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
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:
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
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.
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:
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:
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:
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.
As used in this Annual Report, the following
terms have the respective meaning as specified below:
PART
I
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
A.
|
Directors and Senior Management
|
Not applicable.
Not applicable.
Not applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
B.
|
Method and Expected Timetable
|
Not applicable.
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.
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:
|
·
|
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.
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
|
|
·
|
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;
|
|
·
|
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.
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;
|
|
·
|
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.
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.
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;
|
|
·
|
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.
|
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;
|
|
·
|
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.
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.
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.
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.
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.
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;
|
|
·
|
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.
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.
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.
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.
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.
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.
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.
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.
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;
|
|
·
|
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.
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;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
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.
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.
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.
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.
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.
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.
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.
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.
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”.
|
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.
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.
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.
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.
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.
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
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
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.
|
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.
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
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.
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.
|
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.
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).
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.
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
|
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.
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.
|
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.
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.
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.
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.
|
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 $4,499,012 for the years ended September
30, 2019, 2018, and 2017, respectively. ESSA expects to incur losses for the foreseeable future, and it expects these losses to
increase as it continues the development of, and seek regulatory approvals for, its product candidate. Because of the numerous
risks and uncertainties associated with product development, ESSA is unable to predict the timing or amount of increased expenses
or when, or if, it will be able to achieve or maintain profitability.
Results of Operations
The following table sets forth ESSA's consolidated
statements of financial position and consolidated statements of loss and comprehensive loss as at and for the fiscal years ended
September 30, 2019, 2018, and 2017:
5 Scher
HI, Solo K, Valant J, Todd MB, Mehra M (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States:
Estimates Using a Dynamic Progression Model. PLoS ONE 10(10): e0139440. doi:10.1371/journal.pone.0139440
(US$)
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
|
|
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.
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.
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.
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:
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).
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”).
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.
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.
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.
|
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.
|
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.
|
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.
|
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.
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.
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.
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.
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
|
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)
|
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.
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.
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.
|
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.
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.
|
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.
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 $600,581.
|
|
·
|
Immediate vesting of all stock options upon occurrence of a change of control event. Mr. Virsik held 1,197,000 options (including 970,000 options pending shareholder approval) as of the date of this Annual Report.
|
For Dr. Raymond Andersen:
|
·
|
Immediate vesting of all stock options upon occurrence of a change of control event. Dr. Andersen held 142,500 options as of the date of this Annual Report.
|
For Dr. Marianne Sadar:
|
·
|
Immediate vesting of all stock options upon occurrence of a change of control event. Dr. Sadar held 142,500 options as of the date of this Annual Report.
|
Summary Compensation Table
ESSA's key management personnel for the
periods indicated below include Dr. David Parkinson, CEO, David Wood, CFO, Peter Virsik, EVP & COO, Dr. Alessandra Cesano,
CMO, Dr. Frank Perabo, former EVP & CMO (resigned January 2018), Dr. Paul Cossum, former EVP of R&D (passed away July
2017), Dr. Marianne Sadar, former CSO and Director (did not stand for re-election in June 2019), and Dr. Raymond Andersen,
former CTO and Director (resigned July 2019). Compensation paid to key management personnel are as follows:
($)
|
|
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 price of $3.81 per Common Share,
552,500 are exercisable at a price of $4.00 per Common Share, 225,000 are exercisable at a price of $4.67 per Common Share, 286,000
are exercisable at a price of C$4.90 per Common Share, 45,000 are exercisable at a price of C$5.06 per Common Share, and 2,500
are exercisable at a price of C$40.00 per Common Share. The table below summarizes the Options issued and outstanding to directors
and senior management as at the date of this Annual Report.
