our
shares as a qualified electing fund (“QEF election”). A
QEF election cannot be made unless we provide U.S.
shareholders the information and computations needed to report
income and gains pursuant to a QEF election. Without a QEF
election, U.S. shareholders may not be able to use capital gains
tax treatment and may be subject to potentially adverse tax
consequences. Given the complexities of the PFIC and QEF election
rules, U.S. shareholders may need to incur the time and expense of
consulting a tax adviser about these rules.
Item 1B. UNRESOLVED STAFF
COMMENTS.
None.
Item 2. PROPERTIES.
We currently lease approximately 2,800 square feet of office space
in Markham, Ontario, from a related company under a lease that
expires in December 2022, with an option to renew for another
two-year term.
Item 3. LEGAL
PROCEEDINGS.
From time to time, we may be involved in legal proceedings, claims
and litigation arising in the ordinary course of business,
including contract disputes, employment matters and intellectual
property disputes. We are not currently a party to any material
legal proceedings or claims outside the ordinary course of
business. Regardless of outcome, litigation can have an adverse
impact on us because of defense and settlement costs, diversion of
management resources and other factors.
Item 4. MINE SAFETY
DISCLOSURES.
Not applicable.
28
PART II
Item 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common shares trade on The Nasdaq Capital Market in the United
States under the symbol “EDSA”.
Holders
As of
December 2, 2020, we had 10,523,087 common shares outstanding, with
27 shareholders of record. The number of record shareholders was
determined from the records of our stock transfer agent and does
not reflect persons or entities that hold their shares in nominee
or “street” name through various brokerage
firms.
Securities Authorized for Issuance Under Equity Compensation
Plans
See Part III, Item 12
“Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters” of this
report.
Dividends
We have not declared any dividends on our common shares since our
incorporation and do not anticipate that we will do so in the
foreseeable future. Our present policy is to retain future
earnings, if any, for use in our operations and the expansion of
our business.
Recent Sales of Unregistered Securities; Use of Proceeds from
Registered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Canadian Federal Income Tax Consequences Applicable to Holders in
the United States
The following summary of the material Canadian federal income tax
consequences is stated in general terms and is not intended to be
legal or tax advice to any particular shareholder. Management urges
holders to consult their own tax advisor with respect to the income
tax consequences applicable to them based on their own particular
circumstances.
This summary is applicable only to holders
who are resident in the United States for income tax purposes, have
never been resident in Canada for income tax purposes, deal at
arm’s length with the company, hold their Common Shares as
capital property and who will not use or hold the Common Shares in
carrying on business in Canada. This summary does not
discuss any non-Canadian income or other tax consequences of
acquiring, holding or disposing of Common Shares.
This summary is based upon the provisions of
the Income Tax
Act (Canada) and the
regulations thereunder (collectively, the Tax Act or ITA) and
the Canada-United States Tax
Convention (1980) as
amended (the Tax Convention) at the date of this Annual Report on
Form 10-K and the current administrative practices of the Canada
Revenue Agency. This summary does not take into account provincial
income tax consequences. The comments in this summary that are
based on the Tax Convention are applicable to U.S. Holders only if
they qualify for benefits under the Tax
Convention.
Dividends
A Holder will be subject to Canadian
withholding tax (Part XIII Tax) equal to 25%, or such lower rates
as may be available under an applicable tax treaty, of the gross
amount of any dividend paid or credited or deemed to be paid or
credited to the Holder on the Common Shares. For example, under the
Tax Convention, where dividends on the Common Shares are considered
to be paid to a Holder that is the beneficial owner of the
dividends and is a resident of the United States for the purposes
of, and is entitled to all the benefits of, the Tax Convention, the
applicable rate of Canadian withholding tax is generally reduced to
15%. The company will be required to withhold the applicable amount
of Part XIII Tax from each dividend so paid and remit the withheld
amount directly to the Receiver General for Canada for the account
of the Holder. We have not declared any dividends on our
common shares since our incorporation and do not anticipate that we
will do so in the foreseeable future.
29
Disposition of Common Shares
A
Holder who is a resident of the United States and realizes a
capital gain on a disposition of Common Shares will generally be
exempt from Canadian income tax on that capital gain, unless the
shares are taxable Canadian property.
Provided
the Common Shares are listed on a “designated stock
exchange” (as defined in the Tax Act) (which currently
includes the Nasdaq Capital Market) at the time of disposition, the
Common Shares will generally not constitute taxable Canadian
property of a Holder at that time, unless any of the following
conditions are met: (a) at the time of disposition more than 50% of
the fair market value of the Common Shares is derived directly or
indirectly from real property situated in Canada, which generally
includes certain Canadian natural resource properties; (b) the
Common Shares formed part of the business property of a permanent
establishment that the Holder has or had in Canada within the 12
months preceding disposition; or (c) the Holder is an individual
who (i) was a resident of Canada at any time within the ten years
immediately preceding the disposition, and for a total of 120
months during any period of 20 consecutive years, preceding the
disposition, (ii) owned the Common Shares when the individual
ceased to be resident in Canada, and (iii) the Common Shares were
not subject to a deemed disposition on the Holder’s departure
from Canada.. Notwithstanding the foregoing, a Common Share may
otherwise be deemed to be taxable Canadian property to a Holder for
purposes of the Tax Act in particular circumstances.
Inclusion in Taxable Income
A
Holder who is subject to Canadian income tax in respect of a
capital gain realized on a disposition of Common Shares must
include one half of the capital gain (“taxable capital
gain”) in computing the Holder’s taxable income earned
in Canada. The Holder may, subject to certain limitations, deduct
one half of any capital loss (“allowable capital loss”)
arising on a disposition of taxable Canadian property from taxable
capital gains realized in the year of disposition in respect of
taxable Canadian property and, to the extent not so deductible,
from such taxable capital gains of any of the three preceding years
or any subsequent year.
Subject
to certain exceptions, a non-resident person who disposes of
taxable Canadian property must notify the Canada Revenue Agency
either before or after the disposition (within ten days of the
disposition).
Item
6. SELECTED FINANCIAL DATA.
We are
a smaller reporting company and are not required to provide the
information under this item.
Item
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
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.
Operating
and Financial Review and Prospects
Overview
Our
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP) and include the accounts of the Company and our
wholly owned subsidiaries, Edesa Biotech Research, Inc. and Edesa
Biotech USA, Inc. (formerly known as Stellar Biotechnologies,
Inc.).
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 working capital is sufficient to support the Company’s
operations for at least the next 12 months.
30
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 the United States and Canada. To
fund operations, we may 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.
Results of Operations
Year Ended September 30, 2020 Compared to Nine-Month Period Ended
September 30, 2019
Financial results for any periods ended prior to June 7, 2019
reflect the financials of our subsidiary Edesa Biotech Research,
Inc. on a standalone basis. Upon the completion of the reverse
acquisition, Edesa Biotech Research, Inc. changed its year end to
September 30 from December 31 to align with our fiscal year end. As
a result, our financial results for the full fiscal year ended
September 30, 2020 may not be directly comparable to the nine-month
period ended September 30, 2019.
Our
total revenues decreased by 0.08 million to $0.33 million for the
year ended September 30, 2020 compared to $0.41 million for the
nine-month period ended September 30, 2019, reflecting a reduction
in sales of product inventory obtained in the June 2019 reverse
acquisition. Product sales are expected to continue to decline as a
result of the discontinuation of legacy operations.
Our
total operating expenses increased by $3.49 million to $6.73
million for the
year ended September 30, 2020 compared to $3.24 million for the
nine-month period ended September 30, 2019:
●
Cost of sales was
$0.02 million for the year ended September 30, 2020 compared to
$0.10 million for the nine-month period ended September 30, 2019,
reflecting a reduction in sales of product inventory obtained in
the reverse acquisition.
●
Research and
development expenses were $3.33 million for the year ended
September 30, 2020, reflecting increased external research expenses
related to the clinical study of the company’s EB01 drug
candidate, and increased activities and preparations related to the
ongoing Phase 2/Phase 3 clinical study of EB05 as a potential
treatment for hospitalized COVID-19 patients, as well as increased
salary and related personnel expenses. Research and development
expenses were $1.10 million for the nine-month period ended
September 30, 2019.
●
General and
administrative expenses were $3.38 million for the year ended
September 30, 2020, reflecting increased salary and related
personnel expenses, and
increased public company expenses. General and administrative
expenses were $2.05 million for the nine-month period ended
September 30, 2019.
Total
other income was $0.04 million for the year ended September 30,
2020, reflecting relatively lower interest income. Total other
income was $0.06 million for the nine-month period ended September
30, 2019.
For
the year ended September 30, 2020, our net loss was $6.36 million,
or $0.74 per common share, compared to a net loss of $2.78 million,
or $0.55 per common share, for the nine-month period ended
September 30, 2019.
Capital Expenditures
Our
capital expenditures primarily consist of computer and office
equipment. There were no significant capital expenditures for the
year ended September 30, 2020 and nine-month period ended September
30, 2019.
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 fiscal year ended September 30, 2020
and the nine-month period ended September 30, 2019, we reported net
losses of $6.36 million and $2.78 million,
respectively.
On
January 8, 2020, we completed a registered direct offering of
1,354,691 common shares, no par value, and a concurrent private
placement of Class A Purchase Warrants to purchase an aggregate of
up to 1,016,036 common shares and Class B Purchase Warrants to
purchase an aggregate of up to 677,358 common shares, resulting in
net proceeds of approximately $3.89 million.
31
On
September 28, 2020, we entered into the Equity Distribution
Agreement with RBC Capital Markets, LLC (RBCCM), as sales agent,
pursuant to which the company may offer and sell, from time to
time, common shares through an at-the-market equity offering
program for up to $9.2 million in gross cash proceeds. Any shares
offered and sold in the offering will be issued pursuant to the
company’s shelf registration statement on Form S-3 (File No.
333-233567), which was declared effective on September 12, 2019;
the prospectus supplement relating to the offering filed with the
SEC on September 28, 2020; and any applicable additional prospectus
supplements related to the offering that form a part of the
registration statement. RBCCM will use commercially reasonable
efforts to sell the common shares from time to time, based upon our
instructions. We have no obligation to sell any of the shares, and
may at any time suspend sales under the distribution agreement or
terminate the agreement in accordance with its terms. The total
amount of cash that may be generated under this distribution
agreement is uncertain and depends on a variety of factors,
including market conditions and the trading price of our common
shares. No shares were sold under the distribution agreement prior
to the end of the fiscal year.
At
September 30, 2020, we had cash and cash equivalents of $7.21
million, working capital of $6.57 million, shareholders’
equity and temporary equity of $9.11 million and an accumulated
deficit of $13.13 million. From October 1, 2020 to December 2,
2020, the exercise of Class A and Class B warrants resulted in the
issuance of 243,369 common shares and cash proceeds of
approximately $1.0 million. From October 1, 2020 to December 2,
2020, we sold 169,753 common shares under our distribution
agreement with RBCCM for net proceeds of approximately $0.99
million.
We
plan to finance company operations over the course of the next
twelve months with cash and cash equivalents on hand. Management
has flexibility to adjust this timeline by a 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, we may also 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. 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 and concerns over a global
recession 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.
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
$3.33 million and $1.10 million for the year ended September 30,
2020 and the nine-month period ended September 30, 2019,
respectively. The increase was due primarily to increased
activities and preparations related to the ongoing Phase 2/Phase 3
clinical study of our EB05 drug candidate as a potential treatment
for hospitalized COVID-19 patients.
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 U.S. dollar. We
have balances in Canadian dollars which are subject to foreign
currency fluctuations relating to the impact of translating to U.S.
dollars for financial statements presentation. We also periodically
exchange U.S. dollars for Canadian dollars since most operating
expenses are incurred in Canadian dollars. The fluctuation of the
U.S. dollar in relation to the Canadian dollar will have an impact
upon our profitability and may also affect the value of our assets
and the amount of shareholders’ equity. We have not entered
into any agreements or purchased any instruments to hedge possible
currency risks. At September 30, 2020, we had assets denominated in
Canadian dollars of approximately C$3.24 million and the U.S.
dollar exchange rate as at this date was equal to 1.3365 Canadian
dollars. Based on the exposure at September 30, 2020, a 10% annual
change in the Canadian/U.S. exchange rate would impact our net loss
and other comprehensive loss by $0.24 million.
32
Concentration of Credit Risk
We are
potentially subject to financial instrument concentration of credit
risk through our cash and cash equivalents, US Treasury bills and
accounts and other receivable. We place our cash and cash
equivalents in US Treasury bills, money market mutual funds of U.S.
government securities or financial institutions believed to be
credit worthy and perform periodic evaluations of their relative
credit standing. There were no Treasury bills outstanding at
September 30, 2020 and 2019. Accounts receivable can be potentially
exposed to a concentration of credit risk with our major customers.
We assess the collectability of our accounts receivable through a
review of our current aging, as well as an analysis of our
historical collection rate, general economic conditions and credit
status of our customers. Accounts and other receivable also include
Harmonized Sales Tax (HST) refunds receivable from the Canada
Revenue Agency. As of September 30, 2020 and 2019, all outstanding
accounts and other receivable were deemed to be fully collectible,
and therefore, no allowance for doubtful accounts was recorded. We
determine terms and conditions for our customers primarily based on
the volume purchased by the customer, customer creditworthiness and
past transaction history. Management works to mitigate our
concentration of credit risk with respect to accounts receivable
through our credit evaluation policies, reasonably short payment
terms and geographical dispersion of sales.
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 the
United States, which require that the management make certain
assumptions and estimates and, in connection therewith, adopt
certain accounting policies. Our significant accounting policies
are set forth in Note 3 in the Notes to Consolidated Financial
Statements. Of those policies, we believe that the policies
discussed below may involve a higher degree of judgment or may
otherwise be more relevant to our financial condition and results
of operations.
Accounts and other receivable
We assess the collectability of our accounts receivable through a
review of current aging, as well as an analysis of historical
collection rates, general economic conditions and credit status of
our customers. Accounts and other receivable include
Harmonized Sales Tax (HST) refunds receivable. As of September 30,
2020, all outstanding accounts and HST refunds receivable were
deemed to be fully collectible, and therefore, no allowance for
doubtful accounts was recorded.
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
adopted Accounting Standards Codification (ASC) Topic 842 Leases
for the year ended September 30, 2020 using the modified
retrospective transition method. We elected the package of
practical expedients in transition and the ongoing practical
expedient not to recognize operating lease right-of-use assets and
operating lease liabilities for short-term leases. As a result of
adopting the new standard, we recognized operating lease
right-of-use (“ROU”) assets and operating lease
liabilities on the balance sheet for one operating lease with a
term longer than 12 months at adoption. There was no impact to
opening accumulated deficit. There were three short-term operating
leases upon adoption that did not follow the ROU model. 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 its
directors, officers, employees and consultants, and grants 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 net of estimated forfeitures for
employees or the service period for non-employees. 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 stock,
risk-free interest rate, dividend yield, and expected life of the
option.
33
Translation of foreign currency transactions
Our
reporting currency is the U.S. dollar. The financial statements of
our wholly owned Canadian subsidiary is measured using the Canadian
dollar as the functional currency. Assets and liabilities of the
Canadian operation have been translated at year-end exchange rates
and related revenue and expenses have been translated at average
exchange rates for the year. Accumulated gains and losses resulting
from the translation of the financial statements of the Canadian
operation are included as part of accumulated other comprehensive
loss, a separate component of shareholders' equity.
In respect of 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 U.S. dollar using historical exchange
rates. All of the exchange gains or losses resulting from these
other transactions are recognized in the statements of operations
and comprehensive loss.
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.
Item 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company and are not required to provide
disclosure under this item.
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
The financial statements and related financial information required
to be filed hereunder are indexed under Item 15 of this Annual
Report on Form 10-K and are incorporated herein by
reference.
Item 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
Item 9A. CONTROLS AND
PROCEDURES.
Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining
disclosure controls and procedures to provide reasonable assurance
that material information related to our Company, including our
consolidated subsidiaries, is made known to senior management,
including our Chief Executive Officer and the Chief Financial
Officer, by others within those entities on a timely basis so that
appropriate decisions can be made regarding public
disclosure.
We carried out an evaluation, under the supervision and with the
participation of our management, including our Principal Executive
Officer and our Principal Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of
1934, as amended) as of September 30, 2020. Our Chief Executive
Officer and Chief Financial Officer concluded that the disclosure
controls and procedures as of September 30, 2020, were
effective.
Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible for designing, establishing and
maintaining a system of internal controls over financial reporting
(as defined in Exchange Act Rule 13a-15(f)) to provide reasonable
assurance that the financial information prepared by us for
external purposes is reliable and has been recorded, processed and
reported in an accurate and timely manner in accordance with
accounting principles generally accepted in the United States. The
Board of Directors is responsible for ensuring that management
fulfills its responsibilities. The Audit Committee fulfills its
role of ensuring the integrity of the reported information through
its review of the interim and annual financial statements.
Management reviewed the results of their assessment with our Audit
Committee.
Management has used the criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
“Internal Control — Integrated Framework (2013)”
to evaluate the effectiveness of our internal control over
financial reporting. Management has assessed the effectiveness of
our internal control over financial reporting and concluded that
such internal control over financial reporting was effective as of
September 30, 2020.
34
Attestation Report of Our Registered Public Accounting
Firm
This Annual Report does not include an attestation report from our
independent registered public accounting firm. We are an
“emerging growth company,” as defined under the JOBS
Act and a “smaller reporting company” as defined by
Rule 12b-2 of the Exchange Act, and are subject to reduced public
company reporting requirements. We are not required to have the
effectiveness of our internal control over financial reporting
audited by our external auditors.
Limitations on the Effectiveness of Controls
Our management, including the Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls or
our internal controls will prevent all error and all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within our Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any
system of controls is also based, in part, upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed achieving its stated goals
under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the year ended September
30, 2020 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
Item 9B. OTHER
INFORMATION.
On December 1, 2020, we entered into a new
employment agreement with Ms. Niffenegger. The disclosure
under the heading “Employment Agreement with Kathi
Niffenegger effective as of December 1, 2020” appearing in
Part III of this Annual Report on Form 10-K is hereby incorporated
herein by reference.
35
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
Directors
Our
directors and their ages as of December 2, 2020 are set forth
below.
|
Name
|
Age
|
Position(s) Held
|
Director Since
|
|
Lorin
Johnson, PhD (2)
|
68
|
Director
|
June
7, 2019
|
|
Sean
MacDonald (1)(2)(3)
|
44
|
Chairman of Board
of Directors
|
June
7, 2019
|
|
Pardeep Nijhawan,
MD
|
50
|
Director, Chief
Executive Officer and Corporate Secretary
|
June
7, 2019
|
|
Frank
Oakes
|
70
|
Director
|
April
9, 2010
|
|
Paul
Pay (1)(2)
|
66
|
Director
|
June
7, 2019
|
|
Carlo
Sistilli, CPA, CMA (1)(3)
|
64
|
Director
|
June
7, 2019
|
|
Peter
van der Velden (3)
|
59
|
Director
|
June
7, 2019
|
(1)
Member of Audit Committee.
(2)
Member of Compensation Committee.
(3)
Member of Nominating and Corporate Governance
Committee.
There are no family relationships between any of our directors or
executive officers.
Biographies and Qualifications.
The biographies of our directors and certain information regarding
each director’s experience, attributes, skills and/or
qualifications that led to the conclusion that the director should
be serving as a director of our Company are as
follows:
Lorin
Johnson, PhD is a seasoned pharmaceutical entrepreneur
and innovator with more than 30 years of experience in building
companies. He has been a member of our board of directors since
June 2019, having previously served as a director of the
company’s principal operating subsidiary, Edesa Biotech
Research, Inc., from its founding in January 2015 to January 2016.
Dr. Johnson is currently the Chief Scientist of Glycyx Pharma
Ventures Ltd., a biopharma investment and development company he
founded in March 2016. Prior to Glycyx, Dr. Johnson co-founded
Salix Pharmaceuticals, Inc., a specialty pharmaceutical company,
and held senior leadership positions prior to its acquisition by
Valeant Pharmaceuticals International, Inc. in April 2015. Earlier
in his career, Dr. Johnson served as Director of Scientific
Operations and Chief Scientist at Scios, Inc. (formerly California
Biotechnology, Inc). In addition to Edesa, he currently serves on
the boards of Innovate Biopharmaceuticals, Inc. (trading symbol
INNT), Glycyx MOR, LTD, Kinisi Therapeutics, Ltd., Intact
Therapeutics, Inc. and ATXA Therapeutics, Ltd. Dr. Johnson has also
held academic positions at Stanford University School of Medicine
where he served as an Assistant Professor of Pathology and at the
University of California, San Francisco. He is the co-author of 76
journal articles and book chapters and is the co-inventor on 23
issued patents. Dr. Johnson holds a PhD from the University of
Southern California and was a Postdoctoral Fellow at the University
of California, San Francisco. Dr. Johnson’s qualifications to
serve on the board of directors include his knowledge of our
business and his significant experience in the pharmaceutical
industry.
