Annual and Transition Report (foreign Private Issuer) (20-f)

Date : 12/20/2019 @ 11:02AM
Source : Edgar (US Regulatory)
Stock : ESSA Pharma Inc (EPIX)
Quote : 3.71  0.0 (0.00%) @ 9:00PM
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Annual and Transition Report (foreign Private Issuer) (20-f)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

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

 

For the fiscal year ended September 30, 2019

 

OR

 

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

 

For the transition period from                      to             

 

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report

 

Commission file number:  001-37410

 

ESSA Pharma Inc.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

 

British Columbia, Canada

(Jurisdiction of incorporation or organization)

 

Suite 720, 999 West Broadway, Vancouver, British Columbia, Canada, V5Z 1K5

(Address of principal executive offices)

 

David Wood, Chief Financial Officer; Tel (778) 331-0962; Fax (604) 738-4080
Suite 720, 999 West Broadway, Vancouver, British Columbia, Canada, V5Z 1K5

(Name, Telephone, E-mail, and/or Facsimile number and Address of Company Contact Person)

 

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

 

Title of Each Class   Trading Symbol   Name of each exchange on which registered
Common Shares   EPIX   Nasdaq Capital Market

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 20,762,374 Common Shares (as at September 30, 2019).

 

Indicate by check mark whether Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act     Yes    ¨    No   x

 

If this report is an annual or transition report, indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes    ¨    No   x

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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   x   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   x    No   ¨

 

Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act

 

Large accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer ¨ Emerging growth company x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board x Other ¨

 

If “Other” has been check in response to the previous question, by check mark which financial statement item Registrant has elected to follow:    Item 17 ¨    Item 18 ¨

 

If this is an annual report, indicate by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨   No    x

 

 

 

 

 

TABLE OF CONTENTS

 

GENERAL MATTERS 1
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 1
   
GLOSSARY OF TERMS 6
   
PART I 10
     
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 10
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 10
ITEM 3. KEY INFORMATION 11
ITEM 4. INFORMATION ON THE COMPANY 47
ITEM 4A UNRESOLVED STAFF COMMENTS 69
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 70
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 80
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 103
ITEM 8. FINANCIAL INFORMATION 106
ITEM 9. THE OFFER AND LISTING 106
ITEM 10. ADDITIONAL INFORMATION 107
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 113
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 113
     
PART II   113
     
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 113
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 113
ITEM 15. CONTROLS AND PROCEDURES 113
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT 114
ITEM 16B CODE OF ETHICS 114
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES 115
ITEM 16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES 115
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 115
ITEM 16F CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 115
ITEM 16G CORPORATE GOVERNANCE 115
ITEM 16H MINE SAFETY DISCLOSURE 116
     
PART III   116
     
ITEM 17. FINANCIAL STATEMENTS 116
ITEM 18. FINANCIAL STATEMENTS 116
ITEM 19. EXHIBITS 116

 

i

 

 

GENERAL MATTERS

 

In this Annual Report on Form 20-F (“Annual Report”), all references to the “Company”, “ESSA”, “our”, “us” or “we” refer to ESSA Pharma Inc. and its subsidiary, unless the context clearly requires otherwise. Certain terms used herein are defined in the text and others are included in the glossary of terms. See “Glossary of Terms”.

 

ESSA uses the United States dollar as its reporting currency. All references to “$” or “US$” are to United States dollars and references to “C$” are to Canadian dollars. On December 18, 2019 the daily average exchange rate for the conversion of Canadian dollars into U.S. dollars as reported by the Bank of Canada was C$1.00 = 0.7623. See also Item 3 - “Key Information” for more detailed currency and conversion information.

 

Effective April 25, 2018, ESSA consolidated its issued and outstanding common shares on the basis of one (1) post-consolidation common share for every twenty (20) pre-consolidation common shares (the “Consolidation”). Unless otherwise stated, all warrant, stock option, share and per share amounts have been restated retrospectively to reflect this share consolidation.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report includes certain statements that are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act and applicable Canadian securities laws. All statements in this Annual Report, other than statements of historical facts, are forward-looking statements. These statements appear in a number of different places in this Annual Report and can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, “will”, “could”, “may”, or their negatives or other comparable words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Examples of such forward-looking statements include, but are not limited to:

 

  · the Company’s ability to obtain funding for operations, including research funding, and the timing and potential sources of such funding;

  

  · the initiation, timing, cost, location, progress and success of, strategy and plans with respect to, ESSA’s research and development programs (including research programs and related milestones with regards to next-generation drug candidates and compounds), preclinical studies and clinical trials;

 

  · the therapeutic benefits, properties, effectiveness, pharmacokinetic profile and safety of the Company’s product candidate and potential future product candidates, including the expected benefits, properties, effectiveness, pharmacokinetic profile and safety of the Company’s next-generation Aniten compounds;

 

  · the Company’s ability to advance its product candidate and potential future product candidates into, and successfully complete, clinical trials;

 

  · the Company’s ability to achieve profitability;

 

  · the CPRIT Grant (as defined herein) and payments thereunder, including residual obligations;

 

  · the Company’s use of proceeds from funding and financings;

 

  · the Company’s ability to effectively liquidate Realm (as defined herein) and assume the related obligations;

 

  · the Company’s intended use of proceeds from the Realm Acquisition and the August 2019 Financing (each as defined herein);

 

  · the Company’s ability to recruit sufficient numbers of patients for future clinical trials, and the benefits expected therefrom;

 

  1  

 

 

  · the Company’s ability to establish and maintain relationships with collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;

 

  · the implementation of the Company’s business model and strategic plans, including strategic plans with respect to patent applications and strategic collaborations partnerships;

 

  · the Company’s ability to identify, develop and commercialize product candidates;

 

  · the Company’s commercialization, marketing and manufacturing capabilities and strategy;

 

  · the Company’s ability to protect its intellectual property and operate its business without infringing upon the intellectual property rights of others;

 

  · the Company’s expectations regarding federal, state, provincial and foreign regulatory requirements, including the Company’s plans with respect to anticipated regulatory filings;

 

  · whether the Company will receive, and the timing and costs of obtaining, regulatory approvals in the United States, Canada and other jurisdictions;

 

  · the accuracy of the Company’s estimates of the size and characteristics of the markets that may be addressed by the Company’s product candidate and potential future product candidates;

 

  · the rate and degree of market acceptance and clinical utility of the Company’s product candidate and potential future product candidates, if any;

 

  · the timing of, and the Company’s ability and the Company’s collaborators’ ability, if any, to obtain and maintain regulatory approvals for the Company’s product candidate and potential future product candidates;

 

  · the Company’s expectations regarding market risk, including interest rate changes and foreign currency fluctuations;

 

  · the Company’s ability to engage and retain the employees required to grow its business;

 

  · the compensation that is expected to be paid to the Company’s employees;

 

  · the Company’s future financial performance and projected expenditures;

 

  · developments relating to the Company’s competitors and its industry, including the success of competing therapies that are or may become available; and

 

  · estimates of the Company’s financial condition, expenses, future revenue, capital requirements, its needs for additional financing and potential sources of capital and funding.

 

Such statements reflect ESSA’s current views with respect to future events, are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that are inherently subject to significant medical, scientific, business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause ESSA’s actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements. In making the forward-looking statements included in this Annual Report, the Company has made various material assumptions, including but not limited to:

 

  · the Company’s ability to continue as a going concern;

  

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  · the Company’s ability to advance its clinical candidate(s);

 

  · the availability of financing on reasonable terms;

 

  · the Company’s ability to repay debt;

 

  · the Company’s ability to obtain regulatory and other approvals to commence a clinical trial involving future product candidates;

 

  · the Company’s ability to obtain positive results from its research and development activities, including clinical trials;

 

  · the Company’s ability to obtain required regulatory approvals;

 

  · the Company’s ability to protect patents and proprietary rights;

 

  · the Company’s ability to successfully out-license or sell its future products, if any, and in-license and develop new products;

 

  · favorable general business and economic conditions;

 

  · the Company’s ability to attract and retain skilled staff;

 

  · market competition; and

 

  · the products and technology offered by the Company’s competitors.

 

In evaluating forward-looking statements, current and prospective shareholders should specifically consider various factors, including the risks outlined herein under the heading “Risk Factors” in Item 3 of this Annual Report. Some of these risks and assumptions include, among others:

 

  · risks related to the Company’s ability to obtain regulatory approval of an IND (as defined herein) application to commence a clinical trial;

 

  · risks related to the Company’s future success being dependent primarily on identification through preclinical studies, regulatory approval, and commercialization of a single product candidate;

 

  · risks related to the Company’s ability to continue to license its product candidates or technology from third parties;

 

  · uncertainty related to the Company’s ability to obtain required regulatory approvals for ESSA’s proposed products;

 

  · risks related to the Company’s ability to successfully identify and develop product candidates in a timely manner;

 

  · risks related to clinical drug development;

 

  · risks related to the Company’s ability to conduct a clinical trial or submit a future NDA/NDS or IND/CTA (each, as defined herein);

 

  · risks related to the Company's ability to successfully commercialize future product candidates;

 

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  · risks related to the possibility that the Company’s product candidate and potential future product candidates may have undesirable side effects;

  

  · risks related to the Company’s ability to enroll subjects in future clinical trials;

 

  · risks that the FDA (as defined herein) may not accept data from trials conducted in locations outside the United States;

 

  · risks related to the Company’s ongoing obligations and continued regulatory review;

 

  · risks related to potential administrative or judicial sanctions;

 

  · the risk of increased costs associated with prolonged, delayed or terminated clinical trials;

 

  · the risk that third parties may not carry out their contractual duties;

 

  · risks related to the possibility that the Company’s relationships with CROs (as defined herein) or academic institutions may terminate;

 

  · risks related to the Company’s lack of experience manufacturing product candidates on a large clinical or commercial scale and its lack of manufacturing facility;

 

  · risks related to the Company’s failure to obtain regulatory approval in international jurisdictions;

 

  · risks related to recently enacted and future legislation in the United States that may increase the difficulty and cost for the Company to obtain marketing approval of, and commercialize, its product candidate and potential future products and affect the prices the Company may obtain;

 

  · risks related to new legislation, new regulatory requirements, and the continuing efforts of governmental and third party payors to contain or reduce the costs of healthcare;

 

  · uncertainty as to the Company’s ability to raise additional funding;

 

  · risks related to the Company’s ability to raise additional capital on favorable terms;

 

  · risks related to the Realm Acquisition, the liquidation of Realm, and the assumption of related obligations;

 

  · risks that the Company may default on the residual obligations of the agreement providing for the CPRIT Grant, which may result in the Company not receiving the remaining CPRIT Grant funds and/or having to reimburse all of the CPRIT Grant, if such default is not waived by CPRIT;

 

  · risks related to the Company’s incurrence of significant losses in every quarter since its inception and the Company’s anticipation that it will continue to incur significant losses in the future;

 

  · risks related to the Company’s limited operating history;

 

  · risks related to the Company’s reliance on proprietary technology;

 

  · risks related to the Company’s ability to protect its intellectual property rights throughout the world;

 

  · risks related to claims by third parties asserting that the Company, or its employees or consultants have misappropriated their intellectual property, or claiming ownership of what the Company regards as its intellectual property;

  

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  · risks related to the Company’s ability to comply with governmental patent agency requirements in order to maintain patent protection;

 

  · risks related to computer system failures or security breaches;

 

  · risks related to business disruptions that could seriously harm the Company’s future revenues and financial condition and increase ESSA’s costs and expenses;

 

  · risks related to the Company’s dependence on the use of information technologies;

 

  · risks related to the Company’s ability to attract and maintain highly-qualified personnel;

 

  · third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain the Company’s future revenues;

 

  · risks related to potential conflicts of interest between the Company and its directors and officers;

 

  · risks related to competition from other biotechnology and pharmaceutical companies;

 

  · risks related to movements in foreign currency exchange rates;

 

  · risks related to the Company’s ability to convince public payors and hospitals to include ESSA’s product candidate and potential future products on their approved formulary lists;

 

  · risks related to the Company’s ability to establish an effective sales force and marketing infrastructure, or enter into acceptable third-party sales and marketing or licensing arrangements;

 

  · risks related to the Company's ability to manage growth;

 

  · risks related to the Company’s ability to achieve or maintain expected levels of market acceptance for its products;

 

  · risks related to the Company’s ability to realize benefits from acquired businesses or products or form strategic alliances in the future;

 

  · risks related to collaborations with third parties;

 

  · risks that employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for ESSA and harm its reputation;

 

  · risks related to product liability lawsuits;

 

  · risks related to compulsory licensing and/or generic competition;

 

  · risks related to the increased costs and effort as a result of ESSA being a public company;

 

  · risks inherent in foreign operations;

 

  · laws and regulations governing international operations may preclude the Company from developing, manufacturing and selling certain product candidates outside of the United States and Canada and require ESSA to develop and implement costly compliance programs;

 

  · risks related to laws that govern fraud and abuse and patients' rights;

 

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  · risks related to the Company’s ability to comply with environmental, health and safety laws and regulations;

 

  · risks related to the different disclosure obligations for a U.S. domestic reporting company and a foreign private issuer such as ESSA;

 

  · risks relating to the Company’s ability to maintain its status as a foreign private issuer in the future;

 

  · the risk that the Company is a “passive foreign investment company;”

 

  · risks related to the Company’s status as an emerging growth company;

 

  · risks related to United States investors' ability to effect service of process or enforcement of actions against the Company;

 

  · risks related to the Company’s ability to maintain compliance with Nasdaq listing requirements;

 

  · risks related to market price and trading volume volatility;

 

  · risks related to the Company's dividend policy;

 

  · risks associated with future sales of the Company’s securities;

 

  · risks related to the Company’s ability to implement and maintain effective internal controls;

 

  · risks related to the Company's ability to maintain an active trading market for its Common Shares;

 

  · risks related to share price volatility associated with the Company’s thinly traded common shares; and

 

  · risks related to analyst coverage.

 

Should one or more of these risks or uncertainties, or a risk that is not currently known to ESSA, materialize, or should assumptions underlying those forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this Annual Report and the Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and are inherently uncertain. Accordingly, investors are cautioned not to put undue reliance on forward-looking statements.

 

The Company advises you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to the Company or persons acting on its behalf.

 

GLOSSARY OF TERMS

 

As used in this Annual Report, the following terms have the respective meaning as specified below:

 

AACR” means the American Association for Cancer Research;

 

ADME” means absorption, distribution, metabolism, and excretion;

 

Aniten” refers to the Company’s proprietary series of compounds, a unique name granted to the Company by the United States Adopted Names Council ("USAN");

 

AR” means androgen receptor;

 

  6  

 

 

Articles” means the Articles of the Company;

  

Astellas” means Astellas Pharma Inc.;

 

Audit Committee” means the Company’s audit committee;

 

Auditor” means Davidson & Company LLP;

 

August 2019 Financing” means offering, on a public basis in Canada and a private placement basis in the United States, of 6,080,596 Common Shares and 11,919,404 pre-funded warrants of the Company on August 27, 2019 at a price of US$2.00 per Common Share and pre-funded warrant, for gross proceeds of US$36,000,000;

 

BCCA” or “BC Cancer Agency” means the British Columbia Cancer Agency;

 

Bloom Burton” means Bloom Burton & Co. Limited;

 

Board” means the board of directors of ESSA;

 

CBP” means CREB-binding protein;

 

CEO” means Chief Executive Officer;

 

CFO” means Chief Financial Officer;

 

CFPOA” means the Canadian Corruption of Foreign Public Officials Act;

 

cGMP” means current Good Manufacturing Practice;

 

CMO” means Chief Medical Officer;

 

CMS” means Centers for Medicare & Medicaid Services;

 

Common Shares” means the common shares in the capital of the Company;

 

COO” means Chief Operating Officer;

 

CPRIT” means the Cancer Prevention and Research Institute of Texas;

 

CPRIT Agreement” refers to the CPRIT Grant Agreement executed by the Chief Executive Officer of CPRIT on July 9, 2014;

 

CPRIT Grant” has the meaning given to it under the heading “History and development of the Company” in Item 4 of this Annual Report;

 

CRO” means Contract Research Organizations;

 

CRPC” means castration-resistant prostate cancer;

 

CTA” means Clinical Trial Application, the approval of which is the key step in obtaining Canadian regulatory approval to commence clinical trials in Canada. It is similar to the IND application submitted to the FDA in the United States;

 

EMA” means European Medicine Agency;

 

EORTC” means European Organisation for Research and Treatment of Cancer;

 

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ESSA Texas” means ESSA Pharmaceuticals Corp., a corporation existing under the laws of the State of Texas;

 

FCPA” means the U.S. Foreign Corrupt Practices Act;

  

FDA” means the U.S. Food and Drug Administration;

 

GCP” means Good Clinical Practices;

 

GLP” means Good Laboratory Practices;

 

Guidelines” means National Policy 58-201 – Corporate Governance Guidelines;

 

HIPAA” means the U.S. Health Insurance Portability and Accountability Act of 1996;

 

IFRS” means International Financial Reporting Standards, as issued by the International Accounting Standards Board;

 

in vitro” means experimentation in a test tube, or, generally, in a controlled environment outside a living organism;

 

in vivo” means experimentation done in or on the living tissue of a whole, living organism as opposed to a partial or dead one;

 

IND” means Investigational New Drug application, the approval of which is the key step in obtaining FDA approval to commence clinical trials in the United States;

 

IRB” means Institutional Review Boards;

 

January 2018 Financing” means the 4,321,000 common shares and 2,189,000 pre-funded warrants of the Company issued on January 9 and 16, 2018 at a price of US$4.00 per common share and pre-funded warrant for gross proceeds of US$26,040,000;

 

January 2016 Financing” means the 227,273 units of the Company issued in January 2016 at a price of $66.00 per unit for gross proceeds of approximately $15,000,000. Each unit consisted of one Common Share, one Seven-Year Warrant, and one-half of one Two-Year Warrant;

 

LBD” means the ligand-binding domain of the androgen receptor;

 

LHRH” means Luteinizing hormone releasing hormone;

 

License Agreement” means the licensing agreement between the Company and the Licensors dated December 22, 2010, and amended on February 10, 2011 and May 27, 2014, for certain patent rights and technology related to the Licensed IP, as further described under the heading “Patents and Proprietary Rights” in Item 4 of this Annual Report;

 

Licensed IP” has the meaning given to it under the heading “History and development of the Company - Patents and Proprietary Rights” in Item 4 of this Annual Report;

 

Licensors” means UBC and the BC Cancer Agency;

 

Liquidity Event” has the meaning given to it in the Articles;

 

March 2016 Financing” means the 83,333 common shares of the Company issued in March 2016 at a price of $66.00 per common share for gross proceeds of approximately $5,000,000;

 

MMA” means the U.S. Medicare Modernization Act;

 

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Nasdaq” means one of the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market market tiers of the Nasdaq Stock Market LLC (a U.S. national securities exchange);

 

NCI” means National Cancer Institute;

 

NDA” means New Drug Application;

 

NDS” means New Drug Submission;

 

NEO” means Named Executive Officer;

 

NI 52-109” means National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators;

 

NI 52-110” means National Instrument 52-110 – Audit Committees;

 

NI 58-101” means National Instrument 58-101 – Disclosure of Corporate Governance Practices;

 

NTD” means amino-terminal domain;

 

Options” means options to acquire Common Shares;

 

PARP” means poly ADP ribose polymerase;

 

Penalty Conversion Ratio” has the meaning given to it under the heading “Outstanding Security Data”;

 

PFIC” means a passive foreign investment company;

 

Preferred Shares” means the Class A preferred shares in the capital of the Company;

 

PSA” means prostate-specific antigen;

 

QEF” means qualified electing fund;

 

R&D” means research and development;

 

Realm” means Realm Therapeutics plc, a corporation existing under the laws of the United Kingdom and its wholly owned subsidiary, Realm Therapeutics Inc., a corporation existing under the laws of the State of Delaware;

 

Realm Acquisition” means the Company’s acquisition of Realm pursuant to a scheme of arrangement under Part 26 of the U.K. Companies Act 2006 (“Scheme”) as sanctioned by the High Court of Justice in England and Wales, on July 29, 2019 and completed on July 31, 2019, whereby ESSA acquired all of the issued and outstanding shares of Realm, and Realm shareholders received a total of 6,718,150 common shares of the Company (“New ESSA Shares”) at a ratio of 0.5763 New ESSA Share per each one share of Realm (or 1.4409 New ESSA Shares for every one Realm ADS (as defined in the Scheme), representing 25 Realm shares), based on a 60-day volume-weighted average price of $3.19 per share of ESSA on May 14, 2019;

 

Recognized Exchange” means, collectively, the Toronto Stock Exchange, the TSX-V, the Nasdaq Stock Market, the New York Stock Exchange, any other equity market based in North America having listing standards similar to those of the TSX-V as determined by the Board in its sole discretion, acting reasonably or any other equity market as may be approved by holders representing at least 66 and 2/3 % of the issued and outstanding Preferred Shares;

 

SAR” means structure-activity relationship;

 

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Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002;

 

SCID” means Severe Combined Immunodeficiency;

 

SEDAR” means the System for Electronic Document Analysis and Retrieval;

 

SEC” means the U.S. Securities and Exchange Commission;

 

Special Warrant Agent” means Computershare Trust Company of Canada;

 

Stock Option Plan” means the stock option plan of the Company dated April 25, 2018;

 

TPD” means the Therapeutic Products Division of Health Canada;

 

TSX” means the Toronto Stock Exchange;

  

TSX-V” means the TSX Venture Exchange;

 

UBC” means the University of British Columbia;

 

USAN” means the United States Adopted Names Council;

 

U.S.” means the United States of America; and

 

U.S. Anti-Kickback Statute” refers to the federal Anti-Kickback Statute, which is a criminal statute that prohibits the exchange of anything of value in an effort to induce or reward the referral of federal health care program business.

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A. Directors and Senior Management

 

Not applicable.

 

B. Advisors

 

Not applicable.

 

C. Auditors

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

A. Offer Statistics

 

Not applicable.

 

B. Method and Expected Timetable

 

Not applicable.

 

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ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The following table sets forth selected consolidated financial information for the periods indicated, prepared in accordance with IFRS. The selected consolidated financial information as at and for the years ended September 30, 2019, September 30, 2018, September 30, 2017, September 30, 2016, and September 30, 2015 has been derived from ESSA’s audited financial statements and accompanying notes.

 

The selected consolidated financial information should be read in conjunction with the audited financial statements and accompanying notes thereto contained elsewhere in this Annual Report and discussions in Part I Item 5 “Operating and Financial Review and Prospects” included in this Annual Report. The selected consolidated financial information set out below may not be indicative of ESSA’s future performance.

  

Figures in US$
unless stated otherwise
  Year Ended
September 30,
2019
    Year Ended
September 30,
2018
    Year Ended
September 30,
2017
    Year Ended
September 30,
2016
    Year Ended
September 30,
2015
 
Operating Revenues                              
Total Operating Expenses     (12,772,464 )     (11,713,965 )     (11,651,870 )     (19,642,164 )     (10,328,202 )
Net Loss for the Period     (10,441,865 )     (11,629,440 )     (4,499,012 )     (13,139,788 )     (9,676,587 )
Comprehensive Loss for the Period     (10,441,865 )     (11,629,440 )     (4,499,012 )     (13,477,551 )     (11,341,799 )
Basic and diluted loss per Common Share     (1.24 )     (2.55 )     (3.09 )     (9.77 )     (10.60 )
Total Assets     54,773,824       16,017,074       5,607,044       10,402,562       7,539,773  
Net Assets     49,180,901       9,152,072       (4,274,003 )     (536,857 )     4,455,512  
Capital Stock (1)     76,212,154       40,205,997       25,980,117       25,974,742       19,419,004  
Number of Shares Adjusted to Reflect Changes in Capital     20,762,374       5,776,098       1,455,098       1,454,848       1,131,467  
Dividends Declared per Share                              

 

(1) Excluding long-term debt and redeemable preferred stock.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

An investment in ESSA involves a high degree of risk and should be considered highly speculative due to the nature and present early stage of the Company’s business. The following risks are the material risks that the Company faces; however, the risks below are not the only ones ESSA faces. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any of the following risks occur, the Company’s business, financial condition and results of operations could be seriously harmed and you could lose all or part of your investment. Before deciding to invest in any Common Shares, investors should carefully consider the risk factors described below.

 

ESSA’s Product Candidate and Regulatory Matters

 

ESSA’s future success is dependent primarily on the regulatory approval and commercialization of a single product candidate, which is still in the preclinical stage.

 

The Company does not have any products that have obtained regulatory approval for clinical development or commercialization. Currently, ESSA is engaged in the preclinical testing of a product candidate, EPI-7386, to take forward from its Aniten series of compounds through preclinical and clinical development to determine the safety, tolerability, maximum tolerated dose, pharmacokinetics and potential therapeutic benefits of such candidate in patients with metastatic castration-resistant prostate cancer (“CRPC”), and to ultimately receive regulatory approval. As a result, the Company’s near-term prospects, including its ability to finance its operations and generate revenue, are substantially dependent on its ability to develop, obtain regulatory approval for, and, if approved, to successfully commercialize a product candidate in a timely manner. ESSA cannot commercialize its product candidates in the United States without first conducting multiple preclinical and clinical trials to establish the product’s safety and efficacy and obtaining regulatory approval for the product from the FDA; similarly, ESSA cannot commercialize its product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. The FDA development and review process typically varies in time and may take years to complete and approval is not guaranteed. Developing, obtaining regulatory approval for and successfully commercializing ESSA’s product candidates will depend on many factors, including, but not limited to, the following:

 

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  · successfully completing formulation and process development activities;

 

  · completing multiple clinical trials that demonstrate the efficacy and safety of ESSA’s product candidates;

 

  · receiving marketing approval from applicable regulatory authorities;

 

  · establishing commercial manufacturing capabilities;

 

  · launching commercial sales, marketing and distribution operations;

 

  · acceptance of ESSA’s product candidates by patients, the medical community and third-party payors;

 

  · a continued acceptable safety profile following approval; and

 

  · competing effectively with other therapies, including with respect to the sales and marketing of ESSA’s product candidates, if approved.

 

Many of these factors are wholly or partially beyond ESSA’s control, including clinical development, the regulatory submission process and changes in the competitive landscape. If ESSA does not achieve one or more of these factors in a timely manner, it could experience significant delays or an inability to develop ESSA’s product candidates at all.

 

If the Company breaches any of the agreements under which the Company licenses rights to its technology from third parties, the Company could lose license rights that are important to ESSA’s business. ESSA’s current license agreement may not provide an adequate remedy for its breach by the licensor.

  

ESSA entered into a License Agreement with UBC and the BC Cancer Agency that covers certain Aniten compound candidates. The Company is subject to a number of risks associated with the Company’s collaboration with UBC and the BC Cancer Agency, including the risk that UBC or the BC Cancer Agency may terminate the License Agreement upon the occurrence of certain specified events. ESSA’s License Agreement requires, among other things, that the Company make certain payments and use reasonable commercial efforts to meet certain clinical and regulatory milestones. See “Patents and Proprietary Rights” in Item 4 of this Annual Report. If ESSA fails to comply with any of these obligations or otherwise breaches this or similar agreements, UBC, the BC Cancer Agency or any future licensors may have the right to terminate the license. ESSA could also suffer the consequences of non-compliance or breaches by licensors in connection with ESSA’s license agreements. Such non-compliance or breaches by such third parties could in turn result in ESSA’s breaches or defaults under the Company’s agreements with the Company’s other collaboration partners, and the Company could be found liable for damages or lose certain rights, including rights to develop and/or commercialize a product or product candidate. Loss of ESSA’s rights to the Licensed IP or any similar license granted to ESSA in the future, or the exclusivity rights provided therein, could harm ESSA’s financial condition and operating results.

 

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The Company may not be able to obtain required regulatory approvals for the Company’s proposed products.

 

The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products developed by ESSA or ESSA’s future collaborative partners, if any, is subject to extensive regulation by federal, provincial, state and local governmental authorities and those regulations differ from country to country. ESSA’s product candidate and potential future product candidates will be principally regulated in the United States by the FDA, in the European Union by the EMA and the regulators in the individual European Union member countries, in Canada by the TPD, and by other similar regulatory authorities in Japan and other jurisdictions. Government regulation substantially increases the cost and risk of researching, developing, manufacturing and selling products. Following several widely publicized issues in recent years, the FDA and similar regulatory authorities in other jurisdictions have become increasingly focused on product safety. This development has led to requests for more clinical trial data, for the inclusion of a significantly higher number of patients in clinical trials and for more detailed analysis of trial results. Consequently, the process of obtaining regulatory approvals, particularly from the FDA, is time-consuming and has become more costly than in the past. Any product developed by ESSA or ESSA’s future collaborative partners, if any, must receive all relevant regulatory approvals or clearances from the applicable regulatory authorities before it may be marketed and sold in a particular country.

 

ESSA will not be permitted to market any potential products in the United States, Europe, Japan, Canada or in other countries where ESSA intends to market its product candidate and potential future product candidates until such product candidate receives approval of a NDA from the FDA or similar approval in other countries as restrictions apply. In the United States, the FDA generally requires the completion of preclinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA is approved. This process takes many years and requires the expenditure of substantial resources and may include post-marketing studies and surveillance. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization. Other than the IND submitted for EPI-506, the Company has not submitted an IND or an NDA to date for any of the Company’s potential products to the FDA or comparable applications to other regulatory authorities. If the Company’s development efforts for potential products are not successful for the treatment of CRPC and regulatory approval is not obtained in a timely fashion or at all, the Company’s business will be adversely affected.

 

The receipt of required regulatory approvals for the Company’s product candidate and potential future product candidate(s) is uncertain and subject to a number of risks, including the following:

 

  · the FDA, IRBs or comparable foreign regulatory authorities may disagree with the design or implementation of the Company’s clinical trials;

 

  · the Company may not be able to provide acceptable evidence of the safety, efficacy or quality of its potential products;

  

  · the results of the Company’s clinical trials may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies for marketing approval;

 

  · the dosing of the Company’s potential products in a particular clinical trial may not be at an optimal level;

 

  · patients in the Company’s clinical trials may suffer adverse effects for reasons that may or may not be related to the Company’s potential products;

 

  · the data collected from the Company’s clinical trials may not be sufficient to support the submission of an NDA for the Company’s potential products or to obtain regulatory approval in the United States, Europe, Japan, Canada, or elsewhere;

 

  · the FDA or comparable foreign regulatory authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which the Company contracts for clinical and commercial supplies; and

 

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  · the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering the Company’s clinical data insufficient for approval.

 

The FDA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that the Company’s data is insufficient for approval and require additional clinical trials, or other studies. In addition, varying interpretations of the data obtained from preclinical studies and clinical trials could delay, limit or prevent regulatory approval of the Company’s potential products. ESSA, or ESSA’s future collaborative partner, if any, must obtain and maintain regulatory authorization to conduct clinical trials. ESSA’s preclinical research is subject to GLP and other requirements and ESSA’s clinical research is subject to good clinical practice and other requirements. Failure to adhere to these requirements could invalidate ESSA’s data. In addition, the relevant regulatory authority or independent review board may modify, suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits. Further, the process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the prescription product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities. If regulatory approval is obtained in one jurisdiction, it does not necessarily mean that ESSA’s potential products will receive regulatory approval in all jurisdictions in which the Company may seek approval, or any regulatory approval obtained may not be as broad as what was obtained in other jurisdictions. However, the failure to obtain approval for ESSA’s potential products in one or more jurisdictions may negatively impact the Company’s ability to obtain approval in a different jurisdiction. Accordingly, despite ESSA’s expenditures and investment of time and effort, it may be unable to receive required regulatory approvals for product candidates developed by it. If a significant portion of these development efforts are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful, ESSA’s business, financial condition and results of operations may be materially harmed.

 

Until September 2017, ESSA was largely dependent on the success of EPI-506, the development of which it has now suspended. The Company’s product candidate and potential future product candidates are still in preclinical development, and accordingly ESSA’s business is now dependent on its ability to successfully develop much earlier stage product candidates. If ESSA is unable to develop these product candidates in a timely manner, its business will be materially harmed.

 

Until September 2017, ESSA’s business prospects and potential product revenues were largely dependent upon its ability to obtain regulatory approval of, and successfully commercialize, EPI-506. Due to a strategic shift in the Company’s business focus, it is now dependent on the successful identification and development of preclinical stage Aniten compounds.

  

Before ESSA can commercialize these Aniten compounds it will need to:

 

  · conduct substantial research and development;

 

  · undertake nonclinical and clinical testing and engage in sampling activity and other costly and time consuming measures;

 

  · scale-up manufacturing processes; and

 

  · pursue and obtain marketing and manufacturing approvals and, in some jurisdictions, pricing and reimbursement approvals.