Class of Optionee
(Number)
|
|
Number of Common
Share Options Held
|
|
|
Exercise Price
|
|
Expiry Date
|
David Parkinson
|
|
|
2,500
|
(1)
|
|
$4.00/Common Share
|
|
June 23, 2025
|
Chief Executive Officer
|
|
|
30,000
|
(1)
|
|
$4.00/Common Share
|
|
January 12, 2026
|
|
|
|
235,000
|
(1)
|
|
$4.00/Common Share
|
|
February 21, 2028
|
|
|
|
45,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
1,028,530
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
171,470
|
(5)(7)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
Peter Virsik
|
|
|
14,500
|
(1)
|
|
$4.00/Common Share
|
|
August 9, 2026
|
EVP & Chief Operating Officer
|
|
|
173,000
|
(1)
|
|
$4.00/Common Share
|
|
February 21, 2028
|
|
|
|
40,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
970,000
|
(5)(7)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
David Wood
|
|
|
3,750
|
(1)
|
|
C$4.90/Common Share
|
|
October 1, 2023
|
Chief Financial Officer
|
|
|
10,000
|
(1)
|
|
C$4.90/Common Share
|
|
July 30, 2024
|
|
|
|
66,250
|
(1)
|
|
C$4.90/Common Share
|
|
February 21, 2028
|
|
|
|
25,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
330,000
|
(5)(7)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
Dr. Alessandra Cesano
|
|
|
25,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
Chief Medical Officer
|
|
|
400,000
|
(5)(7)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
Richard Glickman
|
|
|
3,750
|
(1)
|
|
C$4.90/Common Share
|
|
May 21, 2024
|
Chairman
|
|
|
8,250
|
(1)
|
|
C$4.90/Common Share
|
|
February 21, 2028
|
|
|
|
10,000
|
(4)
|
|
C$5.06/Common Share
|
|
February 8, 2029
|
|
|
|
30,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Gary Sollis
|
|
|
6,000
|
(1)
|
|
C$4.90/Common Share
|
|
May 21, 2024
|
Director
|
|
|
6,000
|
(1)
|
|
C$4.90/Common Share
|
|
February 21, 2028
|
|
|
|
5,000
|
(4)
|
|
C$5.06/Common Share
|
|
February 8, 2029
|
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Franklin Berger
|
|
|
2,500
|
(1)
|
|
$4.00/Common Share
|
|
March 5, 2025
|
Director
|
|
|
9,500
|
(1)
|
|
$4.00/Common Share
|
|
February 21, 2028
|
|
|
|
5,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Scott Requadt
|
|
|
12,000
|
(1)
|
|
$4.00/Common Share
|
|
February 21, 2028
|
Director
|
|
|
5,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
Class of Optionee
(Number)
|
|
|
Number of Common
Share Options Held
|
|
|
Exercise Price
|
|
Expiry Date
|
Dr. Otello Stampacchia
|
|
|
12,000
|
(3)
|
|
$3.58/Common Share
|
|
October 18, 2028
|
Director
|
|
|
5,000
|
(4)
|
|
$3.81/Common Share
|
|
February 8, 2029
|
|
|
|
|
|
|
|
|
|
Alex Martin
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
Director
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Marella Thorell
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
Director
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Sanford Zweifach
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
Director
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Dr. Ari Brettman
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
Director
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
|
|
|
|
|
|
|
|
Dr. Marianne Sadar
|
|
|
80,000
|
(1)
|
|
C$4.90/Common Share
|
|
February 21, 2028
|
Former Chief Scientific Officer
|
|
|
12,500
|
(4)
|
|
C$5.06/Common Share
|
|
February 8, 2029
|
|
|
|
50,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
Dr. Raymond Andersen
|
|
|
80,000
|
(1)
|
|
C$4.90/Common Share
|
|
February 21, 2028
|
Former Chief Technical Officer
|
|
|
12,500
|
(4)
|
|
C$5.06/Common Share
|
|
February 8, 2029
|
|
|
|
50,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
|
|
|
|
|
|
|
|
|
Dr. Edward Scolnick
|
|
|
25,000
|
(5)
|
|
$3.23/Common Share
|
|
October 4, 2029
|
Scientific Advisor
|
|
|
25,000
|
(6)
|
|
$4.67/Common Share
|
|
October 30, 2029
|
|
(1)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on March 21, 2018.
|
|
(2)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on May 4, 2018.
|
|
(3)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on November 18, 2018.
|
|
(4)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on March 8, 2019.
|
|
(5)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on November 4, 2019.
|
|
(6)
|
These Options vest in 48 equal monthly installments with the first installment of Options vesting on November 30, 2019.
|
|
(7)
|
These Options are exercisable pending shareholder approval.
|
Item 6.A., “Directors, Senior
Management and Employees – Directors and Senior Management” above sets out each directors’ and officers’
date of expiration of their current term of office, as applicable, and the period during which such person has served in that office.
For specific termination and change-of-control
provisions for the Company’s five NEO’s, Dr. David Parkinson, David Wood, Peter Virsik, Dr. Raymond Andersen, and Dr.