Sean
MacDonald has been
our Chairman of the Board since June 2019, having previously served
as a director of the company’s principal operating
subsidiary, Edesa Biotech Research, Inc., since September 2017. Mr.
MacDonald is currently the Head of Business Development for Cosmo
Pharmaceuticals NV, a European gastroenterology focused
pharmaceutical company, a position he has held since April
2019, as well as the chief executive of Corbin
Therapeutics, a Montreal-based biotech company focused on treating
neuroinflammation, a role he has held since October 2018. From
October 2012 to October 2018, Mr. MacDonald held various
operational and executive leadership roles at Pharmascience Inc.,
one of Canada’s largest pharmaceutical companies, including
Vice President of Business Development and Corporate Development.
He received his BSc in Molecular Biology and MBA from the
University of Ottawa. Mr. MacDonald’s qualifications to serve
on the board of directors include his extensive operational
experience and background in the pharmaceutical/biotechnology
industry.
Pardeep
Nijhawan, MD, FRCPC,
AGAF has served as our Chief Executive Officer, Corporate Secretary
and a member of our board of directors since June 2019, having
previously founded and led the company’s principal operating
subsidiary, Edesa Biotech Research, Inc., since January 2015. Dr.
Nijhawan is a seasoned pharmaceutical entrepreneur with 20 years of
experience in cross-functional leadership roles in finance,
marketing, corporate strategy and business development. Prior to
Edesa, in 2002 Dr. Nijhawan founded Medical Futures Inc., and
served as its CEO. He sold Medical Futures to Tribute
Pharmaceuticals in 2015. Dr. Nijhawan also founded Digestive Health
Clinic in 2000 and led it to become Canada’s largest provider
of private endoscopy services. In 2014, he founded Exzell Pharma, a
specialty Canadian-based pharmaceutical organization that markets
and commercializes approved products. He continues to serve on the
Boards of Exzell Pharma and Digestive Health Clinic. Dr. Nijhawan
received his MD from the University of Ottawa and completed his
internship at Yale University, and his internal medicine residency
and fellowship at the Mayo Clinic. Dr. Nijhawan’s
qualifications to serve on the board of directors include his
extensive executive leadership and experience in the life sciences
industry and his knowledge of our business as its chief
executive.
36
Frank
Oakes has more than
40 years of executive leadership experience. He has been a director
of the company since April 2010 and served as the Chairman of the
Board until June 2019. From 1999 to 2019, he also served as the
President and Chief Executive Officer of the company’s legacy
operating subsidiary, which he founded. Prior to founding Stellar
Biotechnologies, Inc., he was the Chief Executive Officer of The
Abalone Farm, Inc., where he led the company through the research
and development, capitalization, and commercialization phases of
development to become the largest abalone producer in the United
States at the time. Mr. Oakes has consulted and lectured
around the world. He received his BS degree from California State
Polytechnic University, San Luis Obispo and is a graduate of the
Los Angeles Regional Technology Alliance University’s
management program. Mr. Oakes qualifications to serve on the board
of directors include his extensive operational experience building
companies and management teams and leading a U.S. and Canadian
publicly listed life science company.
Paul
Pay is an executive
with 40 years of experience in the pharmaceutical/biotechnology
industry. He has been a member of our board of directors since June
2019, having previously served as a director of the company’s
principal operating subsidiary, Edesa Biotech Research, Inc., since
its founding in January 2015. From November 2002 to present, he has
led all business development activity at Norgine and is currently
the Chief Business Development Officer and serves as a member of
the company’s executive committee. Prior to joining Norgine,
Mr. Pay held senior management positions at large, specialty and
early-stage pharmaceutical companies, and cofounded a university
spin-out company. His commercial roles have included sales,
marketing, market research, licensing, business development, public
relations, intellectual property and product development. In
addition to Edesa, Mr. Pay is currently a director of Exzell
Pharma, a specialty pharmaceutical company; Arc Medical Design, a
medical device development company and a portfolio company of
Norgine; and Norgine Ltd., an affiliate of Norgine. Mr. Pay is also
the President and CEO of Merus Labs Inc., a Norgine wholly owned
affiliate company. Mr. Pay received a BSC (hons) from the
University of Leeds. Mr. Pay’s qualifications to serve on the
board of directors include his extensive experience in the
pharmaceutical/biotechnology industry and his knowledge of
Edesa’s business.
Carlo
Sistilli, CPA,
CMA has more than 35 years of financial
experience and has held a variety of executive positions in
accounting and finance during his career. He has been a member of
our board of directors since June 2019, having previously served as
a board observer of the company’s principal operating
subsidiary, Edesa Biotech Research, Inc., since September 2017. Mr.
Sistilli has served as the Chief Financial Officer of Arista Homes
since March 2003 to present. Prior to Arista, Mr. Sistilli was a
founder and served as CFO and a board member of an Internet
start-up company in the automotive sector, and played a key role in
taking the company public on the Alberta Ventures Exchange. Earlier
in his career, Mr. Sistilli was the Controller and a member of the
senior management team of a major regional trust company, which Mr.
Sistilli helped sell to Manulife Financial. In addition to his
professional career, Mr. Sistilli is an officer and a member of the
board of directors of Mother of Mercy Centre. Mr. Sistilli holds a
Bachelor of Arts from York University, with a major in economics,
Certified Management Accountant Designation and a Chartered
Professional Accountant Designation. Mr. Sistilli’s
qualifications to serve on the board of directors include his
knowledge of Edesa’s business and his background in
accounting and finance.
Peter van der
Velden is an
investor and business executive with more than 28 years of
experience in building growth companies. He has been a member of
our board of directors since June 2019, having previously served as
a director of the company’s principal operating subsidiary,
Edesa Biotech Research, Inc., since September 2017. From 2007 to
present, Mr. van der Velden has been the Managing General Partner
of Lumira Ventures, one of Canada’s largest dedicated life
sciences venture capital investors. Mr. van der Velden currently
serves on the boards of Exact Imaging, Medexus Pharmaceuticals
(trading symbol PDDPF) and AmacaThera. His past corporate board
roles include: Milcom Ventures, Spinal Kinetics, Alveolus Inc., CML
Healthcare, First Aid Shot Therapy, Life Sciences Ontario,
Skinstore.com, and Vendorlink.ca. Mr. van der Velden is a past
President and Chairman of the Canadian Venture and Private Equity
Association and currently serves on the board or as an advisor to a
number of industry groups and non-profit organizations. Mr. van der
Velden holds an MBA in Finance and Policy from the Schulich School
of Business, and a MSc in Pathology and BSc (honors) in Life
Sciences from Queen’s University. Mr. van der Velden’s
qualifications to serve on the board of directors include his
extensive operational experience building growth companies and his
knowledge acquired from serving on the boards of other
companies.
Executive Officers
Set
forth below is certain information with respect to the names, ages,
and positions of our executive officers as of December 2, 2020.
Biographical information pertaining to Dr. Nijhawan, who is a
director and an executive officer, may be found in the above
section entitled “Directors.” The executive officers
serve at the pleasure of our Board of Directors.
|
Name
|
Age
|
Position(s) Held
|
Date of Appointment
|
|
Pardeep Nijhawan,
MD
|
50
|
Director, Chief
Executive Officer and Corporate Secretary
|
June
7, 2019
|
|
Kathi
Niffenegger, CPA
|
63
|
Chief
Financial Officer
|
November 1,
2013
|
|
Michael Brooks,
PhD
|
42
|
President
|
June
7, 2019
|
Kathi
Niffenegger, CPA has
served as our Chief Financial Officer since 2013. She also
previously served as the company’s Corporate Secretary from
2013 to June 2019. Ms. Niffenegger has more than 30 years of
experience in accounting and finance in a range of industries, and
has led audits of manufacturing, pharmaceutical and governmental
grant clients. She has also developed specialized expertise in cost
accounting systems and internal controls. Prior to joining the
company, she held positions of increasing responsibility in the
audit division of Glenn Burdette CPAs and served most recently as
technical partner. Earlier in her career, she was the Chief
Financial Officer of Martin Aviation. Ms. Niffenegger holds a
B.S. degree in Business Administration, Accounting from California
State University, Long Beach. She is a member of the American
Institute of Certified Public Accountants (AICPA) and holds the
Chartered Global Management Accountant (CGMA)
designation.
37
Michael
Brooks, PhD was appointed President of Edesa in June
2019, having served as Vice President of Corporate Development and
Strategy for the company’s principal operating subsidiary,
Edesa Biotech Research, Inc., since January 2015. Prior to joining
Edesa, Dr. Brooks held positions of increasing responsibility at
Cipher Pharmaceuticals Inc from 2010 to 2015 and served most
recently as the company's as Director of Business Development.
Prior to joining Cipher, Dr. Brooks was a Post-Doctoral fellow at
the University of Toronto. Dr. Brooks holds a Hons B.Sc. degree in
Microbiology and a PhD in Molecular Genetics from the University of
Toronto. Dr. Brooks received his MBA degree from the Rotman School
of Management where he was a Canadian Institute for Health Research
(CIHR) Science-to-Business Scholar.
Section 16(a) Reports
Section 16(a) of the Exchange Act requires that our directors,
executive officers, and beneficial owners of more than ten percent
of our common shares file reports with the SEC on their initial
beneficial ownership of our common shares and any subsequent
changes. To our knowledge, based solely on a review of copies of
such reports filed electronically with the Securities and
Exchange Commission during the Company’s year ended
September 30, 2020, during such period, each of our directors,
executive officers, and beneficial owners of more than ten percent
of our common shares filed on a timely basis all reports required
by Section 16(a) of the Exchange Act.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct that applies
to all of our directors, officers, and employees, including our
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions. A copy of our Code of Ethics and Business Conduct is
available on the Investor Relations section of our website at
edesabiotech.com/investors/governance, in the Corporate Governance
section, under the Governance Documents section. We intend to
satisfy the SEC’s disclosure requirements regarding
amendments to, or waivers of, our Code of Ethics and Business
Conduct by posting such information on our website. Copies of our
Code of Ethics and Business Conduct may be obtained, free of
charge, by writing to our Corporate Secretary, Edesa Biotech, Inc.,
100 Spy Court, Markham, ON Canada L3R 5H6.
Information about our Board Committees
Our
Board of Directors has appointed an Audit Committee, a Compensation
Committee, and a Nominating and Corporate Governance Committee. The
Board of Directors has determined that each director who serves on
these committees is “independent,” as that term is
defined by the listing rules of Nasdaq and rules of the Securities
and Exchange Commission. The Board of Directors has adopted written
charters for its Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. Copies of these
charters are available on our website at
edesabiotech.com/investors/governance.
Audit Committee
Our Audit Committee is composed of Sean MacDonald, Paul Pay and
Carlo Sistilli (chair). The purpose of the Audit Committee is to
oversee our accounting and financial reporting processes and the
audits of our financial statements. In that regard, the Audit
Committee assists the Board in monitoring: (a) the integrity of our
financial statements; (b) our independent auditor’s
qualifications, independence, and performance; (c) the performance
of our system of internal controls, financial reporting, and
disclosure controls; and (d) our compliance with legal and
regulatory requirements. To fulfill this obligation and perform its
duties, the Audit Committee maintains effective working
relationships with the Board, management, and our independent
auditor.
Carlo
Sistilli is the Chair of our Audit Committee and has extensive
financial experience. He holds a Bachelor of Arts from York
University, with a major in economics, Certified Management
Accountant Designation and a Chartered Professional Accountant
Designation. He has
held a variety of executive positions in accounting and finance
during the past 35 years. The
Board has determined that Mr. Sistilli is an “audit
committee financial expert” as defined in
Item 407(d)(5)(ii) of Regulation S-K.
Compensation Committee
Our Compensation Committee is composed of Lorin Johnson, Sean
MacDonald and Paul Pay (chair). The purpose of the Compensation
Committee is to assist the Board’s oversight relating to
compensation, including (i) the approval of compensation for our
Chief Executive Officer and (ii) the review of compensation for our
other named executive officers. It has overall responsibility for
evaluating, and approving or recommending to the independent
members of the Board for approval, our compensation plans, policies
and programs as such plans, policies and programs affect executive
officers.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is composed of
Sean MacDonald, Carlo Sistilli and Peter van der Velden (chair).
The purpose of the Nominating and Corporate Governance Committee is
to identify individuals qualified to become Board members;
recommend to the Board individuals to serve as directors; advise
the Board with respect to Board composition, procedures and
committees; develop, recommend to the Board and annually review a
set of corporate governance principles applicable to the Company;
and oversee any related matters required by the federal securities
laws.
38
Item 11. EXECUTIVE
COMPENSATION.
Executive Compensation
Our named executive officers for the year ended September 30,
2020 were Pardeep Nijhawan, MD, Director, Chief Executive Officer
and Corporate Secretary; Kathi Niffenegger, CPA, Chief Financial
Officer; and Michael Brooks, PhD, President.
Summary Compensation Table
The following table sets forth information regarding the
compensation awarded to, earned by or paid to the named executive
officers for the year ended September 30, 2020 and the
nine-month period ended September 30, 2019.
|
Name and Principal Position
|
|
Fiscal Year
|
Salary ($)
|
Bonus ($)
|
Option Awards ($)(1)
|
All Other Compensation ($)
|
Total ($)
|
|
Pardeep Nijhawan, MD
|
|
2020
|
$300,000
|
$56,000
|
$-
|
$55,204(2)
|
$411,204
|
|
Director, Chief Executive Officer
|
|
2019
|
105,461
|
-
|
-
|
24,571(2)
|
130,032
|
|
and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathi Niffenegger, CPA
|
|
2020
|
234,069
|
31,354
|
214,275
|
25,613(4)
|
505,311
|
|
Chief Financial Officer
|
|
2019 (3)
|
63,604
|
53,750
|
-
|
5,000(4)
|
122,354
|
|
|
|
|
|
|
|
|
|
|
Michael Brooks, PhD
|
|
2020
|
275,000
|
51,333
|
166,658
|
36,220(5)
|
529,211
|
|
President
|
|
2019
|
158,114
|
37,243
|
-
|
11,897(5)
|
207,254
|
(1)
The amounts shown in this column represent
the aggregate grant date fair value of the share option awards
computed in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification 718, not the actual
amounts paid to or realized by the named executive
officers during
the covered fiscal year. The assumptions used in determining grant
date fair value of these awards are set forth in Note 9 to our
audited consolidated financial statements for the year ended
September 30, 2020 included in this Annual
Report.
(2)
Represents (i) $32,435 in car
allowance (ii) $2,187 in health insurance and (iii) $20,582 in
vacation payout in 2020 and (i) $23,884 in car allowance and (ii) $687
in health insurance in 2019. The compensation was paid in Canadian
dollars and was converted to US dollars using the average foreign
exchange rate for the year from oanada.com.
(3)
Ms. Niffenegger was our Chief Financial
Officer prior to our business combination with Edesa Research and
her compensation during that time is not reflected
in our
audited consolidated financial statements included in this Annual
Report. In
the nine-month period September 30, 2019 prior to our
business combination on June 7, 2019, she received salary of
$97,599, bonus of $53,725 and other compensation of (i) $6,775 in
health insurance and (ii) $4,540 in 401(k) company
contributions.
(4)
Represents (i) $17,650 in health
insurance and (ii) $7,963 in 401(k) company contributions in 2020
and (i) $3,719 in health
insurance and (ii) $1,281 in 401(k) company contributions in
2019.
(5)
Represents (i) $24,015 in car
allowance (ii) $2,213 in health insurance and (iii) $9,992 in
vacation payout in 2020 and (i)
$9,698 in car allowance and (ii) $2,199 in health insurance in
2019. The compensation was paid in Canadian dollars and was
converted to US dollars using the average foreign exchange rate for
the year from oanda.com.
Narrative Disclosure to Summary Compensation Table
Employment Agreements
Prior
to the completion of our business combination with Edesa Research,
Edesa Research had employment agreements in effect with Dr. Pardeep
Nijhawan and Dr. Michael Brooks which are described below. Upon
completion of our business combination transaction with Edesa
Research, Dr. Nijhawan and Dr. Brooks each entered into new
employment agreements with us which are also described below, and
the old employment agreements were terminated. Kathi Niffenegger
entered into a new employment agreement with us on December 1, 2020
as described below and the employment agreement she entered into
upon completion of our business combination transaction with Edesa
Research was superseded.
39
Terminated Employment Agreement with Dr. Pardeep
Nijhawan
On August 1, 2017, Edesa Research entered into an employment
agreement with Dr. Pardeep Nijhawan which was to continue
indefinitely until terminated in accordance with its terms. The
employment agreement provided that during the term of the
agreement, Dr. Nijhawan was to serve as Edesa Research’s
Chief Executive Officer. In consideration for his services to Edesa
Research, Dr. Nijhawan received a base salary of C$35,000 per annum
and was eligible for coverage under Edesa Research’s standard
benefit programs. The agreement was terminable by Edesa Research
(i) for cause without notice or severance pay or (ii) without
cause, in which case Edesa Research was to provide 18 months notice
of termination or pay in lieu of notice (based on Dr.
Nijhawan’s base salary) and benefits for up to 18 months
following the provision of notice of termination. In addition, upon
a termination by Edesa Research without cause, all options on a
pro-rated basis were to be deemed vested on the business day
immediately preceding the termination date and would remain
exercisable for a period of 180 days. Dr. Nijhawan could resign
from his employment at any time by providing two weeks advance
notice to Edesa Research.
Employment Agreement with Pardeep Nijhawan effective as of June 7,
2019
On June 14, 2019 but effective as of June 7,
2019, we entered into an employment agreement with Pardeep
Nijhawan. Pursuant to the employment agreement, Dr. Nijhawan will
serve as our Chief Executive Officer for an indefinite term until
Dr. Nijhawan’s employment is terminated in accordance with
the agreement. As compensation for his services to us, Dr. Nijhawan
will receive a base salary of $300,000 per year and be eligible to
receive a target
annual bonus of 40% of his base salary, subject to achieving
corporate and personal targets to be determined by
us. Dr.
Nijhawan will
also receive an automobile allowance of $2,700 per month and be
eligible to participate in our group insured benefits program, as
may be in effect from time-to-time for our employees generally, and
executive employees specifically. Dr. Nijhawan is also eligible for
future share and/or option grants, as determined by our
Compensation Committee, commensurate with Dr. Nijhawan’s position and any business
milestones which may be established by the Compensation Committee
and subject to
availability of shares and/or options for grant under our Equity
Incentive Compensation Plan.
If Dr. Nijhawan’s employment with us is terminated for
“Cause” (as such term is defined in the employment
agreement), subject to applicable law, our only obligation shall be
to provide Dr. Nijhawan with his base salary and vacation pay
earned through the date of termination and all of Dr.
Nijhawan’s vested or non-vested stock options which have not
been exercised by Dr. Nijhawan as of the date of termination will
be automatically extinguished. If Dr. Nijhawan is terminated by us
without “Cause”, our only obligation shall be to
provide Dr. Nijhawan with (i) a lump sum payment equal to Dr.
Nijhawan’s then current base salary for twenty-four months
(the “Severance Period”), (ii) a lump sum payment of
the annual bonus to which Dr. Nijhawan is entitled for the fiscal
year immediately preceding the date of termination, if such bonus
has not already been paid, (iii) a lump sum payment equal to Dr.
Nijhawan’s annual bonus entitlement, prorated over Dr.
Nijhawan’s length of service in the fiscal year in which his
employment is terminated, calculated in accordance with the terms
of the employment agreement, (iv) payment of Dr. Nijhawan’s
annual bonus entitlement during the full Severance Period,
calculated in accordance with the terms of the employment
agreement, (v) continuation of Dr. Nijhawan’s benefits and
car allowance and any other benefit required to be maintained by
law in accordance with the terms of the employment agreement and
(vi) subject to applicable law, all stock options granted to Dr.