 

This process involves a high degree of risk and takes many years, and success is never guaranteed. ESSA’s Aniten compound development efforts may fail for many reasons, including:

 

  · ESSA’s inability to secure the funds to continue the operation of its business;

 

  · failure of  ESSA’s product candidate and potential future product candidates in nonclinical studies;

 

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  · delays or difficulty enrolling patients in clinical trials, particularly for disease indications with small patient populations;

 

  · patients exhibiting adverse reactions to ESSA’s product candidate and potential future product candidates or indications of other safety concerns;

 

  · insufficient clinical trial data to support the bioequivalence of one or more of ESSA’s product candidate and potential future product candidates with the applicable reference product;

 

  · inability to manufacture sufficient quantities of ESSA’s product candidate and potential future product candidates for development or commercialization activities in a timely and cost-efficient manner, if at all;

 

  · potential patent litigation with innovator companies or others who may hold patents;

 

  · failure to obtain, or delays in obtaining, the required regulatory approvals for ESSA’s product candidate and potential future product candidates, the facilities or the processes used to manufacture such product candidates;

 

  · changes in the regulatory environment, including pricing and reimbursement that make development of ESSA’s product candidate and potential future product candidates no longer desirable; or

 

  · ESSA’s inability, in any future clinical trial that might require one or more comparative products, to obtain on a timely basis supplies of the applicable reference products to which its product candidate and potential future product candidates must be compared.

 

If ESSA’s product development efforts fail for any of these or other reasons, or it decides to abandon development of its product candidate and potential future product candidate at any time, it would never realize revenue from those programs and its business could be materially harmed

 

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, results of earlier studies and trials may not be predictive of future trial results and ESSA’s product candidate and potential future product candidates may not have favorable results in later trials or in the commercial setting.

 

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. ESSA’s planned clinical trials may produce negative or inconclusive results, and ESSA or any of its current and future collaborators may decide, or regulators may require ESSA, to conduct additional clinical or preclinical testing. The results of preclinical studies and early clinical trials may not be predictive of the results of later-stage clinical trials. Preclinical tests and Phase I and Phase II clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product candidates at various doses and schedules. Success in preclinical or animal studies and early clinical trials does not ensure that later large-scale efficacy trials will be successful nor does it predict final results. Favorable results in early trials may not be repeated in later trials. The Company cannot assure you that the FDA, TPD or EMA or other similar government bodies will view the results as the Company does, or that any future trials of ESSA’s proposed products for other indications will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials.

 

A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Any future clinical trial results for ESSA’s proposed products may not be successful. Similarly, preclinical interim results of a clinical trial do not necessarily predict final results. A number of factors could contribute to a lack of favorable safety and efficacy results for ESSA’s proposed products for other indications. For example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in evaluation period and due to varying patient characteristics including demographic factors and health status. There can be no assurance that the Company’s clinical trials will demonstrate sufficient safety and efficacy for the FDA EMA to approve ESSA’s potential products for the treatment of CRPC, or any other indication that the Company may consider in any additional NDA or NDS submissions for ESSA’s potential products.

 

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The Company will be required to demonstrate through large scale clinical trials that any product candidate and potential future product candidate is safe and effective for use in a diverse population before ESSA can seek regulatory approvals for its commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical and post-approval trials. If ESSA’s potential products fail to demonstrate sufficient safety and efficacy in ongoing or future clinical trials, the Company could experience potentially significant delays in, or be required to abandon development of a product candidate.

 

In addition, clinical trials and nonclinical studies performed by research organizations and other independent third parties may yield negative results regarding the effect of ESSA’s potential products on CRPC, either in absolute terms or relative to other products.

 

As an organization, ESSA has never submitted an NDA/NDS and may be unable to do so for any future products ESSA develops.

 

ESSA completed a Phase I clinical trial for EPI-506 which will not be taken forward into Phase II. ESSA will have to complete a Phase I clinical trial for any future product candidates. Additionally, ESSA will need to conduct Phase II and Phase III of clinical trials, which it has not previously undertaken. The conduct of Phase III clinical trials and the submission of a successful IND or CTA and NDA or NDS is a complicated process. As an organization, ESSA has limited experience in preparing, submitting and prosecuting regulatory filings and has not submitted an NDA or NDS. ESSA’s interactions with the FDA to date have been limited to the completed EPI-506 clinical trial. Consequently, even if ESSA’s initial clinical trials are successful, the Company may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA or NDS submission and approval of ESSA’s proposed products or any other future product candidate ESSA may develop. The Company may require more time and incur greater costs than competitors and may not succeed in obtaining regulatory approvals of products that the Company develops. Failure to commence or complete, or delays in, ESSA’s planned clinical trials, would prevent ESSA from or delay ESSA in commercializing proposed products or any other future product candidate ESSA develops.

  

ESSA may not be able to successfully commercialize its Aniten series of compounds.

 

Even if a candidate from ESSA’s Aniten series were to be successfully developed and obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, may be subject to burdensome post-approval study or risk management requirements, or may be limited to a subset of CRPC patients with limited commercial value. If ESSA is unable to obtain regulatory approval in one or more jurisdictions, or any approval contains significant limitations, ESSA may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any other future product candidates that ESSA may discover, in-license, develop or acquire in the future. Also, any regulatory approval of any future product candidates, once obtained, may be withdrawn. Furthermore, even if ESSA obtains regulatory approval for a product candidate, the commercial success of such product candidate will depend on a number of factors, including the following:

  

  · development of a commercial organization or establishment of a commercial collaboration with a commercial infrastructure;

 

  · establishment of commercially viable pricing and approval for adequate reimbursement from third-party and government payors;

 

  · the ability of ESSA’s third-party manufacturers to manufacture quantities of the compound using commercially efficient processes and at a scale sufficient to meet anticipated demand and enable ESSA to reduce its cost of manufacturing;

 

  · ESSA’s success in educating physicians and patients about the benefits, administration and use of the compound;

 

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  · the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

 

  · the effectiveness of ESSA’s own or its potential strategic collaborators’ marketing, sales and distribution strategy and operations;

 

  · acceptance of the product candidate as safe and effective by patients and the medical community; and
     
  · a continued acceptable safety profile of a product candidate following approval.

 

Many of these factors are beyond ESSA’s control. If ESSA, or its potential commercialization collaborators, are unable to successfully commercialize a product candidate, ESSA may not be able to earn sufficient revenues to continue the Company’s business.

 

The Company’s product candidate and potential future product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

 

Although any future product candidates will undergo safety testing, not all adverse effects of drugs can be predicted or anticipated. Unforeseen side effects from any of ESSA’s product candidate and potential future product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed.  The results of any future clinical trials may show that the product candidate(s) cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings, limited patient populations or potential product liability claims.

 

If any of ESSA’s product candidate and potential future product candidates receive marketing approval and it or others later identify undesirable or unacceptable side effects caused by such products:

 

  · regulatory authorities may require us to take ESSA’s approved product off the market;

 

  · regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

  · it may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

  · it may be subject to limitations on how it may promote or distribute the product;

 

  · sales of the product may decrease significantly;

 

  · it may be subject to litigation or product liability claims; and

 

  · ESSA’s reputation may suffer.

  

Any of these events could prevent ESSA or its future collaborative partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent ESSA from generating significant revenue from the sale of ESSA’s products.

 

If ESSA is unable to enroll subjects in clinical trials, ESSA will be unable to complete these trials on a timely basis.

 

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled subjects will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications ESSA is investigating. Furthermore, ESSA plans to rely on CROs and clinical trial sites to ensure the proper and timely conduct of the Company’s clinical trials, and while the Company has agreements governing their committed activities, the Company has limited influence over their actual performance.

 

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If ESSA experiences delays in the completion or termination of any clinical trial of any future product candidates, the commercial prospects of product candidates will be harmed, and ESSA’s ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing ESSA’s clinical trials will increase costs, slow down product candidate development and approval process and could shorten any periods during which ESSA may have the exclusive right to commercialize product candidates or allow competitors to bring products to market before ESSA does, and jeopardize ESSA’s ability to commence product sales, which would impair ESSA’s ability to generate revenues and may harm ESSA’s business, results of operations, financial condition and cash flows and future prospects. In addition, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of ESSA’s proposed products or future product candidates.

 

ESSA may conduct trials for future product candidates at sites outside the United States and the FDA may not accept data from trials conducted in such locations.

 

ESSA may in the future choose to conduct more clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the studies also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA chooses to not accept data collected outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt the development of the Company’s proposed products or any future product candidates.

 

Even if the Company obtains marketing approval for any product candidate and potential future products, the Company will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.

 

Even if the Company obtains U.S., Canadian or European regulatory approval for a future product candidate, which would not occur until the Company successfully completes multiple clinical trials, including Phase III clinical trials, the FDA, TPD or EMA may still impose significant restrictions on its indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials or clinical outcome studies and post-market surveillance to monitor the safety and efficacy of ESSA’s potential products. Even if the Company secures U.S., Canadian or European regulatory approval, the Company would continue to be subject to ongoing regulatory requirements governing manufacturing, labeling, packaging, storage, quality assurance, distribution, import, export, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with GCP obligations, for any clinical trials that the Company conducts post approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.

 

With respect to any product candidates for which ESSA obtains regulatory approval, ESSA will be subject to post-marketing regulatory obligations, including the requirements by the FDA, EMA and similar agencies in other jurisdictions to maintain records regarding product safety and to report to regulatory authorities serious or unexpected adverse events. Compliance with extensive post-marketing record keeping and reporting requirements requires a significant commitment of time and funds, which may limit ESSA’s ability to successfully commercialize approved products.

 

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In addition, manufacturing of approved drug products must comply with extensive regulations governing cGMP. Manufacturers and their facilities are subject to continual review and periodic inspections. As ESSA will be dependent on third parties for manufacturing, ESSA will have limited ability to ensure that any entity manufacturing products on its behalf is doing so in compliance with applicable cGMP requirements. Failure or delay by any manufacturer of ESSA’s products to comply with cGMP regulations or to satisfy regulatory inspections could have a material adverse effect on ESSA, including potentially preventing ESSA from being able to supply products for clinical trials or commercial sales. In addition, manufacturers may need to obtain approval from regulatory authorities for product, manufacturing, or labeling changes, which requires time and money to obtain and can cause delays in product availability. ESSA is also required to comply with good distribution practices such as maintenance of storage and shipping conditions, as well as security of products, in order to ensure product quality determined by cGMP is maintained throughout the distribution network. In addition, ESSA is subject to regulations governing the import and export of its products.

 

Sales and marketing of pharmaceutical products are subject to extensive federal and state or other laws governing on-label and off-label advertising, scientific/educational grants, gifts, consulting and pricing and are also subject to consumer protection and unfair competition laws. Compliance with these extensive regulatory requirements will require training and monitoring of any future sales force, which will impose a substantial cost on ESSA and ESSA’s collaborators. To the extent any future ESSA products are marketed by collaborators, ESSA’s ability to ensure their compliance with applicable regulations will be limited.

 

Failure to comply with applicable legal and regulatory requirements may result in administrative or judicial sanctions.

 

If the Company or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, lack of efficacy, problems with the facility where the product is manufactured, or the Company or its manufacturers fail to comply with applicable regulatory requirements, the Company may be subject to the following administrative or judicial sanctions:

 

  · restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

  · issuance of warning letters or untitled letters;

 

  · clinical holds;

 

  · injunctions or the imposition of civil or criminal penalties or monetary fines;

 

  · suspension or withdrawal of regulatory approval;

 

  · suspension of any ongoing clinical trials;

 

  · refusal to approve pending applications or supplements to approved applications filed by the Company, or suspension or revocation of product license approvals;

 

  · suspension or imposition of restrictions on operations, including costly new manufacturing requirements;

 

  · withdrawal of the product from the market and product recalls; or

 

  · product seizure or detention or refusal to permit the import or export of product.

 

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The occurrence of any event or penalty described above may inhibit the Company’s ability to commercialize potential products and generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase the Company’s product liability exposure.

 

In the future, the regulatory climate might change due to changes in the FDA and other regulatory authorities’ staffing, policies or regulations and such changes could impose additional post-marketing obligations or restrictions and related costs. While it is impossible to predict future legislative or administrative action, if the Company is not able to maintain regulatory compliance, the Company will not be able to market its drugs and its business could suffer.

 

If clinical trials for ESSA’s product candidate and potential future product candidates are prolonged, delayed or stopped, ESSA may be unable to obtain regulatory approval and commercialize such product candidates on a timely basis, or at all, which would require ESSA to incur additional costs and delay receipt of any product revenue.

 

ESSA may experience delays in any future preclinical studies or clinical trials, and ESSA does not know whether future preclinical studies or clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. The commencement of these planned clinical trials could be substantially delayed or prevented by several factors, including:

 

  · discussions with the FDA or other regulatory agencies regarding the scope or design of ESSA’s clinical trials;

 

  · the limited number of, and competition for, suitable sites to conduct ESSA’s clinical trials, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as ESSA’s product candidates;

 

  · any delay or failure to obtain regulatory approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;

 

  · inability to obtain sufficient funds required for a clinical trial;

 

  · clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;

 

  · delay or failure to manufacture sufficient supplies of the product candidate for ESSA’s clinical trials;

 

  · delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or clinical research organizations (“CROs”), the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs; and

 

  · delay or failure to obtain institutional review board, or IRB, approval to conduct a clinical trial at a prospective site.

 

The completion of ESSA’s clinical trials, once started, could also be substantially delayed or prevented by several factors, including:

 

  · slower than expected rates of patient recruitment and enrollment;

 

  · failure of patients to complete the clinical trial;

 

  · the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically significant treatment effects;

 

  · unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths;

 

  · lack of efficacy during clinical trials;

 

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  · termination of ESSA’s clinical trials by one or more clinical trial sites;

 

  · inability or unwillingness of patients or clinical investigators to follow ESSA’s clinical trial protocols;

 

  · inability to monitor patients adequately during or after treatment by ESSA and/or ESSA’s CROs;

 

  · ESSA’s CROs or clinical study sites failing to comply with regulatory requirements or meet their contractual obligations to ESSA in a timely manner, or at all, deviating from the protocol or dropping out of a study;

 

  · the inability to produce or obtain sufficient quantities of the product candidate to complete clinical studies;

 

  · the inability to scale up manufacture of the product candidate into a commercially acceptable formulation at reasonable cost;

 

  · the inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial; and

 

  · the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing.

 

Changes in regulatory requirements, policies and guidelines may also occur and ESSA may need to significantly amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Such changes may require ESSA to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. ESSA’s clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of ESSA’s clinical trial sites with respect to that site, or ESSA, due to a number of factors, including:

 

  · failure to conduct the clinical trial in accordance with regulatory requirements or ESSA’s clinical protocols;

 

  · unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks;

 

  · lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and

 

  · upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future collaborators that have responsibility for the clinical development of any of ESSA’s product candidates.

 

Product development costs for any of ESSA’s potential products will increase if it has delays in testing or approval or if the Company needs to perform more or larger clinical studies than planned. Any delays in completing the Company’s future clinical trials will increase its costs, slow down its development and approval process and jeopardize its ability to generate revenues. Any of these occurrences may have a material adverse effect on the Company’s business, financial condition and prospects.

 

ESSA relies on third parties to conduct its preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, this could substantially harm ESSA’s business because it may not be able to obtain regulatory approval for or commercialize product candidates in a timely manner or at all.

 

ESSA has extensively relied upon and plans to continue to extensively rely upon entities outside of its control, including CROS and academic institutions, to monitor and manage data for its ongoing preclinical and clinical programs. ESSA relies on these parties for execution of its preclinical studies and clinical trials, and it controls only some aspects of their activities. Nevertheless, ESSA is responsible for ensuring that each of its studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and ESSA’s reliance on CROS and academic institutions does not relieve it of these responsibilities. ESSA also relies on third parties to assist in conducting its preclinical studies in accordance with GLP and the Animal Welfare Act requirements. ESSA and the third parties that it relies on are required to comply with federal regulations and current GCP, which are international standards meant to protect the rights and health of patients that are enforced by the FDA and comparable foreign regulatory authorities for all of ESSA’s products in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If ESSA or any of the third parties it relies on fail to comply with applicable GCP, the clinical data generated in ESSA’s clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require ESSA to perform additional clinical trials before approving ESSA’s marketing applications. ESSA cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of its clinical trials comply with GCP requirements. In addition, ESSA’s clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require ESSA to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.

  

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The third parties that ESSA relies upon are not its employees, and except for remedies available to the Company under its agreements with such third parties, ESSA cannot control whether or not they devote sufficient time and resources to the Company’s ongoing clinical, nonclinical and preclinical programs. Academic institutions may not operate under the same commercial standards as other third-party CROs that undertake such work and may not be able to devote adequate time and resources to preclinical studies. If CROs or academic institutions do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the preclinical or clinical data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, ESSA’s preclinical or clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize future product candidates. As a result, ESSA’s results of operations and the commercial prospects for its future product candidates would be harmed, its costs could increase and its ability to generate revenues could be delayed.

 

Because ESSA has relied on third parties, its internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to ESSA’s standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires ESSA to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. ESSA currently has a small number of employees, which limits the internal resources we have available to identify and monitor third-party providers. To the extent ESSA is unable to identify and successfully manage the performance of third-party service providers in the future, its business may be adversely affected. Though ESSA carefully manages its relationships with CROs and academic institutions, there can be no assurance that it will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on ESSA’s business, results of operations, financial condition and cash flows and future prospects.

 

If ESSA’s relationships with CROs or academic institutions terminate, its drug development efforts could be delayed.

 

ESSA relies on entities outside of its control, including CROs and academic institutions, for preclinical studies and clinical trials related to its drug development efforts. Switching or adding additional CROs or academic institutions would involve additional cost and would require management time and focus. The CROs and academic institutions that ESSA relies on have the right to terminate their agreements with the Company in the event of an uncured material breach. If any of ESSA’s relationships with CROs and academic institutions terminate, the Company could experience a significant delay in identifying, qualifying and managing performance of a comparable third-party service provider, which could adversely affect its development programs. In addition, there is a natural transition period when a new CRO or academic institution commences work and the new CRO or academic institution may not provide the same type or level of services as the original provider. ESSA may not be able to enter into arrangements with alternative CROs or academic institutions or be able to do so on commercially reasonable terms.

 

ESSA has limited experience manufacturing product candidates on a large clinical or commercial scale and has no manufacturing facility. As a result, ESSA may in the future be dependent on third party manufacturers for the manufacture of product candidates as well as on third parties for ESSA’s supply chain, and if ESSA experiences problems with any future third parties, the manufacturing of ESSA’s product candidates or products could be delayed.

 

ESSA does not own or operate facilities for the manufacture of future potential product candidates. ESSA currently has no plans to build internal clinical or commercial scale manufacturing capabilities. As a result, ESSA potentially may rely on third-party contract manufacturing organizations, in the future, for the manufacture of active pharmaceutical ingredients for ESSA’s potential products. Also, ESSA may potentially rely on another contract manufacturing organization for the production of the final product formulation. To meet ESSA’s projected potential needs for clinical supplies to support its activities through regulatory approval and commercial manufacturing, the contract manufacturing organizations with whom ESSA may potentially work will need to increase the scale of production. ESSA may need to identify additional contract manufacturing organizations for continued production of supply for product candidates in the event the current potential contract manufacturing organizations ESSA chooses to utilize are unable to scale production, or if ESSA otherwise experiences any problems with them. Although alternative third-party suppliers with the necessary manufacturing and regulatory expertise and facilities exist, it could be expensive and take a significant amount of time to arrange for alternative suppliers. ESSA may encounter technical difficulties or delays in the transfer of any future potential product manufacturing on a commercial scale to additional third-party manufacturers. ESSA may be unable to enter into agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. If ESSA is unable to arrange for alternative third-party manufacturing sources or to do so on commercially reasonable terms or in a timely manner, ESSA may not be able to complete development of its potential product candidates, market or distribute them.

 

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Reliance on third-party manufacturers entails risks to which ESSA would not be subject if ESSA manufactured product candidates or products ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond ESSA’s control, including a failure to synthesize and manufacture product candidates or any products ESSA may eventually commercialize in accordance with ESSA’s specifications and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to ESSA. In addition, the FDA and other regulatory authorities require that ESSA’s product candidates and any products that ESSA may eventually commercialize be manufactured according to cGMP and similar foreign standards. Any failure by ESSA’s third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of ESSA’s potential product candidates and could cause ESSA to incur higher costs and prevent ESSA from commercializing product candidates successfully. In addition, such failure could be the basis for the FDA to issue a warning letter, withdraw approvals for product candidates previously granted to ESSA, or take other regulatory or legal action, including recall or seizure of outside supplies of the product candidate, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention or product, refusal to permit the import or export of products, injunction, or imposing civil and criminal penalties.

 

Any significant disruption in ESSA’s supplier relationships could harm the Company’s business. Any significant delay in the supply of a product candidate or its key materials for a potential ongoing clinical study could considerably delay completion of ESSA’s potential clinical trials, product testing and regulatory approval of ESSA’s potential product candidates. If ESSA’s manufacturers or ESSA is unable to purchase these key materials after regulatory approval has been obtained for ESSA’s product candidates, the commercial launch of ESSA’s product candidates would be delayed or there would be a shortage in supply, which would impair ESSA’s ability to generate revenues from the sale of its product candidates. It may take several years to establish an alternative source of supply for ESSA’s product candidates and to have any such new source approved by the FDA.

 

Failure to obtain regulatory approval in international jurisdictions would prevent any product candidates from being marketed outside the United States or Canada.

 

In order to market and sell ESSA’s products in the European Union and many other jurisdictions, it must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA or TPD approval. The regulatory approval process outside of the United States or Canada generally includes all of the risks associated with obtaining FDA or TPD approval. In addition, in many countries outside the United States or Canada, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for ESSA and could delay or prevent the introduction of its potential products in certain countries. ESSA may not obtain approvals from regulatory authorities outside the United States or Canada on a timely basis, if at all. A failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. ESSA may not be able to file for marketing approvals and may not receive necessary approvals to commercialize its potential products in any market. If ESSA is unable to obtain approval of any of its future product candidates by regulatory authorities in the European Union or another jurisdiction, the commercial prospects of that product candidate may be significantly diminished and its business prospects could decline.

 

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Recently enacted and future legislation in the United States may increase the difficulty and cost for the Company to obtain marketing approval of, and commercialize, its products and affect the prices the Company may obtain.

 

In the United States, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for ESSA’s products, restrict or regulate post-approval activities and affect the Company’s ability to profitably sell products. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. The Company does not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of ESSA’s products, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject the Company to more stringent product labeling and post-marketing testing and other requirements.

 

In recent years, the U.S. Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians. CMS also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price ESSA can receive for those products, if approved. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

 

In March 2010, the Patient Protection and Affordable Care Act (the “ACA”) was signed into law. This law, which was intended to broaden access to health insurance, significantly impacted the pharmaceutical industry. Among other things, the ACA imposed an annual fee on manufacturers of branded prescription drugs, increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; expanded the healthcare fraud and abuse laws, implemented a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer discounts off negotiated prices; expanded the eligibility criteria for Medicaid programs; expanded the entities eligible for discounts under the Public Health Service Act pharmaceutical pricing program; and imposed a number of substantial new compliance provisions related to pharmaceutical companies' interactions with healthcare practitioners.

 

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. For example, the Tax Cuts and Jobs Act, signed into law by President Trump in 2017, repealed the individual health insurance mandate, which is considered a key component of the ACA. In December 2018, a Texas federal district court judge struck down the ACA on the grounds that the individual health insurance mandate is unconstitutional, although this ruling has been stayed pending appeal. The ongoing challenges to the ACA and new legislative proposals have resulted in uncertainty regarding the ACA’s future viability and destabilization of the health care market. These reforms, however, could have an adverse effect on anticipated revenue from product candidates that ESSA may successfully develop and for which ESSA may obtain marketing approval and may affect ESSA’s overall financial condition and ability to develop or commercialize product candidates. For example, it is possible that efforts to repeal the ACA, if enacted into law, could ultimately result in fewer individuals having health insurance coverage or in individuals having insurance coverage with less generous benefits. The scope of potential future legislation to repeal and replace the ACA provisions is highly uncertain in many respects, as is the effect of such future legislation on ESSA’s business and prospects.

 

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011 and will remain in effect through 2027, unless additional Congressional action is taken. Similarly, in January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to certain providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect future customer demand and affordability for any future our products, if approved and, accordingly, the results of our financial operations.

 

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Further, the FDA's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act (“Cures Act”) was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability. In addition, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 (“Right to Try Act”) was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act. ESSA cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on its product candidates, if any, may be.

 

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action in the United States. For example, the Trump Administration has issued a number of Executive Orders, applicable to all executive agencies, including the FDA, which imposes budget restriction on agencies contemplating issuing new regulations and requires such agencies to identify at least two existing regulations to be repealed, unless prohibited by law. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA's ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA's ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

  

Also, there has been heightened governmental scrutiny recently over the manner in which pharmaceutical companies set and advertise prices for their marketed products, which have resulted in several Congressional inquiries and proposed federal legislation, as well as state efforts, designed to, among other things, bring more transparency to product pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, in 2018, the Trump administration released a “Blueprint,” or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Trump administration also proposed to establish an “international pricing index” that would be used as a benchmark to determine the costs and potentially limit the reimbursement of drugs under Medicare Part B. The volume of drug pricing-related bills has dramatically increased under the current Congress and, among other recent proposals, Congress has proposed bills to change the Medicare Part D benefit to impose an inflation-based rebate in Medicare Part D and to alter the benefit structure to increase manufacturer contributions in the catastrophic phase. The Department of Health also proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product, and has been active in proposing rules that would alter the existing safe harbors to the U.S. Anti-Kickback Statute in an effort to reduce drug prices. While some proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

 

At the state level, individual states in the United States are increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries, such as Canada, as well as bulk purchasing. There has also been increased discussion at the federal level, including by the Trump Administration, of proposals intended to encourage re-importation. These and other potential reforms could have a significant impact on the pharmaceutical industry and on the development and potential future pricing of ESSA’s product candidates.

 

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ESSA’s business may be materially adversely affected by new legislation, new regulatory requirements and the continuing efforts of governmental and third-party payors to contain or reduce the costs of healthcare through various means.

 

Governments and regulatory authorities in Europe and other markets in which ESSA intends to sell its products may propose and adopt new legislation and regulatory requirements relating to pharmaceutical approval criteria and manufacturing requirements. Such legislation or regulatory requirements, or the failure to comply with such, could adversely impact ESSA’s operations and could have a material adverse effect on ESSA’s business, financial condition and results of operations.

 

In recent years, national, federal, provincial, state, and local officials and legislators have proposed, or are reportedly considering proposing, a variety of price-based reforms to the healthcare systems in the European Union, the United States and other countries. Some proposals include measures that would limit or eliminate payments for certain medical procedures and treatments or subject the pricing of pharmaceuticals to government control. Furthermore, in certain foreign markets, the pricing or profitability of healthcare products is subject to government controls and other measures that have been prepared by legislators and government officials. While ESSA cannot predict whether any such legislative or regulatory proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability of the Company’s existing and potential products. Significant changes in the healthcare system in the European Union and other countries may have a substantial impact on the manner in which ESSA conducts its business. Such changes could also have a material adverse effect on ESSA’s business, financial condition and results of operations.

 

Risks Related to ESSA’s Financial Position and Need for Additional Capital

 

ESSA will have significant additional future capital needs and there are uncertainties as to the Company’s ability to raise additional funding.

 

Management has forecasted that ESSA’s working capital will be sufficient to execute its planned expenditures for the coming fiscal year. On current plans, ESSA believes it has sufficient capital resources to continue and expand its business, including the development of its preclinical Aniten series of compounds (“Aniten”) through the conduct of the initial Phase I trial of its IND candidate EPI-7386, a subsequent initial expansion phase, and an initial Phase I combination trial of EPI-7386 with an anti-androgen. Advancing ESSA’s novel and proprietary therapies beyond these activities or acquisition and development of any new products or product candidates would require considerable resources and additional access to capital. In addition, ESSA’s future cash requirements may vary materially from those now expected. For example, ESSA’s future capital requirements may increase if:

  

  · the Company experiences setbacks in its progress with non-clinical studies or if future clinical trials are delayed;

 

  · the Company is required to perform additional non-clinical studies and clinical trials;

 

  · the Company elects to develop, acquire or license new technologies, products or businesses;

 

  · the Company experiences competition from other life sciences companies or in more markets than anticipated;

 

  · the Company experiences delays or unexpected increases in connection with obtaining regulatory approvals in the various markets where ESSA hopes to sell its products;

 

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  · the Company experiences unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, or other lawsuits, brought by either ESSA or ESSA’s competition; or

 

  · the Company experiences scientific progress sooner than expected in its discovery and R&D projects, if ESSA expands the magnitude and scope of these activities, or if ESSA changes its focus as a result of ESSA’s discoveries.

 

ESSA could potentially seek additional funding through strategic collaborations, alliances and licensing arrangements, through public or private equity or debt financing, or through other transactions. However, if future sales are slow to increase or if capital market conditions in general, or with respect to life sciences companies such as ESSA’s, are unfavorable, ESSA’s ability to obtain significant additional funding on acceptable terms, if at all, will be negatively affected. There is no certainty that any such financing will be provided or provided on favorable terms.

 

If sufficient capital is not available, ESSA may be required to delay or abandon its business expansion or R&D projects, either of which could have a material adverse effect on ESSA’s business, financial condition, prospects or results of operations.

 

ESSA may not be able to raise additional capital on favorable terms, which may result in dilution to ESSA’s existing shareholders, restrictions on ESSA’s operations or the requirement for ESSA to relinquish rights to technologies or any future product candidates.

 

Until the Company can generate substantial revenue from product sales, if ever, the Company expects to finance future cash needs through a combination of private and public equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. Additional financing that the Company may pursue may involve the sale of its Common Shares or financial instruments that are exchangeable for, or convertible into, its Common Shares, which could result in significant dilution to ESSA’s shareholders and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Additional capital may not be available on reasonable terms, if at all. Furthermore, these securities may have rights senior to those of ESSA’s Common Shares and could contain covenants that include restrictive covenants limiting ESSA’s ability to take important actions and potentially impair ESSA’s competitiveness, such as limitations on ESSA’s ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends. If ESSA raises additional funds through strategic collaborations and alliances or licensing arrangements with third parties, ESSA may have to relinquish valuable rights to technologies or future product candidates, or grant licenses on terms that are not favorable to ESSA. If the Company is unable to raise additional funds when needed, the Company may be required to delay, limit, reduce or terminate its product development or commercialization efforts or grant rights to develop and market product candidates that ESSA would otherwise prefer to develop and market ourselves.

  

The Company remains subject to the restrictions and conditions of the CPRIT Agreement. Failure to comply with the CPRIT Agreement may materially and adversely affect ESSA’s financial condition and results of operations.

 

ESSA relied on the CPRIT Grant to fund a portion of its preclinical and clinical development costs of clinical candidate EPI-506, which ceased development in September 2017. The total of the CPRIT Grant was US$12 million, of which ESSA has received a total of US$11.7 million to date, as follows: US$2.8 million (on grant execution), US$3.7 million (upon the clearance of the IND of EPI-506, ESSA’s first-generation agent, by the FDA) and US$5.2 million (upon commencement of the Phase I clinical trial of EPI-506 in November 2015). The CPRIT Grant is subject to various requirements, including ESSA’s compliance with the scope of work outlined in the CPRIT Agreement and demonstration of its progress towards achievement of the milestones set forth in the CPRIT Agreement. If ESSA fails to comply with the terms of the CPRIT Agreement, is found to have used any grant proceeds for purposes other than intended, or fails to maintain the required level of operations in the State of Texas for three years following the final payment of grant funds, CPRIT could determine that ESSA is in default of its obligations under the CPRIT Agreement and could, among other things, seek reimbursement of all proceeds of the CPRIT Grant received by ESSA. ESSA received and responded to a request in October 2018 for information from CPRIT regarding the nature and extent of the Company’s operations in Texas. Although the Company believes it has at all times acted in compliance with the CPRIT Agreement and believes its response to CPRIT’s request for information is satisfactory, there can be no assurance that CPRIT will agree with ESSA’s determination. If ESSA is found to be in default under the CPRIT Agreement and such default is not waived by CPRIT, the Company may not receive the remaining funds of the CPRIT Grant or could be required to reimburse a portion or all of the CPRIT Grant. ESSA cannot be certain that its assets or cash flows or ability to raise additional capital will be sufficient to fully repay the CPRIT Grant. Being required to reimburse all or a portion of the CPRIT Grant would impact ESSA’s ongoing operations, which could materially and adversely affect its financial condition and results of operations.

 

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The Company has incurred significant losses in every quarter since its inception and anticipates that it will continue to incur significant losses in the future and may never generate profits from operations or maintain profitability.

 

ESSA is a preclinical stage pharmaceutical company with a limited operating history. Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. ESSA does not have any products approved by regulatory authorities for marketing or commercial sale and has not generated any revenue from product sales, or otherwise, to date. Furthermore, ESSA continues to incur significant research, development and other expenses related to its ongoing operations. As a result, ESSA is not profitable and has incurred losses in every reporting period since inception in 2009. For the years ended September 30, 2019, September 30, 2018, and September 30, 2017, ESSA reported net losses of $10,441,865, $11,629,440, and $4,499,012, respectively. As of September 30, 2019, ESSA had an accumulated deficit since inception of $54,810,951.

