edsa_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2021

☐ 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)

British Columbia, Canada		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Spy Court, Markham, ON, Canada L3R 5H6		(289) 800-9600
(Address of principal executive offices and zip code)		(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Shares, without par value		EDSA		The Nasdaq Stock Market LLC

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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, 2021, 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 $42,402,749, which was calculated based on 13,246,559 common shares outstanding as of that date, of which 7,852,361 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 27, 2021, the registrant had 13,518,799 common shares issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

EDESA BIOTECH, INC.

ANNUAL REPORT ON FORM 10-K

Year Ended September 30, 2021

Table of Contents

Item		Page
PART I
1.	Business	4
1A.	Risk Factors	19
1B.	Unresolved Staff Comments	32
2.	Properties	32
3.	Legal Proceedings	32
4.	Mine Safety Disclosures	32

PART II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
6.	[Reserved]	34
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
7A.	Quantitative and Qualitative Disclosures about Market Risk	38
8.	Financial Statements and Supplementary Data	38
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
9A.	Controls and Procedures	38
9B.	Other Information	39
9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	39

PART III

10.	Directors, Executive Officers and Corporate Governance	40
11.	Executive Compensation	43
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
13.	Certain Relationships and Related Transactions, and Director Independence	50
14.	Principal Accounting Fees and Services	51

PART IV

15.	Exhibits and Financial Statement Schedules	52
16.	Form 10-K Summary	54

SIGNATURES		55

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, including those caused by COVID-19 and its variants.

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.

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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 September 2021, an independent data and safety monitoring board pre-emptively unblinded the Phase 2 part of a Phase 2/3 study of EB05 in hospitalized COVID-19 patients and identified "a clinically important" mortality benefit. The monitoring board further recommended continuation of the study into a Phase 3 confirmatory trial. The Phase 2 part of the study was funded primarily by a $11 million (C$14 million) reimbursement grant that was awarded by the Canadian government's Strategic Innovation Fund (SIF) following a multi-disciplinary technical review of our drug technology and plans.

In addition to EB05, we are developing an sPLA2 inhibitor, designated as EB01, as a topical treatment for chronic allergic contact dermatitis (ACD), a common, potentially debilitating condition and occupational illness. EB01 employs a novel, non-steroidal mechanism of action and in two clinical studies has demonstrated statistically significant improvement of multiple symptoms in ACD patients. EB01 is currently being evaluated in a Phase 2b clinical study.

In addition to our current clinical programs, we intend to expand the utility of our technologies and clinical-stage assets across other indications.

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 our $11 million competitive grant award; favorable clinical data; 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 an appealing alternative for managing the symptoms of ACD and hemorrhoids disease (HD). These diseases impact millions of people, 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.

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Our Business Strategy

Our business strategy is to develop and commercialize innovative drug products that address unmet medical needs for large, underserved markets with limited competition. Key elements of our strategy include:

	·	Rapidly develop EB05 as a novel therapy for ARDS. We are applying our expertise in immune modulation and inflammation therapies, and clinical trial management, to rapidly develop EB05 as a potential treatment for ARDS. In September 2021, an independent data and safety monitoring board pre-emptively unblinded the Phase 2 part of the Phase 2/3 study of EB05 and identified "a clinically important" mortality benefit for EB05 treated patients. Based on these positive preliminary results, we are evaluating opportunities to apply, as applicable, for expedited regulatory review programs, which could potentially lead to accelerated clinical development and commercialization timelines.

	·	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 previous early-stage clinical trial results in which patients treated with EB01 experienced statistically significant improvements of their symptoms with minimal side effects, we initiated a confirmatory Phase 2b clinical study evaluating EB01 in chronic ACD patients. In June 2021, an independent data and safety monitoring board (DSMB) completed an interim review of blinded data from the first cohort of our study and determined that EB01 met key interim study parameters. Enrollment in the final part of the study is ongoing.

	·	Maximize our current portfolio opportunity by expanding use across multiple indications. We aim to identify clinical-stage assets that have the potential to treat multiple diseases. Our assets are designed to modulate pathways that are implicated across a number of immune and inflammatory/allergic conditions. For example, we are planning a proof-of-concept clinical study of our sPLA2 technology as a potential treatment for patients with HD. We also believe that our monoclonal antibody candidates have potential utility in additional indications, including chronic conditions.

	·	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.