Nijhawan shall be exercisable in accordance with the terms of the
applicable stock option plan. Dr. Nijhawan may resign from his
employment at any time by providing us with a minimum of sixty days
advance notice, in writing. Dr. Nijhawan’s notice may be
waived by us, subject only to providing Dr. Nijhawan with payment
of his base salary and continuation of benefits until the end of
the notice period. If Dr. Nijhawan resigns from his employment,
subject to applicable law, (i) all non-vested stock options and all
vested stock options held by Dr. Nijhawan which have not been
exercised by Dr. Nijhawan as of the date of termination shall be
automatically extinguished and (ii) Dr. Nijhawan shall not be
entitled to any bonus or pro rata bonus payment not already paid on
or before the date of termination.
During the term of Dr. Nijhawan’s employment with us and for
twelve months following the cessation of Dr. Nijhawan’s
employment with us, Dr. Nijhawan is prohibited from competing with
our business in North America. In addition, for twenty-four months
following the cessation of Dr. Nijhawan’s employment with us,
Dr. Nijhawan is prohibited from soliciting customers or prospective
customers for any purpose competitive with our business,
encouraging any customer to cease doing business with us and
soliciting the employment or engagement of certain of our
employees.
Terminated Employment Agreement with Michael Brooks
On August 28, 2017, Edesa Research entered into an employment
agreement with Michael Brooks which was to continue indefinitely
until terminated in accordance with its terms. The employment
agreement provided that during the term of the agreement, Dr.
Brooks was to serve as Edesa Research’s Vice President
Corporate Development and Strategy. In consideration for his
services to Edesa Research, Dr. Brooks received a base salary of
C$220,000 per annum and was eligible for coverage under Edesa
Research’s standard benefit programs. In addition, subject to
achievement of bonus criteria established by Edesa Research, Dr.
Brooks was eligible to receive an annual bonus award of up to 30%
of his base salary.
The agreement was terminable by Edesa Research (i) for cause
without notice or severance pay or (ii) without cause, in which
case Edesa Research was to provide 12 months notice of termination
or pay in lieu of notice (based on Dr. Brooks’ base salary)
and benefits for up to 12 months following the provision of notice
of termination. In addition, upon a termination by Edesa Research
without cause, Dr. Brooks was entitled to a pro-rated bonus
covering any year or partial actively worked from the time of the
past applicable bonus period through to the termination date of Dr.
Brooks employment and all options on a pro-rated basis would be
deemed to be vested on the business day immediately preceding the
termination date and would remain exercisable for a period of 180
days. In the event Dr. Brook’s employment was terminated in
connection with a change of control event, any unvested options or
other equity awards then held by Dr. Brooks would be deemed to be
vested on the business day immediately preceding the termination
date and were to remain exercisable for a period of 180 days. Dr.
Brooks could also resign from his employment at any time by
providing two weeks advance notice to Edesa Research. During the
term of his employment and for a period of 12 months thereafter,
Dr. Brooks was subject to certain non-solicitation provisions
relating to Edesa Research’s employees, customers,
prospective customers and suppliers. In addition, the agreement
provided that, subject to certain exceptions, Dr. Brooks could not
compete with the business of Edesa Research during the employment
period and any notice period (or period paid in lieu of
notice).
40
Employment Agreement with Michael Brooks effective as of June 7,
2019
On June 14, 2019 but effective as of June 7,
2019, we entered into an employment agreement with Michael Brooks,
PhD. Pursuant to the employment agreement, Dr. Brooks will serve as
our President for an indefinite term until Dr. Brooks’
employment is terminated in accordance with the agreement. As
compensation for his services to us, Dr. Brooks will receive a base
salary of $275,000 per year and be eligible to receive
a target annual
bonus of 40% of his base salary, subject to achieving corporate and
personal targets to be determined by us. Dr. Brooks will also
receive an automobile allowance of $2,000 per month and be eligible
to participate in our group insured benefits program, as may be in
effect from time-to-time for our employees generally, and executive
employees specifically. Dr. Brooks is also eligible for future
share and/or option grants, as determined by our Compensation
Committee, commensurate with Dr. Brooks’
position and any business milestones which may be established by
the Compensation Committee and subject to availability of shares
and/or options for grant under our Equity Incentive Compensation
Plan.
If Dr. Brooks’ employment with us is terminated for
“Cause” (as such term is defined in the employment
agreement), subject to applicable law, our only obligation shall be
to provide Dr. Brooks with his base salary and vacation pay earned
through the date of termination and all of Dr. Brooks’ vested
or non-vested stock options which have not been exercised by Dr.
Brooks as of the date of termination will be automatically
extinguished. If Dr. Brooks is terminated by us without
“Cause”, our only obligation shall be to provide Dr.
Brooks with (i) a lump sum payment equal to Dr. Brooks’ then
current base salary for twelve months plus one additional month for
every completed year of service since September 2015, not to exceed
an aggregate of twenty-four months (the “Severance
Period”), (ii) a lump sum payment of the annual bonus to
which Dr. Brooks is entitled for the fiscal year immediately
preceding the date of termination, if such bonus has not already
been paid, (iii) a lump sum payment equal to Dr. Brooks’
annual bonus entitlement, prorated over Dr. Brooks’ length of
service in the fiscal year in which his employment is terminated,
calculated in accordance with the terms of the employment
agreement, (iv) payment of Dr. Brooks’ annual bonus
entitlement during the full Severance Period, calculated in
accordance with the terms of the employment agreement, (v)
continuation of Dr. Brooks’ benefits and car allowance and
any other benefit required to be maintained by law in accordance
with the terms of the employment agreement and (vi) subject to
applicable law, all stock options granted to Dr. Brooks shall be
exercisable in accordance with the terms of the applicable stock
option plan. If Dr. Brooks’ employment is terminated or
“constructively terminated” (as such term is defined in
the employment agreement) by us without “Cause” upon or
within a twelve month period following a Change of Control (as such
term is defined in the employment agreement), Dr. Brooks shall be
entitled to the payments and benefits provided as described in
clauses (ii) to (vi) above, plus a change of control payment equal
to twenty-four months of the his then current base salary. Dr.
Brooks may resign from his employment at any time by providing us
with a minimum of sixty days advance notice, in writing. Dr.
Brooks’ notice may be waived by us, subject only to providing
Dr. Brooks with payment of his base salary and continuation of
benefits until the end of the notice period. If Dr. Brooks resigns
from his employment, subject to applicable law, (i) all non-vested
stock options and all vested stock options held by Dr. Brooks which
have not been exercised by Dr. Brooks as of the date of termination
shall be automatically extinguished and (ii) Dr. Brooks shall not
be entitled to any bonus or pro rata bonus payment not already paid
on or before the date of termination.
During the term of Dr. Brooks’ employment with us and for
twelve months following the cessation of Dr. Brooks' employment
with us, Dr. Brooks is prohibited from competing with our business
in North America. In addition, for twenty-four months following the
cessation of Dr. Brooks' employment with us, Dr. Brooks is
prohibited from soliciting customers or prospective customers for
any purpose competitive with our business, encouraging any customer
to cease doing business with us and soliciting the employment or
engagement of certain of our employees.
41
Employment Agreement with Kathi Niffenegger effective as of June 7,
2019
On
June 7, 2019, we entered into an employment agreement with Ms.
Niffenegger which has subsequently been superseded by the
employment agreement with Ms. Niffenegger described below. Pursuant
to the employment agreement, Ms. Niffenegger served as our Chief
Financial Officer. Both Ms. Niffenegger and we had the right to
terminate the employment relationship at any time, with or without
cause. As compensation for her services to us, Ms. Niffenegger
received a base salary of $215,000 per year, a discretionary bonus
in an amount up to 25% of her base salary based on her performance
and the company’s performance, a one-time hiring and
retention bonus of $53,750 which was subject to partial claw back
if Ms. Niffenegger voluntary terminated her employment prior to
March 1, 2020 and such other employee benefits as are generally
provided to similarly situated employees of the company. Ms.
Niffenegger was also eligible for future share and/or option grants
in accordance with our executive compensation policy as in effect
from time to time as determined by our Compensation Committee
subject to availability of shares and/or options for grant under
our Equity Incentive Compensation Plan.
If Ms.
Niffenegger’s employment with us was terminated for
“Cause” (as defined in the employment agreement) or if
Ms. Niffenegger resigned from her employment at any time, our only
obligation was to provide Ms. Niffenegger with: (i) her accrued
salary through and including her last day of employment (the
“Separation Date”); (ii) reimbursement of any
reimbursable expenses properly incurred through and including the
Separation Date; and (iii) any benefit required under applicable
law. If we terminate Ms. Niffenegger’s employment without
“Cause” or if Ms. Niffenegger’s employment with
us was “constructively terminated” (as defined in the
employment agreement), our only obligations were: (a) to provide
Ms. Niffenegger with the same payments and benefits as would be
provided if we had terminated her employment for Cause; and (b)
subject to Ms. Niffenegger’s execution of a release in our
favor, Ms. Niffenegger would also have been paid, as severance, an
amount equal to twelve months of her base salary at her
then-current rate. In the event that Ms. Niffenegger’s
employment was terminated or constructively terminated by us
without Cause upon or within a twelve month period following a
Change of Control (as defined in the employment agreement), Ms.
Niffenegger was entitled to the payments and benefits as though she
was terminated without “Cause”, plus an additional
change of control payment equal to twelve months of her base
salary.
The
Agreement provided that during the term of Ms. Niffenegger’s
employment with us, Ms. Niffenegger is prohibited from competing
with our business and during such period and for a period of one
year thereafter, Ms. Niffenegger is prohibited from soliciting for
employment certain of our employees.
Employment Agreement with Kathi Niffenegger effective as of
December 1, 2020
On
December 1, 2020, we entered into an employment agreement with Ms.
Niffenegger. Pursuant to the employment agreement, Ms. Niffenegger
will continue to serve as our Chief Financial Officer. Both Ms.
Niffenegger and we have the right to terminate the employment
relationship at any time, with or without cause. As compensation
for her services to us, Ms. Niffenegger will receive a base salary
of $275,000 per year retroactive to June 1, 2020, a discretionary
bonus in an amount up to 40% of her base salary based on her
performance and the company’s performance and such other
employee benefits as are generally provided to similarly situated
employees of the company. Ms. Niffenegger may be eligible for
future share and/or option grants in accordance with our executive
compensation policy as in effect from time to time as determined by
the independent members of our Board of Directors subject to
availability of shares and/or options for grant under our Equity
Incentive Compensation Plan.
If Ms.
Niffenegger’s employment with us is terminated for
“Cause” (as defined in the employment agreement) or if
Ms. Niffenegger resigns from her employment at any time, our only
obligation is to provide Ms. Niffenegger with: (i) her accrued
salary and accrued unused vacation pay through and including her
last day of employment (the “Separation Date”); (ii)
reimbursement of any reimbursable expenses properly incurred
through and including the Separation Date; and (iii) any benefit
required under applicable law. If Ms. Niffenegger is terminated by
us without “Cause”, our only obligations are (a) to
provide Ms. Niffenegger with the same payments and benefits as
would be provided if we had terminated her employment for Cause;
and (b) subject to Ms. Niffenegger’s execution of a release
in our favor, Ms. Niffenegger will also be paid, as severance (the
“Severance Amount”), (i) a lump sum payment equal to
twelve months of Ms. Niffenegger’s then current base salary,
plus one additional month of base salary for every completed year
of service since June 2019, not to exceed an aggregate of
twenty-four months, (ii) a lump sum payment of any discretionary
bonus for the prior calendar year already determined by our Board
of Directors, but not yet paid; and (iii) a lump sum payment equal
to Ms. Niffenegger’s potential discretionary bonus for the
calendar year in which the Separation Date occurs, prorated over
Ms. Niffenegger’s length of service in the calendar year in
which her employment is terminated, calculated in accordance with
the terms of the employment agreement. If Ms. Niffenegger’s
employment is terminated or “constructively terminated”
(as such term is defined in the employment agreement) by us without
“Cause” upon or within a twelve month period following
a Change of Control (as such term is defined in the employment
agreement), Ms. Niffenegger shall be entitled to the Severance
Amount described above, except that the portion of the Severance
Payment established by (b)(i) shall be equal to twenty four months
of Ms. Niffenegger’s base salary.
The
Agreement provides that during the term of Ms. Niffenegger’s
employment with us and for a period of one year thereafter, Ms.
Niffenegger is prohibited from soliciting for employment certain of
our employees. The Agreement also provides that both during and
after Ms. Niffenegger’s employment with us, she is prohibited
from (i) making use of our trade secrets to solicit on behalf of
Ms. Niffenegger or any other person business from any of our
customers and (ii) inducing or attempting to induce any person to
sever any existing contractual relationship they have with
us.
42
Outstanding Equity Awards at September 30, 2020
The following table summarizes the equity awards made to our named
executive officers that were outstanding at September 30,
2020.
|
|
|
Option Awards
|
|||||
|
Name
|
|
Award grant date
|
Number of securities underlying unexercised options (#)
exercisable
|
Number of securities underlying unexercised options (#)
unexercisable (1)
|
Option exercise prices
|
|
Option expiration date
|
|
Pardeep Nijhawan, MD
|
|
9/26/17
|
47,490
|
-
|
C$2.16
|
|
9/26/27
|
|
|
12/28/18
|
945
|
675(2)
|
C$2.16
|
|
12/28/28
|
|
|
|
|
|
|
|
|
|
|
|
Kathi Niffenegger, CPA
|
|
11/1/13
|
238
|
-
|
$768.60
|
|
11/1/20
|
|
|
11/12/14
|
214
|
-
|
C$638.40
|
|
11/12/21
|
|
|
|
12/22/15
|
238
|
-
|
$304.08
|
|
12/22/22
|
|
|
|
12/20/16
|
238
|
-
|
$85.26
|
|
12/20/23
|
|
|
|
3/12/18
|
833
|
-
|
$35.28
|
|
3/12/25
|
|
|
|
2/12/20
|
40,828
|
47,871(3)
|
$3.16
|
|
2/12/30
|
|
|
|
|
|
|
|
|
|
|
|
Michael Brooks, PhD
|
|
8/28/17
|
136,416
|
-
|
C$2.16
|
|
8/28/27
|
|
|
9/26/17
|
24,299
|
-
|
C$2.16
|
|
9/26/27
|
|
|
|
12/28/18
|
945
|
675(2)
|
C$2.16
|
|
12/28/28
|
|
|
|
2/12/20
|
31,754
|
37,234(3)
|
$3.16
|
|
2/12/30
|
|
(1)
Our options vesting policy is described in the Outstanding Equity
Awards Narrative Disclosure section.
(2)
The option will vest over a period of three years, with one-third
vesting on the first anniversary of the date of grant and the
remainder vesting on a pro-rata basis monthly
thereafter.
(3)
The option will
vest over a period of three years, with one-third vesting on the
date of grant and the remainder vesting on a pro-rata basis monthly
thereafter.
Outstanding Equity Awards Narrative Disclosure
Equity Incentive Compensation Plan
We adopted an Equity Incentive Compensation Plan in 2019 (the
“2019 Plan”) which amended and restated our 2017
Incentive Compensation Plan (the “2017 Plan”). Under
the 2019 Plan, we are authorized to grant options, restricted
shares and restricted share units (RSUs) to any of our officers,
directors, employees, and consultants and those of our subsidiaries
and other designated affiliates. The number of shares available for
issuance under the 2019 Plan is 1,148,697, including shares
available for the exercise of outstanding options under the 2017
Plan. The purpose of the 2019 Plan is to advance the interests of
the Company by encouraging equity participation through the
acquisition of common shares of the Company. The 2019 Plan is to be
administered by the Compensation Committee of our Board of
Directors, except to the extent (and subject to the limitations set
forth in the 2019 Plan) the Board elects to administer the 2019
Plan, in which case the 2019 Plan shall be administered by only
those members of the Board who are “independent”
members of the Board. The administrator of the 2019 Plan has the
power to, among other things:
●
allot common shares for issuance in connection with the exercise of
options;
●
grant options, restricted shares or restricted share
units;
●
amend, suspend, terminate or discontinue the plan; and
●
delegate all or a portion of its administrative powers as it may
determine to one or more committees.
Options to purchase 675,437 common shares at prices ranging from
C$2.16 to C$638.40 and $3.16 to $768.60 are outstanding at
September 30, 2020. No restricted shares or restricted share units
have been granted as of September 30, 2020.
Options granted during the year ended September 30, 2020 to
directors, officers and employees under the 2019 Plan totaled
366,365 options to purchase common shares at exercise prices
ranging from $3.16 to $8.07. There were no options granted during
the nine-month period ended September 30, 2019.
43
Options Vesting Policy
Vesting
requirements for option awards are determined by the independent
members of the Board of Directors. Outstanding options granted by
Stellar Biotechnologies before the completion of our business
combination became fully vested on June 7, 2019, the date of our
business combination with Edesa Research. Options
granted by Edesa Research generally vested one-third upon the first
anniversary of the date of grant and monthly thereafter until the
third anniversary of the date of grant. The options granted by
Edesa Research on August 28, 2017 were fully vested upon the grant
date. Options granted by the Company during the year ended
September 30, 2020 generally vested one-third upon the date of
grant and monthly thereafter until the third anniversary of the
date of grant.
Retirement Benefits
Executive officers and employees of our California subsidiary are
eligible to receive the company’s non-elective contribution
of 3% of eligible compensation under a 401(k) plan to provide
retirement benefits. Any company contributions we made to the plan
for our named executive officers are reflected in the “All
Other Compensation” column of the Summary Compensation Table
above.
Other than the funds contributed under our 401(k) plan, no other
funds were set aside or accrued by us during the year ended
September 30, 2020 or in the nine-month period ended September 30,
2019 to provide pension, retirement or similar benefits for our
named executive officers.
Director Compensation
The following table sets forth information regarding the
compensation of our non-employee directors for the year ended
September 30, 2020.
|
Name
|
Fees Earned or Paid in Cash
($)
|
Option Awards($)
(1)
|
All Other Compensation($)
|
Total ($)
|
|
Lorin Johnson, PhD
|
$33,500
|
$27,513
|
-
|
$61,013
|
|
Sean MacDonald
|
50,000(2)
|
27,513
|
-
|
77,513
|
|
Frank Oakes
|
30,000
|
27,513
|
-
|
57,513
|
|
Paul Pay
|
42,500(2)
|
27,513
|
-
|
70,013
|
|
Carlo Sistilli, CPA, CMA
|
43,500(2)
|
27,513
|
-
|
71,013
|
|
Peter van der Velden
|
37,500(2)(3)
|
27,513
|
-
|
65,013
|
(1)
The amounts shown in this column represent
the aggregate grant date fair value of the share option awards
computed in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification 718, not the actual
amounts paid to or realized by the
directors during
the covered fiscal year. The assumptions used in determining grant
date fair value of these awards are set forth in Note 9 to our
audited consolidated financial statements for the year ended
September 30, 2020 included in this Annual
Report.
(2)
The compensation was paid in Canadian dollars or British pounds and
was converted from US dollars using the average foreign exchange
rate for each month of the year from oanda.com.
(3)
Fees of $34,326 and $3,174 were paid to Lumira Capital II, L.P. and
Lumira Capital II (International), L.P., respectively, as
compensation for Mr. van der Velden’s services on our board
of directors.
Outstanding Equity Awards at September 30, 2020
The following table summarizes the equity awards made to our
directors that were outstanding at September 30, 2020.
|
|
Outstanding Options
(#)
|
|
Lorin Johnson, PhD
|
11,389
|
|
Sean MacDonald
|
11,389
|
|
Frank Oakes
|
12,341
|
|
Paul Pay
|
43,788
|
|
Carlo Sistilli, CPA, CMA
|
11,389
|
|
Peter van der Velden
|
11,389
|
44
Narrative to Director Compensation Table
Non-Employee Director Compensation Policy
The board adopted a compensation policy effective upon completion
of our business combination on June 7, 2019. As compensation for
their services on the board of directors, each non-executive board
member will receive annual base remuneration of $30,000 and the
Chairman of the Board will receive annual remuneration of $50,000,
inclusive of compensation for his services on committees of the
board of directors. Each member of the Company’s Audit
Committee will receive annual remuneration of $5,000, and the Chair
of the Audit Committee will receive $10,000 annually for his
services. Each member of the Company’s Compensation Committee
and Nominating and Corporate Governance Committee will receive
annual remuneration of $3,500 for each committee on which they
serve, and the Chairs of each of the Compensation Committee and
Nominating and Corporate Governance Committee shall receive $7,500
annually for their services. The Chief Executive Officer will not
receive any additional compensation for his services on the board
of directors.