 

The Company expects to continue to incur significant expenses and operating losses for the foreseeable future. ESSA anticipates these losses will increase as it continues the research and development of, and seeks regulatory approvals for, its product candidate and any of its potential future product candidates and potentially begins to commercialize any products that may achieve regulatory approval. ESSA may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its financial condition. The size of ESSA’s future net losses will depend, in part, on the rate of future growth of ESSA’s expenses and ESSA’s ability to generate revenues. The Company’s prior losses and expected future losses have had and will continue to have an adverse effect on the Company’s financial condition.

 

Even if the Company is able to commercialize any product candidate, there can be no assurance that the Company will generate significant revenues or ever achieve profitability.

 

The Company expects to continue to incur substantial losses for the foreseeable future, and these losses may be increasing. The Company is uncertain about when or if it will be able to achieve or sustain profitability. If the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair the Company’s ability to sustain operations and adversely affect the price of the Common Shares and its ability to raise capital.

 

ESSA has a limited operating history, which may make it difficult for you to evaluate the success of ESSA’s business to date and to assess ESSA’s future viability.

 

The Company’s operations in 2019 have been primarily limited to organizing and staffing ESSA, establishing relationships with consultants and contract vendors with relevant expertise, acquiring the in-licensing of intellectual property, discovering and developing novel small molecule product candidates, conducting preliminary preclinical research, and preparing for the execution of a Phase I clinical study of its next-generation agent EPI-7386. ESSA is a development stage company with limited operating history and no revenue. ESSA has identified a product candidate, EPI-7386, to advance through clinical development but does not have any products ready for commercialization. Consequently, evaluating ESSA’s performance, viability or future success will be more difficult than if ESSA had a longer operating history or approved products on the market.

 

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Risks Related to ESSA’s Intellectual Property

 

ESSA relies on proprietary technology, the protection of which can be unpredictable and costly.

 

The Company’s activities depend, in part, on its ability to (i) obtain and maintain patents, trade secret protection and operate without infringing the intellectual proprietary rights of third parties, (ii) successfully defend these patents (including patents owned by or licensed to the Company) against third-party challenges and (iii) successfully enforce these patents against third-party competitors. There is no assurance that the Company will be granted such patents or proprietary technology or that such granted patents or proprietary technology will not be circumvented through the adoption of a competitive, though non-infringing, process or product. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of the Company’s intellectual property. Accordingly, the Company cannot predict the breadth of claims that may be allowable or enforceable in its patents (including patents owned by or licensed to the Company). Failure to protect the Company’s existing and future intellectual property rights could seriously harm its business and prospects and may result in the loss of its ability to exclude others from using the Company’s technology or its own right to use the technologies. If the Company does not adequately ensure the right to use certain technologies, it may have to pay others for the right to use their intellectual property, pay damages for infringement or misappropriation or be enjoined from using such intellectual property. The Company’s patents do not guarantee the right to use the technologies if other parties own intellectual property rights that are necessary in order to use such technologies. The Company’s patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. The Company’s and the Company’s licensors’ patents and patent applications, if issued, may be challenged, invalidated or circumvented by third parties. U.S. patents and patent applications may also be subject to interference proceedings, re-examination proceedings, derivation proceedings, post-grant review or inter partes review in the United States Patent and Trademark Office, or USPTO, challenging the Company’s or the Company’s licensors’ patent rights. Foreign patents may be subject also to opposition or comparable proceedings in the corresponding foreign patent office.

 

In addition, there is a risk that improved versions of ESSA’s own product developed by third parties will be granted patent protection and compete with ESSA’s products. For example, any patents ESSA obtains may not be sufficiently broad to prevent others from utilizing its technologies or from developing competing products and technologies. Third parties may attempt to circumvent ESSA’s patents by means of alternative designs and processes or may independently develop similar products, duplicate any of ESSA’s products not under patent protection, or design around the inventions ESSA claims in any of its existing patents, existing patent applications or future patents or patent applications. The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of ESSA’s coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents. It is impossible to anticipate the breadth or degree of protection that patents will afford products developed by ESSA or their underlying technology.

  

In any case, there can be no assurance that:

 

· any rights under U.S., Canadian, or foreign patents owned by the Company or other patents that third parties license to the Company will not be curtailed;

 

· the Company was the first inventor of inventions covered by its issued patents or pending applications or that the Company was the first to file patent applications for such inventions;

   

· the Company’s pending or future patent applications will be issued with the breadth of claim coverage sought by the Company, or be issued at all;

 

· the Company’s competitors will not independently develop or patent technologies that are substantially equivalent or superior to the Company’s technologies;

 

· third parties will not attempt to circumvent ESSA’s patents by means of alternative designs and processes or that third parties will not also independently develop similar products, duplicate any of ESSA’s products not under patent protection, or design around the inventions ESSA claims in any of the Company’s existing patents, existing patent applications or future patents or patent applications;

 

· any of the Company’s trade secrets will not be learned independently by its competitors; or

 

· the steps the Company takes to protect its intellectual property will be adequate.

 

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not sought in certain foreign countries. Further, countries ESSA may sell to may not protect its intellectual property to the same extent as the laws of the United States, Canada or Europe, and may lack rules and procedures required for defending ESSA’s patents.

 

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There is a risk that any patents issued relating to ESSA’s products or any patents licensed to ESSA may be successfully challenged or that the practice of its products might infringe the patents of third parties. If the practice of ESSA’s products infringes the patents of third parties, the Company may be required to design around such patents, potentially causing increased costs and delays in product development and introduction or precluding ESSA from developing, manufacturing or selling its planned products. In addition, disputes may arise as to the rights to know-how and inventions among ESSA’s employees and consultants who use intellectual property owned by others for the work performed for the Company. The scope and validity of patents which may be obtained by third parties, the extent to which ESSA may wish or need to obtain patent licenses and the cost and availability of such licenses are currently unknown. If such licenses are obtained, it is likely they would be royalty bearing, which could reduce ESSA’s income. If licenses cannot be obtained on an economical basis, delays in market introduction of its planned products could occur or introduction could be prevented, in some cases causing the expenditure of substantial funds.

 

In certain instances, ESSA may elect not to seek patent protection but instead rely on the protection of the Company’s technology through confidentiality agreements or trade secrets. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships. The value of ESSA’s assets could also be reduced to the extent that third parties are able to obtain patent protection with respect to aspects of ESSA’s technology or products or that confidential measures ESSA has in place to protect the Company’s proprietary technology are breached or become unenforceable. However, third parties may independently develop or obtain similar technology and such third parties may be able to market competing products and obtain regulatory approval through a showing of equivalency to one of ESSA’s products which has obtained regulatory approval, without being required to undertake the same lengthy and expensive clinical studies that ESSA would have already completed. The cost of enforcing the Company’s patent rights or defending rights against infringement charges by other patent holders may be significant and could limit operations.

 

Litigation may also be necessary to enforce patents issued or licensed to ESSA or to determine the scope and validity of a third party’s proprietary rights. ESSA could incur substantial costs if the Company is required to defend itself in patent suits brought by third parties, if ESSA participates in patent suits brought against or initiated by ESSA’s corporate collaborators or if ESSA initiates such suits. The Company may not have the necessary resources to participate in or defend any such activities or litigation. Even if ESSA did have the resources to vigorously pursue its interests in litigation, because of the complexity of the subject matter, it is impossible to predict whether ESSA would prevail in any such action. Any claims of patent infringement asserted by third parties may:

 

· divert the time and attention of the Company’s technical personnel and management;

 

· cause product development or commercialization delays;

 

· require the Company to cease or modify its use of the technology and/or develop non-infringing technology; or

 

· require the Company to enter into royalty or licensing agreements.

  

An adverse outcome in litigation, or interference or derivation proceeding to determine priority or other proceeding in a court or patent or selling office could subject ESSA to significant liabilities, require disputed rights to be licensed from third parties or require ESSA to cease using certain technology or products, any of which may have a material adverse effect on the Company’s business, financial condition and results of operations.

 

ESSA may not be able to protect its intellectual property rights throughout the world.

 

Filing, prosecuting and defending patents on ESSA’s product candidate and potential future product candidates throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States or federal and provincial laws in Canada. Consequently, ESSA may not be able to prevent third parties from practicing its inventions in all countries outside the United States or Canada, or from selling or importing products made using its inventions in and into the United States, Canada or other jurisdictions. Competitors may use ESSA’s technologies in jurisdictions where it has not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where ESSA has patent protection, but where enforcement is not as strong as that in the United States or Canada. These products may compete with ESSA’s products in jurisdictions where it does not have any issued patents and its patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

 

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for ESSA to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce ESSA’s patent rights in foreign jurisdictions could result in substantial cost and divert its efforts and attention from other aspects of its business. ESSA may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful.

 

The requirements for patentability may differ in certain countries, particularly developing countries. For example, unlike other countries, China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug. In India, unlike the United States, there is no link between regulatory approval of a drug and its patent status. Furthermore, generic or biosimilar drug manufacturers or other competitors may challenge the scope, validity or enforceability of ESSA’s patents, requiring it to engage in complex, lengthy and costly litigation or other proceedings. Generic or biosimilar drug manufacturers may develop, seek approval for, and launch biosimilar versions of ESSA’s products. In addition to India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, ESSA may have limited remedies if patents are infringed or if it is compelled to grant a license to a third-party, which could materially diminish the value of those patents. This could limit ESSA’s potential revenue opportunities. Accordingly, ESSA’s efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that it owns or licenses.

 

ESSA may be subject to claims by third parties asserting that ESSA, or ESSA’s employees or consultants have misappropriated their intellectual property, or claiming ownership of what ESSA regards as its own intellectual property.

 

Certain of ESSA’s current or former employees or consultants, including senior management, were previously employed, or continue to be employed, at universities or other public institutions, or at other biotechnology or pharmaceutical companies, including ESSA’s competitors or potential competitors. Some of these employees, executed proprietary rights, nondisclosure and noncompetition agreements, in connection with such previous employment. ESSA may be subject to claims that ESSA, or these employees, have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. If ESSA fails in prosecuting or defending any such claims, in addition to paying monetary damages, ESSA may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third-party, and ESSA could be required to obtain a license from such third-party to commercialize ESSA’s technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if ESSA is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

Obtaining and maintaining ESSA’s patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance and annuity fees on any issued patent are due to be paid to the United States Patent and Trademark Office (“USPTO”) and other foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If ESSA or its future potential licensors fail to maintain the patents and patent applications covering product candidates, ESSA’s competitive position would be adversely affected.

 

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Other Risks Related to ESSA’s Business

 

The Company’s business and operations would suffer in the event of computer system failures or security breaches.

 

In the ordinary course of ESSA’s business, the Company collects, stores and transmits confidential information, including intellectual property, proprietary business information and personal information. Despite the implementation of security measures, ESSA’s internal computer systems, and those of other third parties on which the Company relies, are vulnerable to damage from computer viruses, unauthorized access, cyberattacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. Cyberattacks are increasing in their frequency, sophistication and intensity. Cyberattacks could include the deployment of harmful malware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Significant disruptions of ESSA’s information technology systems or security breaches could adversely affect ESSA’s business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information and personal information), and could result in financial, legal, business and reputational harm to the Company. If such disruptions were to occur and cause interruptions in ESSA’s operations, it could result in a material disruption of ESSA’s drug development program. For example, the loss of preclinical study or clinical trial data from completed, ongoing or planned preclinical studies or clinical trials could result in delays in ESSA’s efforts to identify and develop product candidates and significantly increase its costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of, or damage to, ESSA’s data or applications, or inappropriate disclosure of confidential or proprietary information, the Company could incur liability and the further development of EPI compounds or the Company’s product candidates could be delayed.

 

Business disruptions could seriously harm ESSA’s future revenues and financial condition and increase costs and expenses.

 

ESSA’s operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which ESSA is predominantly self-insured. ESSA does not carry insurance for all categories of risk that ESSA’s business may encounter. The occurrence of any of these business disruptions could seriously harm ESSA’s operations and financial condition and increase costs and expenses. Further, any significant uninsured liability may require ESSA to pay substantial amounts, which would adversely affect ESSA’s business, results of operations, financial condition and cash flows from future prospects.

 

ESSA’s business depends heavily on the use of information technologies.

 

Several key areas of ESSA’s business depend on the use of information technologies. Despite ESSA’s best efforts to prevent such behavior, third parties may nonetheless attempt to hack into ESSA’s systems and obtain data relating to ESSA’s preclinical studies or proprietary information on potential products. If ESSA fails to maintain or protect ESSA’s information systems and data integrity effectively, ESSA could lose or have difficulty attracting customers, have difficulty preventing, detecting and controlling fraud, have regulatory sanctions or penalties imposed, experience increases in operating expenses, incur expenses or lose revenues, or suffer other adverse consequences as a result of a data privacy breach. While ESSA has invested in the protection of data and information technology, there can be no assurance that ESSA’s efforts, or those of ESSA’s third-party collaborators, if any, to implement adequate security and quality control measures for data processing would be sufficient to protect against data deterioration or loss in the event of a system malfunction, or to prevent data from being stolen or corrupted in the event of a security breach. Any such loss or breach could have a material adverse effect on ESSA’s business, operating results and financial condition.

 

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If the Company is not successful in attracting and retaining highly qualified personnel, the Company may not be able to successfully implement its business strategy.

 

The Company’s ability to compete in the highly competitive pharmaceuticals industry depends in large part upon its ability to attract and retain highly qualified managerial, scientific and medical personnel. Competition affects the Company’s ability to hire and retain highly qualified personnel on acceptable terms. The Company is highly dependent on its management, scientific and medical personnel. The Company’s management team has substantial knowledge in many different aspects of drug development and commercialization. Despite the Company’s efforts to retain valuable employees, members of its management, scientific and medical teams may terminate their employment with the Company on short notice or, potentially, without any notice at all. The loss of the services of any of the Company’s executive officers or other key employees could potentially harm its business, operating results or financial condition. The Company’s success may also depend on its ability to attract, retain and motivate highly skilled junior, mid-level, and senior managers and scientific personnel. Other pharmaceutical companies with which the Company competes for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than the Company does. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what the Company has to offer. If the Company is unable to continue to attract and retain high-quality personnel, the rate and success at which the Company can develop and commercialize product candidates would be limited.

 

Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain the Company’s future revenues.

 

In many of the markets ESSA hopes to sell future products in, successful commercialization of any product candidate will depend, in part, on the extent to which coverage and reimbursement for such product candidates and related treatments will be available from government healthcare programs, private health insurers, managed care plans and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require ESSA to provide scientific and clinical support for the use of ESSA’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

 

A primary trend in the U.S. healthcare industry is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. ESSA cannot be sure that coverage and reimbursement will be available for any product candidates that it or any future collaborator commercialize and, if reimbursement is available, the level of reimbursement. In addition, coverage and reimbursement may impact the demand for, or the price of, any product candidate for which ESSA or a collaborator obtains marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, ESSA or its collaborators may not be able to successfully commercialize any product candidate for which marketing approval is obtained.

 

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the TPD, FDA or other regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers ESSA’s costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover ESSA’s and any collaborator’s costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. ESSA’s or any collaborator’s inability to promptly obtain coverage and profitable payment rates from both government-funded and private payers for any approved products that ESSA or its collaborators develop could have a material adverse effect on ESSA’s operating results, ability to raise capital needed to commercialize product candidates and overall financial condition.

 

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The directors and officers of ESSA may be subject to conflicts of interest.

 

Some of the directors and officers are engaged and will continue to be engaged in the search for additional business opportunities on behalf of other corporations and situations may arise where these directors and officers will be in direct competition with the Company. Not all of the Company’s directors or officers are subject to non-competition agreements. Some of the directors and officers of the Company are or may become directors or officers of the other companies engaged in other business ventures whose operations may, from time to time, be in direct competition with ESSA’s operations. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the Business Corporations Act (British Columbia) and under the Company’s articles of incorporation.

 

The Company faces intense competition from other biotechnology and pharmaceutical companies and its operating results will suffer if the Company fails to compete effectively.

 

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. The Company’s potential competitors in the United States, Canada, and globally include large, well-established pharmaceutical companies, specialty pharmaceutical sales and marketing companies and specialized cancer treatment companies. Many companies, as well as research organizations, currently engage in, or have in the past engaged in, efforts related to the development of products in the same therapeutic areas as ESSA does. Due to the size of the prostate cancer treatment market and the large unmet medical need for products that treat CRPC, a number of the world’s largest pharmaceutical companies are developing, or could potentially develop, products that could compete with the Company’s future product candidates.

 

Many of the companies developing competing technologies and products in ESSA’s field have significantly greater financial resources and expertise in discovery, R&D, manufacturing, preclinical studies and clinical testing, obtaining regulatory approvals and marketing than ESSA does. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to ESSA’s. There is a risk that one or more of ESSA’s competitors may develop more effective or more affordable products and that such competitors will commercialize products that will render its product candidates obsolete. ESSA faces competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent positions of others. In addition, these companies and institutions also compete with ESSA in recruiting and retaining qualified personnel. If the Company is not able to compete effectively against its current and future competitors, its business will not grow and its financial condition and operations will suffer materially adverse effects.

 

The Company may face exposure to adverse movements in foreign currency exchange rates.

 

ESSA’s business may expand internationally and as a result, a significant portion of its revenues, expenses, current assets and current liabilities may be preliminary denominated in foreign currencies, while its financial statements are expressed in U.S. dollars. A decrease in the value of such foreign currencies relative to the U.S. dollar could result in losses in revenues from currency exchange rate fluctuations. To date, ESSA has not hedged against risks associated with foreign exchange rate exposure. ESSA cannot be sure that any hedging techniques it may implement in the future will be successful or that its business, financial condition, and results of operations will not be materially adversely affected by exchange rate fluctuations.

 

If ESSA is not able to convince public payors and hospitals to include ESSA’s products on their approved formulary lists, revenues may not meet expectations and ESSA’s business, results of operations and financial condition may be adversely affected.

 

Hospitals establish formularies, which are lists of drugs approved for use in the hospital. If a drug is not included on the hospital’s formulary, the ability to promote and sell ESSA’s products may be limited or denied. If ESSA fails to secure and maintain formulary inclusion for products on favorable terms or are significantly delayed in doing so, ESSA may have difficulty achieving market acceptance of products and ESSA’s business, results of operations and financial condition could be materially adversely affected.

 

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The Company has never marketed a drug before, and if the Company is unable to establish an effective sales force and marketing infrastructure, or enter into acceptable third-party sales and marketing or licensing arrangements, the Company may be unable to generate any revenue.

 

ESSA does not currently have an infrastructure for the sales, marketing and distribution of pharmaceutical drug products and the cost of establishing and maintaining such an infrastructure may exceed the cost-effectiveness of doing so. In order to market any products that may be approved by the FDA and comparable foreign regulatory authorities, ESSA must build its sales, marketing, managerial and other nontechnical capabilities or make arrangements with third parties to perform these services. If ESSA is unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, ESSA may not be able to generate product revenue and may not become profitable. ESSA will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, ESSA may be unable to compete successfully against these more established companies.

  

In order to establish the Company’s sales and marketing infrastructure, the Company will need to expand the size of its organization and the Company may experience difficulties in managing this growth.

 

As the Company’s development and commercialization plans and strategies develop, the Company expects that it will need to expand the size of its employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, the Company’s management may have to divert a disproportionate amount of its attention away from the Company’s day-to-day activities and devote a substantial amount of time to managing these growth activities. The Company’s future financial performance and its ability to commercialize its potential products and any other future product candidates and its ability to compete effectively will depend, in part, on the Company’s ability to effectively manage any future growth.

 

ESSA’s product candidate and potential future products may, if approved for sale, not achieve or maintain expected levels of market acceptance, which could have a material adverse effect on its business, financial condition and results of operations and could cause the market value of its securities to decline.

 

Even if ESSA is able to obtain regulatory approvals for its product candidates, the success of those products is dependent upon achieving and maintaining market acceptance. New product candidates that appear promising in development may fail to reach the market or may have only limited or no commercial success. Levels of market acceptance for ESSA’s products could be impacted by several factors, many of which are not within ESSA’s control, including but not limited to:

 

· demonstration of clinical safety and efficacy of ESSA’s potential products and other possible AR-NTD inhibitors generally;

 

· safety, efficacy, convenience and cost-effectiveness of ESSA’s products compared to products of its competitors;

 

· the prevalence and severity of any adverse side effects;

 

· scope of approved uses and marketing approval;

 

· limitations or warnings contained in FDA-approved labeling;

 

· timing of market approvals and market entry;

 

· the willingness of physicians to prescribe ESSA’s potential products and of the target patient population to try new therapies;

 

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· the inclusion of AR-NTD inhibitor products in applicable treatment guidelines;

 

· new procedures or methods of treatment that may reduce the incidences of any of the indications for which ESSA’s potential products shows utility;

 

· difficulty in, or excessive costs to, manufacture;

 

· infringement or alleged infringement of the patents or intellectual property rights of others;

 

· the introduction of any new products, including generic AR-NTD inhibitor products, that may in the future become available to treat indications for which ESSA’s potential product may be approved;

 

· availability of alternative products from ESSA’s competitors;

 

· acceptance of the price of ESSA’s products; and

 

· ability to market ESSA’s products effectively at the retail level.

 

In addition, the success of any new product will depend on ESSA’s ability to either successfully build its in-house sales capabilities or to secure new, or to realize the benefits of existing arrangements with third-party marketing or distribution partners. Seeking out, evaluating and negotiating marketing or distribution agreements may involve the commitment of substantial time and effort and may not ultimately result in an agreement. In addition, the third-party marketing or distribution partners may not be as successful in promoting ESSA’s products as it had anticipated. If ESSA is unable to commercialize new products successfully, whether through a failure to achieve market acceptance, a failure to build its own in-house sales capabilities, a failure to secure new marketing partners or to realize the benefits of ESSA’s arrangements with existing marketing partners, there may be a material adverse effect on ESSA’s business, financial condition and results of operations and it could cause the market value of ESSA’s securities to decline.

  

In addition, by the time any products are ready to be commercialized, what ESSA believes to be the market for these products may have changed. The Company’s estimates of the number of patients who have received or might have been candidates to use a specific product may not accurately reflect the true market or market prices for such products or the extent to which such products, if successfully developed, will actually be used by patients. ESSA’s failure to successfully introduce and market its products that are under development would have a material adverse effect on its business, financial condition and results of operations.

 

The Company may acquire businesses or products or form strategic alliances in the future and the Company may not realize the benefits of such acquisitions.

 

The Company may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that the Company believes will complement or augment its existing business.

 

If the Company acquires businesses in the future, it may not be able to realize the benefit of acquiring such businesses if the Company is unable to successfully integrate them with its existing operations and company culture. The Company may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent the Company from realizing their expected benefits. The potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges with respect to intellectual property, product quality, revenue recognition or other accounting practices, taxes, corporate governance and internal controls, regulatory compliance, employee, customer or partner disputes or issues and other legal and financial contingencies could decrease or eliminate the anticipated benefits and synergies of any acquisition and could negatively affect ESSA’s future business and financial results.

 

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As part of ESSA’s business strategy, it may also continue to acquire additional companies, products or technologies principally related to, or complementary to, ESSA’s current operations. Any such acquisitions will be accompanied by certain risks including but not limited to:

 

· exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research;

 

· higher than anticipated acquisition costs and expenses;

 

· the difficulty and expense of integrating operations, systems and personnel of acquired companies;

 

· disruption of ESSA’s ongoing business;

 

· inability to retain key customers, distributors, vendors and other business partners of the acquired company;

 

· diversion of management’s time and attention; and

 

· possible dilution to shareholders.

 

Also, the anticipated benefit of any joint venture or acquisition may not materialize or such strategic alliance, joint venture or acquisition may be prohibited. Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of ESSA’s equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm ESSA’s financial condition. ESSA cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on its operating results.

 

ESSA may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect ESSA’s business, financial condition or results of operations.

 

ESSA may seek to enter into collaborations with third parties for the development and commercialization of its product candidate and potential future product candidates. If ESSA fails to enter into such collaborations, or such collaborations are not successful, it may not be able to capitalize on the market potential of its product candidate and potential future product candidates.

 

The Company may seek third-party collaborators for development and commercialization of its product candidate and potential future product candidates. ESSA is not currently party to any such arrangement. However, if ESSA does enter into any such arrangements with any third parties in the future, it will likely have limited control over the amount and timing of resources that its collaborators dedicate to the development or commercialization of ESSA’s product candidates. The Company’s ability to generate revenues from these arrangements will depend on its collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

 

Collaborations involving ESSA’s product candidates would pose the following risks:

 

· collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

· collaborators may not pursue development and commercialization of ESSA’s product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;

 

· collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

· collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with ESSA’s products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ESSA’s;

 

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· collaborators with marketing and distribution rights to one or more of ESSA’s products may not commit sufficient resources to the marketing and distribution of such product or products;

 

· collaborators may not properly maintain or defend ESSA’s intellectual property rights or may use ESSA’s proprietary information in such a way as to invite litigation that could jeopardize or invalidate ESSA’s intellectual property or proprietary information or expose ESSA to potential litigation;

 

· collaborators may infringe the intellectual property rights of third parties, which may expose ESSA to litigation and potential liability;

 

· disputes may arise between the collaborators and ESSA that result in the delay or termination of the research, development or commercialization of ESSA’s products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and

  

· collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

 

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ESSA’s were to be involved in a business combination, the continued pursuit and emphasis on ESSA’s product development or commercialization program could be delayed, diminished or terminated.

 

ESSA’s employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for ESSA and harm ESSA’s reputation.

 

ESSA is exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards ESSA has established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to ESSA. Employee misconduct 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 ESSA’s reputation. If any such actions are instituted against ESSA and ESSA is not successful in defending itself or asserting ESSA’s rights, those actions could have a significant impact on ESSA’s business, results of operations, financial condition and cash flows from future prospects, including the imposition of significant fines or other sanctions.

 

If product liability lawsuits are brought against the Company, it may incur substantial liabilities and may be required to cease the sale, marketing and distribution of its product candidate and potential future products.

 

The Company could face a potential risk of product liability as a result of its potential sales, marketing and distribution activities relating to any future commercialization of any future product. For example, the Company may be sued if any product it develops allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under U.S. state or Canadian provincial or other foreign consumer protection legislation. If the Company cannot successfully defend itself against product liability claims, it may incur substantial liabilities or be required to cease the sale, marketing and distribution of its products. Even successful defense against product liability claims would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

· decreased demand for any future products that the Company may develop;

 

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· injury to the Company’s reputation;

 

· withdrawal of clinical trial participants;

 

· costs to defend the related litigation;

 

· a diversion of management’s time and the Company’s resources;

 

· substantial monetary awards to consumers, trial participants or patients;

 

· product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

· loss of revenue;

 

· the inability to commercialize;

 

· the inability to continue the sale, marketing and distribution of ESSA’s product candidate and potential future products; and

 

· a decline in the price of the Common Shares or other outstanding securities.

 

The Company currently maintains insurance that it believes has sufficient coverage to protect against the liability risks discussed above and the Company believes this coverage is consistent with industry norms for companies at a similar stage of development. However, if the Company is unable to obtain and retain sufficient product liability insurance in the future at an acceptable cost to protect against potential product liability claims, the commercialization of products it develops could be hindered or prevented.

 

Compulsory licensing or generic competition may affect the Company’s business in certain countries.

 

In a number of countries, governmental authorities and other groups have suggested that companies which manufacture medical products (e.g., pharmaceuticals) should make products available at a low cost. In some cases, governmental authorities have held that where a pharmaceutical company does not do so, its patents might not be enforceable to prevent generic competition. Alternatively, some governmental authorities could require that ESSA grant compulsory licenses to allow competitors to manufacture and sell their own versions of ESSA’s products, thereby reducing ESSA’s sales or the sales of ESSA’s licensee(s). In all of these situations, the results of future operations in these countries if any, could be adversely affected.

 

ESSA incurs significantly increased costs and devotes substantial management time as a result of operating as a public company.

 

As a public company, ESSA incurs significant legal, accounting and other expenses. For example, ESSA is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and may be required to comply with the applicable requirements of Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. ESSA’s continued compliance with these requirements increase its legal and financial compliance costs and make some activities more time consuming and costly. In addition, ESSA’s management and other personnel need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, ESSA may or in the future incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of Sarbanes-Oxley, which involves annual assessments of a company’s internal controls over financial reporting. ESSA may in the future need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and may need to establish an internal audit function. ESSA cannot always predict or estimate the amount of additional costs incurred as a result of being a public company or the timing of such costs.

 

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Risks Related to Additional Legal Compliance and Regulatory Matters

 

ESSA is subject to risks inherent in foreign operations.

 

ESSA intends to pursue international market growth opportunities, such that international sales may account for a significant portion of its revenue. ESSA is subject to a number of risks associated with its potential international business operations, sales and marketing activities that may increase liability, costs, lengthen sales cycles and require significant management attention. These risks include:

 

· compliance with the laws of the United States, Canada, the European Union and other jurisdictions where ESSA may conduct business, including import and export legislation;

 

· increased reliance on third parties to establish and maintain foreign operations;

 

· the complexities and expenses of administering a business abroad;

 

· complications in compliance with, and unexpected changes in, foreign regulatory requirements;

 

· instability in economic or political conditions, including inflation, recession and actual or anticipated military conflicts, social upheaval or political uncertainty;

 

· foreign currency fluctuations;

 

· foreign exchange controls and cash repatriation restrictions;

 

· tariffs and other trade barriers;

 

· difficulties in collecting accounts receivable;

 

· differing tax structures and related potential adverse tax consequences;

 

· uncertainties of laws and enforcement relating to the protection of intellectual property or secured technology;

 

· litigation in foreign court systems;

 

· unauthorized copying or use of ESSA’s intellectual property;

 

· cultural and language differences;

 

· difficulty in managing a geographically dispersed workforce in compliance with local laws and customs that vary from country to country; and

 

· other factors, depending upon the country involved.

 

There can be no assurance that the policies and procedures ESSA implements to address or mitigate these risks will be successful, that ESSA’s personnel will comply with them or that ESSA will not experience these factors in the future or that they will not have a material adverse effect on ESSA’s business, results of operations and financial condition.

 

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Laws and regulations governing international operations may preclude ESSA from developing, manufacturing and selling certain product candidates outside of the United States and Canada and require ESSA to develop and implement costly compliance programs.

 

ESSA must comply with numerous laws and regulations in each jurisdiction in which ESSA plans to operate. ESSA must also comply with U.S. laws applicable to the foreign operations of U.S. individuals, such as the FCPA, and Canadian laws applicable to the foreign operations of Canadian businesses and individuals, such as the CFPOA. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

 

The CFPOA prohibits Canadian businesses and individuals from giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage. Furthermore, a company may be found liable for violations by not only its employees, but also by its third-party agents. Any failure to comply with the CFPOA, as well as applicable laws and regulations in foreign jurisdictions, could result in substantial penalties or restrictions on ESSA’s ability to conduct business in certain foreign jurisdictions, which may have a material adverse impact on ESSA and its share price.

 

The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring ESSA to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA.

 

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical studies and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

 

Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of ESSA’s failure to satisfy any of its obligations under laws governing international business practices would have a negative impact on its operations and harm its reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

 

ESSA’s employees or other agents may, without the Company’s knowledge and despite the Company’s efforts, engage in prohibited conduct under its policies and procedures and the CFPOA, FCPA or other anti-bribery laws that ESSA may be subject to for which it may be held responsible. If ESSA’s employees or other agents are found to have engaged in such practices, it could suffer severe penalties and other consequences that may have a material adverse effect on its business, financial condition and results of operations.

  

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If ESSA expands its presence outside of the United States in the future, it will be required to dedicate additional resources to comply with these laws, and these laws may preclude ESSA from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit ESSA’s growth potential and increase development costs.

 

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ESSA is subject to U.S. laws relating to fraud and abuse and patients’ rights.

 

As a pharmaceutical company, even though ESSA does not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to ESSA’s future arrangements with third-party payors and customers who are in a position to purchase, recommend and/or prescribe ESSA’s product candidates for which the Company obtains marketing approval. These broadly applicable fraud and abuse and other healthcare laws and regulations may constrain ESSA’s future business or financial arrangements and relationships with healthcare professionals, principal investigators, consultants, customers, and third-party payors and other entities, including ESSA’s marketing practices, educational programs and pricing policies. Restrictions under applicable federal and state healthcare laws and regulations that may affect ESSA’s ability to operate include, but are not limited to, the following:

 

· the U.S. Anti-Kickback Statute, among other things, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

 

· civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil whistleblower or qui tam actions, among other things, prohibits individuals or entities from knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment or approval that are false or fraudulent or from knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

 

Efforts to ensure that ESSA’s 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 ESSA’s business practices do not comply with current or future statutes, regulations, agency guidance, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If ESSA’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to ESSA, the Company may be subject to penalties, including without limitation, significant civil, criminal and administrative penalties, damages, fines, disgorgement, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings, and the curtailment or restructuring of ESSA’s operations. If any physicians or other healthcare providers or entities with whom ESSA expects to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Moreover, ESSA expects there will continue to be federal and state laws and regulations, proposed and implemented, that could impact ESSA’s operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on ESSA’s business remains uncertain.