Marianne Sadar, see Item 6.B “Compensation.”
As of the date of this Annual Report, Richard
Glickman, Gary Sollis, Franklin Berger, Scott Requadt, Dr. Otello Stampacchia, Alex Martin, Marella Thorell, Sanford Zweifach,
and Dr. Ari Brettman are not engaged in a contract providing for benefits upon termination of employment with the Company.
Audit Committee
The audit committee of the Board (the “Audit
Committee”) was re-constituted on October 17, 2019 and is currently comprised of Franklin Berger (chair), Gary Sollis,
and Sanford Zweifach all of whom are “financially literate” as defined in National Instrument 52-110 – Audit
Committees (“NI 52-110”) and the rules of the Nasdaq. Each member of the Audit Committee is considered independent
pursuant to NI 52-110, Rule 10A-3 under the U.S. Exchange Act and the rules of the Nasdaq. Franklin Berger served as the Audit
Committee’s financial expert for the 2018 fiscal year. A description of the education and experience of each Audit Committee
member that is relevant to the performance of his responsibilities as an Audit Committee member may be found above under the heading
“Directors, Senior Management and Employees – Directors and Senior Management”.
The Audit Committee is responsible for
reviewing the Company’s financial reporting procedures, internal controls and the performance of the financial management
and the Auditor. The Audit Committee also reviews the annual audited financial statements and makes recommendations to the board.
A copy of the Audit Committee’s charter is set out below.
Audit Committee Charter
The main objective of the Audit Committee
is to act as a liaison between the Board and the Company’s independent auditor and to assist the Board in fulfilling its
oversight responsibilities with respect to the financial statements and other financial information provided by the Company to
its shareholders and others.
The Committee shall consist of three or
more directors and shall satisfy the laws governing the Company and the independence, financial literacy, expertise and experience
requirements under applicable securities law, stock exchange requests and any other regulatory requirements applicable to the Audit
Committee of the Company.
The members of the Committee and the Chair
of the Committee shall be appointed by the Board. A majority of the members of the Committee shall constitute a quorum. A majority
of the members of the Committee shall be empowered to act on behalf of the Committee. Matters decided by the Committee shall be
decided by majority votes.
Any member of the Committee may be removed
or replaced at any time by the Board and shall cease to be a member of the Committee as soon as such member ceases to be a director.
The Committee may form and delegate authority
to subcommittees when appropriate.
The Committee shall meet as frequently
as circumstances require.
The Committee may invite, from time to
time, such persons as it may see fit to attend its meetings and to take part in discussion and consideration of the affairs of
the Committee.
|
(1)
|
The Committee shall recommend to the Board:
|
|
(a)
|
the external auditor to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company; and
|
|
(b)
|
the compensation of the external auditor.
|
|
(2)
|
The Committee shall be directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditor regarding financial reporting.
|
|
(3)
|
The Committee must pre-approve all non-audit services to be provided to the Company or its subsidiary entities by the Company’s external auditor.
|
|
(4)
|
The Committee must review the Company’s financial statements, MD&A and annual and interim earnings press releases before the Company publicly discloses this information.
|
|
(5)
|
The Committee must be satisfied that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the public disclosure referred to in subsection (4), and must periodically assess the adequacy of those procedures.
|
|
(6)
|
The Committee must establish procedures for:
|
|
(a)
|
the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and
|
|
(b)
|
the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
|
The Committee shall have the following
authority:
|
(a)
|
to engage independent counsel and other advisors as it determines necessary to carry out its duties,
|
|
(b)
|
to set and pay the compensation for any auditor or tax advisors employed by the Committee, and
|
|
(c)
|
to communicate directly with the external auditor.
|
Audit Committee Oversight
Since the commencement of the Company’s
most recently completed financial year, there has not been a recommendation of the Audit Committee to nominate or compensate an
external auditor which was not adopted by the Company’s Board.
Pre-Approval Policies and Procedures
The Audit Committee has the authority and
responsibility for pre-approval of all non-audit services to be provided to the Company or its subsidiary entities by the external
auditor or the external auditor of the Company’s subsidiary entities, unless such pre-approval is otherwise appropriately
delegated or if appropriate specific policies and procedures for the engagement of non-audit services have been adopted by the
Audit Committee.