Item 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Equity Compensation Plan Information
The following table provides certain information as of September
30, 2020 about our common shares that may be issued under our
equity compensation plans, which consists of our 2019 Equity
Incentive Compensation Plan in effect at September 30,
2020:
|
Plan category
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants
and rights
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation plans approved by security holders
|
675,437
|
$3.30
|
473,260
|
|
Equity compensation plans not approved by security
holders
|
N/A
|
N/A
|
N/A
|
|
Total
|
675,437
|
$3.30
|
473,260
|
Warrants and other
equity held by directors, officers and employees outside of the
compensation plans are not included in the table
above.
Security Ownership of Certain Beneficial Owners and
Management
The
following tables sets forth certain information as of December 2,
2020, with respect to the beneficial ownership of our common shares
by: (1) all of our directors; (2) our named executive officers
listed in the Summary Compensation Table; (3) all of directors and
executive officers as a group; and (4) each person known by us to
beneficially own more than 5% of our outstanding common
shares.
We
have determined beneficial ownership in accordance with the rules
of the SEC, based on a review of filings with the SEC and
information known to us. Except as indicated by the footnotes
below, we believe, based on the information furnished to us, that
the persons and entities named in the table below have sole voting
and investment power with respect to all common shares that they
beneficially own, subject to applicable community property
laws.
Common
shares subject to options or warrants currently exercisable or
exercisable within 60 days of December 2, 2020 are deemed
outstanding for computing the share ownership and percentage of the
person holding such options and warrants, but are not deemed
outstanding for computing the percentage of any other person. The
percentage ownership of our common shares of each person or entity
named in the following table is based on 10,523,087 common shares
outstanding as of December 2, 2020.
45
Directors and Officers
|
Name and Address of Beneficial Owner (1)
|
Amount and Nature of
Beneficial Ownership
|
Percent of Shares Beneficially Owned
|
|
|
|
|
|
Lorin Johnson, PhD
|
27,493(2)
|
*
|
|
Sean MacDonald
|
22,683(3)
|
*
|
|
Pardeep Nijhawan, MD
|
3,324,010(4)
|
31.6%
|
|
Frank Oakes
|
18,172(5)
|
*
|
|
Paul Pay
|
46,194(6)
|
*
|
|
Carlo Sistilli, CPA, CMA
|
13,795(7)
|
*
|
|
Peter van der Velden
|
2,186,666(8)
|
20.7%
|
|
Michael Brooks, PhD
|
210,898(9)
|
2.0%
|
|
Kathi Niffenegger, CPA
|
57,704(10)
|
*
|
|
|
|
|
|
All directors and executive officers as a group (9
persons)
|
5,907,615(11)
|
56.0%
|
* Percentage of shares beneficially owned does not exceed one
percent.
(1)
Unless
otherwise indicated, the address of each beneficial owner is c/o
Edesa Biotech, Inc., 100 Spy Court, Markham, ON Canada L3R
5H6.
(2)
Consists of (i)
12,786 Common Shares, (ii) 6,393 Common Shares issuable upon
exercise of Class A Warrants and (iii) 8,314 Common Shares issuable
upon exercise of options that are exercisable within sixty days of
December 2, 2020.
(3)
Consists of (i)
14,369 Common Shares and (ii) 8,314 Common Shares issuable upon
exercise of options exercisable within sixty days of December 2,
2020.
(4)
Consists of (A)(i)
537,312 Common Shares and (ii) 55,283 Common Shares issuable upon
exercise of options exercisable within sixty days of December 2,
2020 held by Pardeep Nijhawan; (B)(i) 2,128,652 Common Shares and
(ii) 6,942 Common Shares issuable upon exercise of Class A Warrants
held by Pardeep Nijhawan Medicine Professional Corporation for
which Pardeep Nijhawan has sole voting and dispositive power over
all such shares; (C) 224,094 Common Shares held by The Digestive
Health Clinic Inc. for which Pardeep Nijhawan has sole voting and
dispositive power over all such shares and (D) 371,727 Common
Shares held by 1968160 Ontario Inc. for which Pardeep Nijhawan has
sole voting and dispositive power over all such
shares.
(5)
Consists of (A)(i)
6,165 Common Shares and (ii) 9,266 Common Shares issuable upon
exercise of options that are exercisable within sixty days of
December 2, 2020 held by Frank Oakes and (B)(i) 1,827 Common Shares
and (ii) 914 Common Shares issuable upon exercise of Class A
Warrants held by Frank and Dorothy Oakes Family Trust for which
each of Frank Oakes and Dorothy Oakes, as trustees, have voting and
dispositive power over all such shares.
(6)
Consists of (i)
3,654 Common Shares, (ii) 1,827 Common Shares issuable upon
exercise of Class A Warrants and (iii) 40,713 Common Shares
issuable upon exercise of options exercisable within sixty days of
December 2, 2020.
(7)
Consists of (A)
8,314 Common Shares issuable upon exercise of options exercisable
within sixty days of December 2, 2020 held by Carlo Sistilli and
(B)(i) 3,654 Common Shares and (ii) 1,827 Common Shares issuable
upon exercise of Class A Warrants held by York-Cav Enterprises Inc.
for which Carlo Sistilli, as President and Director, has sole
voting and dispositive power over all such shares.
(8)
Consists of (A)
8,314 Common Shares issuable upon exercise of options exercisable
within sixty days of December 2, 2020 held by Peter van der Velden;
(B)(i) 1,897,425 Common Shares and (ii) 96,542 Common Shares
issuable upon exercise of Class A Warrants held by Lumira Capital
II, L.P. and (C)(i) 175,454 Common Shares and (ii) 8,928 Common
Shares issuable upon exercise of Class A Warrants held by Lumira
Capital II (International), L.P., an affiliate of Lumira Capital
II, L.P. Lumira Capital GP, L.P., the general partners of which are
Lumira GP Inc. and Lumira GP Holdings Co., is the general partner
of each of Lumira Capital II, L.P. and Lumira Capital II
(International), L.P. Each of Lumira Capital II, L.P. and Lumira
Capital II (International), L.P. is managed by Lumira Capital
Investment Management Inc. Each of Lumira Capital GP, L.P., Lumira
GP Inc., Lumira GP Holdings Co. and Lumira Capital Investment
Management Inc. may be deemed to beneficially own the shares held
by Lumira Capital II, L.P. and Lumira Capital II (International),
L.P. and such entities control voting and investment power over
such shares through an investment committee of the Lumira group.
Peter van der Velden is an executive officer of Lumira GP Inc.,
Lumira GP Holdings Co. and Lumira Capital Investment Management
Inc.
(9)
Consists of (i)
5,241 Common Shares, (ii) 1,371 Common Shares issuable upon
exercise of Class A Warrants and (iii) 204,286 Common Shares
issuable upon exercise of options exercisable within sixty days of
December 2, 2020.
(10)
Consists of (A)
54,963 Common Shares issuable upon exercise of options that are
exercisable within sixty days of December 2, 2020 held by Kathi
Niffenegger and (B) (i) 1,827 Common Shares and (ii) 914 Common
Shares issuable upon exercise of Class A Warrants held by the Kathi
Niffenegger Trust for which Kathi Niffenegger, as trustee, has sole
voting and dispositive power over all such shares.
(11)
Consists of (i)
5,384,190 Common Shares, (ii) 125,658 Common Shares issuable upon
exercise of Class A Warrants and (iii) 397,767 Common Shares
issuable upon exercise of options that are exercisable within sixty
days of December 2, 2020.
46
Shareholders Known by Us to Own 5% or More of Our Common
Shares
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of Shares Beneficially Owned
|
|
|
|
|
|
Inveready (1)
|
531,986(1)
|
5.1%
|
|
Lumira Capital II, L.P. (2)
|
2,178,352(2)
|
20.6%
|
(1)
Consists of 531,986 Common Shares. Voting
and investment power over the shares held by Inveready Innvierte
Biotech II, S.C.R. S.A is exercised by its board of directors. The
address of the shareholder is c/o Inveready Technology Investment
Group, C/dels Cavaliers, 50, Barcelona, 08034,
Spain.
(2)
Consists of (A)(i) 1,897,425 Common Shares
and (ii) 96,542 Common Shares issuable upon exercise of Class A
Warrants held by Lumira Capital II, L.P. and (B)(i) 175,454 Common
Shares and (ii) 8,928 Common Shares issuable upon exercise of Class
A Warrants held by Lumira Capital II (International), L.P., an
affiliate of Lumira Capital II, L.P. Lumira Capital GP, L.P., the
general partners of which are Lumira GP Inc. and Lumira GP Holdings
Co., is the general partner of each of Lumira Capital II, L.P. and
Lumira Capital II (International), L.P. Each of Lumira Capital II,
L.P. and Lumira Capital II (International), L.P. is managed by
Lumira Capital Investment Management Inc. Each of Lumira Capital
GP, L.P., Lumira GP Inc., Lumira GP Holdings Co. and Lumira Capital
Investment Management Inc. may be deemed to beneficially own the
shares held by Lumira Capital II, L.P. and Lumira Capital II
(International), L.P and such entities control voting and
investment power over such shares through an investment committee
of the Lumira group. The address of each entity listed in this note
is 141 Adelaide Street West, Suite 770, Toronto, Ontario, Canada
M5H 3L5.
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Related Party Transactions
Lease Agreement
In January 2017, Edesa Research entered into a lease agreement with
a company related to Pardeep Nijhawan, our Chief Executive Officer,
for executive office space which serves as our head office through
December 2022, with the option to extend the lease for an
additional two years. Monthly rents range from C$8,320 to C$9,020
plus HST. Rents of approximately $76,000 and $58,000 were incurred
in the year ended September 30, 2020 and the nine-month period
ended September 30, 2019, respectively. No rent was payable at
September 30, 2020 or 2019.
Patent Royalty Agreement
In
August 2002, our California subsidiary entered into an agreement
with Frank Oakes, a director, where he would receive royalty
payments in exchange for the assignment of his rights to U.S.
Patent No. 6,852,338 to Edesa Biotech USA, Inc. The royalty is 5%
of gross receipts from legacy products using this invention in
excess of $500,000 annually. Patent royalties of approximately
$20,000 were incurred in the nine-month period ended September 30,
2019 and royalties payable of approximately $23,000 were
outstanding at September 30, 2019. No patent royalties were
incurred during the year ended September 30, 2020 or payable at
September 30, 2020.
Director Independence
In evaluating the independence of our Board members and the
composition of the committees of our Board of Directors, the Board
of Directors utilizes the definition of “independence”
as that term is defined by the Securities Exchange Act of 1934, and
the Nasdaq Listing Rules. Using this standard, the Board of
Directors has determined that Lorin Johnson, Sean MacDonald, Paul
Pay, Carlo Sistilli and Peter van der Velden are “independent
directors.” This means that our Board of Directors is
composed of a majority of independent directors as required by the
rules of Nasdaq.
47
Item 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES.
The
following table shows the aggregate fees billed for audit and other
services provided for the year ended September 30, 2020 and nine-
month period ended September 30, 2019 rendered by MNP
LLP.
Principal Accountant Fees and Services
|
Type of Service
|
Year Ended 2020
|
Nine-month Period 2019
|
|
|
|
|
|
Audit Fees
|
$166,712
|
$143,095
|
|
Tax Fees
|
24,166
|
14,254
|
|
|
|
|
|
Total
|
$190,878
|
$157,349
|
Audit Fees
consisted of fees incurred for professional services rendered for
audits and interim reviews of the year ended September 30, 2020 and
nine-month period ended September 30, 2019 and include procedures
related to registrations and offerings.
Tax
Fees consisted of
fees incurred for professional services rendered for tax compliance
related to tax returns during the year ended September 30, 2020 and
nine-month period ended September 30, 2019.
Pre-Approval Policies and Procedures
The Audit Committee is directly responsible for the appointment,
compensation and oversight of our auditors. It has established
procedures for the receipt, retention, and treatment of complaints
received by us regarding accounting, internal accounting controls,
or auditing matters, and the confidential, anonymous submission by
our employees of concerns regarding questionable accounting or
auditing matters. The Audit Committee also has the authority and
the funding to engage independent counsel and other outside
advisors.
The Audit Committee pre-approves all audit and permissible
non-audit services provided by the independent registered public
accounting firm. These services may include audit services,
audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or category
of services and is generally subject to an amount or range of
estimated fees. All proposed engagements of the auditor for
audit and permitted non-audit services are submitted to the Audit
Committee for approval prior to the beginning of any such services.
Our auditors are required to periodically report to the Audit
Committee regarding the extent of services provided by the
independent registered public accounting firm in accordance with
the pre-approval, and the fees for the services performed to
date. The Audit Committee may also pre-approve particular
services on a case-by-case basis. The Audit Committee pre-approved
100% of the audit and non-audit services performed by our
independent registered public accounting firm for the year ended
September 30, 2020 and nine-month period ended September 30,
2019.
48
PART IV
Item 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES.
(a)
The following documents are filed as a part of this Annual
Report:
(1) Financial Statements
The list of consolidated financial statements and notes required by
this Item 15 (a) (1) is set forth in the “Index to Financial
Statements” on page F-1 of this Annual Report.
(2) Financial Statement Schedules
All schedules have been omitted because the required information is
included in the financial statements or notes thereto.
(b)
Exhibits
The exhibits listed on the Exhibit Index below are filed as part of
this Annual Report.
EXHIBIT INDEX
|
Exhibit No.
|
Description
|
|
2.1*
|
Share
Exchange Agreement, dated as of March 7, 2019, by and between
Stellar Biotechnologies Inc., Edesa Biotech Inc. and the Edesa
Shareholders (included as Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on March 8, 2019, and incorporated
herein by reference).
|
|
|
|
|
Certificate of
Incorporation of the Company, dated June 12, 2007 (included as
Exhibit 1(a) to the Company's Registration Statement on Form 20-F
filed on February 3, 2012, and incorporated herein by
reference).
|
|
|
|
|
|
Certificate of
Amendment of the Company, dated April 15, 2008 (included as Exhibit
1(b) to the Company's Registration Statement on Form 20-F filed on
February 3, 2012, and incorporated herein by
reference).
|
|
|
|
|
|
Certificate of
Continuation of the Company, dated November 25, 2009 (included as
Exhibit 1(c) to the Company's Registration Statement on Form 20-F
filed on February 3, 2012, and incorporated herein by
reference).
|
|
|
|
|
|
Certificate of
Change of Name of the Company, dated April 7, 2010 (included as
Exhibit 1(f) to the Company’s Registration Statement on Form
20-F filed on February 3, 2012, and incorporated herein by
reference).
|
|
|
|
|
|
Certificate of
Change of Name of the Company, dated June 7, 2019 (included as
Exhibit 3.6 to the Company's Annual Report on Form 10-K filed on
December 12, 2019, and incorporated herein by
reference).
|
|
Amended and Restated Articles of Edesa Biotech, Inc. (included as
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
on April 23, 2020, and incorporated herein by
reference).
|
|
|
|
|
|
Notice of Articles of Edesa Biotech, Inc. (included as Exhibit 3.2
to the Company’s Quarterly Report on Form 10-Q filed on May
15, 2020, and incorporated herein by
reference)
|
|
|
|
|
|
Specimen of common share certificate (included as Exhibit 4.1 to
the Company’s Registration Statement on Form S-3 filed on
August 30, 2019 and incorporated herein by
reference)
|
|
|
|
|
|
Form of Class A Purchase Warrant issued to
investors (included as Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 6, 2020 and incorporated herein
by reference)
|
|
|
|
|
|
Form of Class B Purchase Warrant issued to
investors (included as
Exhibit 4.2 to the Company’s Current Report on Form 8-K filed
on January 6, 2020 and incorporated herein by
reference)
|
|
|
|
|
|
Form of Warrant issued to Brookline Capital
Markets, a division of Arcadia Securities, LLC (included as Exhibit
4.3 to the Company’s Current Report on Form 8-K filed on
January 6, 2020 and incorporated herein by
reference)
|
|
|
|
|
|
4.5 |
Form of Warrant (included as Exhibit 4.2 to
the Company's Registration Statement on Form S-1 filed on May 8,
2018, and incorporated herein by
reference)
|
49
|
Patent
Assignment and Royalty Agreement between the Company and Frank
Oakes, dated August 6, 2002 (included as Exhibit 4(a) to the
Company’s Registration Statement on Form 20-F filed on
February 3, 2012, and incorporated herein by
reference).
|
|
|
|
|
|
Advance Notice
Policy, adopted October 31, 2013 (included as Exhibit 10.14 to the
Company's Annual Report on Form 10-K filed on November 14, 2014,
and incorporated herein by reference).
|
|
|
|
|
|
Form
of Securities Purchase Agreement (included as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 filed on May 8, 2018,
and incorporated herein by reference).
|
|
|
|
|
|
10.4@
|
Employment Agreement by and between the
Company and Kathi Niffenegger, dated June 7, 2019 (included as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
June 10, 2019, and incorporated herein by
reference).
|
|
|
|
|
10.5@
|
Employment
Agreement by and between the Company and Pardeep Nijhawan,
dated June 14, 2019 (included as Exhibit 10.2 to the Company's
Current Report on Form 8-K/A filed on June 20, 2019, and
incorporated herein by reference).
|
|
|
|
|
10.6@
|
Employment
Agreement by and between the Company and Michael Brooks, dated
June 14, 2019 (included as Exhibit 10.3 to the Company's Current
Report on Form 8-K/A filed on June 20, 2019, and incorporated
herein by reference).
|
|
10.7@
|
Form
of Indemnification Agreement, by and between the Company and each
of its directors and executive officers (included as Exhibit 10.4
to the Company's Current Report on Form 8-K/A filed on June 20,
2019, and incorporated herein by reference).
|
|
|
|
|
10.8@
|
Fixed
Share Option Plan dated December 18, 2013 (included as Exhibit
10.11 to the Company’s Annual Report on Form 10-K filed on
November 14, 2014, and incorporated herein by
reference).
|
|
|
|
|
10.9@
|
2017
Incentive Compensation Plan (included as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on March 29, 2017,
and incorporated herein by reference).
|
|
|
|
|
2019
Equity Incentive Compensation Plan (included as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 25,
2019, and incorporated herein by reference).
|
|
|
|
|
|
Lease, dated as of January 1, 2017, by and between the Registrant
and 1968160 Ontario Inc. (included as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on August 30, 2019, and
incorporated herein by reference).
|
|
|
|
|
|
Exclusive License
Agreement, dated as of June 29, 2016, by and between the Registrant
and Yissum Research Development Company (included as Exhibit 10.2
to the Company's Current Report on Form 8-K filed on August 30,
2019, and incorporated herein by reference).
|
|
|
|
|
|
First Amendment to Exclusive License Agreement, dated April 3,
2017, by and between the Registrant and Yissum Research Development
Company (included as Exhibit 10.3 to the Company's Current Report
on Form 8-K filed on August 30, 2019, and incorporated herein by
reference).
|
|
|
|
|
|
Second
Amendment to Exclusive License Agreement, dated May 7, 2017, by and
between the Registrant and Yissum Research Development Company
(included as Exhibit 10.4 to the Company's Current Report on Form
8-K filed on August 30, 2019, and incorporated herein by
reference).
|
|
|
|
|
|
License and
Development Agreement, dated as of August 27, 2017, by and between
the Registrant and Pendopharm, a division of Pharmascience Inc.