 

If ESSA fails to comply with environmental, health and safety laws and regulations, ESSA could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of ESSA’s business.

 

ESSA is subject to numerous environmental, health and safety laws and regulations in the United States and in Canada, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. ESSA’s operations involve the use of hazardous and flammable materials, including chemicals and biological materials. ESSA’s operations also produce hazardous waste products. The Company generally contracts with third parties for the disposal of these materials and wastes. ESSA cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from ESSA’s use of hazardous materials, it could be held liable for any resulting damages, and any liability could exceed its resources. ESSA also could incur significant costs associated with civil or criminal fines and penalties.

 

Although ESSA maintains workers’ compensation insurance to cover for costs and expenses ESSA may incur due to injuries to employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. ESSA does not maintain insurance for environmental liability or toxic tort claims that may be asserted against it in connection with its storage or disposal of biological or hazardous materials.

 

In addition, ESSA may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair ESSA’s research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

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ESSA is a “foreign private issuer” and has disclosure obligations that are different from those of U.S. domestic reporting companies. As a foreign private issuer, ESSA is subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to its shareholders.

 

ESSA is a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”), and is not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, ESSA will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. ESSA will be required to file or furnish to the SEC the continuous disclosure documents that ESSA is required to file in Canada under Canadian securities laws. For example, ESSA will not be required to issue quarterly reports, proxy statements that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that is as detailed as that required of U.S. domestic reporting companies. ESSA will also have four months after the end of each fiscal year to file ESSA’s annual reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, ESSA’s officers, directors and principal shareholders are exempt from the insider reporting and short-swing profit recovery requirements in Section 16 of the Exchange Act. Accordingly, ESSA’s shareholders may not know on as timely a basis when ESSA’s officers, directors and principal shareholders purchase or sell their common shares, as the reporting deadlines under the corresponding Canadian insider reporting requirements are longer. As a foreign private issuer, ESSA is also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. As a result of such varied reporting obligations, shareholders should not expect to receive the same information at the same time as information provided by U.S. domestic companies.

 

In addition, as a foreign private issuer, ESSA has the option to follow certain Canadian corporate governance practices rather than those required of U.S. domestic issuers, except to the extent contrary to U.S. securities laws, and provided that ESSA disclose the requirements ESSA is not following and describe the Canadian practices ESSA follows instead. As a result, ESSA’s shareholders may not have the same protections afforded to shareholders of companies that are subject to all domestic U.S. corporate governance requirements.

 

ESSA may lose foreign private issuer status in the future, which could result in significant additional costs and expenses to the Company.

 

ESSA may in the future lose foreign private issuer status if a majority of ESSA’s Common Shares are held in the United States and ESSA fails to meet the additional requirements necessary to avoid loss of foreign private issuer status, such as if: (i) a majority of ESSA’s directors or executive officers are U.S. citizens or residents; (ii) a majority of ESSA’s assets are located in the United States; or (iii) ESSA’s business is administered principally in the United States. The regulatory and compliance costs to ESSA under U.S. securities laws as a U.S. domestic issuer will be significantly more than the costs incurred as a Canadian foreign private issuer. If ESSA is not a foreign private issuer, ESSA would be required to file periodic and current reports and Annual Reports on U.S. domestic issuer forms with the SEC, which are generally more detailed and extensive than the forms available to a foreign private issuer.

 

In addition, ESSA may lose the ability to rely upon exemptions from corporate governance requirements that are available to foreign private issuers. Further, if ESSA engages in capital raising activities after losing foreign private issuer status, there is a higher likelihood that investors may require ESSA to file resale Annual Reports with the SEC as a condition to any such financing.

 

ESSA is and there is a risk that ESSA may continue to be a “passive foreign investment company” which would likely result in materially adverse U.S. federal income tax consequences for U.S. investors.

 

ESSA believes it was classified as a PFIC for the taxable year ending September 30, 2019, and believes it may be classified as a PFIC for the current taxable year and in future taxable years. However, the determination as to whether ESSA is a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules that are subject to differing interpretations. If ESSA is a PFIC for any taxable year during which a U.S. Holder (as defined under “Certain United States Federal Income Tax Considerations”) holds the Common Shares, it would likely result in adverse U.S. federal income tax consequences for such U.S. Holder. U.S. Holders should carefully read “Certain United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules” for more information and consult their own tax advisors regarding the consequences of ESSA being treated as a PFIC for U.S. federal income tax purposes, including the advisability of making a qualified electing fund (“QEF”) election (including a protective election), which may mitigate certain possible adverse U.S. federal income tax consequences but may result in an inclusion in gross income without receipt of such income.

 

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The Company’s status as an Emerging Growth Company and the reduced disclosure requirements applicable to Emerging Growth Companies, may make the Common Shares less attractive to investors.

 

ESSA is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, and delay compliance with new or revised accounting standards until those standards are applicable to private companies. ESSA will not take advantage of the extended transition period for complying with new or revised accounting standards. This election is irrevocable.

 

ESSA may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to it so long as it qualifies as an “emerging growth company” and thus the level of information provided may be different than that of other U.S. public companies. If ESSA does take advantage of any of these exemptions, some investors may find its securities less attractive, which could result in a less active trading market for ESSA’s Common Shares, and its share price may be more volatile as a result.

 

ESSA could be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of its U.S. initial public offering, although circumstances could cause ESSA to lose that status earlier if annual revenues exceed US$1.07 billion, if ESSA issues more than US$1.0 billion in non-convertible debt in any three-year period or if ESSA becomes a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act.

 

It may be difficult for United States investors to effect services of process or enforcement of actions against the Company or certain of its directors and officers under U.S. federal securities laws.

 

The Company is incorporated under the laws of the Province of British Columbia, Canada. Its directors and officers reside in Canada or the United States. Because a number of these persons and a substantial portion of the assets of the Company are located outside the United States, it will be difficult for United States investors to effect service of process in the United States upon the Company or the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the Exchange Act or other United States laws. There is substantial doubt as to whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities and whether a judgment of a United States court predicated solely upon such civil liabilities would be enforceable in Canada by a Canadian court.

 

Risks Relating to ESSA’s Common Shares

 

ESSA’s Common Shares could be delisted from the Nasdaq, which could affect ESSA’s Common Shares' market price and liquidity.

 

The Company’s listing on the Nasdaq is contingent upon meeting all the continued listing requirements of the Nasdaq, which include maintaining (i) a minimum bid price of not less than $1.00 per share and (ii) either a minimum stockholders’ equity of $2,500,000, a minimum market value of $35 million or a minimum $500,000 of net income from continuing operations. Nasdaq listing rules provide that noncompliance with such requirements exists if the deficiency continues for a period of 30 consecutive business days.

 

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If the Company’s Common Shares are delisted from the Nasdaq, its ability to raise capital in the future may be limited. Delisting could also result in less liquidity for the Company’s shareholders and a lower share price. Such a delisting would likely have a negative effect on the price of the Company’s Common Shares and could impair the Company shareholders’ ability to sell or purchase the Company’s Common Shares. For example, the Company’s shareholders in the United States may be required to resell their shares on the TSX-V if a liquid over-the-counter trading market did not develop in the United States following a delisting. In the event of a delisting, the Company would expect to take actions to restore its compliance with the Nasdaq’s listing requirements, but it can provide no assurance that any action taken by the Company would result in its Common Shares becoming listed again, or that any such action would stabilize the market price or improve the liquidity of its Common Shares.

 

The market price and trading volume of ESSA's Common Shares may be volatile, which could result in rapid and substantial losses for its shareholders or securities litigation.

 

The market price of ESSA's Common Shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in the Common Shares may fluctuate and cause significant price variations to occur as demonstrated by ESSA’s share price’s low on the TSX (C$2.00) and corresponding high (C$5.50) for the year ended September 30, 2019. For the year ended September 30, 2019, ESSA’s share price’s low on the Nasdaq was $1.46 and high was $4.09. The market price of the Common Shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect ESSA's share price or result in fluctuations in the price or trading volume of the Common Shares include:

 

  · quarterly variations in operating results;
  · operating results that vary from the expectations of securities analysts and investors;
  · change in valuations;
  · changes in ESSA's operations;
  · expenses ESSA incurs related to future research;
  · regulatory approvals;
  · fluctuations in the demand for ESSA's product candidates;
  · changes in the industry in which ESSA operates;
  · announcements by ESSA or other companies of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, capital commitments, plans, prospects, service offerings or operating results;
  · additions or departures of key personnel;
  · future sales of ESSA’s securities;
  · trading of ESSA’s securities by a large shareholder;
  · other risk factors discussed herein; and
  · other unforeseen events.

 

Stock markets in the United States and Canada have experienced extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions such as acts of terrorism, prolonged economic uncertainty, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of ESSA's Common Shares resulting in substantial losses for shareholders. Also, in the past, companies that have experienced volatility in the market price of their common shares have been subject to securities litigation. ESSA may be the target of this type of litigation in the future. Securities litigation against ESSA could result in substantial costs and divert management’s attention from other business concerns, which could materially harm ESSA’s business.

 

The Company has never declared dividends and may not do so in the future.

 

ESSA has not declared or paid any cash dividends on Common Shares to date. The payment of dividends in the future will be dependent on ESSA’s earnings and financial condition and on such other factors as ESSA’s Board considers appropriate. Unless and until ESSA pays dividends, shareholders may not receive a return on their shares. There is no present intention by the Board to pay dividends on the Common Shares.

 

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The Company may experience future sales or issue additional securities.

 

The market price of the Company’s equity securities could decline as a result of issuances of securities by the Company or sales by the Company’s existing shareholders of Common Shares in the market, or the perception that such sales could occur. Sales of Common Shares by shareholders might also make it more difficulty for the Company to sell equity securities at a time and price that the Company deems appropriate. Sales or issuances of substantial numbers of Common Shares, or the perception that such sales could occur, may adversely affect the prevailing market prices of the Common Shares. With any additional sale or issuance of Common Shares, investors will suffer dilution to their voting power and the Company may experience dilution in its earnings per share.

 

Additionally, as of September 30, 2019, there are 11,919,404 pre-funded warrants outstanding, which are exercisable into Common Shares at a nominal exercise price. If holders of these pre-funded warrants exercise these securities, existing shareholders will suffer dilution to their voting power and the Company may experience dilution in its earnings per share, as well as a negative impact on its share price.

  

If ESSA is unable to implement and maintain effective internal controls over financial reporting in the future, ESSA may not be able to report financial results accurately or prevent fraud. In that case, investors may lose confidence in the accuracy and completeness of ESSA’s financial reports and the market price of ESSA’s common shares may be negatively affected.

 

Maintaining effective internal control over financial reporting is necessary for ESSA to produce reliable financial reports and is important in helping to prevent financial fraud. If ESSA is unable to maintain adequate internal controls, ESSA’s business and operating results could be harmed. As a non-accelerated public company, ESSA is not currently required to comply with Section 404(b) of the Sarbanes-Oxley Act. ESSA is not considered a “venture issuer” under applicable Canadian securities laws by virtue of having its securities listed on the Nasdaq. Non-venture issuers must establish and maintain disclosure controls and procedures and internal control over financial reporting. ESSA will be required to certify that it has established disclosure controls and procedures and internal controls over financial reporting for the period ended September 30, 2019. Pursuant to National Instrument 52-109—Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators (“NI 52-109”), ESSA evaluates how to document and test internal control procedures to satisfy the requirements of Section 404(a) of Sarbanes-Oxley and the related rules of the SEC and NI 52-109, which require, among other things, ESSA’s management to assess annually the effectiveness of ESSA’s internal control over financial reporting. During the course of this documentation and testing, ESSA may identify weaknesses or deficiencies that ESSA may be unable to remedy.

 

Preparing ESSA’s consolidated financial statements involves a number of complex manual and automated processes which are dependent on individual data input or review and require significant management judgment. One or more of these elements may result in errors that may not be detected and could result in a material misstatement of ESSA’s consolidated financial statements. Management’s significant estimates and judgements with respect to financial reporting are discussed and disclosed in the consolidated financial statements.

 

The process of designing and implementing effective internal controls and procedures, and expanding ESSA’s internal accounting capabilities, is a continuous effort that requires ESSA to anticipate and react to changes in ESSA’s business and the economic and regulatory environments and expend significant resources to establish and maintain a system of internal controls that is adequate to satisfy ESSA’s reporting obligations as a public company. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. ESSA cannot be certain at this time whether the Company will be able to successfully complete the continuing implementation of controls and procedures or the certification and attestation requirements of Section 404(a) of Sarbanes-Oxley and NI 52-109 on a continuous basis.

 

If a material misstatement occurs in the future, ESSA may fail to meet its future reporting obligations, it may need to restate its financial results and the price of its Common Shares may decline. Any failure of ESSA’s internal controls could also adversely affect the results of the periodic management evaluations and any future annual independent registered public accounting firm attestation reports regarding the effectiveness of ESSA’s internal control over financial reporting that may be required when Section 404 of Sarbanes-Oxley becomes fully applicable to ESSA. Effective internal controls are necessary for ESSA to produce reliable financial reports and are important to helping prevent financial fraud. If ESSA cannot provide reliable financial reports or prevent fraud, ESSA’s business and results of operations could be harmed, investors could lose confidence in ESSA’s reported financial information, and the trading price of ESSA’s Common Shares could drop significantly.

 

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An active trading market for the Common Shares may not be sustained.

 

Although ESSA has listed the Common Shares on the Nasdaq and the TSX-V, an active trading market for the Common Shares may not be sustained. For example, certain trading days in the year ended September 30, 2019 resulted in no volume of trading of ESSA’s Common Shares on either of the Nasdaq or the TSX. If an active trading market for the Common Shares is not maintained, the liquidity of the Common Shares and the prices that may be obtained for the Common Shares will be adversely affected.

 

ESSA's Common Shares may be thinly traded, the prices at which Common Shares trade are volatile and the buying or selling actions of a few shareholders may adversely affect ESSA's share price.

 

As of September 30, 2019, ESSA's public float, which is defined as Common Shares outstanding minus Common Shares held by officers, directors, or beneficial holders of greater than 10% of ESSA's outstanding Common Shares, represented approximately 33.11% of ESSA's outstanding Common Shares. In addition, the Company is aware of a number of significant shareholders, defined as a holding greater than 5%, who have participated in recent financings. The average number of shares traded in any given day over the past year has been relatively small compared to the public float. Thus, the actions of a few shareholders either buying or selling ESSA's Common Shares may adversely affect the price of the Common Shares. Historically, securities similar to ESSA's Common Shares have experienced extreme price and volume fluctuations that do not necessarily relate to operating performance and could result in rapid and substantial losses for shareholders.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about ESSA’s business, its stock price and trading volume could decline.

 

The trading market for ESSA’s Common Shares depends in part on the research and reports that securities or industry analysts publish about it, or its business. If one or more of the securities or industry analysts who cover ESSA downgrade its Common Shares or publish inaccurate or unfavorable research about its business, its stock price would likely decline. If one or more of these analysts cease coverage of ESSA or fail to publish reports on it regularly, demand for ESSA’s stock could decrease, which might cause its stock price and trading volume to decline.

 

ITEM 4.         INFORMATION ON THE COMPANY

 

A. History and development of the Company

 

1. Name, Address and Incorporation; Trading Market

 

The Company was incorporated under the name “ESSA Pharma Inc.” pursuant to the Business Corporations Act (British Columbia) on January 6, 2009. The Company’s articles of incorporation (the “Articles”) were amended on December 16, 2010 to attach certain special rights and restrictions to the Common Shares, on April 22, 2014 to authorize the creation of a new class of preferred shares in the capital of the Company, issuable in one or more series, and again on July 28, 2014 to create the class A preferred shares in the capital of the Company (the “Preferred Shares”) and attach certain special rights and restrictions to such Preferred Shares.

 

The Company’s registered and records office is located at Suite 2600, 595 Burrard Street, Vancouver, British Columbia, Canada V7X 1L3. The Company’s head office is located at Suite 720, 999 West Broadway, Vancouver, British Columbia, Canada V5Z 1K5.

 

Since July 9, 2015, the Company’s Common Shares have traded on the Nasdaq under the symbol “EPIX”. The Company’s Common Shares traded under the symbol “EPI” on the TSX from July 28, 2015 until November 24, 2017. On November 27, 2017, the Company delisted its Common Shares from the TSX and began trading on the TSX-V under the same symbol, “EPI”.

 

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2. Summary Corporate History and Intercorporate Relationships

 

Intercorporate Relationships

 

The Company has the following wholly owned subsidiaries:

 

· ESSA Pharmaceuticals Corp. (“ESSA Texas”), existing under the laws of the State of Texas. The head office of ESSA Texas is located at Suite 1300, 700 Milam Street, Houston, Texas, USA 77002; and

 

· Realm Therapeutics plc. (“Realm”), existing under the laws of the England and Wales, and its wholly owned subsidiary Realm Therapeutics Inc., existing under the laws under the State of Delaware. The Company is in the process of liquidating Realm, which was acquired on July 31, 2019 in the Realm Acquisition, and its subsidiary.

 

Overview

 

ESSA is a pharmaceutical company, currently in the preclinical stage, focused on the development of small molecule drugs for the treatment of castration-resistant prostate cancer (“CRPC”). The Company is developing drugs which selectively block the amino-terminal domain (“NTD”) of the androgen receptor (“AR”), potentially overcoming the known AR-dependent resistance mechanisms of CRPC and providing CRPC patients with the potential for increased progression-free and overall survival.

 

In 1999, Dr. Marianne Sadar, a Distinguished Scientist at the British Columbia Cancer Agency (the “BC Cancer Agency”), elucidated a unique drug target on the AR: the NTD. In 2003, Dr. Sadar and Dr. Raymond Andersen, a Professor at the University of British Columbia (“UBC”) known for his natural product libraries and medicinal chemistry experience and expertise, began a collaboration focused on discovery of small-molecule inhibitors of the AR-NTD. By mid-2008, they together discovered a family of compounds that selectively inhibit the NTD target on the AR and demonstrated the efficacy of those molecules in recognized laboratory models of prostate cancer. These compounds are potential drugs for treatment of CRPC.

 

Drs. Sadar and Andersen incorporated ESSA in January 2009. In 2010, Robert Rieder and Richard Glickman, both former CEOs of Nasdaq-traded biopharmaceutical companies, completed the founding team at ESSA. Mr. Rieder was appointed CEO of the Company and Dr. Glickman was appointed Chairman of the board of directors of the Company (the “Board”).

 

ESSA began substantive operations in 2010 with the licensing of intellectual property related to the research of Drs. Sadar and Andersen from the BC Cancer Agency and UBC (see “Patents and Proprietary Rights” in Item 4 of this Annual Report), and completion of a seed round financing. The 2010 seed financing raised a total of C$1,350,000 at a pre-Consolidation price of C$0.50 per Common Share from qualified investors on a private placement basis.

   

2012 to 2014

 

Between April and July 2012, ESSA undertook a second financing, raising an aggregate of C$2,390,000 at a price of C$16.00 per Common Share.

 

Also in 2012, ESSA applied to the Cancer Prevention and Research Institute of Texas (“CPRIT”) for a $12,000,000 grant (the “CPRIT Grant”) to help fund the clinical development of ESSA’s program. On July 9, 2014, the Chief Executive Officer of CPRIT executed the CPRIT Agreement of $12,000,000 to be used in connection with ESSA’s development of EPI-506 towards completion of the Phase I/II clinical trial.

 

The initial advance of $2,793,533 from the CPRIT Grant was received in the fiscal year ended September 30, 2014.

 

During the second quarter of 2014, in connection with certain obligations under the CPRIT Grant, the Company established a wholly owned subsidiary, ESSA Pharmaceuticals Corp., under the laws of the State of Texas, to manage the NTD development project related to the CPRIT Grant.

 

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On July 29, 2014, ESSA completed a brokered private placement offering, raising an aggregate of C$2,370,800 at a price of C$40.00 per Preferred Share.

 

On October 22, 2014 and October 23, 2014, the Company completed a private placement, raising gross proceeds of C$1,359,280 at a price of C$40.00 per Special Warrant, which were exercised into Preferred Shares on December 15, 2014.

 

Year Ended September 30, 2015

 

In January 2015, the Company issued the 218,182 special warrants at a price of US$55.00 per special warrant for gross proceeds of approximately $12,000,000 (the “2015 Special Warrant Financing”). Each 2015 Special Warrant was converted, without payment of any additional consideration, into one Common Share and deemed exercised upon completion of the Nasdaq listing in July 2015.

 

An IND application was filed with the FDA on March 31, 2015 and was approved on September 23, 2015, which permitted the Company to initiate its planned Phase I/II clinical trial of its novel agent, EPI-506. The Health Protection Branch of Health Canada issued a “no objection letter” on November 5, 2015, which allowed ESSA to include Canadian sites in its Phase I/II clinical study. Accordingly, the Company’s Phase I/II clinical trial of EPI-506 commenced in November 2015.

 

Year Ended September 30, 2016

 

In October 2015, ESSA received a second advance of $3,786,667 from the CPRIT Grant.

 

On January 7, 2016, Dr. David R. Parkinson was appointed as the Company’s President and Chief Executive Officer. Dr. Parkinson replaced Mr. Robert Rieder who announced his departure from the Company and resignation from the Board of the Company.

 

In January 2016, the Company completed a private placement of 227,273 units of the Company at $66.00 per unit for gross proceeds of approximately $15,000,000 (the “January 2016 Financing”). Each unit consists of one Common Share, one seven-year cash and cashless exercise warrant and one-half of one two-year cash exercise warrant (“Two-Year Warrants”, and together with the “Seven-Year Warrants”, the “2016 Warrants”). Each of the 2016 Warrants has an exercise price of $66.00.

 

On January 14, 2016, effective on the closing of the January 2016 Financing, Scott Requadt, then Managing Director of Clarus Ventures, LLC, was appointed to the Board of the Company. Pursuant to the terms of a subscription agreement between the Company and Clarus Lifesciences III, L.P. (“Clarus”) in connection with the January 2016 Financing, Clarus is entitled to nominate two directors to the Board of the Company, one of which must be an independent director and pre-approved by the Company. The nomination rights will continue for so long as Clarus holds greater than or equal to 53,030 Common Shares, subject to adjustment in certain circumstances.

 

On March 21, 2016, the Company completed a private placement of 83,333 Common Shares of the Company at $60.00 per share for aggregate gross proceeds of approximately $5,000,000 (the “March 2016 Financing”).

 

On August 1, 2016, the Company appointed Peter Virsik as Executive Vice-President and Chief Operating Officer.

 

Year Ended September 30, 2017

 

On November 18, 2016, the Company entered into the $10,000,000 SVB Term Loan, pursuant to which the Company initially drew down $8,000,000, and had a now-expired conditional option to receive an additional $2,000,000 by April 28, 2017, subsequently amended to July 31, 2017, upon (i) positive data for its ongoing Phase I clinical trial of EPI-506 and (ii) receipt of the third and final tranche of the CPRIT grant of $5,422,000. The SVB Term Loan bore interest at a rate of the Wall Street Journal Prime Rate plus 3% per annum and would have matured on September 1, 2020. The SVB Term Loan required a final payment of 8.6% of the amount advanced under the term loans, due upon the earlier of the maturity or termination of the term loan facility. The SVB Term Loan was secured by a perfected first priority lien on all the company’s assets, with a negative pledge on intellectual property and was subject to standard events of default, including default in the event of a material adverse change. There were no financial covenants. Upon funding of the respective tranches, the Company granted to SVB warrants to purchase Common Shares equal to 4% of the amount advanced, divided by the exercise price of the warrants, based on the five-day volume-weighted average trading price of the Company’s Common Shares on the TSX-V, to be determined at the time of the issuance of the warrants. In connection with the initial $8,000,000 advance, the Company granted SVB and Life Sciences Loans II LLC an aggregate of 7,477 warrants, exercisable at a price of $42.80 per warrant for a period of seven years. The SVB Term Loan was subsequently repaid in full, as described below.

 

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In January and March 2017, the Company received a total of $5,192,799 in advances from the CPRIT grant.

 

On July 20 and July 21, 2017, the Company received notifications from the Nasdaq indicating that it was not in compliance with two requirements for continued listing, being (i) the maintenance of a minimum bid price of $1.00 and (ii) either a minimum stockholders’ equity of $2,500,000, a minimum market value of $35,000,000 or a minimum of $500,000 of net income from continuing operations. Nasdaq listing rules provide that noncompliance with such requirements exists if the deficiency continues for a period of 30 consecutive business days. The Nasdaq granted grace periods for 180 calendar days, to January 15 and January 16, 2018, respectively, to regain compliance with these requirements. During this time, the Company’s Common Shares continued to be listed and traded on the Nasdaq. The Company subsequently regained compliance with the Nasdaq listing requirements, as described below.

 

In July 2017, the Company’s Executive Vice President of Research and Development, Paul Cossum, passed away.

 

On September 11, 2017, the Company announced the results from the Phase I portion of its clinical study of EPI-506 and its strategic decision to discontinue further clinical development of EPI-506. Instead, the Company implemented a corporate restructuring plan to focus its resources on a pre-clinical program around its next-generation Anitens targeting the AR-NTD. ESSA’s next-generation Aniten compounds represent a new class of drugs that are NTD inhibitors of the AR and are designed to advance upon a number of attributes of first-generation Aniten compound, EPI-506. The next-generation Anitens are more potent than EPI-506 or its active metabolite, EPI-002, as demonstrated in an in vitro assay measuring inhibition of AR transcriptional activity. In addition, the compounds are designed to advance upon the pharmaceutical properties of EPI-506 to enable a more efficient and cost-effective formulation approach. The Company subsequently announced the nomination of EPI-7386 as its lead clinical candidate, as described below.

 

Year Ended September 30, 2018

 

On November 27, 2017, the Company voluntarily delisted from the TSX and began trading its Common Shares on the TSX-V under the same symbol, “EPI”, to allow for improved operating efficiency, lower costs and enhanced financing flexibility, while providing shareholders continued liquidity on a recognized stock exchange.

 

On January 9 and 16, 2018, the Company closed the first and second tranches of the January 2018 Financing, respectively, issuing an aggregate of 4,321,000 common shares and 2,189,000 pre-funded warrants at a price of $4.00 each, for total gross proceeds of $26,040,000. Each pre-funded warrant is exercisable, for a nominal exercise price of $0.002, into one Common Share for a period of five years. In connection with the first tranche of the January 2018 Financing, the Company paid total cash commissions of $1,556,800, incurred other financing costs of $829,099 including $211,073 of deferred financing costs at September 30, 2017, and issued 238,937 broker warrants, each exercisable into one Common Share at a price of $4.00 per Common Share for a period of five years.

 

On January 16, 2018, effective on the closing of the January 2018 Financing, Hugo Beekman of Omega Fund Management, LLC (“Omega”), was appointed to the Board of the Company. Omega was entitled to nominate one director to the Board of the Company, who was required to be an independent director and pre-approved by the Company. These nomination rights have since expired and Omega’s nominees have since resigned from the Board, as described below.

 

On January 18, 2018, the Company received notification from the Nasdaq indicating that (i) it had demonstrated compliance with the minimum stockholders’ equity standard upon completion of the January 2018 Financing, and (ii) a further grace period of 180 calendar days, to July 16, 2018, had been granted to the Company in relation to regaining a minimum bid price of $1.00. Effective April 25, 2018, the Company completed the Consolidation on a basis of one (1) post-Consolidation Common Share for every twenty (20) pre-Consolidation Common Shares. As a result, the Company issued a press release on May 10, 2018 that stated the Company received written confirmation from the Listing Qualifications Department of the Nasdaq notifying the Company that it had regained compliance with Nasdaq Listing Rule 5550(a)(2) as a result of maintaining the $1.00 minimum closing bid price for at least ten consecutive trading days. Nasdaq informed the Company that this matter was closed.

 

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On January 26, 2018, the Company announced that Dr. Frank Perabo, the Company’s CMO, had resigned from the Company, effective January 31, 2018.

 

On January 30, 2018, the voting agreement among certain of the Company’s shareholders, dated January 14, 2016, as further described in the Company’s management information circular dated January 27, 2017, was terminated.

 

On May 30, 2018, Mr. Beekman resigned from the Board of the Company as a result of his departure from Omega.

 

On June 28, 2018, the Company filed a registration statement on Form F-3 (the “2018 Form F-3”) with the SEC, allowing the issuance of up to $100,000,000 in Common Shares, preferred shares, debt securities, subscription receipts, warrants or units of the Company. Concurrently, the Company filed a preliminary short form prospectus with securities regulators in the provinces of British Columbia, Alberta and Ontario.

 

On July 12, 2018, the Company filed an amendment to the 2018 Form F-3 with the SEC, concurrently with a final short form base shelf prospectus with securities regulators in the provinces of British Columbia, Alberta and Ontario. The 2018 Form F-3 was declared effective by the SEC on July 27, 2018 and, in conjunction with the Canadian final short form base shelf prospectus, will allow the Company to maintain financial flexibility.

 

Year Ended September 30, 2019

 

On October 1, 2018, the Company issued 535,000 Common Shares to Omega upon the exercise of 535,000 pre-funded warrants originally issued in the January 2018 Financing.

 

On October 18, 2018, Dr. Otello Stampacchia of Omega was appointed to the Board of the Company. Concurrently, the Company granted 12,000 stock options, exercisable at $3.58 per share for a period of ten years, to Dr. Stampacchia in relation to his appointment.

 

On February 8, 2019, the Company granted a total of 238,000 stock options to directors, officers, employees and consultants, exercisable at either C$5.06 or US$3.81 for a period of 10 years.

 

On March 26, 2019, the Company announced the nomination of EPI-7386 as its lead clinical candidate for the treatment of metastatic CRPC (“mCRPC”) through inhibition of the N-terminal domain of the androgen receptor. In preclinical studies, EPI-7386 has displayed activity in vitro in numerous prostate cancer models including models where current antiandrogens are inactive and compared to ESSA’s first generation compound, EPI-506, EPI-7386 is significantly more potent, metabolically stable and more effective in preclinical studies. In addition, EPI-7386 has demonstrated a favorable tolerability profile in all animal studies of the compound conducted to date. On May 4, 2019, the Company announced an oral poster presentation titled “A New Generation of N-terminal Domain Androgen Receptor Inhibitors in Castration-Resistant Prostate Cancer Models” was delivered at the 2019 American Urological Association Meeting, presenting a deeper preclinical characterization of EPI-7386. IND-enabling studies are currently underway, and ESSA expects to file an IND in the first calendar quarter of 2020.

 

On June 10, 2019, the Company granted 5,000 stock options to an employee, exercisable at $2.20 for a period of 10 years.

 

On June 25, 2019, at the 2019 Annual General Meeting of Shareholders, all nominated directors were re-elected to the Board except for Dr. Marianne Sadar, who did not stand for re-election.

 

On June 26, 2019, the Company issued 1,652,530 Common Shares upon the cashless exercise of 1,653,999 pre-funded warrants originally issued in the January 2018 Financing.

 

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On July 31, 2019, the Company completed the Realm Acquisition pursuant to a scheme of arrangement under Part 26 of the U.K. Companies Act 2006 (“Scheme”) as sanctioned by the High Court of Justice in England and Wales, on July 29, 2019. Under the terms of the Realm Acquisition, ESSA acquired all of the issued and outstanding shares of Realm, and Realm shareholders received a total of 6,718,150 Common Shares of the Company (“New ESSA Shares”) at a ratio of 0.5763 New ESSA Share per each one share of Realm (or 1.4409 New ESSA Shares for every one Realm ADS (as defined in the Scheme), representing 25 Realm shares), based on a 60-day volume-weighted average price of $3.19 per share of ESSA on May 14, 2019. At the closing of the Realm Acquisition, the Company acquired net assets of $20,247,296 from Realm, including $22,244,248 in cash. The Company is in the process of liquidating Realm and its subsidiary.

 

On July 31, 2019, pursuant to the closing of the Realm Acquisition and the terms of the Scheme, Dr. Raymond Andersen resigned from the Board, and Mr. Alex Martin, Ms. Marella Thorell, and Mr. Sanford Zweifach were appointed to the Board.

 

On August 27, 2019, the Company closed the August 2019 Financing. The Company issued a total of 6,080,596 Common Shares and 11,919,404 pre-funded warrants in lieu of Common Shares of the Company at a price of $2.00 per security for aggregate gross proceeds of $36,000,000. Each pre-funded warrant entitles the holder thereof to acquire one Common Share at a nominal exercise price for a period of five years. In connection with the August 2019 Financing, the Company paid total cash commissions of $1,978,770 and incurred other financing costs of $687,510. The August 2019 Financing was led by Soleus Capital and includes RA Capital Management as a new investor. Existing investors, including BVF Partners LP, Omega Funds, and Eventide Funds, among others, also participated.