External Auditor Service Fees by Category
The aggregate fees billed by the Company’s
external auditor in each of the last three fiscal years for audit fees are set out in the table below. In the table, “Audit
Fees” are fees billed by the Company’s external auditor for services provided in auditing the Company’s annual
financial statements for the subject year. “Audit-Related Fees” are fees not included in audit fees that are
billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of
the Company’s financial statements. “Tax Fees” are fees billed by the auditor for professional services
rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for
products and services not included in the foregoing categories. All amounts in the table are expressed in Canadian dollars.
Financial Year Ending
|
|
Audit Fees
|
|
|
Audit-
Related Fees
|
|
|
Tax Fees
|
|
|
All Other Fees
|
|
September 30, 2019
|
|
C$
|
62,179
|
|
|
$
|
4,646
|
|
|
$
|
nil
|
|
|
$
|
nil
|
|
September 30, 2018
|
|
C$
|
74,215
|
|
|
$
|
17,120
|
|
|
$
|
nil
|
|
|
$
|
nil
|
|
September 30, 2017
|
|
C$
|
55,080
|
|
|
$
|
nil
|
|
|
$
|
nil
|
|
|
$
|
nil
|
|
Compensation Committee
Prior to December 19, 2014, compensation
matters were determined by the entire Board. At a meeting held on December 19, 2014, the Board formed a Compensation Committee.
The Compensation Committee was re-constituted on October 17, 2019 and is currently comprised of Scott Requadt (chair), Richard
Glickman and Sanford Zweifach. Under SEC and Nasdaq rules, there are heightened independence standards for members of the
compensation committee. ESSA follows applicable Canadian laws with respect to compensation committee composition, which do not
mandate a compensation committee composed entirely of independent directors, as permitted by the Nasdaq Marketplace Rules. See
Item 16G “Corporate Governance” below. The Compensation Committee is responsible for reviewing the compensation
plans and severance arrangements for management, to ensure they are commensurate with comparable companies. Factors that are taken
into consideration when making compensation decisions include:
|
·
|
the financial resources available or expected to be available to the Company;
|
|
·
|
comparative compensations levels for companies of ESSA’s size in the biopharmaceutical industry;
|
|
·
|
the capabilities of individual contributors to the Company’s success;
|
|
·
|
the reasonable compensation expectations of the individual contributor; and
|
|
·
|
relative equity with other ESSA contributors.
|
Statement of Corporate Governance Practices
On June 30, 2005, National Instrument
58-101 – Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy
58-201 – Corporate Governance Guidelines (the “Guidelines”), came into force. The Guidelines address
matters such as the constitution of and the functions to be performed by the Board. NI 58-101 requires that the Company disclose
its approach to corporate governance with reference to the Guidelines. The Board is committed to ensuring that the Company has
an effective corporate governance system, which adds value and assists the Company in achieving its objectives.
The Company’s approach to corporate
governance is set forth below.
Mandate of the Board
The Board assumes responsibility for the
stewardship of the Company and the creation of shareholder value. The Board is responsible for:
|
(a)
|
ensuring that management develops and implements a strategic plan that takes into account market realities and regulatory compliance;
|
|
(b)
|
upholding a comprehensive policy for communications with shareholders and the public at large;
|
|
(c)
|
developing and formalizing the responsibilities for each member of the board, including the responsibilities of the CEO vis-à-vis corporate objectives;
|
|
(d)
|
ensuring that the risk management of ESSA is prudently addressed; and
|
|
(e)
|
overseeing succession planning for management.
|
The frequency of meetings of the Board
and the nature of agenda items may change from year to year depending upon the activities of ESSA. However, the Board meets at
least quarterly and at each meeting there is a review of the business of ESSA.
The Board facilitates its exercise of independent
supervision over the Company’s management through frequent meetings of the Board being held to obtain an update on significant
corporate activities and plans, both with and without members of the Company’s management being in attendance. Further, the
independent directors of the Board hold, at a minimum, two meetings annually without the presence of non-independent directors.
Composition of the Board
The Board is composed of eight directors,
three of whom qualify as independent directors. For this purpose, a director is independent if he or she has no direct or indirect
“material relationship” with ESSA. A “material relationship” is a relationship which could, in the view
of the Board, be reasonably expected to interfere with the exercise of the director’s independent judgment. An individual
who has been an employee or executive officer of the Company within the last three years is considered to have a material relationship
with the Company.