	·	Maximize the commercial potential of our product candidates via direct marketing or strategic arrangements. If our product candidates are successfully developed and approved, we plan to either build commercial infrastructure capable of directly marketing the products, or alternatively, outsource the sales and marketing of our products. We also plan to evaluate strategic licensing or partnering arrangements with pharmaceutical companies for the further development or commercialization of our drugs, where applicable, such as in areas 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.

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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 (S100A8/A9) 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.

EB05

Overview and Status

EB05 is a potentially first-in-class 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 acute systemic inflammation. In previous Phase 1 and Phase 2 clinical studies, EB05 has demonstrated favorable safety and tolerability profiles.

In November 2020, we initiated patient enrollment for an international Phase 2/3 clinical study evaluating the safety and efficacy of EB05 as a therapy for adult hospitalized COVID-19 patients. Following a single intravenous infusion of EB05 or placebo, patients were evaluated for disease progression, mortality, side effects and other critical care measurements. Standard-of-care COVID-19 treatment is given to all patients. Phase 2 enrollment and treatment were completed in September 2021. Approximately 360 subjects were included in the Phase 2 dataset, and more than 600 subjects have been enrolled as of December 27, 2021.

In September 2021, an independent Data and Safety Monitoring Board (DSMB) identified an important signal between the treatment arms for 28-day mortality and requested that the study be pre-emptively unblinded. While the Phase 2 portion was primarily designed to refine patient stratification and statistical powering for the Phase 3 study, the DSMB concluded that "a clinically important efficacy signal" was detected and that the study has "met its objective." The DSMB recommended continuation of the study into a Phase 3 confirmatory trial.

Among the findings, the DSMB reported a 28-day death rate of 14.3% (2/14) in the EB05 arm versus 36.8% (7/19) in the placebo arm in critically ill patients receiving extracorporeal membrane oxygenation (ECMO) therapy and/or invasive mechanical ventilation plus organ support. Survival Analysis using Cox's Proportional Hazard Model showed that the patients treated with EB05 plus standard of care had a 68.5% reduction in the risk of dying when compared to placebo plus standard of care at 28 days (HR: 3.17 placebo vs. EB05; 95% CI: 0.66- 15.35; p=0.15). In this cohort, approximately 90% of patients received dexamethasone (or other steroids), and more than 45% received both an IL-6 inhibitor drug and a steroid.

The DSMB noted another mortality benefit in 136 hospitalized COVID-19 patients receiving supplemental oxygen (28-day mortality rate of 8.2% (5/61) in the EB05 + SOC arm versus 12.0% (9/75) in the placebo + SOC arm; HR: 1.52 placebo vs. EB05, n=136). Within this group, an important signal was seen in patients with severe ARDS at baseline. The DSMB reported a 28-day mortality rate of 16.7% (2/12) in the EB05 + SOC arm versus 42.9% (6/14) in the placebo + SOC arm. Survival Analysis using Cox's Proportional Hazard Model in this group showed that the subjects treated with EB05 + SOC had a 66.0% reduction in the risk of dying when compared to placebo + SOC at 28 days (HR: 2.94 placebo vs. EB05; 95% CI: 0.59-14.60; p=0.19).

There were confirmatory efficacy signals detected in other patient groups as well. In addition, the safety data demonstrated that there were no meaningful differences observed between the two treatment groups with respect to the incidence of treatment emergent serious and non-serious adverse events.

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Based on the Phase 2 interim results and the monitoring board’s recommendations, we plan to focus the Phase 3 portion of the EB05 study on critically ill hospitalized patients receiving extracorporeal membrane oxygenation (ECMO) therapy and/or invasive mechanical ventilation plus organ support. We may also evaluate other subgroups of hospitalized patients, subject to funding and the timely availability of sufficient number of subjects who meet enrollment criteria.

Federal Reimbursement Grant from the Canadian Government

On February 2, 2021, our wholly owned subsidiary Edesa Biotech Research, Inc. entered into a multi-year contribution agreement with the Canadian government’s Strategic Innovation Fund, or SIF. Under this agreement, the Government of Canada committed up to C$14.05 million ($11 million) in nonrepayable funding toward (i) the Phase 2 portion of our ongoing Phase 2/3 study of our investigation therapy EB05 in hospitalized COVID-19 patients, and (ii) certain pre-clinical research intended to potentially broaden the application of our experimental therapy. On a quarterly basis, we may submit claims to the SIF for 75% of eligible reimbursable expenses. Under the agreement, Edesa has agreed to certain obligations in relation to the completion of the clinical and pre-clinical project. In the event that we breach our obligations under the agreement, subject to applicable cure, the SIF may exercise a number of remedies, including suspending or terminating funding under the Agreement, demanding repayment of funding previously received and/or terminating the Agreement. The performance obligations of Edesa Biotech Research under the contribution agreement are guaranteed by the Company. As of December 27, 2021, we have met all of our performance and reporting requirements under the grant agreement.