 

Recent Developments

 

On October 4, 2019, the Company granted 1,441,530 stock options to directors, officers, employees and consultants at an exercise price of $3.23 for a period of 10 years. Additionally, the Board approved an amended stock option and amended restricted share unit plan to provide for a maximum of 6,251,469 common shares. The Company granted 2,551,470 stock options under the amended stock option plan to certain employees at a weighted average price of $3.23 for a period of 10 years. Options granted under the amended stock option plan may not be exercised by the optionees until the amended plan is approved by the shareholders and regulators.

 

On October 9, 2019, the Company filed a registration statement on Form F-3 (the “2019 Form F-3”) with the SEC, allowing the resale of 20,491,618 in Common Shares of the Company.

 

On October 17, 2019, the Company repaid the SVB Term Loan, originally maturing on September 1, 2020, in full totalling $3,652,471, comprising $2,953,968 in principal, $10,503 in accrued interest, and the final payment of $688,000.

 

On October 17, 2019, Dr. Otello Stampacchia resigned from the Board. The board approved the immediate vesting and extension of a total of 42,000 stock options held by Dr. Stampacchia for a period of one year after resignation date. Concurrently, Dr. Ari Brettman, nominee of Clarus Lifsciences III, L.P., was appointed to the Board.

 

On October 30, 2019, the Company granted 225,000 stock options to non-executive members of the board of directors at an exercise price of $4.67 for a period of 10 years.

 

On November 5, 2019, the Company filed an amendment to the 2019 Form F-3 with the SEC, which declared the 2019 Form F-3 effective on November 5, 2019.

 

The SEC maintains a website (http://www.sec.gov) that makes available reports and other information that the Company files or furnishes electronically with it. The Company’s website can be found at http://www.essapharma.com.

 

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B. Business Overview

 

Introduction

 

ESSA is a pharmaceutical company currently in preclinical stage, focused on developing novel and proprietary therapies for the treatment of prostate cancer in patients whose disease is progressing despite treatment with current standard of care therapies, including second-generation anti-androgen drugs such as abiraterone, enzalutamide, apalutamide, and darolutamide. The Company believes its preclinical series of compounds can significantly expand the interval of time in which patients suffering from CRPC can benefit from anti-hormone-based therapies. Specifically, the compounds act by disrupting the AR signaling pathway, the primary pathway that drives prostate cancer growth, by preventing AR activation through selective binding to the NTD of the AR. In this respect ESSA’s compounds differ from classical anti-androgens, which interfere either with the binding of androgens to the ligand-binding domain (“LBD”) located at the opposite end of the receptor from the NTD. A functional NTD is essential for activation of the AR; blocking the NTD inhibits AR-driven transcription and therefore androgen-driven biology. We believe that the transcription inhibition mechanism of ESSA’s preclinical series of compounds is unique and has the advantage of bypassing identified mechanisms of resistance to the anti-androgens currently used in the treatment of CRPC. The Company has been granted by the United States Adopted Names ("USAN") Council a unique USAN stem "-aniten" to recognize this new mechanistic class. The Company refers to this series of proprietary compounds, currently in development, as the Aniten series. In preclinical studies, blocking the NTD has demonstrated the capability to prevent AR-driven gene expression. A recently completed Phase I clinical trial of ESSA’s first-generation agent EPI-506 demonstrated prostate-specific antigens (“PSA”) declines, a sign of inhibition of AR-driven biology, at the higher dose levels administered to patients with mCRPC refractory to current standard of care therapies.

  

According to the American Cancer Society, prostate cancer is the second most frequently diagnosed cancer among men in the United States, behind skin cancer. Using a dynamic progression model, Scher et al have projected a 2020 incidence of 546,955 and prevalence of 3,072,480 for prostate cancer among men in the United States1. Approximately one-third of all prostate cancer patients who have been initially treated for local disease will subsequently have rising serum levels of PSA, which is an indication of recurrent or advanced disease. Patients with advanced disease often undergo androgen ablation therapy using analogues of luteinizing hormone releasing hormone (“LHRH”) or surgical castration; this approach is termed “androgen deprivation therapy”, or “ADT”. Most advanced prostate cancer patients initially respond to androgen ablation therapy; however, many patients experience a recurrence in tumor growth despite the reduction of testosterone to castrate levels, and at that point are considered to have CRPC. Following diagnosis of CRPC, patients have been generally treated with anti-androgens that block the binding of androgens (darolutamide, enzalutamide, apalutamide or bicalutamide) to the AR, or inhibit synthesis of androgens (abiraterone). More recently, significant improvements in progression-free survival have been achieved by utilizing this latest generation of anti-androgens, in combination with ADT, in newly diagnosed metastatic prostate cancer.

 

The growth of prostate tumors is mediated by an activated AR. Generally, there are three means of activating the AR. First, androgens such as dihydrotestosterone can activate AR by binding to its LBD. Second, CRPC can be driven by constitutively-active variants of AR (“vAR”) that lack an LBD and do not require androgen for activation. The third mechanism involves certain signaling pathways that activate AR independent of androgen activity. Generally, current drugs for the treatment of prostate cancer work by focusing on the first mechanism in combination with either (i) interfering with the production of androgen, or (ii) preventing androgen from binding to the LBD. However, over time these approaches eventually fail due to mechanisms of resistance which all involve the LBD, whether at the DNA (AR amplification or LBD mutations) or RNA level (emergence of AR splice variants).

 

Through their potential to directly and selectively block all known means of activating the AR, the Company believes the Aniten series of compounds hold the potential to be effective in cases where current therapies have failed. Both preclinical and clinical studies support this belief. In preclinical studies, the Aniten series of compounds has been shown to shrink prostate cancer xenografts, including tumors both sensitive and resistant to the second-generation anti-androgens such as enzalutamide. Recent studies have also suggested the potential for combinations of ESSA’s Aniten compounds with anti-androgens to potentially inhibit AR-driven biology more completely in unique and complementary mechanisms by affecting opposite ends of the AR receptor.

 

 

1 Scher HI, Solo K, Valant J, Todd MB, Mehra M (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States: Estimates Using a Dynamic Progression Model. PLoS ONE 10(10): e0139440. doi:10.1371/journal.pone.0139440

 

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The Phase I clinical trial of first-generation ralaniten acetate (“EPI-506”), has indicated the safety and tolerability for this mechanism of transcription inhibition of AR-driven biology as patients tolerated doses of the drug at overall exposures consistent with those associated with efficacy in animal models. Possible proof of concept was shown with short duration PSA declines of up to 37% being observed in some patients whose disease was highly refractory to second-generation anti-androgens treatment. However, unlike in animals, this first-generation drug was significantly metabolized in humans, leading to a very short half-life of circulating drug and suboptimal drug exposures. Consequently, very high doses were required to achieve the modest drug exposures, with the relatively short half-life limiting the therapeutic level exposure of the drug within a 24-hour period. This limitation, together with unfavorable pharmaceutical properties, led to the Company’s decision to discontinue EPI-506 development in favor of focusing on the development of the next generation of Anitens. The Company is now focused on developing this next generation of anitens, including significantly more potent drugs with increased resistance to metabolism as well as advanced pharmaceutical properties, including expected advancements in manufacturability, stability, and likelihood of successful commercial formulation.

 

The NTD of the AR is flexible with a high degree of intrinsic disorder making it difficult to be used for crystal structure-based drug design. The Company is not currently aware of any success by other drug development companies in finding drugs that bind specifically to this drug target. The nature of the highly specific binding of the first-generation Aniten compounds to the NTD, and the biological consequences of that binding, have been defined in scientific studies conducted at the University of Barcelona by De Mol et al2. The selectivity of the binding, based on in vivo imaging as well as in vitro studies, is consistent with the clean toxicological profile observed with first-generation EPI-506 and the subsequent safety profile in the Phase 1 trial.

 

As noted above, the incidence of both metastatic and non-metastatic CPRC continues to rise. Using a dynamic progression model, Scher et al have projected a 2020 incidence of 546,955 and prevalence of 3,072,480 for prostate cancer in the United States3.The Company expects that the Aniten series of compounds could be effective for many of those patients. In its early clinical development, the Company intends to initially focus on patients who have failed second-generation anti-androgen therapies (i.e. abiraterone and/or lutamides) for the following reasons:

 

· CRPC treatment remains a prostate cancer market segment with an apparent and significant unmet therapeutic need and is therefore a potentially large market;

 

· ESSA believes that the unique mechanism of action of its Aniten compounds is well suited to treat those patients who have failed AR LBD focused therapies, and whose biological characterization reveals that their tumors are still largely driven by AR biology; and

 

· ESSA expects that the large number of patients with an apparent unmet therapeutic need in this area will facilitate timely enrollment in its clinical trials.

 

Furthermore, ESSA believes that a successful Phase I clinical trial will facilitate the early study of the combination of the ESSA Aniten compound with second-generation anti-androgens. The Company and its collaborators have developed preclinical in vitro and in vivo evidence supporting the combination of NTD inhibitors together with the LBD inhibiting anti-androgens. The application of two independent, complementary mechanisms of AR transcription inhibition may result in greater suppression of androgen activity and the delay or prevention of drug resistance. Recent progress in the clinical treatment of prostate cancer has resulted from the earlier utilization of anti-androgens in combination with classic ADT, consistent with the premise that more effective androgen suppression yields clinical benefit. The introduction of NTD inhibitors would have the potential of further improving androgen suppression and delaying the emergence of resistance.

 

The Company is party to a license agreement with the British Columbia Cancer Agency (“BCCA”) and the University of British Columbia (“UBC”) dated December 22, 2010, as amended (“the License Agreement”), which provides the Company with exclusive world-wide rights to the issued patents and the patent applications related to the EPI-002 compound.

 

 

2 De Mol E, Fenwick RB, Phang CT, et al. EPI-001, A Compound Active against Castration-Resistant Prostate Cancer, Targets Transactivation Unit 5 of the Androgen Receptor. ACS Chem Biol. 2016;11(9):2499–2505. doi:10.1021/acschembio.6b00182

3 Scher HI, Solo K, Valant J, Todd MB, Mehra M (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States: Estimates Using a Dynamic Progression Model. PLoS ONE 10(10): e0139440. doi:10.1371/journal.pone.0139440

 

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The Company believes that it has developed a strong and defensive intellectual property position for multiple EPI and Aniten structural classes, with 16 pending and maintained patent families covering different structural motifs/analogues.

 

Patent applications are pending in the United States and in contracting states to the Patent Cooperation Treaty (“PCT”) for the Aniten next-generation NTD inhibitors with expiry between 2036-2040. 

 

Management Team

 

One of ESSA's key resources is the experience embodied in its management team and scientific founders:

 

Dr. David R. Parkinson, President and Chief Executive Officer

 

· served as Vice President, Global Clinical Oncology for Novartis International AG (“Novartis”), and Vice President, Oncology Development at Amgen, Inc.(“Amgen”);

· at both Novartis and Amgen, he was responsible for clinical development activities leading to a series of successful global drug registrations for important cancer therapeutics, including Gleevec, Femara, Zometa, Kepivance, and Vectibix.

 

David Wood, Chief Financial Officer

 

· 10 years as Head of Finance and Corporate Development at Celator Pharmaceuticals Inc., where he helped take the company public;

· 22 years of experience in increasingly senior finance roles at various biotech companies.

 

Peter Virsik, Executive Vice-President and Chief Operating Officer

 

· 20 years of experience in corporate development, new product planning, licensing and alliance management with global pharmaceutical organizations;

· at XenoPort, Inc., played a role in the licensing and commercialization of Horizant (gabapentin enacarbil).

 

Dr. Alessandra Cesano, Chief Medical Officer

 

· Over 20 years of experience in clinical development, research and drug development with broad experience in development and clinical use of biomarkers for the more efficient development of targeted therapeutics;

· served as Vice President, Clinical Development Oncology for Biogen Inc. (former Biogen Idec) and played a key role in the approval of Vectibix and Kepivance while at Amgen Inc.

 

Scientific Founders

 

Dr. Marianne Sadar

 

· internationally known for her research on identifying human mechanisms of activating the AR and developing therapeutics for advanced prostate cancer;

· served on approximately 50 scientific panels and as President of the Society of Basic Urological Research.

 

Dr. Raymond Andersen

 

· internationally known for his research on marine natural products and their potential as drug leads;

· discoveries have represented core technologies of several pharmaceutical companies and progressed to the clinical trial stage.

 

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ESSA's Strategy

 

The Company’s initial therapeutic goal is to develop a safe and effective therapy for prostate cancer patients whose tumors have progressed on current anti-androgen therapy. However, the action of the NTD-inhibiting Aniten compounds suggests that there may ultimately be additional therapeutic advantage to combining these agents with anti-androgens at an earlier stage of treatment. Therefore, while the first priority is to characterize and enter into Phase 1 development of an optimal NTD inhibitor, in parallel the Company is also conducting preclinical studies of combination therapy with academic and industry collaborators as well as exploring other potential applications for AR-NTD inhibitors, including breast cancer.

 

Identifying and characterizing an Aniten compound to take into clinical trials

 

The purpose of the next-generation program is to identify drug candidates with increased potency, reduced metabolic susceptibility and superior pharmaceutical properties compared to ESSA’s first-generation compounds. Structure-activity relation (“SAR”) studies conducted on the chemical scaffold of ESSA’s first-generation compounds have resulted in generation of a new series of compounds that have demonstrated higher potency and predicted longer half-lives. Multiple changes in the chemical scaffold have also been incorporated with the goal of improving absorption, distribution, metabolism and excretion (“ADME”) and pharmaceutical properties of the chemical class.

 

In preclinical models of AR inhibition, several candidate molecules met these goals, and on March 26, 2019, the Company announced the nomination of EPI-7386 as its lead clinical candidate for the treatment of mCRPC through inhibition of the NTD of the AR. In preclinical studies, EPI-7386 has displayed activity in vitro in numerous prostate cancer models including models where second-generation anti-androgens are inactive and compared to ESSA’s first generation compound, EPI-506, EPI-7386 is significantly more potent, metabolically stable and more effective in preclinical studies. In addition, EPI-7386 has demonstrated a favorable tolerability profile in all animal studies of the compound conducted to date.

 

On October 28, 2019 at the 2019 AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics, an oral poster presentation titled “Treatment of castrated resistant prostate cancer, with EPI-7386, a second generation N-terminal domain androgen receptor inhibitor”, presented a deeper preclinical characterization of EPI-7386. The poster showed that pre-clinical studies demonstrate that EPI-7386 (i) displays similar in vitro IC50 potency compared to the lutamide class of antiandrogens in an in vitro androgen receptor (AR) inhibition assay; (ii) shows in vitro activity in several enzalutamide-resistant prostate cancer cell models; (iii) exhibits a favorable metabolic profile across three preclinical animal species (which suggests that EPI-7386 will have high exposure and a long half-life in humans) (iv) provides similar antitumor activity to enzalutamide in the enzalutamide-sensitive LNCaP prostate cancer xenograft model, and (v) provides superior antitumor activity to enzalutamide, as a single agent or in combination with enzalutamide, in the enzalutamide emerging-resistant VCaP prostate cancer xenograft model, specifically showing AR inhibition with both an N-terminal domain inhibitor (EPI-7386) and a ligand binding domain inhibitor (enzalutamide), induces deeper and more consistent anti-tumor responses in the enzalutamide emerging-resistant VCaP xenograft model; (vi) antitumor activity in enzalutamide-resistant prostate cancer xenograft models, 22Rv1 and LNCaP95, with no antitumor activity, as expected, in a non-functional androgen receptor PC-3 prostate cancer xenograft model; (vii) wide therapeutic index as demonstrated by a broad dose response in the VCaP model; (viii) high plasma exposures in animal studies using a new suspension formulation.

 

IND-enabling studies are currently underway, and ESSA expects to file an IND in the first calendar quarter of 2020.

 

Advancing a product candidate through clinical development and regulatory approval in CRPC patients

 

Following IND approval of EPI-7386, the Company intends to conduct a Phase I clinical trial to determine the safety, tolerability, maximum tolerated dose, pharmacokinetics and potential therapeutic benefits of the drug in mCRPC patients. Depending on the number of cohorts enrolled, the Phase I clinical trial is expected to take nine to twelve months. At this time, it is expected that the design of the Phase I clinical trial will be the standard three patients per dose cohort. All patients will be characterized biologically for underlying tumor genomic characteristics, for evidence of AR pathway activation, and for dose-related pharmacological and pharmacodynamic effects. Once the Phase I clinical trial is complete, the Company plans to review the data, including the safety, tolerability, evidence of efficacy and pharmacological and biomarker data. This information will inform the final size, design, timing and clinical as well as biological characteristics of the patients to be entered into a potential Phase II clinical trial.

 

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Developing a product candidate as an essential component of a new standard of care for the treatment of pre-CRPC and expanding usage earlier in the disease stage

 

An activated AR is required for the growth and survival of most prostate cancer; and NTD inhibition of AR-directed biology occurs both in full length AR, vARs and in the setting of the multiple, resistance mechanisms affecting the anti-androgens which work through the opposite end of the AR. The Company, therefore, believes that the AR-NTD is an ideal target for next-generation anti-androgen hormone therapy. If ESSA’s product candidate is successful in treating CRPC patients, it is reasonable to expect that such clinical candidate may be effective in treating earlier stage disease. Therefore, the Company may conduct additional clinical studies potentially leading to the approval of a clinical candidate for use in prostate cancer patients at an earlier disease stage, likely in combination with second-generation anti-androgens. The Company is currently generating in vitro and in vivo data in collaboration with academic and industry investigators in this regard. Preliminary data indicates that there may be potential benefits to combining an NDT inhibitor, such as an Aniten compound, with an anti-androgen that works through inhibition of the LBD of the AR. Other emerging potential clinical applications for NTD inhibitors are in combination with other agents, such as poly ADP ribose polymerase (“PARP”) inhibitors, as well as in the subset of metastatic breast cancer patients whose tumors have been demonstrated to have activation of the AR pathway.

 

Evaluating strategic collaborations to maximize value

 

The Company currently retains all commercial rights for its EPI and Aniten series drug portfolios. The Company continues to evaluate potential collaborations that could enhance the value of its prostate cancer program and allow it to leverage the expertise of such strategic collaborators.

 

Overview of Castration-Resistant Prostate Cancer

 

According to the American Cancer Society, prostate cancer is the second most frequently diagnosed cancer among men in the United States, behind skin cancer. Using a dynamic progression model, Scher et al have projected a 2020 incidence of 546,955 and prevalence of 3,072,480 for prostate cancer among men in the United States4. Overall, in the United States, about one in nine men will be diagnosed with prostate cancer during his lifetime, and about one in 41 men will die from the disease.

 

Prostate cancer is most frequently diagnosed at an early stage, when it is confined to the prostate gland and its immediate surroundings. Advances in screening and diagnosis, including the widespread use of PSA screening, have allowed detection of the disease in its early stages. Patients with early-stage disease are typically treated with surgery or radiation therapy, or in certain circumstances, with both. For the majority of men, these procedures are successful in curing the disease. However, for others, these procedures are not curative and their prostate cancer ultimately recurs. Men with recurrent or metastatic prostate cancer are considered to have advanced prostate cancer.

 

Hormonal therapy of prostate cancer which is effective in inhibiting tumor growth typically use drugs conferring pharmacological castration (i.e. LHRH (Leuprolide), or abiraterone). Other drugs competitively bind in the ligand-binding pocket of the LBD of the AR prevent both the binding of androgen and interaction of the AR with co-regulatory proteins, and therefore also prevent AR transcriptional activity. Commonly, these drugs are called “anti-androgens”. Current anti-androgens used for prostate cancer include apalutamide, bicalutamide, cyproterone acetate, flutamide, nilutamide, enzalutamide, and darolutamide.

 

When the disease becomes resistant to initial androgen ablation therapy, second line hormonal treatments can be used depending on several factors that include the biology of the tumor, evidence of metastases, whether or not the patient is experiencing symptoms and if the disease comprises neuroendocrine or small cell carcinoma. However, castrate levels of androgen are typically maintained (i.e. patient remains on LHRH analogues) while other therapies are added to the patient’s regime. Asymptomatic patients with rising PSA and evidence of metastasis will typically go on to receive second-line hormonal therapies that include abiraterone acetate, corticosteroids or enzalutamide. For symptomatic CRPC patients, docetaxel or radium-233 for bone metastases are generally the treatments of choice. Prostate small cell carcinoma can be treated with chemotherapies such as docetaxel as those carcinomas usually do not respond to AR targeted therapies.

 

 

4 Scher HI, Solo K, Valant J, Todd MB, Mehra M (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States: Estimates Using a Dynamic Progression Model. PLoS ONE 10(10): e0139440. doi:10.1371/journal.pone.013944

  

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Abiraterone acetate plus prednisone was approved by the FDA and in many countries globally for patients with post-docetaxel mCRPC in 2011. In the key clinical trials supporting initial approval for post-chemotherapy mCRPC, abiraterone acetate plus prednisone demonstrated a statistically significant improvement in overall survival (over placebo plus prednisone) of 4.6 months in patients with mCRPC who have failed one prior chemotherapy regimen. Abiraterone acetate plus prednisone has also been approved in the pre-chemotherapy setting for mCRPC. In the key supporting clinical trial, the co-primary endpoint showed a statistically significant increase in median radiographic progression-free survival with abiraterone plus prednisone versus prednisone alone of 16.5 months versus 8.3 months, and a statistically significant improvement in overall survival (from 30.3 months in the control group to 34.7 months in the group receiving abiraterone plus prednisone. In 2018, abiraterone acetate plus prednisone was approved by the FDA for the treatment of high-risk mCRPC based on the results of a pivotal trial showing a statistically significant improvement in overall survival for the patients receiving abiraterone plus prednisone versus those receiving placeo (hazard ratio=0.66). Treatment with abiraterone requires the concomitant usage of prednisone to ameliorate symptoms of mineralocorticoid excess, including fluid overload, hypertension and hypokalemia; abiraterone plus prednisone must be used with caution in those with a significant cardiovascular history, including congestive heart failure. These effects, as well as treatment-associated elevations in liver enzymes, necessitate monitoring for blood pressure, serum potassium, fluid retention, aspartate aminotransferase (“AST”), alanine transaminase (“ALT”) and bilirubin levels. Furthermore, the pharmacokinetics of abiraterone acetate demonstrate a large food effect, with exposure increasing up to ten-fold in the presence of food. For safe administration, food must not be eaten two hours before the drug is taken and for one hour afterwards.

  

Enzalutamide was approved by the FDA as a treatment for patients with post-docetaxel mCRPC in 2012. In the initial pivotal clinical trial supporting FDA approval in the post-chemotherapy mCRPC population, the median overall survival was 18.4 months in the enzalutamide group versus 13.6 months in the placebo group. The label extension to mCRPC chemotherapy naïve disease is subsequently supported by data from a pivotal Phase III trial in chemo-naïve mCRPC, which demonstrated a statistically significant 29% reduction in the risk of death over placebo, despite enrolling patients with visceral disease, a population with a poorer prognosis that has historically been excluded from this trial setting. In 2018, enzalutamide was approved by the FDA for the treatment of non-metastatic CRPC based on the results of a Phase III trial showing a statistically significant improvement in metastasis-free survival in patients randomized to receive enzalutamide versus placebo. Enzalutamide can be administered without prednisone since it is not associated with mineral-corticoid excess. The safety profile of enzalutamide is considered favorable despite a high incidence of seizure, posterior reversible encephalophaty syndrome (“PRES”), ischemic heart disease, and falls and fractures.

 

Apalutamide was approved by the FDA for the treatment of non-metastatic CRPC in February 2018. It is a non-steroidal anti-androgen of the lutamides family, with whom it shares the mechanism of action (i.e. antagonism of the AR by binding to the LBD). In the pivotal study, a statistically significant improvement in metastasis-free survival was observed in patients with non-metastatic CRPC randomized to receive apalutamide versus placebo. The safety profile of apalutamide is similar to the one of enzalutamide, with seizures and falls and fractures being observed with increased frequency over the placebo group.

 

Darolutamide was approved by the FDA in July 2019 for the treatment of non-metastatic CRPC. Like enzalutamide and apalutamide, it belongs to the chemical family of the lutamides with whom it shares the mechanism of action (i.e. antagonism of the AR by binding to the LBC). In the pivotal study, a statistically significant improvement in metastatis-free survival was observed in patients with non-metastatic CRPC randomized to receive darolutamide versus placebo. The safety profile of darolutamide is the most favorable of the approved lutamides; specifically, no increased risk of seizure and falls and fractures was observed in the pivotal study for patients receiving darolutamide versus placebo.

 

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The immunotherapy sipuleucel-T has been shown to increase the median survival time of mCRPC patients by four months over placebo. Sipuleucel-T is generally considered a treatment option in advanced patients who are either asymptomatic or minimally symptomatic and with a good performance status (“ECOG 0-1”). Sipuleucel-T is not indicated for patients with hepatic metastases or less than six-month life expectancy. In clinical trials, sipuleucel-T has shown no effect on serum PSA levels and does not affect the time to disease progression.

 

Radium-223 has been shown to extend survival in mCRPC patients with symptomatic bone metastases and no known visceral metastatic disease. Limitations include the incidence of bone marrow suppression, primarily thrombocytopenia, and the need for this injectable radiopharmaceutical to be administered by trained personnel at select nuclear medicine facilities able to handle this radioactive product. In addition, the administration of radium-233 is associated with potential risks for other persons (e.g. medical staff, care givers and members of the patient’s family) from radiation or contamination from body fluids such as spills of urine, feces and vomit. Therefore, radiation protection precautions must be taken in accordance with national and local regulations.

 

Androgen and the Androgen Receptor

 

Androgens such as testosterone and dihydrotestosterone mediate their biological effects through the AR. In adult males, the testes produce the majority of androgen with some contribution from the adrenal glands and other tissues. Androgens play a role in a wide range of developmental and physiological responses and are involved in male sexual differentiation, maintenance of spermatogenesis and male gonadotropin regulation. The growth and survival of the prostate is dependent on androgen. When androgens increase in males during puberty there is an increase in growth of the prostate gland, and in adult males when androgens are reduced by castration there is involution of the prostate and apoptosis, or cell death, of prostate epithelial cells. This dependency of the prostate epithelium on androgens provides the underlying rationale for treating advanced prostate cancer with androgen ablation.

 

The AR is a ligand-activated transcription factor that mediates the biological effects of androgen. Without a functional full-length AR, the addition of androgen has no biological effects. The AR has distinct functional domains that include a C-terminal LBD, DNA-binding domain, the N-terminal domain and a hinge region. All current FDA-approved therapies that target the AR are directly or indirectly focused on its C-terminal LBD. Androgens such as testosterone and dihydrotestosterone bind to the LBD of the AR which result in changes in conformation and post-translational modifications, nuclear translocation and ultimately binding to the regulatory regions of DNA of target genes called androgen response elements. Thus, AR regulates the transcription of genes involved in prostate tissue growth and survival.

 

AR is unique from other steroid hormone receptors in that the AF-1 region in the NTD contributes to transcriptional activity, with little to no activity contributed from AF-2 in the LBD. AR LBD functions independent of the NTD and can still bind ligand even if the AF-1 region is deleted or mutated; however, no transcriptional activity can be achieved without the AF-1 region in the NTD. Previous research used deletion mutants of the AR to explore which regions of the AR were critical to its activity, with the following key findings:

 

  · truncated AR (AR1-653) that lacked the LBD was found to be constitutively active, and mimicked the AR splice variants that were reported more than one decade later in 2008;

 

  · deletion of AF-1 (residues 245-527) in the AR-NTD yielded a receptor that could still bind androgen but was transcriptionally dead; and

 

  · deletion of AF1 also blocked all transcriptional activity of the truncated variant AR.

 

It is generally believed that, in the majority of patients, CRPC continues to be driven by a transcriptionally-active AR in spite of maintaining castrate levels of androgen. Evidence to support the concept that CRPC remains dependent upon AR signaling includes:

 

  1) many of the same genes that are increased by androgens become elevated in CRPC, such as PSA;

 

  2) detection of nuclear localization of the AR in CRPC tissues supports that the AR may continue to be transcriptionally active in the absence of testicular androgens;

 

  3) increased expression of the AR (full-length and AR splice variant) in tissues from CRPC;

 

  4) survival advantages with enzalutamide and abiraterone (block synthesis of androgens) in CRPC patients; and

 

  5) correlation of levels of expression of AR splice variant with poor outcome and resistance to abiraterone and enzalutamide.

 

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AR-related mechanisms of CRPC

 

The mechanisms for the development of CRPC have been intensely studied, in part because the emergence of CRPC is almost universal in recurrent prostate cancer treatment. The mechanisms described below represent the current state of knowledge in this regard.

 

Mutations Causing AR Activation by Antiandrogens

 

Some patients receiving antiandrogens will develop antiandrogen withdrawal syndrome. This syndrome is characterized by a rising PSA and worsening symptoms while the patient is taking antiandrogens, followed by a decline in PSA or improvement when the patient is taken off antiandrogens. Prostate cancer cells obtained from patients with antiandrogen withdrawal syndrome may have gain-of-function mutations in the LBD of the AR. Thus, current antiandrogens used to block the LBD of the AR may become activators of the mutated AR and as a result, have the opposite effect from what they were intended to do.

 

Amplification or Over-Expression of AR

 

Several studies have shown that androgen deprivation results in over-expression of the AR, thus giving any residual androgen more opportunities to bind and thereby activate the full-length AR.

 

Residual Androgens Activate AR

 

While in mature men, the majority of androgen is produced by the testes, androgen is produced by a number of other tissues including the adrenal glands and in some prostate cancers, the tumor itself. A variety of different pathways can produce androgen, as well. As blood levels of androgen are reduced through use of current androgen-suppressing drugs or surgical castration, androgen production by alternate pathways may become an important way in which ARs become activated. Recently, it has been shown that prostate cancer tumor tissue can synthesize androgen, leading potentially to concentrations of intra-tumoral androgen that are sufficient to activate the full-length AR.

 

Over-expression of AR Coactivators

 

The AR requires interaction with an abundance of other proteins such as bridging factors and coactivators. An example of a bridging factor that is associated with CRPC is CREB-binding protein (“CBP”). CBP is a bridging factor that interacts with the NTD of the AR and is thought to be essential for AR transcriptional activity. CBP levels are increased in CRPC, which may lead to cancer growth driven by AR activity. Coactivators of AR have also been reported to be increased in CRPC which may subsequently result in aberrant transactivation of AR.

 

Ligand-independent Activation by Cytokines or Kinases

 

There is evidence that cytokines and kinases can activate the NTD of the AR. It is possible that under castrate levels of androgen, cross-talk between the AR and signal transduction pathways circumvent the need for androgen for the activation of the AR for the growth and survival of CRPC.

 

Constitutively Active AR Splice Variants that Lack the Ligand-Binding Domain

 

CRPC may involve the expression of constitutively active splice-variants of the AR that lack the full ligand-binding domain. These AR splice variants are always activated and have a truncated LBD, thus do not require androgen to be transcriptionally active. Anti-androgens such as lutamides would have no effect on these AR splice variants because these anti-androgens bind to the LBD, which is not present in these variants.

 

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ESSA’s drug candidates have been shown to be active on all of the above pathways. Specifically, ESSA’s first-generation compounds demonstrated:

 

  · EPI-002 does not cause activation of mutated ARs that are activated by antiandrogens;

 

  · EPI-002 is active in vivo against VCaP xenografts that overexpress AR;

 

  · EPI-002 is not competitive with androgen for the LBD binding, hence its inhibitory effect cannot be competed away by high localized concentrations of androgen;

 

  · EPI-001, the racemic version of EPI-002, blocks the interaction of CBP and RAP74 which are required for transcriptional activity and may contribute to tumor growth;

 

  · EPI-001 blocks  AR activation by IL-6, bone-derived factors and stimulation of the PKA pathway;

 

  · In vitro and in vivo, EPI-002 significantly inhibits LNCaP95 human prostate cancer cells that harbor constitutively-active AR splice variant V7 and are resistant to enzalutamide; and

 

  · EPI-002 blocks gene expression regulated by full-length AR and V7.

 

Programs and Potential Products

 

The Company’s EPI-Series Drugs

 

The Company’s first-generation compounds, based on EPI-001, were selective, oral, small molecules that block the NTD of the AR. The AR is required for the growth and survival of most prostate cancer; therefore, the NTD of the AR is an ideal target for next-generation hormone therapy. Consistent with the inhibition of AR activity by other EPI compounds, experimentation conducted in a test-tube or in a controlled environment outside a living organism (known as “in vitro” studies) and experimentation done in or on the living tissue of a whole, living organism (known as “in vivo” studies) showed that stereoisomers of EPI-001 selectively block AR-dependent proliferation of human prostate cancer cells that express AR and do not inhibit the proliferation of cells that do not express functional AR or do not rely on the AR for growth and survival. By directly inhibiting the NTD of the AR, the Company believes EPI series molecules may be able to overcome resistance mechanisms in CRPC.

 

Completed Phase I Clinical Study of EPI-506

 

The Company conducted an initial proof-of-concept Phase I clinical study utilizing the first-generation Aniten compound, EPI-506. The objective of the EPI-506 Phase I clinical trial was to explore the safety, tolerability, maximum tolerated dose and pharmacokinetics of EPI-506, in addition to anti-tumor activity in asymptomatic or minimally symptomatic patients with metastatic CRPC who were no longer responding to either abiraterone or enzalutamide treatments, or both. Efficacy endpoints, such as PSA reduction, and other disease progression criteria were evaluated. Details relating to the design of the Phase I/II clinical trial of EPI-506 are available on the U.S. National Institutes of Health clinical trials website (see https://clinicaltrials.gov).