Of the directors, Franklin Berger, Richard
Glickman, Gary Sollis, and Sanford Zweifach are considered independent under Rule 5605(a)(2) of the Nasdaq listing standards. Five
directors: (i) Dr. David Parkinson, President and Chief Executive Officer of the Company; (ii) Scott Requadt, former
Venture Partner of Clarus (a major shareholder); and (iii) Dr. Ari Brettman, Principal of Blackstone Life Sciences, which owns
Clarus (a major shareholder); (iv) Alex Martin, former CEO of Realm; and (v) Marella Thorell, former CFO/COO of Realm, are considered
not independent. The size of the Company is such that all the Company’s operations are conducted by a small management team
which is also represented on the Board. The Board believes that management is effectively supervised by the three independent directors,
as the independent directors are actively and regularly involved in reviewing the operations of the Company and have regular and
full access to management not represented on the Board.
Directorships
Currently, the following directors serve
on the following boards of directors of other public companies:
DIRECTOR
|
|
PUBLIC CORPORATION BOARD MEMBERSHIP
|
Richard Glickman
|
|
Correvio Pharma Corp. (formerly Cardiome Pharma Corp.)
|
Franklin Berger
|
|
Five Prime Therapeutics, Inc., Immune Design Corp., Bellus Health, Inc., Tocagen Inc., Proteostasis Therapeutics, Inc., Kezar Life Sciences Inc.
|
David Parkinson
|
|
3SBio Inc., Tocagen Inc., CTI BioPharma Corp.
|
Sanford Zweifach
|
|
Compugen, Inc.
|
Orientation and Education
ESSA will provide new directors with copies
of relevant financial, technical and other information regarding its R&D programs. Board members are also encouraged to communicate
with management and the Auditor and, to keep themselves current with industry trends and developments. Board members have full
access to the Company’s records.
Nomination of Directors
ESSA has adopted a director nomination
policy to ensure that it identifies nominees for the Board in compliance with applicable securities laws and regulations and exchange
requirements.
Director nominees will be recommended for
the Board’s selection by a minimum of three independent directors constituting a majority of the Board’s independent
directors in a vote in which only independent directors participate. The term “independent director” has the meaning
given to such term in the listing standards of the Nasdaq. In making nominee recommendations, such independent directors will
consider:
|
(a)
|
the competencies and skills considered necessary for the Board as a whole to possess;
|
|
(b)
|
the competencies and skills that each existing director possesses;
|
|
(c)
|
the competencies and skills each new nominee will bring to the Board; and
|
|
(d)
|
whether the nominee will be an independent director.
|
In addition, such independent directors
will consider whether each new nominee can devote sufficient time and resources to his or her duties as a member of the Board.
Assessments
The Board and each individual director
will be regularly assessed regarding his or its effectiveness and contribution. The assessment will consider and take into account:
|
·
|
in the case of the Board, its mandate and charter; and
|
|
·
|
in the case of an individual director, the competencies and skills each individual director is expected to possess.
|
As of the date of this Annual Report, ESSA
has a total of 25 employees and consultants on a full-time or part-time basis. ESSA has in the past, and may in the future, retain
additional expert consultants on an ad-hoc basis if required in connection with the Company’s development program. None of
ESSA’s employees are represented by a union. The following table sets forth the total number of ESSA’s employees at
September 30, 2019, 2018, and 2017, respectively, and a breakdown of persons employed by category of activity and geographic location
for the corresponding periods.
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Employees and consultants by category of activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Administration
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
Research
|
|
|
13
|
|
|
|
5
|
|
|
|
5
|
|
Total Number of Employees and Consultants
|
|
|
25
|
|
|
|
15
|
|
|
|
15
|
|
Employees and consultants by geographic location:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
United States
|
|
|
16
|
|
|
|
7
|
|
|
|
7
|
|
Total Number of Employees and Consultants
|
|
|
25
|
|
|
|
15
|
|
|
|
15
|
|
As at the date of this Annual Report, as
a group, the Company’s directors and executive officers beneficially owned, directly or indirectly, or exercised control
over 860,733 Common Shares being 4.0% of the 20,762,374 Common Shares issued and outstanding.
The following table states the number of
Common Shares beneficially owned by each person, directly or indirectly, or over which each person exercised control or direction
as at December 18, 2019. The persons listed below are deemed to be the beneficial owners of Common Shares underlying stock options
that are exercisable within 60 days from the above date.
