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