 

The IND application to the FDA for EPI-506, to begin a Phase I clinical trial, was accepted in September 2015, with the first clinical patient enrolled in November 2015. The Company’s CTA submission to Health Canada was subsequently also accepted. Based on allometric scaling, an initial dose level of EPI-506 of 80 mg was determined. However, following the enrollment of the initial cohorts, it became apparent that EPI-506 exposure was much lower in humans than projected. EPI-506 dosing was escalated aggressively to allow patients in the clinical study greater exposure to the drug. The highest dose patients ultimately received was 3600 mg of EPI-506, administered in a single dose or split into two doses daily. The initial data from the Phase I clinical trial was presented at the European Society of Medical Oncology meeting in September 2017.

 

Conducted at five sites in the United States and Canada, the open-label, single-arm, dose-escalation study evaluated the safety, pharmacokinetics, maximum-tolerated dose and anti-tumor activity of EPI-506 in men with end-stage mCRPC who had progressed after prior enzalutamide and/or abiraterone treatment and who may have received one prior line of chemotherapy. Twenty-eight patients were available for analysis, with each patient having received four or more prior therapies for prostate cancer at the time of study entry. Patients self-administered oral doses of EPI-506 ranging from 80 mg to 3600 mg, with a mean drug exposure of 85 days (range of eight to 535 days). Four patients underwent prolonged treatment (with a median of 318 days; and a range of 219 to 535 days at data cut-off), following intra-patient dose escalation. PSA declines, an indication of efficacy, ranging from 4% to 37% were observed in five patients, which occurred predominantly in the higher dose cohorts (≥1280 mg).

 

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EPI-506 was generally well-tolerated with a favorable safety profile having been demonstrated across all doses up to 2400 mg. At a dose of 3600 mg, gastrointestinal adverse events (nausea, vomiting and abdominal pain) were observed in two patients: one patient in the once-daily (“QD”) dosing cohort and one patient in the 1800 mg twice-daily dosing cohort, leading to study discontinuation and a dose-limiting toxicity (“DLT”) due to more than 25% of doses being missed in the 28-day safety reporting period. A separate patient in the 3600 mg QD cohort experienced a transient Grade 3 increase in liver enzymes (AST/ALT), which also constituted a DLT, and enrollment was consequently concluded in this cohort.

 

Although the safety profile and possible signs of anti-tumor activity at higher-dose levels support the concept that inhibiting the AR-NTD may provide a clinical benefit to mCRPC patients, the pharmacokinetic and metabolic studies revealed that the challenges encountered in achieving exposures similar to those associated with anti-tumor activity in the animal models were due to the greatly increased metabolism of EPI-506 in patients as compared to rodents. In light of these discoveries, ESSA concluded that prioritizing the development of one of its Aniten next-generation NTD inhibitors that, in the Company’s discovery program, had demonstrated greater potency, reduced metabolism and other enhanced pharmaceutical properties offered a more compelling regulatory and commercial pathway forward. As a result, the Company announced on September 11, 2017 its decision to discontinue the further clinical development of EPI-506 and to implement a corporate restructuring plan to focus research and development resources on its next-generation Anitens targeting the AR-NTD. The restructuring included a decrease in headcount and a reduction of operational expenditures related to the clinical program.

 

ESSA’s next-generation Aniten compounds represent multiple chemical scaffold changes to the first-generation drugs and appear to retain the specific binding and NTD inhibition of the AR. However, they have demonstrated an ability to advance upon a number of attributes of the first-generation compound, EPI-506. In in vitro assays measuring inhibition of AR transcriptional activity, these drugs demonstrate greater than 20 times higher potency than EPI-506 or its active metabolite, EPI-002. In addition, the compounds demonstrate resistance to metabolism in preclinical studies, suggesting likely longer half-lives in humans. Lastly, the compounds demonstrate significantly superior pharmaceutical properties relative to EPI-506. They represent potential advancements in ease and cost of large-scale manufacture, drug product stability and suitability for commercialization globally. From this series of next-generation compounds, EPI-7386 was selected as the IND candidate and preparations for IND filing are currently underway.

 

Preclinical Studies

 

The Company is focused on the advancement of EPI-7386, a next-generation Aniten NTD inhibitor.

 

This next-generation compound was discovered through significant chemical structure-based activity efforts. In an in vitro AR-based gene transcription assay, EPI-7386 exhibits greater than 20 times higher potency than EPI-002. The ability of EPI-7386 to reduce tumor growth was confirmed in a human prostate cancer xenograft model. In this preclinical study, the next-generation compound reduced tumor growth compared to the control using low daily doses of the drug. This next-generation compound also inhibited in vitro cellular proliferation of an enzalutamide-resistant cell line.

 

In addition to higher potency, EPI-7386 and other next-generation compounds are designed to reduce the metabolism of these agents following oral dosing compared to EPI-002. Excessive metabolism of a drug candidate may reduce the effective exposure levels of a drug and necessitate frequent and excessive dose administration. Specific modifications in the chemical structure were made in an attempt to block the known sites of metabolism of EPI-002. A series of in vitro studies examining drug metabolism were conducted with EPI-7386 and other next-generation compounds. Results indicated that several of these compounds, including EPI-7386, may be metabolized more slowly than EPI-002 in humans. The Company has conducted animal pharmacokinetic studies which verify the initial in vitro metabolism results and predict a drug half-life in patients over 24 hours.

 

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Importantly, the next-generation compounds exhibiting less in vitro metabolism were tested against off-target screening. Significant off-target binding of drug candidates could lead to unanticipated off-target toxicity. Broad characterization of EPI-7386 and other Anitens has demonstrated minimal non-specific binding properties in this screening, indicating a favorable selectivity profile for further development. Following the preclinical characterization of the most promising of these next-generation compounds, the Company selected EPI-7386 as its IND candidate and IND-preparation toxicology studies are being conducted.

 

Future Clinical Development Program

 

Phase I/II Clinical Trial Design for treating CRPC patients

 

The Company has recently selected EPI-7386 as its IND candidate and IND-preparatory studies are underway. If the Company successfully attains approval of any IND or CTA, the Company will conduct a Phase I clinical trial to determine the safety, tolerability, maximum tolerated dose, pharmacokinetics, and efficacy of the compound in CRPC patients. In a Phase I study, it is expected the clinical trial will evaluate the safety, tolerability, pharmacokinetics, and maximum-tolerated dose of the compound, in multiple-dose escalations. Learnings from the Phase I clinical trial of EPI-506 will be incorporated into the design and conduct of the Phase I and future trials. The Company plans to include, for example, extensive biological characterization of the patients entered into the trial. If the Phase I portion of the clinical trial is successful, the Phase II portion (dose expansion) of the clinical trial will evaluate activity in a target group of biologically-characterized mCRPC patients and it is the Company’s intent to conduct early studies of EPI-7386 in combination with anti-androgens. 

 

Early Conduct of a Combination Phase I/II Clinical Trial

 

Given the evolution of prostate cancer therapeutics towards combination therapy strategies, the biological rationale for combining NTD and LBD inhibitors, and compelling early in vitro and preclinical animal model results, the Company may perform combination studies of the next-generation Aniten compound with current generation anti-androgens.

 

Phase III Clinical Trial

  

In order to ultimately obtain full regulatory approval, the Company expects that at least one Phase III clinical trial will be required, most likely in patients similar to the population of mCRPC patients who will have been enrolled in the planned Phase I/II clinical trial. However, the results of the Phase I/II clinical trial may also suggest modification of the initial patient population based on anti-tumor response and biomarker assessment. In a Phase III clinical trial, the key end-point is expected to be progression-free survival or overall survival relative to patients receiving the standard-of-care. It is expected that such a Phase III clinical trial would be conducted at numerous sites around the world.

 

Competition

 

The competition in the prostate cancer market is very high, with several pharmaceutical therapies already approved and many new molecules being tested for their effect in this patient population. In addition, generic forms of Zytiga (abiraterone acetate) are now approved and commercially available in the U.S.

 

Currently approved therapies include:

 

GENERIC/PROGRAM NAME   BRAND NAME   COMPANY NAME(S)   STAGE
Enzalutamide   Xtandi   Astellas and Pfizer   Marketed
Abiraterone acetate   Zytiga   Johnson & Johnson   Marketed
Sipuleucel-T   Provenge   Valeant   Marketed
Docetaxel   n/a   Sanofi and various   Marketed
Cabazitaxel   Jevtana   Sanofi   Marketed
Radium-233   Xofigo   Bayer   Marketed
Apalutamide (ARN-509)   Erlead   Johnson & Johnson   Marketed
Darolutamide   Nubega   Bayer   Marketed
Pembrolizumab   Keytruda   Merck   Marketed
Olaparib   Lynparza   AstraZeneca   Pending FDA approval

 

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In this market, ESSA believes that its competitive position is strong because its product candidate, if successful, will focus mechanistically on a unique, differentiated approach to prostate cancer that has been shown to make the biggest difference to the survival of recurrent prostate cancer patients: blocking AR activation. Since EPI compounds have been shown to directly block the AR-NTD, they have the potential to overcome the AR-dependent resistance pathways (discussed above) that may develop as a result of treatment with current hormone-related therapies that target the AR LBD. If successful, ESSA believes this could represent a significant step forward in the treatment of prostate cancer. To ESSA’s knowledge, no other antagonist to the AR-NTD is currently undergoing clinical trials for prostate cancer or any other indication. Other approaches to interfering with AR signaling include strategies to degrade the AR (Arvinas).

 

Patents and Proprietary Rights

 

License Agreement with UBC and the BCCA

 

ESSA has in-licensed intellectual property embodied in issued patents, pending patents applications and know-how relating to compounds that modulate AR activity created through research work done at the BCCA and UBC (together, the “Licensors”) under the direction of Drs. Raymond Andersen and Marianne Sadar, respectively. ESSA refers to these intellectual property rights as the “Licensed IP”.

 

Pursuant to an agreement among ESSA and the Licensors dated as of December 22, 2010 and amended on February 10, 2011 and on May 27, 2014 (the “License Agreement”), ESSA has been granted a worldwide, exclusive license to develop and commercialize products based on the Licensed IP. ESSA paid a minimum annual royalty of C$40,000 in the 2014 calendar year, increasing to C$65,000 in each of 2015 and 2016 and C$85,000 in 2017, 2018, and 2019 and must continue to pay a minimum of C$85,000 for each year thereafter. For a First Compound entering clinical development, an additional C$50,000 and C$900,000 must be paid upon enrollment of a patient in a Phase II and Phase III clinical trial, respectively.

 

The Licensors may terminate the License Agreement upon ESSA’s insolvency, or the License Agreement may be terminated by either party for certain material breaches by the other party. ESSA has already spent more than C$5,000,000 in connection with the commercialization of products relating directly to the Licensed IP, as required under the License Agreement. ESSA is required to allocate reasonable time to the development and commercialization of the Licensed IP and to use reasonable efforts to promote, market and sell products covered by the Licensed IP. The terms of the License Agreement required ESSA to issue to the Licensors, in lieu of payment of an initial license fee, 1,000,034 pre-Consolidation Common Shares. If ESSA develops products covered by the Licensed IP in the future, it will be required to pay certain development and regulatory milestone payments up to an aggregate of C$2.4 million for the first drug product developed under the license and up to an aggregate of C$510,000 for each subsequent product. ESSA must also pay the Licensors low single-digit royalties based on aggregate worldwide net sales of products covered by the Licensed IP and a percentage of sublicensing revenue in the low teens. ESSA is also required to reimburse costs incurred by the Licensors related to the prosecution and maintenance of patents embodying the Licensed IP. The License Agreement will expire on the later of 20 years after the date of the License Agreement or the expiry of the last issued patent included in the Licensed IP.

 

ESSA’s Intellectual Property Strategy

 

Both ESSA and the broader pharmaceutical industry attach significant importance to patents for the protection of new technologies, products and processes. Accordingly, ESSA’s success depends, in part, on its ability to obtain patents or rights thereto, to protect commercial secrets and carry on activities without infringing the rights of third parties. See “Risk Factors” in Item 3.D elsewhere in this Annual Report. Where appropriate, and consistent with management’s objectives, patents are pursued once concepts have been validated through appropriate laboratory work. To that end, ESSA will continue to seek patents in relation to those components or concepts that it perceives to be important.

 

Patent Applications

 

ESSA has licensed certain patent rights, with respect to some of its compounds that modulate AR activity, from the Licensors, jointly. ESSA has the right to acquire ownership of the licensed patents and patent applications upon specified payment to the Licensors, and providing that payments required under the License Agreement continue to be made.

 

ESSA currently has 16 pending and maintained patent families which cover multiple EPI- and Aniten structural classes of compounds with different structural motifs/analogues, that provide a strong and defensive intellectual property portfolio.

 

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Regulatory Environment

 

The production and manufacture of ESSA’s product candidate and potential future product candidates and its R&D activities are subject to regulation for safety, efficacy, quality and ethics by various governmental authorities around the world. In the United States, drugs and biological products are subject to regulation by the FDA. In Canada, these activities are regulated by the Food and Drugs Act and the rules and regulations thereunder, which are enforced by the TPD. Drug approval laws require registration of manufacturing facilities, carefully controlled research and testing of product candidates, government review and approval of experimental results prior to giving approval to sell drug products. Regulators also require that rigorous and specific standards such as cGMP, GLP and GCP are followed in the manufacture, testing and clinical development respectively of any drug product. See “Risk Factors” in Item 3.D elsewhere in this Annual Report.

 

The process of obtaining regulatory approvals and the corresponding compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

 

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

 

  · completion of extensive nonclinical, sometimes referred to as preclinical laboratory tests, and preclinical animal trials in compliance with applicable requirements for the humane use of laboratory animals and formulation studies, including GLPs;

 

  · submission to the FDA of an IND, which must take effect before human clinical trials may begin;

 

  · approval by an IRB, representing each clinical site before each clinical trial may be initiated;

 

  · performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as GCP regulations and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed drug product for its intended use;

 

  · preparation and submission to the FDA of a NDA;

 

  · review of the product by an FDA advisory committee, where appropriate or if applicable;

 

  · satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

 

  · payment of user fees and securing FDA approval of the NDA; and

 

  · compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies (“REMS”) and post-approval studies required by the FDA.

 

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Preclinical Studies

 

Preclinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the safety of the product candidate prior to its administration to humans in clinical studies and throughout development. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

 

Initiation of Human Testing

 

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written trial protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. In Canada, this application is called a CTA. An IND/CTA application must be filed and accepted by the FDA or TPD, as applicable, before human clinical trials may begin. In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to trial subjects. An IRB must operate in compliance with FDA regulations.

 

Two key factors influencing the rate of progression of clinical trials are the rate at which patients can be enrolled to participate in the research program and whether effective treatments are currently available for the disease that the drug is intended to treat. Patient enrollment is largely dependent upon the incidence and severity of the disease, the treatments available and the potential side effects of the drug to be tested and any restrictions for enrollment that may be imposed by regulatory agencies.

 

Phase I Clinical Trials

 

Phase I clinical trials for cancer therapeutics are typically conducted on a small number of patients to evaluate safety, dose limiting toxicities, tolerability, pharmacokinetics and to determine the dose for Phase II clinical trials in humans.

 

Phase II Clinical Trials

 

Phase II clinical trials typically involve a larger patient population than Phase I clinical trials and are conducted to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of a product candidate for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.

 

Phase III Clinical Trials

 

Phase III clinical trials typically involve testing an experimental drug on a much larger population of patients suffering from the targeted condition or disease – in ESSA’s case, CRPC. These studies involve testing the experimental drug in an expanded patient population at geographically dispersed test sites (multi-center trials) to establish clinical safety and effectiveness. These trials also generate information from which the overall risk-benefit relationship relating to the drug can be determined.

 

In most cases FDA requires two adequate and well controlled Phase III clinical trials to demonstrate the efficacy of the drug. A single Phase III trial with other confirmatory evidence may be sufficient in rare instances where the trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

 

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New Drug Application

 

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA, or the TPD as part of an NDS, requesting approval to market the drug product for one or more indications. The NDS or NDA is then reviewed by the applicable regulatory body for approval to market the drug.

 

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

 

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as Active Pharmaceutical Ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

 

The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, currently exceeding $2,500,000 and the manufacturer or sponsor under an approved new drug application are also subject to significant annual program and establishment user fees. These fees are typically increased annually.

 

An NDS costs roughly $350,000 per submission and will also be subject to Drug Establishment Licensing fees, which currently exceed $20,000 per established facility.

 

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

 

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

 

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Post-Approval Requirements

 

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, significant changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

 

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

 

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 

  · restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

  · fines, warning letters or holds on post-approval clinical trials;

 

  · refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

 

  · product seizure or detention, or refusal to permit the import or export of products; or

 

  · injunctions or the imposition of civil or criminal penalties.

 

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

 

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

 

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Orphan Designation and Exclusivity

 

ESSA may, in the future, seek orphan drug designation for its product candidates. Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

 

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation, the product generally will receive orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

 

C. Organizational Structure

 

The Company has the following wholly owned subsidiaries:

 

· ESSA Pharmaceuticals Corp. (“ESSA Texas”), existing under the laws of the State of Texas. The head office of ESSA Texas is located at Suite 1300, 700 Milam Street, Houston, Texas, USA 77002; and

 

· Realm Therapeutics plc. (“Realm”), existing under the laws of England and Wales, and its wholly owned subsidiary Realm Therapeutics Inc., existing under the laws under the State of Delaware. The Company is in the process of liquidating Realm, which was acquired on July 31, 2019 in the Realm Acquisition, and its subsidiary.

 

D. Property, Plants and Equipment

 

ESSA’s operating plan does not include building infrastructure in the form of an in-house laboratory, capital equipment, headcount, or administrative burden.

 

ESSA operates from its head office located in Vancouver, Canada and offices in Houston, Texas and South San Francisco, California. ESSA does not own any real property. The following table outlines significant properties that ESSA currently leases:

 

LOCATION   AREA
(IN SQUARE FEET)
    LEASE EXPIRATION DATE   USE
Vancouver, Canada     360     Monthly   Office Space
Houston, United States     150     Monthly   Office Space
South San Francisco, United States     3,021     March 31, 2021   Office Space

 

The Canadian office space costs C$3,850 per month and is rented on a month to month basis. The Houston office space costs $1,629 per month and is rented on a month to month basis. The South San Francisco office space costs $10,069 per month. ESSA believes that its current facilities are adequate to meet its ongoing needs and that, if ESSA requires additional space, it will be able to obtain additional facilities on commercially reasonable terms.

 

ITEM 4A UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

A. Operating Results

 

The following discussion and analysis of the financial condition and results of operations of ESSA should be read in conjunction with the audited financial statements as at and for the fiscal years ended September 30, 2019, 2018, and 2017, together with the notes thereto. The financial information contained in this Annual Report is derived from the financial statements, which were prepared in accordance with IFRS.

 

Overview

 

ESSA is a pharmaceutical company currently in preclinical stage, focused on developing novel and proprietary therapies for the treatment of prostate cancer in patients whose disease is progressing despite treatment with current standard of care therapies, including second-generation anti-androgen drugs such as abiraterone, enzalutamide, apalutamide, and darolutamide. The Company believes its Aniten series of compounds can significantly expand the interval of time in which patients suffering from CRPC can benefit from anti-hormone-based therapies. Specifically, the Aniten compounds act by disrupting the AR signaling pathway, the primary pathway that drives prostate cancer growth, by preventing AR activation through selective binding to the Tau-5 region of the NTD of the AR. In this respect, ESSA’s Aniten compounds differ greatly from classical non-steroid anti-androgens, since they interfere either with androgen synthesis, or with the binding of androgens to the LBD, which is located at the opposite end of the receptor (i.e. “lutamides”) or to androgen synthesis (i.e. abiraterone). A functional NTD is essential for activation of the AR; blocking the NTD inhibits AR-driven transcription. We believe such transcription inhibition mechanism of the Aniten class of agents is unique, and has the advantage of bypassing identified mechanisms of resistance to the anti-androgens currently used in the treatment of CRPC. In preclinical studies, blocking the NTD has demonstrated the capability to prevent AR-driven gene expression. A Phase I clinical trial of ESSA’s first-generation agent EPI-506, demonstrated PSA declines, a sign of inhibition of AR-driven biology, at the higher dose levels administered to patients with mCRPC refractory to current standard of care therapies.

 

According to the American Cancer Society, prostate cancer is the second most frequently diagnosed cancer among men in the United States, behind skin cancer. Using a dynamic progression model, Scher et al have projected a 2020 incidence of 546,955 and prevalence of 3,072,480 for prostate cancer in the United States5. Approximately one-third of all prostate cancer patients who have been treated for local disease will subsequently have rising serum levels of PSA, which is an indication of recurrent or advanced disease. Patients with advanced disease often undergo androgen ablation therapy using analogues of LHRH or surgical castration. Most advanced prostate cancer patients initially respond to androgen ablation therapy, however, many experience a recurrence in tumor growth despite the reduction of testosterone to castrate levels, and at that point are considered to be suffering from CRPC. Following diagnosis of CRPC, patients have been generally treated with anti-androgens that block the binding of androgens (darolutamide, enzalutamide, apalutamide or bicalutamide) to the AR, or inhibit synthesis of androgens (abiraterone). More recently, significant improvements in progression-free survival have been achieved by utilizing this latest generation of anti-androgens in combination with ADT in newly diagnosed metastatic prostate cancer.

 

ESSA has never been profitable and has incurred net losses since inception. ESSA's net losses were $10,441,865, $11,629,440, and $4,499,012 for the years ended September 30, 2019, 2018, and 2017, respectively. ESSA expects to incur losses for the foreseeable future, and it expects these losses to increase as it continues the development of, and seek regulatory approvals for, its product candidate. Because of the numerous risks and uncertainties associated with product development, ESSA is unable to predict the timing or amount of increased expenses or when, or if, it will be able to achieve or maintain profitability.

 

Results of Operations

 

The following table sets forth ESSA's consolidated statements of financial position and consolidated statements of loss and comprehensive loss as at and for the fiscal years ended September 30, 2019, 2018, and 2017:

 

 

5 Scher HI, Solo K, Valant J, Todd MB, Mehra M (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States: Estimates Using a Dynamic Progression Model. PLoS ONE 10(10): e0139440. doi:10.1371/journal.pone.0139440

 

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(US$)

Income Statement Data

  Year Ended
September 30, 2019
    Year Ended
September 30, 2018
    Year Ended
September 30, 2017
 
Revenue                  
Other Income     2,368,519       111,554       7,269,249  
Total operating expenses     (12,772,464 )     (11,713,965 )     (11,651,870 )
Research and development, net of recoveries     6,696,234       4,873,335       5,726,366  
Financing costs     602,744       911,959       784,583  
General and administration, net of recoveries     5,473,486       5,928,671       5,140,921  
Loss before income taxes     (10,403,945 )     (11,602,411 )     (4,382,621 )
Net loss, net of income tax     (10,441,865 )     (11,629,440 )     (4,499,012 )
Balance Sheet Data                        
Cash     53,322,723       14,829,144       3,957,185  
Other current assets     976,285       767,503       1,101,578  
Deposits     274,085       201,399        
Deferred financing costs                 211,073  
Equipment                 99,882  
Intangible assets     200,731       219,028       237,326  
Total assets     54,773,824       16,017,074       5,607,044  
Accounts payable and accrued liabilities     1,565,789       523,669       1,641,103  
Income tax payable     300,000       4,722       109,521  
Long-term debt     3,708,955       6,316,963       7,959,680  
Derivative liability     18,179       19,648       170,743  
Shareholders’ equity (deficiency)     49,180,901       9,152,072       (4,274,003 )
Total liabilities and shareholders’ equity (deficiency)     54,773,824       16,017,074       5,607,044  

 

Results of Operations for the Fiscal Years Ended September 30, 2019 and 2018

 

There was no revenue in any of the fiscal years as reported. The Company incurred a comprehensive loss of $10,441,865 for the year ended September 30, 2019 compared to a comprehensive loss of $11,629,440 for the year ended September 30, 2018. Variations in ESSA’s expenses and net loss for the periods resulted primarily from the following factors:

 

Research and Development Expenditures

 

R&D expense included the following major expenses by nature:

 

    Year ended
September 30, 2019
    Year ended
September 30, 2018
 
Clinical   $ 80,021     $ 1,177,179  
Consulting     301,817       624,879  
Legal patents and license fees     781,133       561,099  
Manufacturing     946,705       219,526  
Other     111,750       40,845  
Pharmacology           372,509  
Preclinical     2,789,753       446,748  
Research grants and administration     254,970       385,085  
Royalties     65,405       66,929  
Salaries and benefits     1,012,344       845,428  
Share-based payments     304,786       324,528  
Travel     47,550       37,781  
CPRIT Grant claimed on eligible expenses           (229,201 )
Total   $ 6,696,234     $ 4,873,335  

 

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The overall R&D expense for the year ended September 30, 2019 was $6,696,234 compared to $4,873,335 for the year ended September 30, 2018, net of R&D recoveries of $nil for the year ended September 30, 2019 and $229,201 for the year ended September 30, 2018. The gross expense for 2019 of $6,696,234 was higher as compared to $5,102,536 in 2018 before recognition of qualifying CPRIT Grant funds of $nil (2018 - $229,201). R&D expense in 2019 and 2018 was incurred primarily in preclinical research and IND-enabling work on the Company’s next-generation Aniten compounds; the increase in 2019 reflects higher external costs, compared to preclinical work in 2018 which was primarily incurred internally and under the collaborative research agreements with the BCCA and UBC – see the discussion of research grants and administration costs below. Clinical costs of $80,021 (2018 - $1,177,179) relate to clinical consulting work in preparation for the expected IND filing and Phase I clinical trial of EPI-7386, compared to 2018 costs incurred in relation to the winddown and completion costs of the EPI-506 Phase I/II clinical trial, which was terminated in September 2017. Preclinical costs of $2,789,753 (2018 - $446,748) and manufacturing costs of $946,705 (2018 - $219,526) for the year ended September 30, 2019 were incurred in the development of the Company’s next-generation Aniten compounds, including cGMP manufacturing of EPI-7386. Legal patents and license fees have increased to $781,133 (2018 - $561,099) compared to the comparative period in 2018 due to the Company’s patent applications on its next-generation compounds. Research grants and administration costs were $254,970 (2018 - $385,085) and relate to amounts payable pursuant to collaborative research agreements with the BCCA and UBC; amounts incurred vary in relation to timing of milestone payments pursuant to such agreements. Consulting costs decreased to $301,817 for the year ended September 30, 2019 (2018 - $624,879) relating to fewer professionals engaged in Texas to conduct specific R&D services for the Company. Consulting costs also include regular consulting fees paid to the Drs. Marianne Sadar and Raymond Andersen. Salaries and benefits, related to preclinical and clinical staff, have increased to $1,012,344 (2018 - $845,428) as a result of increased preclinical and clinical staff involved in the development of the Company’s next-generation Aniten compounds, including the appointment of the Company’s Chief Medical Officer in July 2019. 

 

Share-based payments expense of $304,786 (2018 - $324,528) relates to the value assigned to stock options granted to key management and consultants of the Company. The expense is recognized in relation to the grant and vest of these equity instruments as measured by the Black-Scholes pricing model.

 

General and Administration Expenditures

 

General and administrative expenses include the following major expenses by nature:

 

    Year ended
September 30, 2019
    Year ended
September 30, 2018
 
Amortization   $ 18,297     $ 34,488  
Consulting and subcontractor fees     142,780       96,986  
Director fees     252,000       196,472  
Insurance     471,852       449,972  
Investor relations     319,373       235,416  
Office, insurance, IT and communications     155,208       216,714  
Professional fees     675,412       860,435  
Regulatory fees and transfer agent     91,764       150,913  
Rent     192,479       415,744  
Salaries and benefits     2,072,746       2,010,613  
Share-based payments     841,921       1,076,886  
Travel and entertainment     239,654       184,032  
Total   $ 5,473,486     $ 5,928,671  

 

General and administration expenses decreased to $5,473,486 for the year ended September 30, 2019 from $5,928,671 in the year ended September 30, 2018. Professional fees of $675,412 (2018 - $860,435) were incurred for legal and accounting services in conjunction with corporate activities and decreased compared to activities in 2018, which included the voluntary down-listing from the TSX to the TSX-V, the Consolidation, and the filing of base shelf prospectuses. Salaries and benefits expense of $2,072,746 (2018 - $2,010,613) related to an increase in administrative staff and senior management costs.

 

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Share-Based Payments

 

Share-based payments expense of $841,921 (2018 - $1,076,886) relates to the value assigned to stock options granted to key management and consultants of the Company. The expense is recognized in relation to the grant and vest of these equity instruments, net of expiries and forfeitures, and allocated to research and development, general and administration and financing expenditures relative to the activity of the underlying optionee.

 

Results of Operations for the Fiscal Years Ended September 30, 2018 and 2017

 

There was no revenue in any of the fiscal years as reported. The Company incurred a comprehensive loss of $11,629,440 for the year ended September 30, 2018 compared to a comprehensive loss of $4,499,012 for the year ended September 30, 2017. Variations in ESSA’s expenses and net loss for the periods resulted primarily from the following factors:

 

Research and Development Expenditures

 

R&D expense included the following major expenses by nature:

 

    Year ended
September 30, 2018
    Year ended
September 30, 2017
 
Clinical   $ 1,177,179     $ 2,623,636  
Consulting     624,879       935,151  
Legal patents and license fees     561,099       834,295  
Manufacturing     219,526       3,571,106  
Other     40,845       187,228  
Pharmacology     372,509       407,373  
Preclinical     446,748        
Research grants and administration     385,085       (38,534 )
Royalties     66,929       48,863  
Salaries and benefits     845,428       2,213,655  
Share-based payments     324,528       (3,870 )
Travel     37,781       140,262  
CPRIT Grant claimed on eligible expenses     (229,201 )     (5,192,799 )
Total   $ 4,873,335     $ 5,726,366  

 

The overall R&D expense for the year ended September 30, 2018 was $4,873,335 compared to $5,726,366 for the year ended September 30, 2017, net of R&D recoveries of $229,201 for the year ended September 30, 2018 and $5,192,799 for the year ended September 30, 2017. The gross expense for 2018 of $5,102,536 was lower as compared to $10,919,165 in 2017 before recognition of qualifying CPRIT Grant funds of $229,201 (2017 - $5,192,799). R&D expense in 2018 was incurred primarily in preclinical research on the Company’s next-generation Aniten compounds, while R&D expense in 2017 reflects the costs related to the EPI-506 Phase I/II clinical trial, which commenced in November 2015 and terminated in September 2017, and associated chemistry, manufacturing and controls (“CMC”) costs. Manufacturing costs of $219,526 (2017 - $3,571,106) have decreased compared to the comparative period in 2017 as the Company concluded the EPI-506 Phase I/II clinical trial in September 2017. Preclinical costs of $446,748 (2017 - $nil) and pharmacology costs of $372,509 (2017 - $407,373) were incurred in the development of the Company’s next-generation Aniten compounds, while in the comparative period in 2017 costs were incurred on studies related to the characteristics of EPI-506. Clinical costs of $1,177,179 (2017 - $2,623,636) related to the winding up of the EPI-506 Phase I/II clinical trial which was concluded in September 2017. Legal patent and license fees decreased to $561,099 for the year ended September 30, 2018 (2017 - $834,295) as the Company streamlined its patent portfolio, including the abandonment of the family of patents related to the Company’s first-generation EPI-series drugs. Research grants and administration costs were $385,085 (2017 - $38,534 recovery) and relate to amounts payable pursuant to collaborative research agreements with the BCCA and UBC. In the comparative period in 2017, the Company incurred total costs of $392,704, and also negotiated a new collaborative research agreements, which superseded the previous agreements and resulted in the write off of $431,238, which had been overaccrued under the previous agreements while the new agreements were in negotiation. Consulting costs decreased to $624,879 for the year ended September 30, 2018 (2017 - $935,151) relating to fewer professionals engaged in Texas to conduct specific R&D services for the Company. Consulting costs also include regular payments made to the Company’s Chief Scientific Officer and Chief Technical Officer. Salaries and benefits of $845,428 for the year ended September 30, 2018 (2017 - $2,213,655) related to a reduced number of preclinical and clinical staff on payroll during the period as a result of the corporate restructuring in September 2017.

 

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Share-based payments expense of $324,528 (2017 - $3,870 recovery) relates to the value assigned to stock options granted to key management and consultants of the Company. The expense is recognized in relation to the grant and vest of these equity instruments as measured by the Black-Scholes pricing model.