Previous Phase 1 and Phase 2 Clinical Studies of EB05

In a previous Phase 1 study, EB01 demonstrated the ability to regulate inflammation in humans. EB05 was administered in healthy volunteers (HV) as a single intravenous infusion using a single ascending (from 0.001 mg/kg to 15 mg/kg) pharmacokinetic/pharmacodynamic dose design in Part 1 of the study. In Part 2 of the study, EB05 was administered at different dose levels and was followed by an in vivo LPS challenge where HVs were administered LPS on Day 1, Day 22 or Day 40 after EB05 administration (0.01mg/kg or 0.25 mg/kg). In subjects receiving an EB05 dose of 0.01 or 0.25 mg/kg and exposed to the LPS challenge immediately after the infusion, IL-6, TNFα and CXCL10 release was inhibited. In subjects administered EB05 0.25 mg/kg and exposed to the LPS challenge 22 days after the infusion, the release of IL6, TNFα and CXCL10 was also inhibited. In subjects who received the LPS challenge 40 days after EB05 infusion, the cytokine response to LPS was restored. In all subjects receiving placebo, the cytokine response to LPS was observed.

Vital signs (temperature and heart rate) were also measured during the in vivo LPS challenge in HV following EB05 or placebo administration. Similar to the trend in the cytokine levels, in subjects receiving an EB05 dose of 0.01 or 0.25 mg/kg and exposed to the LPS challenge immediately after the infusion, rise in baseline temperature and change in heart rate was inhibited. In subjects administered EB05 0.25 mg/kg and exposed to the LPS challenge 22 days after the infusion rise in baseline temperature and change in heart rate was also inhibited. In subjects who received the LPS challenge 40 days after EB05 infusion, the rise in baseline temperature and change in heart rate to LPS was restored.

EB05 has demonstrated a favorable safety profile in the Phase 1 study in health volunteers as well as a multiple-infusion Phase 2 study in subjects with rheumatoid arthritis (RA). In the Phase 1 study, doses ranged from 0.001 mg/kg up to 15mg/kg. The Phase 2 RA study was a multiple dose study where patients received one dose of EB05 5 mg/kg every two weeks for 12 weeks. In the Phase 1 study, a total of 60 subjects received EB05, and in the Phase 2 RA study, 61 patients were randomized to the EB05 group. There were no meaningful differences observed between the placebo and EB05 treatment groups with respect to the incidence of treatment emergent serious and non-serious adverse events either of these studies.

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).

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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.

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, 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.

In June 2021, an independent data and safety monitoring board (DSMB) completed an interim review of blinded data from the first cohort of our Phase 2b study of EB01 and determined that our drug candidate met key interim study parameters. The DSMB assessed the blinded comparable data for safety as well as pre-assigned statistical thresholds used to determine the number of subjects for the final part of the Phase 2b study. The initial cohort analyzed consisted of a population of 46 subjects, of whom 36 completed the study follow-up and were used in the interim analysis. Based on the interim findings and the safety monitoring board's recommendations, we plan to enroll a total population of approximately 170 evaluable subjects in the primary cohort who will be provided with either 2% EB01 cream or placebo cream. In addition to the primary cohort, the company plans to complete a dose-ranging cohort, which will evaluate lower-strength concentrations of EB01 in an additional 40 subjects.

Since March 2020, we have implemented a number of measures designed to respond to and mitigate disruptions to patient care and enrollment caused by the COVID-19 pandemic. These measures include protocol amendments that reduce the number of in-person office visits and allow for remote telehealth appointments; the implementation of virtual investigational sites; patient recruitment campaigns; and new investigational sites. Due to physician and patient interest, the company has also added a voluntary open-label extension for study patients once they complete their treatment in the main study. This guarantees that participants in the placebo arm have access to treatment with the active ingredient. The open label extension is also designed to provide longer term usage data, since ACD often reoccurs, or is chronic. While these measures have been largely successful to date to increase the pace of enrollment, due to the changing nature of the pandemic and potential for new waves of infections to disrupt clinical sites, we are unable to predict with certainly the timing for the completion of the Phase 2b study.

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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.

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 total 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).

SEC Form 10-K filed by Edesa Biotech, Inc.