(included as Exhibit 10.6 to the Company's Current Report on Form
8-K filed on August 30, 2019, and incorporated herein by
reference).
|
50
|
Form of Securities Purchase Agreement between Edesa Biotech, Inc.
and certain investors (included as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 6, 2020
and incorporated herein by reference)
|
|
|
|
|
|
Form of Subscription Agreement between Edesa
Biotech, Inc. and certain investors (included as Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on January 6, 2020
and incorporated herein by reference)
|
|
|
|
|
|
License Agreement by and between Edesa Biotech Research, Inc. and
NovImmune SA dated April 17, 2020 (included as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on April 23, 2020,
and incorporated herein by reference).
|
|
|
|
|
|
Purchase Agreement by and between Edesa Biotech Research, Inc. and
NovImmune SA dated April 17, 2020 (included as Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on April 23, 2020,
and incorporated herein by reference).
|
|
|
|
|
|
Securities Purchase Agreement by and between Edesa Biotech, Inc.
and NovImmune SA dated April 17, 2020 (included as Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed on April 23,
2020, and incorporated herein by reference).
|
|
|
|
|
|
Employment
Agreement by and between the Company and Kathi Niffenegger, dated
December 1, 2020 (filed herewith).
|
|
Code
of Ethics and Business Conduct (included as Exhibit 14.1 to the
Company's Annual Report on Form 10-K filed on December 12, 2019,
and incorporated herein by reference).
|
|
|
|
|
|
Subsidiaries of
Edesa Biotech, Inc. (filed herewith).
|
|
|
|
|
|
Consent of MNP LLP
(filed herewith).
|
|
|
|
|
|
Power
of Attorney (included on signature page).
|
|
|
|
|
|
Certification of
the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities and Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
|
|
|
|
Certification of
the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities and Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
|
|
|
|
Certification of
the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
|
|
|
|
32.2**
|
Certification of
the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
|
|
|
101.INS
|
XBRL
Instance Document
|
|
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
101.CAL
|
XBRL
Taxonomy Calculation Linkbase Document
|
|
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
101.LAB
|
XBRL
Taxonomy Label Linkbase Document
|
|
|
|
|
101.PRE
|
XBRL
Taxonomy Presentation Linkbase Document
|
* All
schedules and exhibits to the Share Exchange Agreement have been
omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any
omitted schedule and/or exhibit will be furnished to the Securities
and Exchange Commission upon request.
** The
information in this exhibit is furnished and deemed not filed with
the Securities and Exchange Commission for purposes of section 18
of the Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of Edesa Biotech, Inc.
under the Securities Act of 1933, as amended, or the Exchange Act
of 1934, as amended, whether made before or after the date hereof,
regardless of any general incorporation language in such
filing.
@ Management contract or compensatory plan or
arrangement.
+ Portions
of this exhibit have been omitted pursuant to Rule 601(b)(10)(iv)
of Regulation S-K.
Item 16. FORM 10-K Summary
None.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Date:
December 7, 2020
|
EDESA BIOTECH, INC.
|
|
|
|
|
|
/s/ Pardeep Nijhawan
|
|
|
Pardeep Nijhawan,
MD
|
|
|
Director, Chief
Executive Officer and Corporate Secretary
|
|
|
(Principal
Executive Officer)
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Pardeep Nijhawan
and Kathi Niffenegger, and each of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of
substitution for him or her, and in his or her name in any and all
capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done therewith, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and any of them or his or
her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Signature
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|
Title
|
|
Date
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/s/ Pardeep Nijhawan
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|
Director, Chief
Executive Officer, and
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|
December 7,
2020
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|
Pardeep Nijhawan
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|
Corporate
Secretary (Principal Executive Officer)
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|
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/s/ Kathi Niffenegger
|
|
Chief
Financial Officer
|
|
December 7,
2020
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Kathi Niffenegger
|
|
(Principal
Financial and Accounting Officer)
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|
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/s/ Lorin Johnson
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Director
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|
December 7,
2020
|
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Lorin Johnson
|
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/s/ Sean MacDonald
|
|
Chairman of the
Board of Directors
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|
December 7,
2020
|
|
Sean MacDonald
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|
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/s/ Frank Oakes
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Director
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|
December 7,
2020
|
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Frank Oakes
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/s/ Paul Pay
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Director
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|
December 7,
2020
|
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Paul Pay
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|
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|
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/s/ Carlo Sistilli
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Director
|
|
December 7,
2020
|
|
Carlo Sistilli
|
|
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|
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/s/ Peter van der Velden
|
|
Director
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|
December 7,
2020
|
|
Peter van der Velden
|
|
|
|
|
52
EDESA BIOTECH, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
|
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|
F-2
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|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
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F-6
|
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|
F-7
|
F-1
Report of Independent Registered
Public Accounting Firm
To the
Board of Directors and Shareholders
of
Edesa Biotech, Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of Edesa
Biotech, Inc. (the Company) as of September 30, 2020 and 2019, the
related consolidated statements of operations and comprehensive
loss, changes in shareholders’ equity and cash flows for the
year ended September 30, 2020 and the nine-month period ended
September 30, 2019, and the related notes (collectively referred to
as the consolidated financial statements).
In our
opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the
Company as of September 30, 2020 and 2019, and the results of its
consolidated operations and its consolidated cash flows for the
year ended September 30, 2020 and the nine-month period ended
September 30, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ MNP
LLP
Chartered
Professional Accountants
Licensed Public
Accountants
We have
served as the Company’s auditor since 2019.
Toronto,
Canada
December 7,
2020
F-2
Edesa Biotech, Inc.
Consolidated Balance Sheets
|
|
September 30,
2020
|
September 30,
2019
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$7,213,695
|
$5,030,583
|
|
Accounts and other receivable
|
87,446
|
217,101
|
|
Prepaid expenses and other current assets
|
802,877
|
397,022
|
|
|
|
|
|
Total current assets
|
8,104,018
|
5,644,706
|
|
|
|
|
|
Non-current assets:
|
|
|
|
Property and equipment, net
|
14,815
|
73,058
|
|
Intangible assets, net
|
2,483,536
|
-
|
|
Operating lease right-of-use assets
|
160,006
|
-
|
|
|
|
|
|
Total assets
|
$10,762,375
|
$5,717,764
|
|
|
|
|
|
|
|
|
|
Liabilities, shareholders' equity and temporary
equity:
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities
|
$1,460,127
|
$461,634
|
|
Short-term operating lease liabilities
|
69,730
|
-
|
|
|
|
|
|
Total current liabilities
|
1,529,857
|
461,634
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
Long-term payables
|
29,928
|
-
|
|
Long-term operating lease liabilities
|
94,460
|
-
|
|
|
|
|
|
Total liabilities
|
1,654,245
|
461,634
|
|
|
|
|
|
Commitments (Note
7)
|
|
|
|
|
|
|
|
Temporary equity:
|
|
|
|
Convertible preferred shares
|
2,476,955
|
-
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
Capital shares
|
|
|
|
Authorized unlimited common and preferred shares without par
value
|
|
|
|
Issued and outstanding:
|
|
|
|
9,615,119 common shares (2019 - 7,504,468)
|
18,500,853
|
12,005,051
|
|
Additional paid-in capital
|
1,550,480
|
327,768
|
|
Accumulated other comprehensive loss
|
(287,204)
|
(342,074)
|
|
Accumulated deficit
|
(13,132,954)
|
(6,734,615)
|
|
|
|
|
|
Total shareholders' equity
|
6,631,175
|
5,256,130
|
|
|
|
|
|
Total liabilities, shareholders' equity and temporary
equity
|
$10,762,375
|
$5,717,764
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-3
Edesa Biotech, Inc.
Consolidated Statements of Operations and Comprehensive
Loss
|
|
Year
Ended
|
Nine-month
Period Ended
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
|
|
|
Revenues:
|
|
|
|
Product sales
|
$328,801
|
$410,870
|
|
|
|
|
|
Expenses:
|
|
|
|
Cost of sales
|
17,601
|
101,286
|
|
Research and development
|
3,329,451
|
1,096,426
|
|
General and administrative
|
3,382,591
|
2,045,296
|
|
|
|
|
|
|
6,729,643
|
3,243,008
|
|
|
|
|
|
Loss from Operations
|
(6,400,842)
|
(2,832,138)
|
|
|
|
|
|
Other Income (Loss):
|
|
|
|
Interest income
|
37,778
|
56,840
|
|
Foreign exchange loss
|
(366)
|
(1,436)
|
|
|
|
|
|
|
37,412
|
55,404
|
|
|
|
|
|
Loss before income taxes
|
(6,363,430)
|
(2,776,734)
|
|
|
|
|
|
Income tax expense
|
800
|
-
|
|
|
|
|
|
Net Loss
|
(6,364,230)
|
(2,776,734)
|
|
|
|
|
|
Exchange differences on translation
|
54,870
|
87,899
|
|
|
|
|
|
Net Comprehensive Loss
|
$(6,309,360)
|
$(2,688,835)
|
|
|
|
|
|
Weighted average number of common shares
|
8,607,161
|
5,036,331
|
|
|
|
|
|
Loss per common share - basic and diluted
|
$(0.74)
|
$(0.55)
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
Edesa Biotech, Inc.
Consolidated Statements of Cash Flows
|
|
Year
Ended
|
Nine-month
Period Ended
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
Net loss
|
$(6,364,230)
|
$(2,776,734)
|
|
Adjustments for:
|
|
|
|
Depreciation and amortization
|
57,563
|
4,779
|
|
Share-based compensation
|
598,359
|
35,074
|
|
Change in working capital items:
|
|
|
|
Accounts and other receivable
|
127,131
|
9,737
|
|
Prepaid expenses and other current assets
|
(404,066)
|
(311,466)
|
|
Inventory
|
-
|
77,913
|
|
Accounts payable and accrued liabilities
|
998,903
|
(1,885,090)
|
|
|
|
|
|
Net cash used in operating activities
|
(4,986,340)
|
(4,845,787)
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
Cash acquired from reverse acquisition
|
-
|
6,389,322
|
|
Proceeds on sales of property and equipment
|
53,412
|
36,741
|
|
Purchase of property and equipment
|
(4,856)
|
(8,095)
|
|
Purchase of intangible assets
|
(29,483)
|
-
|
|
Purchase of short-term investments
|
(500,000)
|
-
|
|
Proceeds from maturities of short-term investments
|
500,000
|
-
|
|
|
|
|
|
Net cash provided by investing activities
|
19,073
|
6,417,968
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
Proceeds from issuance of common shares
|
4,360,500
|
-
|
|
Proceeds from exercise of warrants
|
3,223,804
|
-
|
|
Proceeds from exercise of share options
|
11,571
|
-
|
|
Payments for issuance costs of common shares
|
(475,720)
|
-
|
|
Payments for issuance costs of convertible preferred
shares
|
(57,154)
|
-
|
|
Proceeds from borrowings
|
29,748
|
-
|
|
|
|
|
|
Net cash provided by financing activities
|
7,092,749
|
-
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
57,630
|
91,304
|
|
|
|
|
|
Net change in cash and cash equivalents
|
2,183,112
|
1,663,485
|
|
Cash and cash equivalents, beginning of period
|
5,030,583
|
3,367,098
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
$7,213,695
|
$5,030,583
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-cash Investing and Financing
Activities:
|
|
|
|
Issuance of convertible preferred shares to acquire intangible
asset
|
2,500,000
|
-
|
|
Fair value of placement agent warrants
|
18,051
|
-
|
|
Non-cash assets acquired and liabilities assumed in reverse
acquisition - See Note 13
|
-
|
(1,693,921)
|
|
Preferred shares exchanged for common shares in reverse
acquisition
|
-
|
6,260,299
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-5
Edesa Biotech, Inc.
Consolidated Statements of Changes in Shareholders'
Equity
|
|
Shares #
|
Common Shares
|
Class A Preferred Shares
|
Additional Paid-in Capital
|
Accumulated Other Comprehensive Loss
|
Accumulated Deficit
|
Total Shareholders' Equity
|
|
Balance -
December 31, 2018
|
3,239,902
|
$1,111,253
|
$6,064,013
|
$230,792
|
$(429,973)
|
$(3,761,595)
|
$3,214,490
|
|
|
|
|
|
|
|
|
|
|
Preferred return on Class A
preferred shares
|
-
|
-
|
196,286
|
-
|
-
|
(196,286)
|
-
|
|
Effect of reverse
acquisition
|
4,264,566
|
10,893,798
|
(6,260,299)
|
61,902
|
-
|
-
|
4,695,401
|
|
Share-based
compensation
|
-
|
-
|
-
|
35,074
|
-
|
-
|
35,074
|
|
Net loss and comprehensive
loss
|
-
|
-
|
-
|
-
|
87,899
|
(2,776,734)
|
(2,688,835)
|
|
|
|
|
|
|
|
|
|
|
Balance -
September 30, 2019
|
7,504,468
|
$12,005,051
|
$-
|
$327,768
|
$(342,074)
|
$(6,734,615)
|
$5,256,130
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares in equity
offering
|
1,354,691
|
3,070,358
|
-
|
1,290,142
|
-
|
-
|
4,360,500
|
|
Issuance costs
|
-
|
(349,756)
|
-
|
(125,964)
|
-
|
-
|
(475,720)
|
|
Issuance of common shares upon
exercise of warrants
|
751,510
|
3,754,265
|
-
|
(530,461)
|
-
|
-
|
3,223,804
|
|
Issuance of common shares upon
exercise of share options
|
4,450
|
20,935
|
-
|
(9,364)
|
-
|
-
|
11,571
|
|
Preferred return on convertible
preferred shares
|
-
|
-
|
-
|
-
|
-
|
(34,109)
|
(34,109)
|
|
Share-based
compensation
|
-
|
-
|
-
|
598,359
|
-
|
-
|
598,359
|
|
Net loss and comprehensive
loss
|
-
|
-
|
-
|
-
|
54,870
|
(6,364,230)
|
(6,309,360)
|
|
|
|
|
|
|
|
|
|
|
Balance -
September 30, 2020
|
9,615,119
|
$18,500,853
|
$-
|
$1,550,480
|
$(287,204)
|
$(13,132,954)
|
$6,631,175
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
|
Edesa Biotech, Inc.
|
|
Notes to Consolidated Financial
Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
1. Nature
of operations
Edesa Biotech, Inc. (the “Company” or
“Edesa”) is a biopharmaceutical company focused on
acquiring, developing and commercializing clinical stage drugs for
inflammatory and immune-related diseases with clear unmet medical
needs. The Company is organized under the laws of British Columbia,
Canada and is headquartered in Markham, Ontario.
In
June 2019, the Company changed its name from Stellar
Biotechnologies, Inc. to Edesa Biotech, Inc. following a reverse
acquisition with Edesa Biotech Research, Inc., formerly known as
Edesa Biotech Inc., a company organized under the laws of the
province of Ontario. At the closing of the transaction, which
occurred on June 7, 2019, the Company acquired the entire issued
share capital of Edesa Biotech Research, Inc., with Edesa Biotech
Research, Inc., becoming a wholly-owned subsidiary of the Company.
The other wholly-owned subsidiary of the Company is Edesa Biotech
USA, Inc., a California, USA corporation founded in 1999 formerly
known as Stellar Biotechnologies, Inc. prior to November 2020.
Also, on June 7, 2019, in connection with and following the
completion of the reverse acquisition, the Company effected a
1-for-6 reverse split of its common shares. Upon the completion of
the reverse acquisition, Edesa Biotech Research, Inc. changed its
fiscal year end from December 31 to September 30 to align with the
Company’s fiscal year end.
The Company’s common shares trade on The Nasdaq Capital
Market in the United States under the symbol
“EDSA”.
Liquidity
The
Company's 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 year ended September
30, 2020 and nine-month period ended September 30, 2019, the
Company reported net losses of $6.36 million and $2.78 million,
respectively.
On
January 8, 2020, the Company completed a registered direct offering
resulting in net proceeds of approximately $3.89 million. On
September 28, 2020, the Company entered into an Equity Distribution
Agreement with RBC Capital Markets, LLC (“RBCCM”), as
sales agent, pursuant to which the Company may offer and sell, from
time to time, common shares through an at-the-market equity
offering program for up to $9.2 million in gross cash proceeds. The
total amount of cash that may be generated under this distribution
agreement is uncertain and depends on a variety of factors,
including market conditions and the trading price of the
Company’s common shares. No shares were sold under the
distribution agreement prior to September 30, 2020.
At
September 30, 2020, the Company had cash and cash equivalents of
$7.21 million, working capital of $6.57 million,
shareholders’ equity and temporary equity of $9.11 million
and an accumulated deficit of $13.13 million. From October 1, 2020
to December 2, 2020, the exercise of Class A and Class B warrants
resulted in the issuance of 243,369 common shares and cash proceeds
of approximately $1.0 million. From October 1, 2020 to December 2,
2020, the Company sold 169,753 common shares under the
Company’s equity distribution agreement for net proceeds of
approximately $0.99 million. The Company plans to finance
operations for at least the next twelve months with cash and cash
equivalents on hand.
Impact of COVID-19
The
ongoing COVID-19 pandemic has severely impacted global economic
activity and has caused material disruptions to almost every
industry directly or indirectly. The full impact of the pandemic
remains uncertain and ongoing developments related to the pandemic
may cause material impacts to the Company’s future
operations, clinical study timelines and financial results. While
the full impact of the COVID-19 pandemic to business and operating
results presents additional uncertainty, the Company’s
management continues to use reasonably available information to
assess impacts to the Company’s business plans and financial
condition.
2. Basis
of preparation
The
accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States (U.S. GAAP) and include the accounts of the Company
and its wholly-owned subsidiaries, Edesa Biotech Research, Inc., an
Ontario corporation, and Edesa Biotech USA, Inc., a California
corporation in the U.S. All intercompany balances and transactions
have been eliminated upon consolidation.
The accompanying consolidated financial statements include the year
ended September 30, 2020 and nine-month period ended September 30,
2019.
F-7
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
3. Significant
accounting policies
Use of estimates
The
preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the period or year. Actual results could differ
from those estimates. Areas where significant judgment is involved
in making estimates are valuation of accounts and other receivable;
valuation and useful lives of property and equipment; intangible
assets; operating lease right-of-use assets; deferred income taxes;
classification of convertible preferred shares as liability or
equity; the determination of fair value of share-based
compensation; the determination of fair value of shares and
replacement warrants for reverse acquisition; the determination of
fair value of Class A Warrants, Class B Warrants and placement
agent warrants in order to allocate proceeds from equity issuances;
and forecasting future cash flows for assessing the going concern
assumption.
Functional and reporting currencies
The
consolidated financial statements of the Company are presented in
U.S. dollars, unless otherwise stated, which is the Company’s
and its wholly- owned subsidiary’s, Edesa Biotech USA, Inc.,
functional currency. The functional currency of the Company’s
wholly-owned subsidiary, Edesa Biotech Research, Inc., as
determined by management, is Canadian dollars.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits with financial
institutions and highly liquid investments which are readily
convertible into cash with maturities of three months or less when
purchased. The carrying amount of cash and cash equivalents
approximates its fair value due to its short-term
nature.
Investments
Investments during the year consisted of U.S. Treasury bills with
original maturities between 13 and 52 weeks. They are reported at
amortized cost, which approximates fair value. The Company
regularly reviews these investments to determine whether any
decline in fair value below the amortized cost basis has occurred
that is other than temporary. If a decline in fair value has
occurred that is determined to be other than temporary, the cost
basis of the investment is written down to fair value. There were
no investments outstanding at September 30, 2020 and
2019.
Accounts and other receivable
The Company assesses the collectability of its accounts receivable
through a review of its current aging, as well as an analysis of
its historical collection rate, general economic conditions and
credit status of its customers. Accounts and other receivable
include Harmonized Sales Tax (HST) refunds receivable. As of
September 30, 2020, all outstanding accounts and HST refunds
receivable were deemed to be fully collectible, and therefore, no
allowance for doubtful accounts was recorded.
Property and equipment
Property and equipment are recorded at historical cost less
accumulated depreciation and any accumulated impairment losses.
Depreciation is recorded to write off the cost of assets less their
residual values over their useful lives, using the declining
balance and straight-line methods. Assets not in use and on
consignment for sale are carried at the expected net proceeds
value. Maintenance and repair expenditures that do not improve or
extend the life are expensed in the period incurred. Any gain or
loss arising on the disposal or retirement of an item of property
and equipment is recognized as the difference between the sales
proceeds and the carrying amount of the asset. The estimated useful
lives, residual values and depreciation methods are reviewed at the
end of each year, with the effect of any changes in estimate
accounted for on a prospective basis.
The
depreciation policy for the principal asset categories are
calculated as follows:
|
Computer
equipment
|
30% declining
balance method or straight line 3
years
|
|
Furniture and
equipment
|
20% declining
balance method
|
F-8
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
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. Intangible assets are stated 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.
Impairment of long-lived assets
Long-lived assets are tested for impairment when indicators of
impairment exist. When a significant change in the expected timing
or amount of the future cash flows of the financial asset is
identified, the carrying amount of the financial asset is reduced
and the amount of the write-down is recognized as a loss. A
previously recognized impairment loss may be reversed to the extent
of the improvement, provided it is not greater than the amount that
would have been reported at the date of the reversal had the
impairment not been recognized previously, and the amount of the
reversal is recognized in net income (loss).
Fair value measurement
The Company uses the fair value measurement framework for valuing
financial assets and liabilities. See Note 11.