 

General and Administration Expenditures

 

General and administrative expenses include the following major expenses by nature:

 

    Year ended
September 30, 2018
    Year ended
September 30, 2017
 
Amortization   $ 34,488     $ 46,145  
Consulting and subcontractor fees     96,986       86,931  
Director fees     196,472       191,500  
Insurance     449,972       395,690  
Investor relations     235,416       230,579  
Office, insurance, IT and communications     216,714       187,364  
Professional fees     860,435       612,865  
Regulatory fees and transfer agent     150,913       74,600  
Rent     415,744       470,716  
Salaries and benefits     2,010,613       1,863,634  
Share-based payments     1,076,886       762,797  
Travel and entertainment     184,032       218,100  
Total   $ 5,928,671     $ 5,140,921  

 

General and administration expenses increased to $5,928,671 for the year ended September 30, 2018 from $5,140,921 in the year ended September 30, 2017. Professional fees of $860,435 (2017 - $612,865) were incurred for legal and accounting services in conjunction with corporate activities including the voluntary down-listing from the TSX to the TSX-V, the January 2018 Financing, the annual general meeting held in March 2018, the Consolidation, and the base shelf prospectuses. Salaries and benefits expense of $2,010,613 (2017 - $1,863,634) related to an increase in administrative staff and senior management costs.

 

Share-Based Payments

 

Share-based payments expense of $1,076,886 (2017 - $762,797) relates to the value assigned to stock options granted to key management and consultants of the Company. The expense is recognized in relation to the grant and vest of these equity instruments, net of expiries and forfeitures, and allocated to research and development, general and administration and financing expenditures relative to the activity of the underlying optionee.

 

 Quarterly Results of Operations

 

The following table summarizes selected unaudited consolidated financial data for each of the last eight quarters, prepared in accordance with IFRS. This data should be read in conjunction with the Company’s audited financial statements and accompanying notes thereto included elsewhere in this Annual Report. These quarterly operating results are not necessarily indicative of ESSA’s operating results for a full year or any future period.

 

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For the Quarters Ended

 

   

September 30,

2019

   

June 30,

2019

   

March 31,

2019

    December 31,
2018
 
Research and development expense   $ 2,004,750     $ 1,951,084     $ 1,454,077     $ 1,286,323  
General and administration     1,251,000       1,213,166       1,762,212       1,247,108  
Comprehensive income (loss)     (999,527 )     (3,301,784 )     (3,429,787 )     (2,710,767 )
Basic and diluted earnings (loss) per share     (0.07 )     (0.52 )     (0.54 )     (0.43 )
Total assets     54,773,824       7,072,204       9,612,421       13,214,847  
Long-term liabilities     18,179       1,413,047       2,215,701       2,824,827  

 

   

September 30,

2018

   

June 30,

2018

   

March 31,

2018

    December 31,
2017
 
Research and development expense   $ 926,839     $ 987,792     $ 1,989,107     $ 969,597  
General and administration     1,211,159       1,579,420       2,179,717       958,375  
Comprehensive income (loss)     (2,276,430 )     (2,880,113 )     (4,382,956 )     (2,089,941 )
Basic and diluted earnings (loss) per share     (0.39 )     (0.50 )     (0.83 )     (1.44 )
Total assets     16,017,074       18,512,377       22,334,083       3,433,234  
Long-term liabilities     3,520,664       4,134,529       4,797,841       5,421,942  

 

The Company’s quarterly results have varied and may, in the future, vary depending on numerous factors, including the rate of expenditure relative to financial capacity and operational plans, the timing of CPRIT Grant funding, fluctuations in the Company’s derivative liabilities, and whether the Company has granted any stock options or other equity awards. Certain of these factors may not be predictable to the Company. CPRIT Grant funding is taken proportionately into income against R&D expenses incurred to date, which in some cases may have been incurred in previous quarters. Fluctuations on derivative liabilities are discussed below under the subheading “Derivative liabilities” section below. The granting of stock options and restricted share units results in share-based payment charges, reflecting the vesting of such stock options and restricted share units.

 

In the quarter ended September 30, 2019, the Company completed the Realm Acquisition, acquiring net assets of $20,247,296, incurring professional fees of $1,925,145 and recognizing a gain on acquisition of $2,332,954. The Company also completed the August 2019 Financing for gross proceeds of approximately $36,000,000, resulting in an increase in assets.

 

In the quarter ended September 30, 2018, the Company recorded the partial receipt of the third and final tranche of the CPRIT Grant of $229,201, which was recognized as recoveries of R&D expenditures. The CPRIT Grant is detailed in the accompanying consolidated financial statements.

 

In the quarter ended March 31, 2018, the Company completed the January 2018 Financing for gross proceeds of approximately $26,040,000 resulting in an increase in assets.

 

Critical Accounting Policies and Estimates

 

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

 

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions that have been made that relate to the following key estimates:

 

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Intangible Assets – impairment

 

The application of the Company’s accounting policy for intangible assets expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

 

Intangible Assets – useful lives

 

Following initial recognition, the Company carries the value of intangible assets at cost less accumulated amortization and any accumulated impairment losses. Amortization is recorded on a straight-line basis based upon management’s estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of the intangible assets resulting in a change in related amortization expense.

 

Product development and relocation grant

 

Pursuant to the terms of the Company’s CPRIT Grant, the Company has met certain terms and conditions to qualify for the grant funding. The Company has therefore taken into income a portion of the grant that represents expenses the Company has incurred to date under the grant parameters. The expenses are subject to assessment by CPRIT for compliance with the grant regulations which may result in certain expenses being denied.

 

Long-term debt

 

The Company has made certain estimates regarding the expected timing of and value of cash flows with respect to long-term debt. The estimates will fluctuate in accordance with changes in interest rates and any prepayments made, should the Company elect to do so.

 

Income tax

 

The determination of income tax is inherently complex and requires making certain estimates and assumptions about future events. Changes in facts and circumstances as a result of income tax audits, reassessments, changes to corporate structure and associated domiciling, jurisprudence and any new legislation may result in an increase or decrease the provision for income taxes. The value of deferred tax assets is evaluated based on the probability of realization; the Company has assessed that it is improbable that such assets will be realized and has accordingly not recognized a value for deferred taxes.

 

Functional Currency

 

The functional currency of the Company and its subsidiaries is the currency of their respective primary economic environment, and the Company reconsiders the functional currency if there is a change in events and conditions, which determined the primary economic environment. The functional currencies of the Company’s entities have been judged as detailed in Note 2 of the consolidated financial statements.

 

Acquisition of Realm

 

The acquisition of Realm required management to make a judgment as to whether Realm constituted a business combination or an asset acquisition under the definitions of IFRS 3. The assessment required management to assess the inputs, processes and ability of Realm to produce outputs at the time of acquisition. Pursuant to the assessment, Realm was considered an asset acquisition (Note 4 of the consolidated financial statements).

 

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Share-based payments and compensation

 

The Company has applied estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued at the fair value of the equity instruments granted at the date the Company receives the goods or services.

 

The Company has applied estimates with respect to the valuation of pre-funded warrants issued for cash. Pre-funded warrants are valued at an amount equal to the cash proceeds received.

 

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option, volatility and dividend yield and making assumptions about them. The fair value of the underlying common shares is assessed as the most recent issuance price per common share for cash proceeds.

 

JOBS Act

 

As a company with less than US$1.07 billion in revenue during the last fiscal year, ESSA qualifies as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States.

 

The JOBS Act also permits an emerging growth company such as ESSA to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. ESSA will not take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This election is irrevocable. ESSA will remain an emerging growth company until the earliest of:

 

  · the last day of the Company’s fiscal year during which it has total annual gross revenues of at least US$1.07 billion;

 

  · the last day of the Company’s fiscal year following the fifth anniversary of the completion of an initial public offering;

 

  · the date on which Company has, during the previous three-year period, issued more than US$1 billion in non-convertible debt securities; or

 

  · the date on which the Company is deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of ESSA’s Common Shares that are held by non-affiliates exceeds US$700 million as of the last business day of its most recently completed second fiscal quarter.

 

As a result of ESSA’s status as an emerging growth company, the information that the Company provides shareholders may be less comprehensive than what you might receive from other public companies that are not emerging growth companies. When ESSA is no longer deemed to be an emerging growth company, ESSA will not be entitled to the exemptions provided in the JOBS Act.

 

  B. Liquidity and Capital Resources

 

ESSA is a preclinical stage company and does not currently generate revenue. In October 2019, the Company paid off the SVB Term Loan in full, totaling $3,652,471, comprising $2,953,968 in principal, $10,503 in accrued interest, and the final payment of $688,000. In August 2019, the Company completed the August 2019 Financing of 6,080,596 Common Shares and 11,919,404 pre-funded warrants at a price of US$2.00 for gross proceeds of US$36,000,000. In July 2019, the Company completed the Realm Acquisition, issuing 6,718,150 Common Shares for net assets of $20,247,296, including $22,244,248 in cash. In January 2018, the Company completed the January 2018 Financing of 4,321,000 Common Shares and 2,189,000 pre-funded warrants of the Company issued on January 9 and 16, 2018 at a price of US$4.00 per Common Share and pre-funded warrant for gross proceeds of US$26,040,000. In March 2016, the Company completed the March 2016 Financing for gross proceeds of approximately $5,000,000. In January 2016, the Company completed the January 2016 Financing for gross proceeds of approximately $15,000,000. On November 18, 2016, the Company completed a debt financing of up to $10,000,000, of which $8,000,000 has been advanced pursuant to the SVB Term Loan (discussed further under “Item 4.A.2. Summary Corporate History”).

 

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Operational activities during the year ended September 30, 2019, were financed mainly by proceeds from the equity financings completed in January 2018 and August 2019, the SVB Term Loan and the Realm Acquisition. At September 30, 2019, ESSA had available cash reserves of $53,322,723 and $360,800 in accounts receivable related to the CPRIT Grant and refundable GST input tax credits, to settle current liabilities of $5,292,923. This compares to cash of $14,829,144 and $297,349 in accounts receivable related to refundable GST input tax credits at September 30, 2018, to settle current liabilities of $3,344,338.

 

As of September 30, 2019, ESSA had cash on hand of $53,322,723, up from $14,829,144 at September 30, 2018. The increase of $38,493,579 was facilitated by financing cash flows of $50,810,826 (2018 - $21,310,498), offset by operating cash outflows of $12,249,935 (2018 - $10,218,046) and investing cash inflows of $201,399 (2018 - $201,399 outflows). Management continues to seek sources of additional financing which would assure continuation of the Company’s operations and research programs. However, there is no certainty that such financing will be provided or provided on favorable terms. The Company believes that it will complete one or more of these arrangements in sufficient time to continue to execute its planned expenditures without interruption.

 

Cash Flows from Operating Activities

 

For the year ended September 30, 2019, cash used in operating activities of $12,249,935 was attributable to a net loss of $10,441,865, net non-cash charges of $550,218, and net change of $1,257,852 in ESSA's net operating assets and liabilities. The non-cash charges consisted primarily of a gain of $2,332,954 on the Realm Acquisition, offset by a $1,146,707 charge in share-based payments and finance expense of $602,744 attributable to the accretion of the SVB Term Loan obtained in November 2016. The change in operating assets and liabilities was primarily attributable to a $1,314,049 net decrease in accounts payable and accrued liabilities, offset by a $295,278 net increase in income tax payable and a $179,416 net increase in prepaid expenses due primarily to increased insurance premiums paid in the period.

 

For the year ended September 30, 2018, cash used in operating activities of $10,218,046 was attributable to a net loss of $11,629,440, net non-cash credits of $2,070,951, and net change of $659,557 in ESSA's net operating assets and liabilities. The non-cash credits consisted primarily of a $1,401,414 charge in share-based payments and finance expense of $911,959 attributable to the accretion of the SVB Term Loan obtained in November 2016, offset by the remaining third CPRIT tranche of $229,201 which was recorded as a recovery against research and development expenses for the period. The change in operating assets and liabilities was primarily attributable to a $1,120,833 net decrease in accounts payable and accrued liabilities due to a decrease in overall activity, including research and development costs associated with ESSA’s EPI-506 clinical trial, which concluded in September 2017, offset by a $601,949 net decrease in prepaid expenses due primarily to a draw-down of clinical trial deposits in the period.

 

Cash Flows from Investing Activities

 

For the year ended September 30, 2019, cash used in investing activities was $45,507 (2018 - $201,399), including $246,906 paid on the termination of the Realm sublease, offset by $201,399 in relation to the refund of a deposit paid on an office lease in the prior year.

 

Cash Flows from Financing Activities

 

For the year ended September 30, 2019, cash provided by financing activities was $50,810,826, consisting primarily of $22,244,248 in cash acquired from the Realm Acquisition, $36,000,000 in proceeds received from August 2019 Financing, offset by $1,860,341 in Realm Acquisition transaction costs, $2,362,239 in share issuance costs and $2,808,823 and $401,929 in principal and interest paid, respectively, on the SVB Term Loan.

 

For the year ended September 30, 2018, cash provided by financing activities was $21,310,498, consisting primarily of $26,040,000 in proceeds received from January 2018 Financing, offset by $2,174,826 in share issuance costs and $1,991,378 and $563,298 in principal and interest paid, respectively, on the SVB Term Loan.

 

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ESSA's future cash requirements may vary materially from those now expected due to a number of factors, including the costs associated with future preclinical work and to take advantage of strategic opportunities, such as partnering collaborations or mergers and acquisitions activities. In the future, it may be necessary to raise additional funds. These funds may come from sources such as entering into strategic collaboration arrangements, the issuance of shares from treasury, or alternative sources of financing. However, there can be no assurance that ESSA will successfully raise funds to continue its operational activities. See “Risk Factors” in Item 3.D elsewhere in this Annual Report.

 

C. Research and Development, Patents and Licenses, etc.

 

Research and Development

 

Subsequent to ESSA’s nomination of EPI-7386 as its next-generation drug candidate in March 2019, it is currently expected that the filing of an IND expected to occur in the first calendar quarter of 2020. See “Programs and Potential Products” in Item 4 of this Annual Report for further details of each stage of development.

 

Key Patent Applications

 

See "Patents and Proprietary Rights" elsewhere in Item 4 of this Annual Report for details regarding ESSA's key patent applications.

 

Research and Development Policies

 

Expenditures during the research phase of a project are recognized as expenses when incurred. Development costs are capitalized only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

 

It is not possible to always estimate the timing of project completion due to the uncertainty of preclinical research and development projects and the results of associated scientific experiments. Analysis of costs between projects are influenced by the length and nature of the study and costs of material used.

 

In 2017, the Company announced its decision to discontinue further clinical development of EPI-506 and to implement a corporate restructuring plan to focus R&D resources on its next-generation Anitens targeting the AR-NTD.

 

In 2018, the Company continued to support the ongoing development of its next-generation Anitens.

 

In 2019, the Company nominated EPI-7386 as its next-generation clinical candidate and expects to file an IND in the first calendar quarter of 2020.

 

D. Trend Information

 

ESSA is a preclinical development stage company and does not currently generate revenue. The Company is focused on the development of small molecule drugs for the treatment of prostate cancer. The Company has acquired a license to certain Licensed IP. As at the date of this Annual Report, no products are in commercial production or use. The Company’s financial success will be dependent upon its ability to continue development of its compounds through preclinical and clinical stages to commercialization.

 

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E. Off-Balance Sheet Arrangements

 

ESSA has no material undisclosed off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources that is material to investors.

 

F. Tabular Disclosure of Contractual Obligations

 

As of September 30, 2019, and in the normal course of business, ESSA has the following obligations to make future payments, representing contracts and other commitments that are known and committed.

 

    Payments Due by Period  
Contractual Obligations   Total     Less than 1
year
    1-3 years     3-5 years     More than 5
years
 
Minimum Annual Royalty per License Agreement with UBC and BCCA (in C$)(1)(2)(3)   $ 1,020,000     $ 85,000     $ 170,000     $ 170,000     $ 595,000  
SVB Term Loan     4,045,500       4,045,500                    
Lease on U.S. office space     190,053       119,383       70,670              
Total (in US$)   $ 4,999,827     $ 4,228,573     $ 198,049     $ 127,379     $ 445,826  

 

(1) ESSA has the worldwide, exclusive right to develop products based on the Licensed IP pursuant to the License Agreement.

 

(2) As consideration for the License Agreement with UBC and the BCCA, there are certain cumulative milestone payments totaling C$2,400,000 for the first compound, to be paid in stages at the start of Phase II and Phase III clinical trials, at application for marketing approval, and with further milestone payments on the second and additional compounds. These milestone payments are not represented in the tabular disclosure above due to the uncertain timing of the triggering events and associated payments.

 

(3) ESSA's agreements pertaining to the License Agreement with UBC and the BCCA, and the collaborative research agreement with the BCCA are valued in Canadian dollars. For the purposes of the calculations above, ESSA has converted the values to Canadian dollars based on the daily average rate on December 18, 2019, as reported by the Bank of Canada, being C$1.00=US$0.7623.

 

G. Safe Harbor

 

See “Cautionary Note Regarding Forward-Looking Statements” in the introduction to this Annual Report.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

The following table sets forth the names and municipalities of residence of the Company’s directors and executive officers as well as their positions with the Company and principal occupations for the previous five years. All directors, officers and employees are required to sign standard confidentiality and non-disclosure agreements with the Company. Each director’s terms of office expires at the next annual general meeting of the shareholders of the Company.

 

Name and Place of Residence   Principal Occupations
     
Franklin Berger(1)(3)
New York, USA
 

§  Director (March 2015 – Present), ESSA Pharma Inc.;

§  Director (November 2016 – Present), Kezar Life Sciences Inc.;

§  Director (February 2016 – Present), Proteostasis Therapeutics, Inc.;

§  Director (December 2015 – Present), Tocagen Inc.;

§  Director (March 2014 – Present), Immune Design Corp.;

§  Director (October 2010 – Present), Five Prime Therapeutics, Inc.;

§  Director (May 2010 – Present), Bellus Health, Inc.;

§  Director (July 2004 – May 2014), Seattle Genetics, Inc.

 

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Dr. Ari Brettman

Massachusetts, USA

 

§  Clinical Research Fellow (June 2009 – September 2014), Massachusetts General Hospital;

§  Associate, Principal (September 2014 – November 2018), Clarus Ventures LLC;

§  Principal (December 2018 – Present), Blackstone Life Sciences

     
Dr. Alessandra Cesano
California, USA
 

§  Chief Medical Officer (July 2019 – Present), ESSA Pharma Inc.;

§  Chief Medical Officer (July 2015 – July 2019), Nanostring Technologies, Inc.;

§  Chief Medical Officer (May 2014 – June 2015), Cleave Biosciences.;

§  Chief Operations Officer (March 2008 – March 2014), Nodality, Inc.

     
Richard M. Glickman(2)
British Columbia,
Canada
 

§  Chairman of the Board (October 2010 – Present), ESSA Pharma Inc.;

§  Chief Executive Officer and Chairman of the Board (February 2014 – April 2019), Executive Chairman (September 2013 – February 2014), Acting Interim Chief Executive Officer and Chairman of the Board (October 2012 – November 2013), Aurinia Pharmaceuticals Inc.;

§  Director (July 2018 – Present), Correvio Pharma Corp. (formerly Cardiome Pharma Corp.);

§  Chairman of the Board (October 2010 – Present), enGene Inc.;

§  Venture Partner (March 2016 – Present), Lumira Ventures

     

Alex Martin

Pennsylvania, USA

 

§  Chief Executive Officer (August 2019 – Present), Palladio BioSciences, Inc.;

§  Chief Executive Officer (June 2015 – August 2019), Realm Therapeutics plc;

§  President, Business Development (July 2011 – May 2015), Vice President, Business Development (November 2011 – June 2011), Unigene Laboratories.

     
David Parkinson
California, USA
 

§  President and Chief Executive Officer (January 2016 – Present), Director (June 2015 – January 2016), ESSA Pharma Inc.;

§  Director (June 2017 – Present), CTI BioPharma Corp.;

§  Director (May 2015 – Present), Tocagen Inc.;

§  Director (May 2015 – Present), 3SBio Inc.;

§  Chairman, Board of Directors (2016 – Present), Refuge Biotechnologies Inc.;

§  Director (February 2016 – March 2018), Pierian Biosciences (formerly DiaTech Oncology, LLC);

§  Director (May 2010 – June 2017), Threshold Pharmaceuticals Inc.;

§  Venture Advisor, New Enterprise Associates (April 2012 – January 2016);

§  Director and Interim Chief Executive Officer (April 2012 – 2014), Zyngenia Inc.;

§  President and CEO, Nodality (2007 – 2012)

     
Scott Requadt(2)
Massachusetts, USA
 

§  Director, ESSA Pharma Inc. (January 14, 2016 – Present);

§  Chief Executive Officer (November 2018 – Present), Talaris Therapeutics, Inc.;

§  Director (May 2016 – March 2019), VBI Vaccines (formerly SciVac Therapeutics);

§  Director (June 2016 – December 2018), AVROBIO, Inc.;

§  Managing Director (January 2005 – October 2018), Clarus Ventures, LLC.

 

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Gary Sollis(1)(3)
British Columbia,
Canada
 

§  Director (April 26, 2012 – Present), ESSA Pharma Inc.; and

§  Partner (May 1, 1995 – Present), Dentons Canada LLP.

     
Marella Thorell
Pennsylvania, USA
 

§  Chief Financial Officer (October 2019 – Present), Palladio BioSciences, Inc.;

§  Director (August 2019 – Present), ESSA Pharma Inc.;

§  Director, Chief Financial Officer & Chief Operating Officer (March 2013 – August 2019), Realm Therapeutics plc.

     
Peter Virsik
California, USA
 

§  Executive Vice-President and Chief Operating Officer (August 2016 – Present), ESSA Pharma Inc.;

§  Senior Vice President (2013 – October 2015), Vice President, Corporate Development (2009 – 2013), Executive Director (2007 – 2009) and Senior Director, Business Development (2005 – 2007), XenoPort, Inc.

§  Associate Director (2004 – 2005) and Manager, Corporate Development (2000 – 2004), Gilead Sciences, Inc.

     
David Wood
British Columbia,
Canada
 

§  Chief Financial Officer (July 2013 – Present), ESSA Pharma Inc.;
Head of Finance, Secretary & Treasurer (April 2003 – April 2013), Celator Pharmaceuticals Inc.;

§  Senior Director, International Operations (2000 – 2003), Cubist Pharmaceuticals Inc.;

§  Director, Finance, Secretary & Treasurer (1996 – 2000), Terragen Discovery Inc.

     

Sanford Zweifach(1)(2)

California, USA

 

§  Director (March 2019 – Present), Palladio BioSciences, Inc.;

§  Director (2016 – Present), IMIDomics SL.;

§  Director (June 2018 – Present), Compugen, Ltd.;

§  Director (November 2017 - August 2019), Realm Therapeutics plc;

§  Chief Executive Officer (November 2015 – November 2019), Nuvelution Pharma Inc.;

§  Chief Executive Officer (January 2010 – May 2015), Ascendancy Healthcare

 

(1) Member of the Audit Committee (as defined herein).

 

(2) Member of the Compensation Committee.

 

(3) Member of the Corporate Governance Committee.

 

Biographies

 

Franklin Berger, Director

 

Franklin Berger spent 12 years in sell-side equity research, most recently as Managing Director, U.S. Equity Research at J.P. Morgan Securities, Inc. (“JPM”) from May 1998 to March 2003. During his five years at as a Managing Director at JPM, he was involved with the issuance of over $12 billion in biotechnology company equity or equity-linked securities. The majority of these transactions were book-run and lead-managed by the JPM biotech team. He was associated with several notable financings in the biotechnology sector including the Genentech Inc. initial public offering, the first large Celgene Corporation financings as well as financings of several large-cap biotechnology companies in their rapid growth phase. His team covered 26 publicly-traded biotechnology companies. Mr. Berger began his career as a sell-side analyst at Josephthal & Co. in 1991, subsequently moving to Salomon Smith Barney in 1997 serving as Director, Equity Research and Senior Biotechnology Analyst. Mr. Berger currently serves on the board of directors of six other public biotechnology companies: Five Prime Therapeutics, Inc., Immune Design Corp., Bellus Health, Inc., Tocagen Inc., Protestasis Therapeutics, Inc., and Kezar Life Sciences, Inc. Mr. Berger received an AB in International Relations from Johns Hopkins University, a MA in International Economics from Johns Hopkins University for Advanced International Studies and a MBA from Harvard University.

 

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Dr. Ari Brettman, Director

 

Dr. Ari Brettman is a Principal in the Blackstone Life Sciences group, having joined Blackstone as part of its acquisition of Clarus in December of 2018. Dr. Brettman joined Clarus in September 2014.

 

Dr. Brettman is focused on investments across the firm’s portfolio, including startups and partnerships with pharmaceutical companies. Prior to Clarus, Dr. Brettman completed a residency in internal medicine and a fellowship in cardiology at Massachusetts General Hospital. Dr. Brettman was also an NIH-sponsored post-doctoral fellow at the MGH Center for Systems Biology, where he studied the autophagy of lipid droplets and used electronic medical record-based big data analytics at Partners Healthcare to conduct clinical research and improve disease management. Dr. Brettman is a member of the Board of Directors of Praxis Precision Medicines, and Anthos Therapeutics as well as an observer on the Board of Directors of Talaris Therapeutics. He previously served as an observer on the Board of Directors of Entasis Therapeutics and AvroBio Inc.

 

Dr. Brettman received his M.D. from Duke University and his AB in History and Science from Harvard College. While a medical student, he was a Sarnoff Cardiovascular Research Foundation Fellow at Stanford University, where he studied angiogenesis.

 

Dr. Alessandra Cesano, Chief Medical Officer

 

Alessandra Cesano, MD, PhD joined ESSA as Chief Medical Officer in July 2019. Previously, she was the Chief Medical Officer of NanoString Inc. from July 2015 until June 2019 where she focused on the development of translational and diagnostic multi-plexed assays for the characterization and measurement of mechanisms of immune response/resistance. Prior to NanoString, Dr. Cesano was Chief Medical Officer at Cleave Biosciences, Inc. and before that she served as Chief Medical Officer and Chief Operations Officer at Nodality, Inc., where she built and led the Research & Development group, while providing the overall clinical vision for the organization. Between 1998 and 2008, Dr. Cesano held various management positions at Amgen Inc., Biogen Inc. (formerly Biogen Idec) and SmithKline Beecham Pharmaceuticals, where she helped to advance various oncology drugs through late stage development and FDA approvals. Early in her professional career, Dr. Cesano spent 12 years conducting research in tumor immunology, including nine years at the Wistar Institute, an NCI Basic Cancer Center connected with the University of Pennsylvania. She also holds membership in several professional and scientific societies including ASCO, ESMO, ASH, EHA, AACR and the Society of Immunotherapy of Cancer (“SITC”). In the latter she serves as co-chair in the SITC Industry Committee, Associate Editor for the Biomarker section of the Journal for ImmunoTherapy of Cancer, co-chair of the SITC Biomarker Working Group, and as the elected At-Large Director of the SITC for the 2020-2023 term. Over her career, Dr. Cesano has been an author on over 130 publications. Dr. Cesano received an MD summa cum laude, a Board Certification in Oncology and a PhD in Tumor Immunology from the University of Turin.

 

Richard M. Glickman, Chairman of the Board

 

Dr. Richard M. Glickman has served as ESSA's Founding Chairman of the Board since October 2010. In this role, Dr. Glickman is responsible for the management of the Board to ensure ESSA has appropriate objectives and an effective strategy, and that ESSA is operating in accordance with a high standard of corporate governance. He currently serves as Chairman of the Board of enGene Inc. and Director of Correvio Pharma Corp. He recently retired as the CEO and Chairman of the Board of directors at Aurinia Pharmaceuticals Inc. He is also a Venture Partner at Lumira Ventures, one of Canada’s most successful healthcare focused venture capital firms. Dr. Glickman was a co-founder, Chairman and Chief Executive Officer of Aspreva Pharmaceuticals Inc. (“Aspreva”) which was acquired by Galenica AG for $915 million. Prior to establishing Aspreva, Dr. Glickman was the co-founder and Chief Executive Officer of StressGen Biotechnologies Corporation. Dr. Glickman has served on numerous biotechnology and community boards, including as a member of the federal government’s National Biotechnology Advisory Committee, Director of the Canadian Genetic Disease Network, Chairman of Life Sciences B.C. and a member of the British Columbia Innovation Council. Dr. Glickman is the recipient of numerous awards including the Ernst and Young Entrepreneur of the Year, a recipient of both British Columbia’s and Canada’s Top 40 under 40 award, the BC Lifesciences Leadership Award and the Corporate Leadership Award from the Lupus Foundation of America.

 

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Alex Martin, Director

 

Mr. Alex Martin is Chief Executive Officer of Palladio BioSciences Inc., a clinical stage biopharmaceutical company developing medicines for orphan diseases of the kidney. He joined the ESSA Board in July 2019 following ESSA’s acquisition of Realm where he had served as Chief Executive Officer since 2015. Mr. Martin brings more than 25 years of experience in senior executive roles in the life science industry, with a focus on business development, operations, and raising capital. In his career he has served as Chief Executive Officer of Affectis Pharmaceuticals, President of moksha8, Chief Operating Officer of Intercept Pharmaceuticals and Chief Finance Officer at Bioxell. He began his career at SmithKline Beecham Pharmaceuticals where he held roles of increasing responsibility in marketing and strategic product development and later joined Novartis as Vice President, Global Business Development & Licensing. He is an active coach and mentor to other senior executives, and is a guest lecturer at Wharton and Columbia Business School on biotech, entrepreneurship, and financing. Mr. Martin holds a BA from Cornell University and an MBA from Harvard.

 

Dr. David Parkinson, President, Chief Executive Officer and Director

 

Dr. David Parkinson has served as a director of the Company since June 2015 and has been serving full-time as the Company’s President and Chief Executive Officer since January 2016.  Prior to his joining ESSA, Dr. Parkinson was a venture partner at New Enterprise Associates, Inc. From 2007 until 2012, he served as President and CEO of Nodality, a South San Francisco-based biotechnology company focused on diagnostics development. Prior to 2007, Dr. Parkinson held a series of industry positions, including heading the global clinical oncology development at Novartis, heading the Oncology Therapeutic Area at Amgen and leading Oncology Research and Development, at Biogen Idec. Dr. Parkinson had previously held positions at the National Cancer Institute from 1990 to 1997, serving as Chief of the Investigational Drug Branch, then as Acting Associate Director of the Cancer Therapy Evaluation Program. Dr. Parkinson is a past Chairman of the FDA’s Biologics Advisory Committee, a past member of the FDA Science Board, and recipient of the FDA’s Cody medal. He currently serves as director on the boards of 3S Bio Inc., CTI BioPharma Corp. and Tocagen, Inc., public biopharma companies focused on the discovery and development of anti-cancer drugs. He was a co-founder of Refuge Biotechnologies, Inc. and serves as Chairman of its board of directors. Dr. Parkinson received his medical degree from the University of Toronto, has held academic positions both at Tufts and at the University of Texas MD Anderson Cancer Center, and has authored over 100 peer-reviewed publications.

 

Scott Requadt, Director

 

Scott Requadt, JD, MBA, is the CEO of Talaris Therapeutics, Inc. and serves on its the Board of Directors. Mr. Requadt has over 17 years of operating and investment experience in the biopharmaceutical industry. He was previously a Managing Director of Clarus (now Blackstone Life Sciences), where he sourced, led and managed multiple investments for Clarus spanning therapeutics, medtech and diagnostics. He currently serves on the Board of Directors of ESSA Pharma Inc., and previously served on the Boards of Edev S.a.r.l., Avrobio, VBI Vaccines and TyRx, Inc.

 

Mr. Requadt remains a Venture Partner advisor to Blackstone Life Sciences. Prior to joining Clarus in 2005, he was Director, Business Development of TransForm Pharmaceuticals, Inc until it was acquired by Johnson & Johnson. Prior to TransForm, Mr. Requadt was an M&A attorney at the NYC-based law firm of Davis Polk & Wardwell, where he represented numerous private equity, pharma and technology clients. Before that, he was a law clerk for a senior judge at the Supreme Court of Canada. Mr. Requadt holds a B.Com (Economics & Finance) from McGill University (First Class Honors), a J.D. from University of Toronto and an MBA from Harvard Business School, where he was a Baker Scholar.

 

Gary Sollis, Director

 

Mr. Gary Sollis, has served as a director of the Company since April 2012. Mr. Sollis is a partner at the law firm of Dentons Canada LLP. He represents clients in the areas of corporate and securities law, with a focus on acquisitions, financings, reorganizations, and corporate governance. Mr. Sollis is an adjunct professor of securities regulation at the Faculty of Law of UBC, a frequent lecturer on corporate law for the British Columbia bar admission program and a regular contributor to the American Bar Association’s mergers and acquisitions deal point studies.

 

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Marella Thorell, Director

 

Marella Thorell is Chief Financial Officer of Palladio BioSciences, Inc. Ms. Thorell has more than 25 years of experience in executive financial and operational roles and has successfully led multiple M&A, licensing, and fundraising transactions. Most recently, Ms. Thorell served as CFO/COO and an Executive Director of Realm Therapeutics, which was acquired by ESSA Pharma in July 2019, having previously held a number of other senior positions within Realm. Ms. Thorell was appointed a director of ESSA following the acquisition. Ms. Thorell worked at Campbell Soup Company, in several financial and management roles of increasing responsibility. She was also an executive consultant focusing on financial and human capital projects. She began her career and earned her CPA qualification with Ernst & Young, LLP. Ms. Thorell earned a BS in Business from Lehigh University, magna cum laude.

 

Peter Virsik, Executive Vice President and Chief Operating Officer

 

Peter Virsik joined the Company in August 2016 as Executive Vice President and Chief Operating Officer, bringing over 20 years of experience in corporate development, strategy, new product planning, alliance management, and finance. During his career, Mr. Virsik has completed over 30 licensing, M&A and financial transactions, totaling over $3 billion in value. Most recently, he served as Senior Vice President, Corporate Development for XenoPort (acquired by Arbor Pharmaceuticals), leading licensing, strategy, new product planning and alliance management for the company. During his tenure at XenoPort, Mr. Virsik played an integral role in the licensing and commercialization of Horizant® (gabapentin enacarbil). Prior to XenoPort, Mr. Virsik worked for Gilead Sciences from 2000 through 2005 in Corporate Development, where he was involved in building Gilead’s HIV franchise through the acquisition of Triangle Pharmaceuticals and the licensing of Vitekta® (elvitegravir). Before joining Gilead, Mr. Virsik spent time at J.P. Morgan in the biotechnology equity research group and as a consultant for Ernst and Young. Mr. Virsik began his career in R&D at Genentech. Mr. Virsik received an MBA from the Kellogg Graduate School of Management at Northwestern University, an MS in Microbiology from the University of Michigan, Ann Arbor, and a BA in Molecular and Cellular Biology from the University of California, Berkeley.

 

David Wood, Chief Financial Officer

 

David Wood has been ESSA's Chief Financial Officer since July 2013. He is responsible for managing all of ESSA's financial aspects, including financial reporting, treasury, and matters related to compliance and corporate governance, insurance, and asset management. Mr. Wood has over 35 years of experience in management positions in both large corporations and early stage companies in North America and the U.K. Prior to joining us in 2013, he was Head of Finance and Corporate Development, Secretary and Treasurer at Celator Pharmaceuticals Inc. from 2003 to 2013. Prior to 2003, he was Managing Director of Cubist Pharmaceuticals (UK) Ltd., Senior Director, International Operations of Cubist Pharmaceuticals Inc. and Finance Director at TerraGen Discovery, Inc., Vancouver, B.C. During over 20 years working in the biopharmaceutical industry, he has overseen several merger and acquisition transactions and numerous financings which raised over $200 million. Mr. Wood began his career in the finance and exploration departments at Chevron Corp. He received an M.B.A. from the University of Western Ontario, a B.Sc. Honors in Biology, Queen’s University, and a CPA, CMA accounting designation. Mr. Wood served on the governing body of the National Research Council of Canada from 2008 to 2014.

 

Sanford Zweifach, Director

 

Most recently, Sanford (Sandy) Zweifach was the Co-Founder and Chief Executive Officer of Nuvelution Pharma, Inc. Previously, Mr. Zweifach was the Co-founder and CEO of Ascendancy Healthcare, Inc. He has also been a Partner at Reedland Capital Partners, CEO of Pathways Diagnostics, Managing Director and CFO of Bay City Capital, and President and CFO of Epoch Biosciences, which was acquired by Nanogen. Mr. Zweifach currently serves as the Chair of Palladio Biosciences, Inc., Executive Chair of Janpix, Inc., Chair of IMIDomics SL, and Non-Executive Board Member of Compugen, Inc. (NASDAQ: CGEN) . He is also Sr Advisor to Nuvelution Pharma, Inc. He received his BA in Biology from UC San Diego and an MS in Human Physiology from UC Davis.

 

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B. Compensation

 

Executive Compensation

 

Compensation Discussion and Analysis

 

For the purposes of this Annual Report, a named executive officer (“NEO”) of the Company, using the definition contained in applicable Canadian securities laws, means each of the following individuals:

 

  (a) the Chief Executive Officer (“CEO”) of the Company;

 

  (b) the Chief Financial Officer (“CFO”) of the Company;

 

  (c) each of the three most highly compensated Executive Officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000. “Executive Officer” means the chairman, and any vice-chairman, president, secretary or any vice-president and any officer of the Company or a subsidiary who performs a policymaking function in respect of the Company; and

 

  (d) each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year.

 

Each of Dr. David Parkinson, President and CEO, David Wood, CFO, Peter Virsik, Executive VP and Chief Operating Officer (“COO”), Dr. Raymond Andersen, former Chief Technology Officer (“Former CTO”), and Dr. Marianne Sadar, former Chief Scientific Officer (“Former CSO”), is an NEO of the Company for purposes of this disclosure.

 

Compensation Philosophy and Objectives

 

ESSA’s compensation philosophy for NEOs will be focused on its belief that capable and qualified employees are critical to the Company’s success. Therefore, its compensation plan is designed to attract the very best individuals in each expertise arena and to use salaries and long-term incentive compensation in the form of stock options or other suitable long-term incentives to attract and retain such employees. In making its determinations regarding the various elements of executive stock option grants, ESSA will seek to meet the following objectives:

 

  (a) to attract, retain and motivate talented executives who create and sustain ESSA’s continued success within the context of compensation paid by other companies of comparable size engaged in similar business in appropriate regions;

 

  (b) to align the interests of the ESSA’s NEO’s with the interests of shareholders of ESSA; and

 

  (c) to incent extraordinary performance from the Company’s key employees.

 

Elements of Compensation

 

Base Salary – The base salary review of any NEO will take into consideration the current competitive market conditions, experience, proven or expected performance, and the particular skills of the NEO. Base salary is not expected to be evaluated against a formal “peer group”. The base salaries for NEOs of ESSA as of the date of this Annual Report are:

 

NEO   BASE SALARY
Dr. David Parkinson (CEO)   US$474,346/year
David Wood (CFO)   US$246,376/year
Peter Virsik (EVP & COO)   US$400,387/year
Dr. Raymond Andersen (Former CTO)   C$180,000/year
Dr. Marianne Sadar (Former CSO)   C$180,000/year

 

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Performance-Based Cash Bonuses – The Company may elect to utilize cash bonus incentives where the role-related context and competitive environment suggest that such a compensation modality is appropriate. When and if utilized, the amount of cash bonus compensation will normally be paid on the basis of timely achievement of specific pre-agreed milestones. Each milestone will be selected based upon consideration of its impact on shareholder value creation and the ability of the Company to achieve the milestone during a specific interval. The amount of bonus compensation will be determined based upon achievement of the milestone, its importance to the Company’s near and long term goals at the time such bonus is being considered, the bonus compensation awarded to similarly situated executives in similarly situated development-stage life-sciences companies or any other factors the Company may consider appropriate at the time such performance-based bonuses are decided upon. The quantity of bonus will normally be a percentage of base salary not to exceed 100%. However, in exceptional circumstances, the quantity of bonus paid may be connected to the shareholder value creation embodied in the pre-agreed milestones.

 

The bonuses available to the NEOs as of the date of this Annual Report are:

 

NEO   BONUS PAYABLE
Dr. David Parkinson (CEO)   Up to 50% of Base Salary
David Wood (CFO)   Up to 40% of Base Salary
Peter Virsik (EVP & COO)   Up to 40% of Base Salary
Dr. Raymond Andersen (Former CTO)   Up to 25% of Base Salary
Dr. Marianne Sadar (Former CSO)   Up to 25% of Base Salary

 

Up to the date of this Annual Report, the Company has generally relied on a flexible and informal approach to executive compensation for certain NEOs. Accordingly, the bonuses noted above of up to a certain percentage of base salary available to Mr. Wood, and Mr. Virsik were selected based on the Board’s collective agreement regarding an appropriate bonus range and on discussions with Mr. Wood about his expectations as CFO.

 

Stock Options and Restricted Share Units (as defined below) – Stock options and restricted share units are a key compensation element for companies such as ESSA. Because many of the most capable employees in ESSA’s industry work for pharmaceutical companies who can offer attractive cash and bonus compensation and a high level of employment security, stock options and restricted share units represent a compensation element that balances the loss of employment security that such employees must accept when moving to a small development-stage company like ESSA. Stock options and restricted share units are also an important component of aligning the objectives of ESSA employees with those of shareholders. ESSA has issued significant stock options positions to senior employees and lesser amounts to lower-level employees. The precise amount of stock options to be offered was governed by the importance of the role within ESSA, by the competitive environment within which ESSA operates and by the regulatory limits on stock option and restricted share unit grants that cover organizations such as ESSA. This reflects ESSA’s commitment to attracting and retaining world-level expertise to the Company. The stock options granted to the Company’s NEOs as of the date of this Annual Report are:

 

NEO   OPTIONS
Dr. David Parkinson (CEO)  

2,500 Options ($4.00 exercise price per Common Share, expiring June 23, 2025)

30,000 Options ($4.00 exercise price per Common Share, expiring January 12, 2026)

235,000 Options ($4.00 exercise price per Common Share, expiring February 21, 2028)

45,000 Options ($3.81 exercise price per Common Share, expiring February 8, 2029)

1,028,530 Options ($3.23 exercise price per Common Share, expiring October 4, 2029)

171,470 Options ($3.23 exercise price per Common Share, expiring October 4, 2029) pending shareholder approval

David Wood (CFO)  

3,750 Options (C$4.90 exercise price per Common Share, expiring July 30, 2024)

10,000 Options (C$4.90 exercise price per Common Share, expiring July 30, 2024)

66,250 Options (C$4.90 exercise price per Common Share, expiring February 21, 2028)

25,000 Options ($3.81 exercise price per Common Share, expiring February 8, 2029)

330,000 Options ($3.23 exercise price per Common Share, expiring October 4, 2029) pending shareholder approval

Peter Virsik (EVP & COO)  

14,500 Options ($4.00 exercise price per Common Share, expiring August 9, 2026)

173,000 Options ($4.00 exercise price per Common Share, expiring February 21, 2028)

40,000 Options ($3.81 exercise price per Common Share, expiring February 8, 2029)

970,000 Options ($3.23 exercise price per Common Share, expiring October 4, 2029) pending shareholder approval

Dr. Raymond Andersen (Former CTO)  

80,000 Options (C$4.90 exercise price per Common Share, expiring February 21, 2028)

12,500 Options (C$5.06 exercise price per Common Share, expiring February 8, 2029)

50,000 Options ($3.23 exercise price per Common Share, expiring October 4, 2029)

Dr. Marianne Sadar (Former CSO)  

80,000 Options (C$4.90 exercise price per Common Share, expiring February 21, 2028)

12,500 Options (C$5.06 exercise price per Common Share, expiring February 8, 2029)

50,000 Options ($3.23 exercise price per Common Share, expiring October 4, 2029)

 

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The Company has not granted any restricted share units to its NEOs as of the date of this Annual Report. 

 

Compensation Risks

 

In making its compensation-related decisions, the Board carefully considers the risks implicitly or explicitly connected to such decisions. These risks include the risks associated with employing executives who are not world-class in their capabilities and experience, the risk of losing capable but under-compensated executives, and the financial risks connected to the Company’s operations, of which executive compensation is an important part.

 

In adopting the compensation philosophy described above, the principal risks identified by ESSA are:

 

  · that the Company will be forced to raise additional funding (causing dilution to shareholders) in order to attract and retain the calibre of executive employees that it seeks; and

 

  · that the Company will have insufficient funding to achieve its objectives.

 

After careful consideration of these risks, the Board has adopted the compensation policy described above.

 

Stock Option Plan

 

On September 4, 2014, ESSA adopted a stock option plan, which was later amended and restated on May 21, 2015, March 10, 2016, March 8, 2017, April 25, 2018, and on June 26, 2019 (the “Plan”). The stock option plan is administered by the Chief Financial Officer of ESSA on the instructions of the Board or such director or other senior officer or employee of ESSA as may be designated by the Board from time to time.

 

The Plan was adopted as the successor to ESSA’s previously amended and restated stock option plan as of March 8, 2017 (the “Prior Plan”). Pursuant to the Plan, all outstanding option awards granted prior to February 28, 2017 will be governed by the terms and conditions of the Prior Plan. With any award granted on or after February 28, 2017 being governed by the terms and conditions of the Plan.

 

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The Board may grant stock options (the “Options”) to any director, officer, employee, consultants or affiliates. Option grants are contingent upon the determination by the Board that such grants and the exercise of such Options will not violate the securities laws of the jurisdiction in which the recipient of the Option (“Optionee”) resides. Grants of Options to “Insiders” (as defined in the policy manual of the TSX-V) are subject to the policies of the TSX-V, so long as the Common Shares are listed on the TSX-V.

 

A person can receive grants of no more than 5% of ESSA’s issued and outstanding share capital in any 12 month period, with the exception of a consultant who may not receive grants of more than 2% of ESSA’s issued and outstanding share capital in any 12 month period; and, no more than an aggregate of 2% of ESSA’s issued and outstanding Common Shares may be reserved for issue to persons engaged in investor relations activities at any one time.

 

The Options granted under the Plan must not have an exercise price that is less than the “Market Price”, meaning an amount which is not less than the closing market price for the ESSA’s Common Shares on the trading day prior to the date of the grant. Further, an Option shall not establish a minimum exercise price until it has been awarded to a particular person. Any reduction in the exercise price of Options granted to Insiders, provided that the Optionee is an Insider at the time of the proposed reduction, requires Disinterested Shareholder Approval (as defined in the policy manual of the TSX-V).

 

The Options granted under the Plan are prohibited from having an exercise period in excess of ten years following their award date. No Option may be granted under the Plan following April 25, 2028 unless ESSA’s shareholders have approved an extension of the Plan. The maximum number of Common Shares that will be available to directors, officers, employees, consultants and affiliates may be reserved and made available for issuance, under the Plan, is 2,563,991 Common Shares of which no more than 1,000,000 will be available for employees to acquire pursuant to an incentive stock option plan (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, of the United States. The Common Shares may be subject to a four-month resale restriction imposed by the TSX-V on certain shares.

 

Options will be granted by the Board and the Board may determine and impose terms upon which the Option shall vest, provided that if the Common Shared are listed on the TSX-V, Options granted to persons employed to conduct investor relations activities must vest in stages over 12 months with no more than 25% of the Options vesting in any three month period.

 

The Options are non-assignable and non-transferable except in limited circumstances, including but not limited to the case of death or disability of an Optionee. If an Option expires, cancels or otherwise terminates without having been exercised in full, the number of Common Shares in respect of which the Option was not exercised will again be available for the purposes of the Plan.

 

The Plan provides for adjustments to the Options in various circumstances, including adjustments to the number of Common Shares available under the Plan, the number of Common Shares subject to any Option and the exercise price therefore in the event of a declaration of a stock dividend, or a consolidation, subdivision or reclassification of the Common Shares, and adjustments in the Common Shares receivable on the exercise of an Option in the event of an amalgamation, merger or entry into a plan of arrangement by ESSA. Further, upon a “Change of Control” (as defined in the Plan), all Options become immediately exercisable, notwithstanding any contingent vesting provisions to which such Options may have otherwise been subject.

 

ESSA’s administration of the Plan is consistent with the policies and rules of the TSX-V and the Nasdaq and will comply with such other stock exchanges on which the Common Shares may be listed in the future. Subject to the acceptance of the TSX-V and any other applicable regulatory authorities, the Board can terminate, suspend or amend the terms of the Plan, however, the Board may not do so without first obtaining, within 12 months either before or after the Boards adoption of a resolution authorizing such action, approval by the affirmative votes of the holders of a majority of the voting securities of ESSA. Further, certain amendments to the Options require Disinterested Shareholder Approval, including, but are not limited to: the maximum number of Common Shares that may be reserved under the Plan; a grant to Insiders (within a 12 month period) of Options exceeding 10% of the issued and outstanding Common Shares; an issue to any Optionee (within a 12 month period) of Common Shares exceeding 5% of ESSA’s Common Shares; and an extension of the duration of the Plan.

 

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Certain other amendments including amendments that are administrative in nature, any amendment necessary to comply with applicable law or any amendment required to clarify an existing provision of the Plan (provided that such changes do not affect the scope, nature, or intent of the Plan) may be made by the Board without consent or approval from any participant or shareholder of ESSA.

 

Restricted Share Unit Plan

 

On February 21, 2018, ESSA adopted a restricted share unit plan (the “RSU Plan”) for the benefit of the Company’s directors, officers, employees and consultants. The RSU Plan has been established as a vehicle by which equity-based incentives may be awarded to the employees, consultants, directors and officers of the Company, to recognize and reward their significant contributions to the long-term success of the Company, including to align the employees’, consultants’, directors’ and officers’ interests more closely with the shareholders of the Company.

 

The Board intends to use Restricted Share Units (“RSUs”) issued under the RSU Plan, as well as the Options issued under the Plan as part of the Company’s overall executive compensation plan. Since the value of RSUs increase or decrease with the price of the Common Shares, RSUs reflect a philosophy of aligning the interests of holders thereof with those of the shareholders by tying compensation to share price performance. In addition, RSUs assist in the retention of qualified and experienced persons by rewarding those individuals who make a long-term commitment to the Company.

 

The RSU Plan is administered by the Compensation Committee or such other committee as the Board determines.

 

Pursuant to the RSU Plan, RSUs may be granted to any director, officer, employee or consultant (collectively, the “Eligible Persons”), from time to time by the Board, subject to the limitations set forth in the RSU Plan, but may not be granted when that grant would be prohibited by or in breach of applicable laws or any blackout period then in effect.

 

The number of Common Shares which may be reserved for issuance under the RSU Plan shall not exceed 2,563,991 Common Shares, provided that at no time may the number of Common Shares issuable under any and all of the Company’s equity incentive plans in existence, including the Plan, exceed 2,563,991 Common Shares.

 

The RSU Plan provides for the following limits on grants, unless approval by disinterested shareholders in accordance with the rules of the TSX-V is obtained:

 

  (a) the maximum number of Common Shares which may be issuable to insiders of the Company under the RSU Plan and all of the Company’s other share compensation arrangements in existence from time to time may not exceed 10% of the issued and outstanding Common Shares;

 

  (b) the maximum number of Common Shares which may be issuable to any one Eligible Person under the RSU Plan and all of the Company’s other share compensation arrangements in existence from time to time may not exceed 5% of the issued and outstanding Common Shares;

 

  (c) the maximum number of Common Shares which may be issuable to any one consultant under the RSU Plan and all of the Company’s other share compensation arrangements in existence from time to time may not exceed 2% of the issued and outstanding Common Shares; and

 

  (d) the maximum number of Common Shares which may be issuable to all Eligible Persons retained by the Company to provide investor relations activities (as defined by the policies of the TSX-V) as a group, under the RSU Plan and all of the Company’s other share compensation arrangements in existence from time to time may not exceed 2% of the issued and outstanding Common Shares.

 

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The Compensation Committee may in its own discretion, at any time, and from time to time, grant RSUs to Eligible Persons as it determines appropriate, subject to the limitations set out in the RSU Plan.

 

Unless redeemed earlier in accordance with the RSU Plan and subject to any blackout periods then in effect, each one RSU will be redeemed by the Company on or about its applicable vesting date and, at such time, the holder thereof will be entitled to receive (i) one Common Share, (ii) cash representing the fair market value of such Common Share on the vesting date or (iii) a combination of (i) and (ii) above, as determined by the Compensation Committee in its sole discretion.

 

RSUs are non-assignable and non-transferable except by will or by the laws of descent and distribution. All benefits and rights granted under the RSU Plan may only be exercised by the Eligible Persons.

 

The RSU Plan contains provisions for the adjustment in the number of Common Shares subject to the RSU Plan and issuable on redemption of RSUs in the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, recapitalization, amalgamation, plan of arrangement, reorganization, spin-off or other distribution (other than ordinary dividends) of the Company assets to shareholders or any other similar corporate transaction or event which the Board determines affects the Common Shares such that an adjustment is appropriate to prevent dilution or enlargement of the rights of Eligible Persons under the RSU Plan.

 

ESSA’s administration of the RSU Plan is consistent with the policies of the TSX-V and the Nasdaq and will comply with such other stock exchanges on which the Common Shares may be listed in the future.

 

Subject to applicable laws and regulatory approvals, the RSU Plan may be amended without shareholder approval for the following:

 

  (a) amendments to the terms and conditions of the RSU Plan necessary to ensure that the RSU Plan complies with the applicable regulatory requirements, including the rules of the TSX-V and Nasdaq, in place from time to time;

 

  (b) amendments to the provisions of the RSU Plan respecting administration of the RSU Plan and eligibility for participation under the RSU Plan;

 

  (c) amendments to the provisions of the RSU Plan respecting the terms and conditions on which RSUs may be granted pursuant to the plan, including the provisions relating to the payment of the RSUs; and

 

  (d) minor changes of a “house-keeping nature”.

 

Disinterested shareholder approval is required for any amendments related to:

 

  (a) the number or percentage of issued and outstanding Common Shares available for grant under the RSU Plan;

 

  (b) a change in the method of calculation of redemption of RSUs held by Eligible Persons; and

 

  (c) an extension to the term for redemption of RSUs held by Eligible Persons.

 

Employee Stock Purchase Plan

 

On June 25, 2019, ESSA adopted an employee stock purchase plan (the “ESPP”) for the benefit of the Company’s employees. The ESPP is intended to encourage eligible employees to acquire Common Shares so that they may participate in the future growth of the Company by acquiring or increasing their interest in Common Shares and to encourage eligible employees to remain in the employ of the Company. The ESPP constitutes an “employee stock purchase plan” within the meaning of Section 423(b) of the United States Internal Revenue Code of 1986, as amended.

 

The ESPP is administered by the Compensation Committee or such other committee as the Board determines.

 

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The number of Common Shares which may be reserved for issuance under the ESPP shall not exceed 284,887 Common Shares, provided that at no time may the number of Common Shares issuable under any and all of the Company’s equity incentive plans in existence, including the Plan, exceed 2,563,991 Common Shares.

 

All individuals classified as “Eligible Employees” on the payroll system of the Company may participate in the Employee Stock Purchase Plan. An individual is classified as an eligible employee (an “Eligible Employee”) under the ESPP if they are, as of the first business day of the applicable Purchase Period (as defined herein), customarily employed by the Company or a designated subsidiary of the Company for more than 20 hours a week, or any lesser number of hours established by the Compensation Committee.

 

Eligible Employees that participate in the Employee Stock Purchase Plan (the “ESPP Participants”) accumulate funds for the purchase of Common Shares through payroll deductions which accumulate over six-month periods (each a “Purchase Period” and collectively, the “Purchase Periods”) commencing on January 1 and July 1 and ending on June 30 and December 31 of each calendar year. The Compensation Committee may, from time to time, establish different Purchase Periods having a duration of between three and 24 months.

 

On the first business day of each Purchase Period, each ESPP Participant will be granted a Purchase Right which is exercisable on the last day of such Purchase Period (the “Purchase Date”). Each Eligible Employee who then continues to be an ESPP Participant on the Purchase Date shall be deemed to have exercised their Purchase Right and to have purchased from the Company such number of whole Common Shares obtained by dividing the ESPP Participant’s accumulated payroll deductions by the purchase price of the Common Shares determined by the Board (the “Purchase Price”). The Common Shares purchased by ESPP Participants will be issued to the ESPP Participant as soon as practicable after each Purchase Date.

 

ESSA’s administration of the ESPP is consistent with the policies of the TSX-V and the Nasdaq and will comply with such other stock exchanges on which the Common Shares may be listed in the future.

 

The ESPP provides for the following restrictions:

 

  (a) each ESPP Participant may only authorize payroll deductions in an amount (expressed as a whole percentage) not less than one percent and not more than fifteen percent of such ESPP Participant’s gross base salary for each pay period falling within the applicable Purchase Period;

 

  (b) no ESPP Participant may be granted Purchase Rights under the ESPP in any calendar year where the value of the corresponding Common Shares would exceed US$25,000 in fair market value for each calendar year in which the Purchase Right is outstanding; and

 

  (c) no ESPP Participant may be granted a Purchase Right if, immediately after the Purchase Right was granted, that ESPP Participant would own or have the right to own Common Shares possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or of any parent or subsidiary of the Company.

 

The Purchase Price to be paid by each ESPP Participant shall be specified by the Board, in its discretion; however, the Board shall not specify a Purchase Price that is less than the lesser of:

 

  (a) 85% of the market price of the Common Shares on the date that the Purchase Right is granted, rounded up to the nearest cent; or;

 

  (b) 85% of the market price of the Common Shares on the date that the Purchase Right is exercisable, rounded up to the nearest cent.

 

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An ESPP Participant’s Purchase Rights will terminate under the Employee Stock Purchase Plan if the ESPP Participant:

 

  (a) ceases to be an Eligible Employee before the Purchase Date of any Purchase Period;

 

  (b) receives a notice of termination from the Company before the Purchase Date of any Purchase Period; or

 

  (b) delivers a notice of withdrawal from the Employee Stock Purchase Plan to the Company at least one business day before the Purchase Date of any Purchase Period.

 

The Plan may be terminated at any time by the Board but such termination shall not affect Purchase Rights then outstanding under the Plan unless so determined by the Board, in which case the Board may, notwithstanding any other provision of this Plan, provide that all Purchase Rights then outstanding under the Plan shall terminate at such time as designated by the Board and Participants shall have no rights under their respective Purchase Rights or this Plan other than to receive from the Company the entire balance of the Participant’s payroll deduction account, without interest. The Plan will terminate in any case when all of the unissued Common Shares reserved for the purposes of the Plan have been purchased. If at any time Common Shares reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase rights, the available Common Shares shall be allocated pro rata among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Common Shares, and the Plan shall terminate. Upon any termination of the Plan, all payroll deductions not used to purchase Common Shares will be refunded, without interest.

 

The Committee or the Board may, from time to time, amend the Plan or any portion thereof at any time, provided that no such amendment may be made without obtaining any required regulatory or shareholder approvals. Notwithstanding the foregoing, the Company will be required to obtain shareholder approval and, where required, disinterested shareholder approval for any amendment that may: (i) increase the number of Common Shares that may be issued under the Plan (other than pursuant to an equitable adjustment under Article 15); (ii) change the entities which may participate in the Plan; (iii) increase the Purchase Price discount as further described in Article 8; or (iv) change the entity which grants shares under the Plan or the securities available under the Plan (other than pursuant to an equitable adjustment under Article 15).

 

Subject to the qualifications set out in the immediately following paragraph, all other amendments to the Plan, including but not limited to any reasonable amendment to the mechanism for determining the Market Price, may be made without the approval of shareholders. Without limiting the generality of the foregoing and except as otherwise provided in the preceding paragraph of this Article 21, the Board may make the following amendments to the Plan, without obtaining shareholder approval, unless required to comply with Section 423 of the Code: (i) amendments to the terms and conditions of the Plan necessary to ensure that the Plan complies with the applicable regulatory requirements, including the rules of Nasdaq or the TSX-V, in place from time to time; (ii) amendments to the provisions of the Plan respecting administration of the Plan and eligibility for participation under the Plan; and (iii) amendments to the Plan that are of a “housekeeping” nature.

 

Notwithstanding any other provision in the Plan, any modification or amendment to the Plan shall be completed in a manner that is compliant with all applicable laws and requirements of any stock exchange or governmental or regulatory body, including the requirements of Section 423 of the Code and the listing standards of the Nasdaq. In addition, any modification or amendment to the Plan will be subject to the prior approval of the TSX-V to the extent that the Common Shares are listed on the TSX-V at the time of such proposed termination, modification or amendment. 

 

NEO Compensation

 

As of September 30, 2019, ESSA had five NEOs: Dr. David Parkinson, President and CEO, David Wood, CFO, Peter Virsik, EVP & COO, Dr. Raymond Andersen, former CTO, and Dr. Marianne Sadar, former CSO.

 

Defined Benefits Plans

 

ESSA currently does not intend to have a defined benefits pension plan.

 

Defined Contribution Plans

 

ESSA currently does not intend to have a defined contribution plan.

 

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Deferred Compensation Plans

 

ESSA currently does not intend to have a deferred compensation plan.

 

Termination and Change of Control Benefits

 

Except as described below, there are no contracts, agreements, plans or arrangements that provide for payments to a NEO at, following, or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or its subsidiary or a change in a NEO’s responsibilities (excluding perquisites and other personal benefits if the aggregate of this compensation is less than $50,000).

 

The Company has entered into employment agreements with certain NEOs, which provide for certain rights upon termination of employment or a change of control of ESSA. ESSA believes that these provisions of the NEO employment agreements are reasonable in the context of similar-sized biopharmaceutical companies. The Company expects to offer similar provisions to executive-level employees in the future.

 

Specific termination and change-of-control provisions of each NEO include:

 

For Dr. David Parkinson:

 

  · A payment of one year of base salary upon termination without cause. This amount increases to 18 months if the termination without cause occurs after a change of control event or within 60 days prior to a change of control event where such event was under consideration at the time of termination. Had Dr. Parkinson’s employment been terminated without cause on September 30, 2019, he would have received $474,346. Had Dr. Parkinson’s employment been terminated without cause after a change of control event or within 60 days prior to a change of control event where such event was under consideration at the time of termination, he would have received $711,519.

 

  · Immediate vesting of all stock options upon occurrence of a change of control event. Dr. Parkinson held 1,512,500 options (including 1,028,530 options pending shareholder approval) as of the date of this Annual Report.

 

For Mr. David Wood:

 

  · A payment to the employee of up to one year of base salary for termination without cause. This amount increases to 18 months if the termination without cause occurs within 18 months after a change of control event. Had Mr. Wood been terminated without cause on September 30, 2019, he would have received up to $246,376. Had Mr. Wood’s employment been terminated without cause within 18 months after a change of control event, he would have received $369,564.

 

  · Immediate vesting of all stock options upon occurrence of a change of control event. Mr. Wood held 435,000 options (including 330,000 options pending shareholder approval) as of the date of this Annual Report.

 

For Mr. Peter Virsik:

 

  · A payment of one year of base salary upon termination without cause. This amount increases to 18 months if the termination without cause occurs within 18 months after a change of control event. Had Mr. Virsik’s employment been terminated without cause on September 30, 2019, he would have received $400,387. Had Mr. Virsik’s employment been terminated without cause within 18 months after a change of control event, he would have received $600,581.

 

  · Immediate vesting of all stock options upon occurrence of a change of control event. Mr. Virsik held 1,197,000 options (including 970,000 options pending shareholder approval) as of the date of this Annual Report.

 

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For Dr. Raymond Andersen:

 

  · Immediate vesting of all stock options upon occurrence of a change of control event. Dr. Andersen held 142,500 options as of the date of this Annual Report.

 

For Dr. Marianne Sadar:

 

  · Immediate vesting of all stock options upon occurrence of a change of control event. Dr. Sadar held 142,500 options as of the date of this Annual Report.

 

Summary Compensation Table

 

ESSA's key management personnel for the periods indicated below include Dr. David Parkinson, CEO, David Wood, CFO, Peter Virsik, EVP & COO, Dr. Alessandra Cesano, CMO, Dr. Frank Perabo, former EVP & CMO (resigned January 2018), Dr. Paul Cossum, former EVP of R&D (passed away July 2017), Dr. Marianne Sadar, former CSO and Director (did not stand for re-election in June 2019), and Dr. Raymond Andersen, former CTO and Director (resigned July 2019). Compensation paid to key management personnel are as follows:  

 

($)  

YEAR ENDED

SEPTEMBER 30,
2019

   

YEAR ENDED

SEPTEMBER 30,
2018

   

YEAR ENDED

SEPTEMBER 30,
2017

 
Salaries and consulting fees     1,855,096       2,242,950       1,988,326  
                         
Share-based payments     897,798       1,340,513       756,154  
                         
Total compensation     2,752,894       3,583,463       2,744,480  

 

Director Compensation

 

On January 1, 2015, ESSA adopted a compensation plan for independent members of the Board. Pursuant to this compensation plan, both cash payments and Options are offered to independent directors. Each independent director will receive a retainer of $25,000 per annum. In addition, the Chair of the Board will receive a premium of $25,000 per annum and the Chair of each sub-committee will receive a premium of $10,000 per annum. Independent directors will also be paid a cash fee of $1,500 per in-person meeting, and $1,000 per teleconference meeting, $1,000 per sub-committee meeting, and receive an Option grant of 12,000 Options, vesting in 48 equal monthly instalments beginning on the first month anniversary of the grant. Directors who are ESSA’s officers, employees or consultants will receive no compensation under the terms of this compensation plan.

 

Incentive Plan Awards Outstanding

 

As at September 30, 2019, the end of the Company’s last fiscal year, non-NEO directors held 90,000 Options in the Company, granted in current and prior years, resulting in $95,880 vested or earned in the year ended September 30, 2019.

 

Options to Purchase Securities

 

As at the date of this Annual Report, 5,314,000 outstanding Options are held by directors, consultants, employees and executive officers of the Company. Of these Options, 5,000 are exercisable at a price of $2.20 per Common Share, 3,953,000 are exercisable at a price of $3.23 per Common Share (including 2,511,470 options pending shareholder approval), 40,000 are exercisable at a price of $3.33 per Common Share pending shareholder approval, 12,000 are exercisable at a price of $3.58 per Common Share, 193,000 are exercisable at a pric