Revenue Recognition
The Company recognizes revenue when the customer obtains control of
promised goods or services, in an amount that reflects the
consideration the Company expects to receive in exchange for those
goods or services. The Company recognizes revenue following the
five-step model prescribed under ASC Topic 606: (1) identify
contract(s) with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to the performance obligations
in the contract; and (5) recognize revenues when (or as) the
Company satisfies the performance obligation(s). Revenues consist
of sales of product inventory obtained in the reverse acquisition
completed in June 2019, which are recognized upon shipment when the
customer obtains control of the product and the Company has no
further performance obligations.
Research and development
Research and development expenses
principally consist of (i) contract research organizations
for clinical trial management services, (ii) contract manufacturing
organizations for manufacturing the drug compound(s) for use in
clinical trials and (iii) salaries of employees directly involved
in research and development efforts. Research and development costs are expensed as
incurred.
Share-based compensation
The Company measures the cost of equity-settled transactions by
reference to the fair value of the equity instruments at the date
at which they are granted since the fair value of the goods or
services received by the Company cannot be reliably
estimated.
The Company grants options to buy common shares of the Company to
its directors, officers, employees and consultants, and grants
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 net of estimated forfeitures for
employees or the service period for non-employees. The provisions
of the Company's share-based compensation plans do not require the
Company to settle any options by transferring cash or other assets,
and therefore the Company classifies the awards as equity. The
Black-Scholes option valuation model requires the input of
subjective assumptions, including price volatility of the
underlying stock, risk-free interest rate, dividend yield, and
expected life of the option.
Translation of foreign currency transactions
The Company's reporting currency is the U.S. dollar. The financial
statements of the wholly-owned Canadian subsidiary is measured
using the Canadian dollar as the functional currency. Assets and
liabilities of the Canadian operation have been translated at
year-end exchange rates and related revenue and expenses have been
translated at average exchange rates for the year. Accumulated
gains and losses resulting from the translation of the financial
statements of the Canadian operation are included as part of
accumulated other comprehensive loss, a separate component of
shareholders' equity.
For other transactions denominated in currencies other than the
Company’s 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 U.S. dollar using historical
exchange rates. All of the exchange gains or losses resulting from
these other transactions are recognized in the statements of
operations and comprehensive loss.
F-9
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
Income taxes
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the tax
bases of assets and liabilities and their financial statement
reported amounts using enacted tax rates and laws in effect in the
year in which the differences are expected to reverse. A valuation
allowance is provided against deferred tax assets when it is
determined to be more likely than not that the deferred tax asset
will not be realized.
The Company assesses the likelihood of the financial statement
effect of a tax position that should be recognized when it is more
likely than not that the position will be sustained upon
examination by a taxing authority based on the technical merits of
the tax position, circumstances, and information available as of
the reporting date. The Company is subject to examination by taxing
authorities in Canada and the U.S. Management does not believe that
there are any uncertain tax positions that would result in an asset
or liability for taxes being recognized in the accompanying
financial statements. The Company recognizes tax-related interest
and penalties, if any, as a component of income tax
expense.
The Company accounts for income taxes on a tax jurisdictional
basis. The Company files income tax returns in Canada, the
provinces of British Columbia and Ontario, the U.S. and the state
of California.
Earnings (loss) per share
Basic earnings (loss) per share is calculated by dividing net
income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the
period.
The
computation of diluted earnings (loss) per share assumes the
conversion, exercise or contingent issuance of securities only when
such conversion, exercise or issuance would have a dilutive effect
on earnings (loss) per share. The dilutive effect of convertible
securities would be reflected in diluted earnings per share by
application of the “if converted” method. The dilutive
effect of outstanding options and warrants and their equivalents
would be reflected in diluted earnings per share by application of
the treasury stock method. However, conversion of outstanding
convertible preferred shares, options and warrants would have an
antidilutive effect on loss per share for the year ended September
30, 2020 and nine-month period ended September 30, 2019 and are
therefore excluded from the computation of diluted loss per share.
See Notes 8 and 9 for outstanding convertible preferred shares,
options and warrants at September 30, 2020 and 2019.
Segmented Information
The Company's operations comprise a single reportable segment
engaged in the research and development, manufacturing and
commercialization of innovative pharmaceutical products. As the
operations comprise a single reportable segment, amounts disclosed
in the consolidated financial statements for net loss,
comprehensive loss, depreciation and total assets also represent
segmented amounts.
Adoption of Recent Accounting Pronouncements
On
October 1, 2019, the Company adopted Accounting Standards
Codification (ASC) Topic 842 Leases using the modified
retrospective transition method, applying the new standard to all
leases existing at the date of initial application. In addition,
the Company elected the package of practical expedients in
transition, which permitted the Company not to reassess prior
conclusions about lease identification, lease classification and
initial direct costs on leases that commenced prior to adoption of
the new standard. The Company also elected the ongoing practical
expedient not to recognize operating lease right-of-use assets and
operating lease liabilities for short-term leases. As a result of
adopting the new standard, the Company recognized operating lease
right-of-use (“ROU”) assets of approximately $234,000
and operating lease liabilities of approximately $234,000 on the
balance sheet for one operating lease with a term longer than 12
months at adoption. There was no impact to opening accumulated
deficit. The Company had three short-term operating leases upon
adoption that did not follow the ROU model. 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
measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the Company’s
incremental borrowing rate.
F-10
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
Future accounting pronouncements
In June
2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments,
which includes provisions that require financial assets measured at
amortized cost basis to be presented at the net amount expected to
be collected and credit losses relating to available-for-sale debt
securities to be recorded through an allowance for credit losses,
which requires recognition of an estimate of all current expected
credit losses. The guidance is effective for public entities for
fiscal years beginning after December 15, 2019, including interim
periods within those years, with early adoption permitted for
fiscal years beginning after December 15, 2018. These standards are
effective for the Company during the fiscal year ending September
30, 2021. Management expects that ASU 2016-13, as updated, will not
have a significant impact on the Company’s consolidated
financial statements.
4. Property
and equipment
Property and equipment, net consisted of the
following:
|
|
September 30,
2020
|
September 30,
2019
|
|
|
|
|
|
Computer equipment
|
$34,651
|
$42,910
|
|
Furniture and equipment
|
5,694
|
7,932
|
|
|
|
|
|
|
40,345
|
50,842
|
|
Less: accumulated depreciation
|
(25,530)
|
(29,194)
|
|
|
|
|
|
Depreciable assets, net
|
$14,815
|
$21,648
|
|
|
|
|
|
Assets not in service
|
-
|
51,410
|
|
|
|
|
|
Total property and equipment, net
|
$14,815
|
$73,058
|
Assets not in service at September 30, 2019 represented equipment
acquired in the reverse acquisition and held for sale on
consignment by a third party. All assets not in service were
disposed by September 30, 2020.
Depreciation expense amounted to $9,602 and $4,779 for the year
ended September 30, 2020 and nine-month period ended September 30,
2019, respectively.
F-11
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
5. Intangible
assets
Acquired License
In April 2020, the Company entered into a license agreement with a
pharmaceutical development company to obtain exclusive world-wide
rights to know-how, patents and data relating to certain monoclonal
antibodies ("the Constructs"), including sublicensing rights.
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.
Under the license agreement, the Company is exclusively
responsible, at its expense, for the research, development
manufacture, marketing, distribution and commercialization of the
Constructs and licensed products and to obtain all necessary
licenses and rights. The Company is required to use commercially
reasonable efforts to develop and commercialize the Constructs in
accordance with the terms of a development plan established by the
parties.
The
Company has determined that the license has multiple alternative
future uses in research and development projects and sublicensing
in other countries or for other disease indications. The value of
the acquired license is recorded as an intangible asset with
amortization over the estimated useful life of 25 years and
evaluation for impairment at the end of each reporting
period.
The
required upfront license payment of $2.5 million was paid by
issuance of Series A-1 Convertible Preferred Shares. The value of
the license includes acquisition legal costs. See Note 7 for
license commitments and Note 8 for temporary
equity.
Intangible assets, net consisted of the following:
|
|
September 30, 2020
|
September 30, 2019
|
|
|
|
|
|
The Constructs
|
$2,529,483
|
$-
|
|
|
|
|
|
Less: accumulated amortization
|
(45,947)
|
-
|
|
|
|
|
|
Total intangible assets, net
|
$2,483,536
|
$-
|
Amortization
expense amounted to $45,947 for the year ended September 30, 2020.
There was no amortization expense for nine-month period ended
September 30, 2019.
Total
estimated future amortization of intangible assets for each fiscal
year is as follows:
|
Year Ending
|
|
|
September
30, 2021
|
$101,172
|
|
September
30, 2022
|
101,172
|
|
September
30, 2023
|
101,172
|
|
September
30, 2024
|
101,172
|
|
September
30, 2025
|
101,172
|
|
Thereafter
|
1,977,676
|
|
|
|
|
|
$2,483,536
|
6. Leases
Related party operating lease
The Company leases facilities used for executive offices from a
related company for a six-year term through December 2022, with
options to renew for another two-year term. The option period is
not included in the operating lease right-of-use assets and
liabilities.
The
gross amounts of assets and liabilities related to operating leases
were as follows:
|
|
Balance Sheet Caption
|
September 30,
2020
|
|
Assets:
|
|
|
|
Operating lease assets
|
Operating lease right-of-use assets
|
$160,006
|
|
|
|
|
|
Liabilities:
|
|
|
|
Current:
|
|
|
|
Operating lease liabilities
|
Short-term operating lease liabilities
|
$69,730
|
|
Long-term:
|
|
|
|
Operating lease liabilities
|
Long-term operating lease liabilities
|
94,460
|
|
|
|
|
|
Total lease liabilities
|
|
$164,190
|
F-12
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
The components of lease cost were as follows:
|
|
Statements of Operations
Caption
|
Year
Ended
September 30,
2020
|
|
Operating lease cost
|
General and administrative
|
$76,331
|
Lease
terms and discount rates were as follows:
|
|
September 30,
2020
|
|
Remaining lease term (months):
|
27
|
|
Estimated incremental borrowing rate:
|
6.5%
|
The
approximate future minimum lease payments under operating leases at
September 30, 2020 were as follows:
|
Year Ending
|
|
|
September 30, 2021
|
$78,362
|
|
September 30, 2022
|
78,884
|
|
September 30, 2023
|
19,721
|
|
|
|
|
Total lease payment
|
176,967
|
|
Less imputed interest
|
12,777
|
|
|
|
|
Present value of lease liabilities
|
164,190
|
|
Less current installments
|
69,730
|
|
|
|
|
Long-term lease liabilities excluding current
installments
|
$94,460
|
Cash
flow information was as follows:
|
|
Statements
of Cash Flows Caption
|
Year Ended
September 30,
2020
|
|
Cash paid for amounts included in the measurement of lease
liabilities
|
Accounts payable and accrued liabilities
|
$76,333
|
Other operating leases
The
Company also leased facilities through its California subsidiary
under one operating lease that expired in June 2020 and two
operating leases that expired in September 2020. The Company did
not exercise options to extend these leases. Total rent under these
leases included in general and administrative expenses was $201,421
and $68,508 for the year ended September 30, 2020 and nine-month
period ended September 30, 2019, respectively. There was no rent
under these leases prior to the completion of the reverse
acquisition on June 7, 2019.
7. Commitments
Research and other commitments
The
Company has commitments for contracted research organizations who
perform clinical trials for the Company’s ongoing clinical
studies, other service providers and the drug substance acquired in
connection with a license agreement. Aggregate future contractual
payments at September 30, 2020 are as follows:
|
Year Ending
|
|
|
September 30,
2021
|
$4,838,000
|
|
September 30,
2022
|
2,572,000
|
|
September 30,
2023
|
27,000
|
|
September 30,
2024
|
24,000
|
|
|
|
|
|
$7,461,000
|
F-13
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
License and royalty commitments
In
April 2020, through its Ontario subsidiary, the Company entered
into a license agreement with a third party to obtain exclusive
world-wide rights to certain know-how, patents and data relating to
certain monoclonal antibodies ("the Constructs"), including
sublicensing rights. An intangible asset for the acquired license
has been recognized. See Note 5 for intangible assets. Under the
license agreement, the Company is committed to payments of up to an
aggregate amount of $356 million contingent upon meeting certain
milestones outlined in the license agreement, primarily relating to
future potential commercial approval and sales milestones. The
Company also has a commitment to pay royalties based on any net
sales of products containing the Constructs in the countries where
the Company directly commercializes the products containing the
Constructs and a percentage of any sublicensing revenue received by
the Company and its affiliates in the countries where it does not
directly commercialize the products containing the Constructs. No
royalty or sublicensing payments were made to the third party
during the year ended September 30, 2020. In connection with this
license agreement and pursuant to a purchase agreement entered into
in April 2020, the Company acquired drug substance of one of the
Constructs for an aggregate purchase price of $5.0 million, payable
in two future installments, the first when the Company is ready to
initiate a Phase 2 trial and the second when the Company is ready
to initiate a Phase 3 trial. The purchase commitment is included in
the table above in 2021 and 2022. No amounts have been paid for the
drug substance during the year ended September 30,
2020.
In 2016, through its Ontario subsidiary, the Company entered into a
license agreement with a third party to obtain exclusive rights to
certain know-how, patents and data relating to a pharmaceutical
product. The Company will use the exclusive rights to develop the
product for therapeutic, prophylactic and diagnostic uses in
topical dermal applications and anorectal applications. No
intangible assets have been recognized under the license agreement
with the third party as of September 30, 2020 and 2019. Under the
license agreement, the Company is committed to payments of various
amounts to the third party upon meeting certain milestones outlined
in the license agreement, up to an aggregate amount of $18.6
million. Upon divestiture of substantially all of the assets of the
Company, the Company shall pay the third party a percentage of the
valuation of the licensed technology sold as determined by an
external objective expert. The Company also has a commitment to pay
the third party a royalty based on net sales of the product in
countries where the Company, or an affiliate, directly
commercializes the product and a percentage of sublicensing revenue
received by the Company and its affiliates in the countries where
it does not directly commercialize the product. No license or
royalty payments were made to the third party during the year ended
September 30, 2020 and nine-month period ended September 30,
2019.
Related party patent royalty commitments
On August 14, 2002, through its California subsidiary, the Company
entered into a patent royalty agreement with a director of the
Company, whereby he would receive royalty payments in exchange for
assignment of his patent rights to the Company. The royalty is 5%
of gross receipts from products using this invention in excess of
$500,000 annually.
Retirement savings plan 401(k) contributions
Executive officers and
employees of our California subsidiary are eligible to receive the
Company’s non-elective safe harbor employer contribution of 3% of
eligible compensation under a 401(k) plan to provide retirement
benefits. Employees are
100% vested in employer contributions and in any voluntary employee
contributions. Contributions to the 401(k) plan were $11,936 and
$5,442 during the year ended
September 30, 2020 and nine-month period ended September 30,
2019. There are no 401(k)
contributions in the accompanying consolidated financial statements
prior to the completion of the reverse acquisition on June 7,
2019.
8.
Temporary Equity
Series A-1 Convertible Preferred Shares
As
described in Notes 5 and 7, in April 2020, the Company entered into
a license agreement with a pharmaceutical development company to
obtain exclusive world-wide rights to know- how, patents and data
relating to certain monoclonal antibodies ("the Constructs"),
including sublicensing rights. In exchange for the exclusive rights
to develop and commercialize the Constructs, the Company issued 250
convertible preferred shares valued at $2.5 million designated as
Series A-1 Convertible Preferred Shares (the “Series A-1
Shares”). The Series A-1 Shares have no par value, a stated
value of $10,000 per share and rank, with respect to redemption
payments, rights upon liquidation, dissolution or winding-up of the
Company, or otherwise, senior in preference and priority to the
Company’s common shares.
A holder of Series A-1 Shares is not entitled to receive dividends
unless declared by the Company’s Board of Directors. Subject
to certain exceptions and adjustments for share splits, each Series
A-1 Share is convertible six months after its date of issuance into
a number of the Company’s common shares calculated by
dividing (i) the sum of the stated value of such Series A-1 Share
plus a return equal to 3% of the stated value of such Series A-1
Share per annum (collectively, the “Preferred Amount”)
by (ii) a fixed conversion price of $2.26. A holder of Series A-1
Shares will not have the right to convert any portion of its Series
A-1 Shares if the holder, together with its affiliates, would
beneficially own in excess of 4.99% of the number of common shares
outstanding immediately after giving effect to such conversion (the
“Beneficial Ownership Limitation”); provided, however,
that upon notice to the Company, the holder may increase the
Beneficial Ownership Limitation to a maximum of 9.99%. The Series
A-1 Shares do not have the right to vote on any matters except as
required by law and do not contain any variable pricing features,
or any price-based anti-dilutive features.
In the event of any liquidation, dissolution or winding-up of the
Company, a holder of Series A-1 Shares shall be entitled to
receive, before any distribution or payment may be made with
respect to the Company’s common shares, an amount in cash
equal to the Preferred Amount per share, plus any unpaid accrued
dividends on all such shares.
F-14
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
At any time, the Company may redeem some or all outstanding Series
A-1 Shares for a cash payment per share equal to the Preferred
Amount. A holder of Series A-1 Shares may require the Company to
redeem the Series A-1 Shares for cash beginning 18 months after
issuance if at any time after such date the 30-day volume weighted
average price of the Company’s common shares is below the
conversion price of $2.26. In the event of a required redemption,
at the election of the Company, the redemption amount (which is
equal to the Preferred Amount) may be paid in full or in up to
twelve equal monthly payments with any unpaid redemption amounts
accruing interest at a rate of 3% annually, compounded monthly. On
the third anniversary of the date of issuance of the Series A-1
Shares, the Company has the right to convert any outstanding Series
A-1 Shares into common shares.
Because the convertible preferred shares are redeemable outside the
control of the Company, they are presented as temporary equity
rather than permanent shareholders’ equity.
Issued and outstanding Series A-1 Convertible Preferred
Shares:
|
|
Series A-1 Convertible Preferred Shares (#)
|
Series A-1 Convertible Preferred Shares
|
|
Balance – December 31, 2018 and September 30,
2019
|
-
|
$-
|
|
|
|
|
|
Issuance of convertible preferred shares
|
250
|
$2,500,000
|
|
Convertible preferred share issuance costs
|
-
|
(57,154)
|
|
Preferred return on convertible preferred shares
|
-
|
34,109
|
|
|
|
|
|
Balance – September 30, 2020
|
250
|
$2,476,955
|
9. Capital
shares
Reverse Share Split
On June 7, 2019, the Company effected a reverse split of the
Company's common shares at a ratio of 1-for-6. As a result of the
reverse split, every six shares of the issued and outstanding
common shares, without par value, consolidated into one newly
issued outstanding common share, without par value, after
fractional rounding. All shares and exercise prices are presented
on a post-split basis in these consolidated financial
statements.
Equity Offering
On
January 8, 2020, the Company closed a registered direct offering of
1,354,691 common shares, no par value and a concurrent private
placement of Class A Purchase Warrants to purchase an aggregate of
up to 1,016,036 common shares and Class B Purchase Warrants to
purchase an aggregate of up to 677,358 common shares. Gross
proceeds from the offering amounted to $4,360,500.
The
Class A Purchase Warrants are exercisable on or after July 8, 2020,
at an exercise price of $4.80 per share and will expire on July 8,
2023. The Class B Purchase Warrants are exercisable on or after
July 8, 2020, at an exercise price of $4.00 per share and will
expire on November 8, 2020. In connection with the offering, the
Company also issued warrants to purchase an aggregate of 12,364
common shares to certain affiliated designees of the placement
agent as part of the placement agent’s compensation. The
placement agent warrants are exercisable on or after July 6, 2020,
at an exercise price of $3.20 per share, and will expire on January
6, 2025.
The
warrants are considered contracts on the Company’s own shares
and are classified as equity. The Company allocated gross proceeds
with $3,070,358 as the value of common shares and $1,008,743 as the
value of Class A Purchase Warrants and $281,399 as the value of
Class B Purchase Warrants under additional paid-in capital in the
consolidated statements of changes in shareholders’ equity on
a relative fair value basis.
The
direct costs related to the issuance of the common shares and
warrants were $468,699. These direct costs were recorded as an
offset against gross proceeds with $330,025 being recorded under
common shares and $138,674 being recorded under additional paid-in
capital on a relative fair value basis. The Company also recorded
the fair value of placement agent warrants in the amount of $18,051
as share based compensation to nonemployees under additional
paid-in capital and an offset against gross proceeds with $12,710
being recorded under common shares and $5,341 being recorded under
additional paid-in capital on a relative fair value
basis.
Equity Distribution Agreement
On
September 28, 2020, the Company entered into an Equity Distribution
Agreement with RBC Capital Markets, LLC (“RBCCM”), as
sales agent, pursuant to which the Company may offer and sell, from
time to time, common shares through an at-the-market equity
offering program for up to $9.2 million in gross cash proceeds.
RBCCM will use commercially reasonable efforts to sell the common
shares from time to time, based upon the Company’s
instructions. The Company has no obligation to sell any of the
shares, and may at any time suspend sales under the distribution
agreement or terminate the agreement in accordance with its terms.
The total amount of cash that may be generated under this
distribution agreement is uncertain and depends on a variety of
factors, including market conditions and the trading price of the
Company’s common shares. No shares were sold under the
distribution agreement prior to September 30, 2020.
F-15
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
Black-Scholes option valuation model
The
Company uses the Black-Scholes option valuation model to determine
the fair value of share-based compensation for share options and
compensation warrants granted and the fair value of warrants
issued. Option valuation models require the input of highly
subjective assumptions including the expected price volatility. The
Company calculates expected volatility based on historical
volatility of the Company’s share price. When there is
insufficient data available, the Company uses a peer group that is
publicly traded to calculate expected volatility. The Company
adopted interest-free rates by reference to the U.S. treasury yield
rates. The Company calculated the fair value of share options
granted based on the expected life of 5 years (2019: 4 years),
considering expected forfeitures during the option term of 10
years. Expected life of warrants is based on warrant terms. The
Company did not and is not expected to declare any dividends.
Changes in the subjective input assumptions can materially affect
the fair value estimates, and therefore the existing models do not
necessarily provide a reliable single measure of the fair value of
the Company’s warrants and share options.
Warrants
A summary of the Company’s warrants activity is as
follows:
|
|
Number
of
Warrants
(#)
|
Weighted Average
Exercise Price
|
|
Balance
– December 31, 2018
|
-
|
$-
|
|
|
|
|
|
Effect of reverse
acquisition
|
362,430
|
31.60
|
|
Black-Scholes value
payout
|
(313,516)
|
33.01
|
|
|
|
|
|
Balance
– September 30, 2019
|
48,914
|
$11.19
|
|
|
|
|
|
Issued
|
1,705,758
|
$4.47
|
|
Exercised
|
(761,951)
|
4.31
|
|
|
|
|
|
Balance
– September 30, 2020
|
992,721
|
$4.92
|
The weighted average contractual life remaining on the outstanding
warrants at September 30, 2020 is 27 months.
The following table summarizes information about the warrants
outstanding at September 30, 2020:
|
Number of
Warrants (#)
|
Exercise
Prices
|
Expiry
Dates
|
|
216,414
|
$4.00
|
November
2020
|
|
28,124
|
$15.90
|
May
2023
|
|
728,921
|
$ 4.80
|
July
2023
|
|
7,484
|
$ 4.81
|
June
2024
|
|
11,778
|
$3.20
|
January
2025
|
|
992,721
|
F-16
The fair value of warrants issued during the year ended September
30, 2020 was estimated using the Black-Scholes option valuation
model using the following assumptions:
|
|
Class A
Warrants
|
Class B
Warrants
|
Placement Agent
Warrants
|
|
Risk free interest rate
|
1.61%
|
1.55%
|
1.61%
|
|
Expected life
|
3.5 years
|
0.83 years
|
5 years
|
|
Expected share price volatility
|
103.81%
|
134.15%
|
101.89%
|
|
Expected dividend yield
|
0.00%
|
0.00%
|
0.00%
|
There were no warrants issued in the nine-month period ended
September 30, 2019.
Share Options
The
Company adopted an Equity Incentive Compensation Plan in 2019 (the
“2019 Plan”) administered by the independent members of
the Board of Directors, which amended and restated the 2017
Incentive Compensation Plan (the “2017 Plan”). Options,
restricted shares and restricted share units are eligible for grant
under the 2019 Plan. The number of shares available for issuance
under the 2019 Plan is 1,148,697, including shares available for
the exercise of outstanding options under the 2017 Plan. Option
holders under Edesa Biotech Research, Inc.’s option plan
received substitute options under the Company’s incentive
plan upon completion of the reverse acquisition.
The Company's 2019 Plan allows options to be granted to directors,
officers, employees and certain external consultants and advisers.
Under the 2019 Plan, the option term is not to exceed 10 years and
the exercise price of each option is determined by the independent
members of the Board of Directors.
Options have been granted under the 2019 Plan allowing the holders
to purchase common shares of the Company as follows:
|
|
Number of
Options (#)
|
Weighted Average
Exercise Price
|
|
Balance – December 31, 2018
|
315,123
|
$1.65
|
|
|
|
|
|
Effect
of reverse acquisition
|
7,787
|
124.80
|
|
Expired
|
(3,265)
|
125.75
|
|
|
|
|
|
Balance – September 30, 2019
|
319,645
|
$3.39
|
|
|
|
|
|
Granted
|
366,365
|
3.35
|
|
Exercised
|
(4,450)
|
2.60
|
|
Forfeited
|
(5,790)
|
2.73
|
|
Expired
|
(333)
|
145.20
|
|
|
|
|
|
Balance – September 30, 2020
|
675,437
|
$3.30
|
On February 12, 2020, the independent members of the Board of
Directors granted a total of 352,365 options to directors, officers
and employees of the Company pursuant to the 2019 Plan. The options
have a term of 10 years with 33% vesting on the grant date, with a
pro rata amount of the balance vesting monthly for the next 36
months and an exercise price equal to the Nasdaq closing price on
the grant date.
On September 30, 2020, the independent members of the Board of
Directors granted a total of 14,000 options to employees of the
Company pursuant to the 2019 Plan. The options have a term of 10
years vesting monthly for 36 months from November 30, 2020 and an
exercise price equal to the Nasdaq closing price on the grant
date.
The weighted average contractual life remaining on the outstanding
options at September 30, 2020 is 99 months.
F-17
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
The following table summarizes information about the options under
the 2019 Plan outstanding and exercisable at September 30,
2020:
|
Number of
Options (#)
|
Exercisable
at September 30, 2020 (#)
|
Range of
Exercise Prices
|
Expiry
Dates
|
|
|
|
|
|
|
238
|
238
|
$768.60
|
Nov
2020
|
|
214
|
214
|
C$638.40
|
Nov
2021
|
|
238
|
238
|
$304.08
|
Dec
2022
|
|
3,499
|
3,499
|
$35.28 - 93.24
|
Sep
2023-Mar 2025
|
|
311,883
|
302,343
|
C$2.16
|
Aug
2027-Dec 2028
|
|
345,365
|
161,788
|
$3.16
|
Feb
2030
|
|
14,000
|
-
|
$8.07
|
Sep
2030
|
|
675,437
|
468,320
|
|
|
The fair value of options granted during the year ended September
30, 2020 and nine-month period ended September 30, 2019 was
estimated using the Black-Scholes option valuation model using the
following assumptions:
|
|
Year Ended
September 30,
2020
|
Nine-month Period Ended
September 30,
2019
|
|
|
|
|
|
Risk
free interest rate
|
0.28%-1.45%
|
1.98%
|
|
Expected
life
|
5 years
|
4 years
|
|
Expected share
price volatility
|
94.42%-104.14%
|
79.46%
|
|
Expected dividend
yield
|
0.00%
|
0.00%
|
The Company recorded $598,359 and $35,074 of share-based
compensation expenses for the year ended September 30, 2020 and
nine-month period ended September 30, 2019,
respectively.
As of September 30, 2020, the Company had approximately $346,000 of
unrecognized share-based compensation expense, which is expected to
be recognized over a period of 37 months.
Issued and outstanding common shares:
|
|
Number of Common Shares (#)
|
Common Shares
|
|
Balance – December 31, 2018
|
3,239,902
|
$1,111,253
|
|
|
|
|
|
Conversion of preferred shares upon reverse
acquisition
|
3,376,112
|
$6,260,299
|
|
Share consideration transferred upon reverse
acquisition
|
888,454
|
4,633,499
|
|
|
|
|
|
Balance – September 30, 2019
|
7,504,468
|
$12,005,051
|
|
|
|
|
|
Common shares issued
|
1,354,691
|
$3,070,358
|
|
Common shares issued upon exercise of warrants
|
751,510
|
3,754,265
|
|
Common shares issued upon exercise of share options
|
4,450
|
20,935
|
|
Share issuance costs
|
-
|
(349,756)
|
|
|
|
|
|
Balance – September 30, 2020
|
9,615,119
|
$18,500,853
|
F-18
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
Issued and outstanding preferred shares:
|
|
Class A Preferred Shares (#)
|
Class A Preferred Shares
|
|
Balance – December 31, 2018
|
1,007,143
|
$6,064,013
|
|
|
|
|
|
Preferred return on Class A preferred shares
|
-
|
196,286
|
|
Conversion upon reverse acquisition
|
(1,007,143)
|
(6,260,299)
|
|
|
|
|
|
Balance – September 30, 2019 and 2020
|
-
|
$-
|
Following the completion of the reverse acquisition on June 7,
2019, all the outstanding Class A preferred shares and accumulated
accrued preferred return were fully converted to 3,376,112 common
shares based on the fair market value upon conversion. Prior to
conversion, the Class A preferred shares had the following
features:
The Class A preferred shares were voting and convertible into
common shares at the option of the holder at any time. Upon the
occurrence of a liquidation event, as defined in the resolutions of
the shareholders dated August 28, 2017, the Class A preferred
shares had a liquidation amount preference over the rights of
holders of common shares or any class of shares ranking junior to
Class A preferred shares. The Class A preferred shares also
contained an 8% preferred return that accrued daily and compounds
annually and was payable in shares upon conversion.
The Company evaluated the Class A preferred shares and the embedded
conversion option. The embedded conversion option did not meet the
criteria for bifurcation and was therefore classified to
equity.
10. Income
Tax
The reconciliation of the combined Canadian federal and provincial
statutory income tax rate to the approximate effective tax rate is
as follows:
|
|
Year
Ended September 30,
2020
|
Nine-month
Period Ended September 30, 2019
|
|
|
|
|
|
Net
loss before recovery of income taxes
|
$(6,363,430)
|
$(2,776,734)
|
|
Canadian
federal and provincial statutory income tax rate
|
26.5%
|
26.5%
|
|
|
|
|
|
Expected
income tax recovery
|
$(1,686,000)
|
$(736,000)
|
|
Permanent
differences
|
159,000
|
11,000
|
|
Effect
of foreign currency and foreign tax rate differences
|
23,800
|
(60,000)
|
|
Share
issuance cost booked through equity or
capitalization
|
(144,000)
|
-
|
|
Change
in valuation allowance
|
1,648,000
|
785,000
|
|
|
|
|
|
Income
tax (recovery) expense
|
$800
|
$-
|
Components of the net deferred tax asset or liability
Deferred taxes are provided as a result of temporary differences
that arise due to the difference between the income tax values and
the carrying amount of assets and liabilities. Approximate deferred
tax assets and liabilities are as follows:
F-19
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
|
|
September 30,
2020
|
September 30,
2019
|
|
|
|
|
|
Non-capital
losses carried forward - Canada
|
$4,881,000
|
$3,592,000
|
|
Non-capital
losses carried forward - U.S.
|
1,609,000
|
1,587,000
|
|
Research
and development tax credits
|
1,253,000
|
626,000
|
|
Share
issuance and financing costs
|
473,000
|
517,000
|
|
Operating
lease liabilities
|
43,000
|
-
|
|
Other
temporary differences
|
16,000
|
28,000
|
|
|
|
|
|
Subtotal
|
$8,275,000
|
$6,350,000
|
|
Less:
valuation allowance
|
(8,173,000)
|
(6,350,000)
|
|
|
|
|
|
Total
net deferred tax assets
|
$102,000
|
$-
|
|
|
|
|
|
Property
and equipment
|
$(17,000)
|
$-
|
|
Operating
lease right-of-use assets
|
(42,000)
|
-
|
|
Deferred
share issuance costs
|
(43,000)
|
-
|
|
|
|
|
|
Total
deferred tax liabilities
|
$(102,000)
|
$-
|
|
|
|
|
|
Net
deferred taxes
|
$-
|
$-
|
Realization of the
deferred tax assets is dependent upon the generation of future
taxable income, the amount and timing of which are uncertain. It is
more likely than not that a tax benefit will not be realized.
Accordingly, net deferred tax assets have been fully offset by a
valuation allowance.
Non-capital
losses, capital losses, and research and development credits
generated by Edesa Biotech USA, Inc. prior to changes in share
ownership that occurred as a result of the reverse acquisition are
substantially limited. It is unlikely that tax losses totaling
$25.6 million and credits totaling $0.6 million will be utilized to
offset potential future taxable income before expiration and they
are excluded from deferred tax assets above.
The approximate Canadian non-capital losses carried forward at
September 30, 2020 expire as follows:
|
2028
|
C$21,000
|
|
2029
|
56,000
|
|
2030
|
346,000
|
|
2031
|
688,000
|
|
2032
|
860,000
|
|
2033
|
685,000
|
|
2034
|
780,000
|
|
2035
|
1,374,000
|
|
2036
|
1,415,000
|
|
2037
|
2,269,000
|
|
2038
|
3,243,000
|
|
2039
|
6,059,000
|
|
2040
|
6,546,000
|
|
|
|
|
Total
|
C$24,342,000
|
Share issuance and financing costs will be fully amortized in
2024.
The
U.S. non-capital losses carried forward at September 30, 2020
totaled approximately $7,587,000, which do not expire for federal
taxes. The approximate U.S. state non-capital losses carried
forward at September 30, 2020 expire as follows:
|
2039
|
$70,000
|
|
2040
|
150,000
|
|
|
|
|
Total
|
$220,000
|
F-20
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
11.
Financial instruments
(a)
Fair values
The
U.S. non-capital losses carried forward at September 30, 2020
totaled approximately $7,587,000, which do not expire for federal
taxes and include approximately $220,000 that expires in 2040 for
state taxes.
The Company uses the fair value measurement framework for valuing
financial assets and liabilities measured on a recurring basis in
situations where other accounting pronouncements either permit or
require fair value measurements.
Fair value of a financial instrument is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.
The Company follows the fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. Observable
inputs are inputs that reflect assumptions market participants
would use in pricing the asset or liability developed based on
market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company's own
assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the best
information available in the circumstances.
There are three levels of inputs that may be used to measure fair
value:
●
Level 1 -
Observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
●
Level 2 - Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets
or liabilities in active markets, or quoted prices for identical or
similar assets and liabilities in markets that are not
active.
●
Level 3 - Unobservable inputs for the asset
or liability that are supported by little or no market
activity.
The carrying value of certain financial instruments such as cash
and cash equivalents, accounts and other receivable, accounts
payable and accrued liabilities approximates fair value due to the
short-term nature of such instruments. Short-term investments in
U.S. Treasury Bills are recorded at amortized cost, which
approximates fair value using level 1 inputs.
(b) Interest
rate and credit risk
Interest rate risk is the risk that the value of a financial
instrument might be adversely affected by a change in interest
rates. The Company does not believe that the results of operations
or cash flows would be affected to any significant degree by a
significant change in market interest rates, relative to interest
rates on cash and cash equivalents due to the short-term nature of
these balances.
The Company is also exposed to credit risk
at period end from the carrying value of its cash and cash
equivalents and accounts and other receivable. The Company manages
this risk by maintaining bank accounts with Canadian Chartered
Banks, U.S. banks believed to be credit worthy, U.S. Treasury Bills and money market mutual
funds of U.S. government securities. The Company’s cash is
not subject to any external restrictions. The Company
assesses the collectability of accounts receivable through a review
of the current aging, as well as an analysis of historical
collection rates, general economic conditions and credit status of
customers. Credit risk for HST refunds receivable is not
considered significant since amounts are due from the Canada
Revenue Agency.
(c) Foreign
exchange risk
The
Company and its subsidiary have balances in Canadian dollars that
give rise to exposure to foreign exchange (“FX”) risk
relating to the impact of translating certain non-U.S. dollar
balance sheet accounts as these statements are presented in U.S.
dollars. A strengthening U.S. dollar will lead to a FX loss while a
weakening U.S. dollar will lead to a FX gain. The Company has not
entered into any agreements or purchased any instruments to hedge
possible currency risks. At September 30, 2020, the Company and its
Canadian subsidiary had assets denominated in Canadian dollars of
approximately C$3.2 million and the U.S. dollar exchange rate as at
this date was equal to 1.3365 Canadian dollars. Based on the
exposure at September 30, 2020, a 10% annual change in the
Canadian/U.S. exchange rate would impact the Company’s loss
and other comprehensive loss by approximately
$242,000.
(d) Liquidity
risk
Liquidity risk is the risk that the Company will encounter
difficulty raising liquid funds to meet commitments as they fall
due. In meeting its liquidity requirements, the Company closely
monitors its forecasted cash requirements with expected cash
drawdown.
F-21
|
Edesa Biotech, Inc.
|
|
Notes
to Consolidated Financial Statements
|
|
For
the Year Ended September
30, 2020 and Nine-month Period Ended September 30,
2019
|
12. Related
party transactions
During the periods presented, the Company incurred the following
related party transactions:
●
During the year
ended September 30, 2020 and nine-month period ended September 30,
2019, the Company incurred rent expense of $76,331 and $57,911 from
a related company, respectively. These transactions are in the
normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed
to by both parties.
●
No royalty expenses to a director related to legacy product sales
by the California subsidiary were incurred during the year ended
September 30, 2020. Patent royalties of $20,471 were incurred
during the nine-month period ended September 30, 2019, and
royalties payable of $23,457 were outstanding at September 30,
2019, which were subsequently paid.
13. Business
Combination
On June 7, 2019, the Edesa Biotech Research, Inc., formerly known
as Edesa Biotech Inc., a company organized under the laws of the
province of Ontario, Canada (“Edesa Research”),
completed its business combination with Stellar Biotechnologies,
Inc. a company organized under the laws of British Columbia, Canada
(“Stellar”), in accordance with the terms of the Share
Exchange Agreement, dated March 7, 2019 (the “Exchange
Agreement”), by and among Stellar, Edesa Research and the
shareholders of Edesa Research (the “Edesa Research
Shareholders”). At the closing of the transaction (the
“Closing”), Stellar acquired the entire issued share
capital of Edesa Research, with Edesa Research becoming a
wholly-owned subsidiary of Stellar (the “Exchange”).
The Edesa Research Shareholders exchanged their shares for 88% of
the outstanding shares of Stellar on a fully diluted basis. Edesa
Research is considered the accounting acquirer of Stellar. Upon
closing, Stellar changed its name to Edesa Biotech, Inc. Edesa
Research entered into the Exchange primarily to provide greater
liquidity to its shareholders, broaden its investment base,
increase its profile, and facilitate the process of raising capital
as the Company contemplates pursuing new growth opportunities
including acquisition of new clinical assets. For the period of
June 7, 2019 to September 30, 2019, Stellar, the acquiree for
accounting purposes, recorded revenues of $410,870 and a net loss
of $452,416. These operating results are included within the
accompanying consolidated statements of operations and
comprehensive loss.
The fair value of consideration transferred in the reverse
acquisition is calculated as follows:
|
Fair value of 888,454 share consideration transferred, net of
liquidity discount
|
$4,633,499
|
|
|
|
|
Excess fair value of replacement warrants
|
61,902
|
|
|
|
|
Total acquisition date fair value of consideration
transferred
|
$4,695,401
|
The fair value of the replacement warrants was determined using
Black-Scholes valuation model based on exercise price of C$6.45,
expected life of 5 years, risk free rate of 1.34% and volatility of
130%.
The major classes of assets acquired and liabilities assumed in the
reverse acquisition are as follows:
|
Cash
and cash equivalents
|
$6,389,322
|
|
Other
current assets
|
418,837
|
|
Noncurrent
assets
|
42,045
|
|
Fair
value of warrants payable
|
(1,187,124)
|
|
Other
current liabilities
|
(967,679)
|
|
|
|
|
Net assets of Stellar
|
$4,695,401
|
F-22
The following are the unaudited supplemental pro forma results of
operations for the nine-month period ended September 30, 2019, as
if the reverse acquisition had been completed on January 1, 2018
and include estimates and assumptions that management believes are
reasonable. Since these pro forma results include all one-time
reverse acquisition costs and do not include any anticipated cost
savings or other effects of the planned integration of the
entities, they are not necessarily indicative of the actual results
that would have occurred if the combined business had been in
effect beginning January 1, 2018.
|
|
(Unaudited) Supplemental Pro Forma Combined Financial Information
Nine-month Period Ended September 30, 2019
|
|
|
|
|
Total
Revenues
|
$930,565
|
|
|
|
|
Net
Loss
|
$(8,126,749)
|
|
|
|
|
Weighted
average number of common shares
|
7,504,468
|
|
|
|
|
Loss
per common share - basic and diluted
|
$(1.08)
|
14.
Subsequent events
The
Series A-1 Convertible Preferred Shares became convertible in
October 2020. Subsequently, 110 convertible preferred shares were
converted to 494,846 common shares, reducing temporary equity and
increasing shareholders’ equity.
Class
A Purchase Warrants to purchase an aggregate of up to 1,016,036
common shares and Class B Purchase Warrants to purchase an
aggregate of up to 677,358 common shares became exercisable on July
8, 2020, and placement agent warrants to purchase an aggregate of
12,364 common shares became exercisable on July 6, 2020. Subsequent
to September 30, 2020 and through December 2, 2020, 243,369 shares
have been issued upon exercise of Class A and Class B warrants with
proceeds of approximately $1.0 million.
Subsequent to
September 30, 2020 and through December 2, 2020, 169,753 common
shares have been issued under the equity distribution agreement
with RBCCM with gross proceeds of approximately $1.03 million and
commissions of approximately $0.04 million.
Following these
transactions, there were 10,523,087 common shares and 140
convertible preferred shares issued and outstanding at December 2,
2020.
On
October 13, 2020, the independent members of the Board of Directors
granted a total of 430,000 options to directors, officers and
employees of the Company pursuant to the 2019 Plan. The options
have a term of 10 years vesting monthly for 36 months from the
grant date and an exercise price equal to the Nasdaq closing price
on the grant date.
F-23
Exhibit 10.21
EMPLOYMENT
AGREEMENT
This Employment Agreement (the
“Agreement”) is entered into as of December 1, 2020
(“Effective Date”), by and between Kathi Niffenegger (
“Employee”) and Edesa Biotech USA, Inc. (formerly
Stellar Biotechnologies, Inc.), a California corporation (
“Company” or “Employer”). For good and
valuable consideration, the sufficiency of which is hereby
acknowledged, Employee and the Company agree as
follows:
1. Title and Duties. Employee
shall continue to hold the title of Chief Financial Officer
(“CFO”) of Employer, its parent entity Edesa Biotech
Inc. (“Edesa”), a company organized
under the laws of British Columbia, and its affiliated
entity Edesa Biotech Research,
Inc. (“Edesa Research”), an Ontario corporation
(collectively, the “Edesa Entities”). Employee will be
responsible for performing such duties as the CEO of the Edesa
Entities or his designee may assign, including all duties usually
and customarily rendered by and required of the CFO of a publicly
traded company, and including such duties as are described in any
written job description that may be provided to Employee and
amended from time to time, provided that in no event may such an
amendment of duties assigned to the Employee materially diminish
the Employee’s level of responsibilities, title, and stature
as CFO of the Edesa Entities. Employee will devote Employee’s
full business time and attention to performing Employee’s
duties diligently and with undivided loyalty toward the Company and
the other Edesa Entities. While employed by the Company, Employee
will not compete with or take steps to compete with the Edesa
Entities, assist any other person or entity to compete with or
prepare to compete with the Edesa Entities, or engage in any other
conduct that creates a conflict of interest with Employee’s
duty of loyalty to the Company and the other Edesa
Entities.
2. Required Licenses. The CFO of
the Company must be a Certified Public Accountant
(“CPA”) licensed by the State of California. Employee
represents and warrants that Employee is a California CPA and that
Employee has never been the subject of public or private discipline
by the California Board of Accountancy or any other comparable
state or federal licensing entity. Employee agrees to maintain and
keep current all professional licenses and certifications necessary
for the performance of Employee’s duties under this
Agreement. The Company will reimburse Employee for all associated
costs, including license fees, AICPA dues and continuing education
courses necessary to maintain Employee’s CPA license and
competency.
3. Location. Employee will perform
Employee’s duties from Employee’s principal residence
or other reasonable location of Employee’s choice. Employee
agrees to undertake such travel as may be reasonably necessary in
connection with Employee’s position from time to
time.
4. At-Will Employment.
Employee’s employment will be “at will,” which
means that Employee or the Company may terminate the employment
relationship at any time, for or without Cause (as defined in
Section 7), and with or without advance notice. This at-will
employment arrangement cannot be modified in any way except in
writing signed by Employee and the CEO or President of the Edesa
Entities.
5. Compensation and
Benefits.
5.1 Base Salary. As compensation
for Employee’s services, provided Employee is not in default
of any material obligation to the Edesa Entities, the Company shall
pay Employee wages in the gross amount of Two Hundred and Seventy
Five Thousand Dollars ($275,000) per year (the “Base
Salary”) retroactive to June 1, 2020, subject to legally
required withholding and payable in accordance with the
Company’s usual payroll policies and
practices.
5.2 Discretionary Bonus. Employee
shall be eligible for an annual discretionary bonus (the
“Discretionary Bonus”), subject to legally required
withholding. The target for the Discretionary Bonus shall be 40% of
Employee’s Base Salary; however, the amount of the
Discretionary Bonus shall be based on Employee’s performance
and the performance of the Edesa Entities, in the sole discretion
of the Board of Directors of Edesa. Employee shall be evaluated
for, and paid (where applicable), the prior calendar year’s
Discretionary Bonus no later than March 31 each calendar year.
Notwithstanding whether a bonus has been anticipated or budgeted,
no entitlement to any portion of any bonus shall accrue prior to
the date on which the bonus is actually approved by the Board of
Directors of Edesa and on the date Employee’s employment ends
Employee will immediately cease to be eligible to receive any
discretionary bonus except as provided in Section
7.
5.3 Option Grant. Employee shall be
eligible for future share and/or option grants commensurate with
Employee’s position and any personal and business milestones
which may be established by the Company in accordance with the
Company’s executive compensation policy as in effect from
time to time as determined by Edesa’s Board of Directors
subject to availability of shares and/or options for grant under
the Company’s Equity Incentive Compensation
Plan.
5.4 Compensation Review.
Compensation, including base salary, the target for discretionary
bonuses, and potential share or option grants, will be reviewed
annually, no later than March 31 of each calendar year, on the
basis of such factors as, but not limited to, merit, market
performance, job grade and potential. However, any increase to the
Employee's Base Salary is in the sole discretion of the Board of
Directors of Edesa.
5.5 Other Benefits. Employee shall
be eligible for such other employee benefits and executive
perquisites as are generally provided to similarly situated
executives of the Edesa Entities subject to any waiting time
periods or other limitations set forth in the policy or plan
document governing each benefit. At present, the Company offers the
following benefits:
●
Group
health insurance (the full premium for Employee’s choice of
any ACA Gold or Platinum plan paid by the
Company)
●
Group
dental and vision insurance (the full premium paid by the
Company)
●
Vacation (accrued on a pro-rated
basis at the rate of 208 hours per year; accrual is capped at 312
hours; unused vacation is paid upon termination of
employment)
●
Paid
Sick Leave (48 hours provided on January 1 of each calendar year;
unused sick leave does not carry-over from year-to-year; unused
sick leave is not paid upon termination of
employment)
●
Six
Paid Holidays (New Year’s Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas
Day)
●
401K
(the Company will make a non-elective employer contribution of 3%
of Employee’s Base Salary)
●
Coverage under the Company’s
D&O Insurance.
Benefits, coverages, policies and
plans may be amended or terminated by the Company at any time,
without advance notice or other obligation, provided however that
in the event of such amendment or termination, the Company will
either make available to the Employee benefits coverage
substantially comparable in scope to the preceding coverage, or
reimburse the Employee for the cost of obtaining private coverage
substantially comparable in scope to the preceding
coverage.
5.6 Expenses. The Company shall
reimburse Employee for reasonable and documented expenses actually
and necessarily incurred by Employee in the performance of
Employee’s duties, in accordance with California law and the
Company’s policies and procedures. These expenses shall
include all reasonable expenses related to business travel, as well
as all reasonable expenses related to working remotely including,
but not limited to, computer, cell phone and monthly service plan,
and monthly internet service plan.
6. Policies and Procedures. As a
term and condition of employment, Employee agrees to comply with,
and be bound by, Employer’s Employee Handbook and other
employment policies and procedures. From time to time, the Employee
Handbook and other policies and procedures may be changed by the
Company, in its sole discretion, without advance notice. It is the
sole responsibility of the Employee to review and understand any
changes to the Employee Handbook or other policies and
procedures.
7. Termination. The parties may
terminate their employment relationship and this Agreement as
follows:
7.1 Termination
by Company for Cause. The Company may terminate
Employee’s employment at any time for “Cause.” For the purpose of this
Agreement, Cause means: (a) Employee
has performed (or failed to perform) any act in bad faith to the
detriment of any Edesa Entity’s business or reputation;
(b) Employee has habitually
neglected the duties of her position; (c) Employee has engaged in
dishonesty, gross negligence, or intentional misconduct in
connection with her employment; (d) Employee has materially
breached any written policy of an Edesa Entity applicable to her,
or any written agreement with an Edesa Entity; or (e) Employee has
been convicted of, or pled no contest to, any crime involving
dishonesty or breach of trust. If the Company terminates
Employee’s employment for Cause, the Company’s only
obligations shall be to provide Employee with: (i) Employee’s
accrued salary and accrued and unused vacation pay through and
including Employee’s last day of employment (the
“Separation Date”); (ii) reimbursement of any
reimbursable expenses Employee has properly incurred through and
including the Separation Date; and (iii) any benefit required under
applicable law (including but not limited to compliance with COBRA
and/or Cal-COBRA).
7.2 Resignation by Employee.
Employee may resign her employment at any time. If Employee resigns
her employment, the Company’s only obligation shall be to
provide Employee with the same payments and benefits as would be
provided in case of a termination of Employee’s employment by
the Company for Cause.
7.3 Termination
by Company without Cause. The Company may terminate
Employee’s employment at any time without Cause. If
the Company terminates Employee’s employment without Cause,
the Company’s only obligations shall be: (a) to provide
Employee with the same payments and benefits as would be provided
if the Company had terminated Employee’s employment for
Cause; and (b) if Employee executes a general release of claims in
a form reasonably required by the Company (“Release
Agreement”) within sixty (60) days after Employee’s
Separation Date, payment of “Severance” which shall be
equal to the following:
(i) a lump sum payment of Twelve
(12) months of Employee’s Base Salary at Employee’s
then-current rate, plus one additional month of Employee’s
Base Salary for every year of service completed since June 7, 2019,
not to exceed a total of twenty-four (24)
months;
(ii) a lump sum payment of any
Discretionary Bonus for the prior calendar year already determined
by the Board of Directors of Edesa, but not yet
paid;
(iii) a lump sum payment for
Employee’s potential Discretionary Bonus for the current
calendar year (and the prior calendar year if no Discretionary
Bonus for the prior calendar year has already been determined by
the Board of Directors of Edesa), prorated over the
Employee’s length of service in the calendar year in which
her employment was terminated, based on an average of the
Discretionary Bonuses paid or payable for the two years immediately
preceding the termination (or based on the last Discretionary Bonus
determined by the Board of Directors where such bonus has only been
determined for one calendar year).
Severance shall be
paid no later than 14 calendar days after the date on which the
Release Agreement becomes effective; except that, Company shall not
be obligated to pay Severance before Employee complies with her
obligations under Section 7.5.
7.4 Termination
Related to Change of Control. In the event that the employment of
the Employee is terminated or constructively terminated by the
Employer upon or within a 12 month period following a Change of
Control, the Company shall be obligated to provide Employee
with the same payments and benefits as would be provided in case of
a termination of Employee’s employment by the Company without
Cause, except that the portion of Severance established by Section
7.3(i) shall be equal to twenty-four (24) months of
Employee’s Base Salary.
(i) For the purpose of this Agreement,
“Change of Control” shall mean a transaction or series
of transactions whereby directly or indirectly: (i) a plan
of arrangement, amalgamation, merger or consolidation in which more
than 50% of the total combined voting power of Edesa’s voting
securities, on a fully diluted basis, are transferred or issued to
a person or persons different from those persons holding such
securities immediately prior to such transaction; (ii) the direct
or indirect acquisition by a person or related group of persons
acting jointly or in concert of the beneficial ownership of voting
securities of Edesa representing more than 50% of the total
combined voting power of Edesa’s then outstanding securities,
on a fully diluted basis; (iii) the exercise of the voting power of
all voting or other securities of Edesa so as to cause or result in
the election of a majority of the board of directors of Edesa who
were not previously incumbent directors thereof; or (iv) the sale,
transfer or disposition of all or substantially all of the assets
of the Edesa Entities.
(ii) For the purpose of this Agreement,
a “constructive termination” shall mean a
material change in Employee’s title, responsibilities,
authority or status, and/or a reduction of Employee’s Base
Salary (except when all executives are subject to the same
reduction or a salary deferral), or the Company requires Employee
to primarily perform her duties at a site more than thirty (30)
miles from Employee’s current principal residence (other than
when Employee is traveling as may be reasonably necessary in
connection with her job duties).
7.5 Resignation Upon Termination.
Employee agrees that, upon the cessation of Employee’s
employment (for any reason, including termination for or without
cause, constructive termination, resignation or otherwise), if she
is a member of the Board of any of the Edesa Entities she shall
resign from the Board(s), to be effective no later than the
Separation Date (or such other date as requested by the
Board).
8. Proprietary Information and Inventions
Assignment Agreement. As a condition of Employee’s
continued employment, if requested by the Company, Employee shall
sign a Proprietary Information and Inventions Assignment Agreement
from time to time in a form acceptable to the
Company.
9. Arbitration. As a condition of
employment, or continued employment, with the Company, Employee may
be required to sign arbitration agreements that the Company may
issue from time to time.
10. Non-Solicitation. While
Employee is employed by the Company and for a period of one year
after Employee’s employment ends for any reason, Employee
will not solicit for employment by Employee or by any person or
entity other than an Edesa Entity, any individual who is then
employed by an Edesa Entity or who was employed by an Edesa Entity
during the preceding 12 months.
11. Non-Interference. At no time
during or after Employee’s employment by the Company shall
Employee engage in any of the following conduct: (a) make use of
any Edesa Entity trade secret to solicit or attempt to solicit, on
Employee’s own behalf or on behalf of any person or entity
other than an Edesa Entity, business from any customer of an Edesa
Entity; or (b) induce or attempt to induce, on Employee’s own
behalf or on behalf of any person or entity other than an Edesa
Entity, any consultant, independent contractor, licensee or other
third party to sever any existing contractual relationship with an
Edesa Entity.
12. Construction of Agreement. The
language of all parts of this Agreement shall be construed as a
whole according to its fair meaning, and not strictly for or
against any party. All parties have cooperated in the drafting and
preparation of this Agreement, and the Agreement shall not be
construed more favorably for or against any party by reason of
which party drafted the Agreement. The headings contained in this
Agreement are for reference purposes only, and shall not affect the
meaning or interpretation of this Agreement.
13. Severability. If any portion of
this Agreement shall be held to be void, voidable or unenforceable,
such portion shall be modified only to the minimum extent required
to render it enforceable, and the remaining portions of the
Agreement shall remain in full force and
effect.
14. Amendments. This Agreement
cannot be altered or amended except in writing signed by Employee
and the CEO or President of the Edesa Entities.
15. Governing Law. This Agreement
shall be construed in accordance with and governed by the laws of
the State of California without regard to conflict-of-law
principles.
16. Successors and Assigns. This
Agreement is personal to Employee and cannot be assigned by
Employee, and any purported assignment by Employee shall be null
and void from the outset. This Agreement cannot be assigned by the
Company other than to another Edesa Entity.
17. Waiver. No waiver of any
provision of this Agreement is effective unless it is in writing
and signed by the party against whom it is being enforced. No
waiver by any party to this Agreement on one occasion shall be
deemed a waiver of any provision on any other
occasion.
18. Entire Agreement. This
Agreement constitutes the entire and complete understanding between
Employee and the Company concerning the subject matter hereof. All
prior representations, agreements, arrangements and understandings
between the parties, whether oral or written, have been fully and
completely merged herein and are fully superseded by this
Agreement. To the extent that any provision of this Agreement
conflicts with any provision of any general policy of the Company,
including policies in the Company’s Employee Handbook, this
Agreement shall control.
19. Counterparts; Signatures. This
Agreement may be executed in counterparts, each of which is deemed
to be an original, but such counterparts together shall constitute
one and the same document. Electronic signatures and copies of
executed signature pages, including copies conveyed via fax or
email, shall be valid and binding for all purposes to the same
extent as
original executed
signature pages.
IN
WITNESS WHEREOF, the parties have executed this
Agreement.
|
EDESA BIOTECH
USA, INC.
|
KATHI
NIFFENEGGER
|
|
|
/s/ Kathi
Niffenegger
|
|
Its: Chief Executive
Officer
|
Date: December 1,
2020
|
Date: December 1,
2020
|
Exhibit
21
|
EDESA BIOTECH, INC. AND SUBSIDIARIES
|
Entity
|
State of Incorporation/ Organization
|
|
Edesa
Biotech Research, Inc.
|
Ontario,
Canada
|
|
Edesa
Biotech USA, Inc.
|
California,
USA
|
Exhibit
23.1
Consent
of Independent Registered Public Accounting Firm
We
hereby consent to the incorporation by reference in Registration
Statement Nos. 333-217480 and 333-236121 on Form S-8, Registration
Statement No. 333-233567 on Form S-3 and Registration Statement No.
333-236608 on Form S-1 of Edesa Biotech, Inc. of our report dated
December 7, 2020, relating to the consolidated financial statements
of Edesa Biotech, Inc. for the year ended September 30, 2020 and
the nine-month period ended September 30, 2019, which report
appears in this Annual Report on Form 10-K for the year ended
September 30, 2020.
/s/ MNP
LLP
Chartered
Professional Accountants
Licensed Public
Accountants
Toronto,
Canada
December 7,
2020
Exhibit
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I,
Pardeep Nijhawan, certify that:
1.
I have reviewed
this Annual Report on Form 10-K of Edesa Biotech,
Inc.;
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a.
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b.
Designed such
internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c.
Evaluated the
effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
d.
Disclosed in this
report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information;
and
b.
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
December 7, 2020
|
By:
|
/s/
Pardeep Nijhawan
|
|
|
|
Pardeep
Nijhawan
Director,
Chief Executive Officer and Corporate Secretary
(Principal
Executive Officer)
|
Exhibit 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE
SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I,
Kathi Niffenegger, certify that:
1.
I have reviewed
this Annual Report on Form 10-K of Edesa Biotech,
Inc.;
2.
Based on my
knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this report;
3.
Based on my
knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4.
The
registrant’s other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a.
Designed such
disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
b.
Designed such
internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c.
Evaluated the
effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
d.
Disclosed in this
report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
5.
The
registrant’s other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information;
and
b.
Any fraud, whether
or not material, that involves management or other employees who
have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
December 7, 2020
|
By:
|
/s/
Kathi Niffenegger
|
|
|
|
Kathi
Niffenegger
Chief
Financial Officer
(Principal
Financial Officer)
|
Exhibit 32.1
CERTIFICATION
OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Edesa Biotech, Inc. (the
Company) on Form 10-K for the year ended September 30, 2020, as
filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Pardeep Nijhawan, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1.
The Report fully
complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2.
The information
contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Company.
|
Date: December 7,
2020
|
By: /s/
Pardeep Nijhawan
|
|
|
Pardeep
Nijhawan
|
|
|
Director, Chief
Executive Officer and Corporate Secretary
|
|
|
(Principal
Executive Officer)
|
Exhibit
32.2
CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS
ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Edesa Biotech, Inc. (the
Company) on Form 10-K for the year ended September 30, 2020 as
filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Kathi Niffenegger, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1.
The Report fully
complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2.
The information
contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Company.
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Date: December 7,
2020
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By: /s/ Kathi
Niffenegger
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Kathi
Niffenegger
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Chief Financial
Officer
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(Principal
Financial Officer)
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