Name of Beneficial Owner
|
|
Common Shares(1)
|
|
|
Percent of Common Shares(2)
|
|
Dr. David Parkinson
|
|
|
264,639
|
|
|
|
1.22
|
%
|
Richard M. Glickman
|
|
|
52,458
|
|
|
|
*
|
|
Dr. Marianne Sadar
|
|
|
192,798
|
|
|
|
*
|
|
Dr. Raymond Andersen
|
|
|
192,798
|
|
|
|
*
|
|
Gary Sollis
|
|
|
11,937
|
|
|
|
*
|
|
David Wood
|
|
|
62,935
|
|
|
|
*
|
|
Franklin Berger
|
|
|
498,625
|
|
|
|
2.30
|
%
|
Peter Virsik
|
|
|
103,750
|
|
|
|
*
|
|
Scott Requadt
|
|
|
11,937
|
|
|
|
*
|
|
Alex Martin
|
|
|
18,986
|
|
|
|
*
|
|
Marella Thorell
|
|
|
7,568
|
|
|
|
*
|
|
Sanford Zweifach
|
|
|
4,687
|
|
|
|
*
|
|
Ari Brettman
|
|
|
4,687
|
|
|
|
*
|
|
|
(1)
|
These numbers include Common
Shares underlying stock options that are exercisable within 60 days from December 18, 2019.
|
|
(2)
|
Based on an aggregate total
of 21,680,962 Common Shares, being the 20,762,374 Common Shares issued and outstanding as at December 18, 2019 plus the 918,588
Common Shares underlying stock options that are exercisable within 60 days from December 18, 2019.
|
|
(3)
|
Less than 1% of Common
Shares issued and outstanding as at December 18, 2019.
|
Item 6.B., “Directors, Senior
Management and Employees – Compensation” above sets out more detailed information regarding options granted to
members of the Board of Directors and describes arrangements for involving employees in the capital of the Company.
|
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The following table shows the name and
information about ESSA’s voting securities owned by each person or company which, as at December 18, 2019, owned of record,
or which, to ESSA’s knowledge, owned beneficially, directly or indirectly, more than 5% of any class or series of the Company’s
voting securities:
Name
|
|
Number and Type of Securities(1)
|
|
Type of Ownership
|
|
Percentage of
Class(2)
|
|
|
Percentage of Class
on a Diluted Basis(3)
|
|
Clarus Ventures LLC
|
|
3,373,054 Common Shares
|
|
Beneficial
|
|
|
16.25
|
%
|
|
|
9.92
|
%
|
BVF Partners, LP
|
|
3,403,998 Common Shares
|
|
Beneficial
|
|
|
12.72
|
%
|
|
|
9.99
|
%
|
Omega Fund IV, LP
|
|
1,709,848 Common Shares
|
|
Beneficial
|
|
|
8.24
|
%
|
|
|
5.03
|
%
|
OrbiMed Advisors LLC
|
|
1,471,853 Common Shares
|
|
Beneficial
|
|
|
7.09
|
%
|
|
|
4.32
|
%
|
Eventide Funds
|
|
2,010,168 Common Shares
|
|
Beneficial
|
|
|
9.68
|
%
|
|
|
5.90
|
%
|
Soleus Funds
|
|
3,403,998 Common Shares
|
|
Beneficial
|
|
|
6.02
|
%
|
|
|
9.99
|
%
|
|
(1)
|
These numbers include Common
Shares underlying pre-funded warrants.
|
|
(2)
|
Based on 20,762,374 outstanding Common Shares as of December 18, 2019.
|
|
(3)
|
Based on an aggregate total
of 34,074,054 outstanding Common Shares on a fully diluted basis as of December 18, 2019, being the 20,762,374 Common Shares issued
and outstanding as at December 18, 2019, and assuming the exercise of all outstanding 918,588 Options exercisable within 60 days
from December 18, 2019, 11,919,404 pre-funded warrants, 227,273 7-Year Warrants, 7,477 SVB Warrants and 238,938 broker warrants,
each on a one-to-one basis.
|
No major shareholders have different voting
rights. 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; these 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.
The information in the table above was
supplied by Computershare Trust Company of Canada, the Company’s registrar and transfer agent, and by the individuals themselves.
As of December 18, 2019, the number of
registered shareholders of record (and the number and percentage of shares held by such shareholders) is as follows:
Location:
|
|
Number of registered
shareholders of record
|
|
|
Number of Common
Shares
|
|
|
Percentage of total
Common
Shares
|
|
Canada
|
|
|
6
|
|
|
|
3,930,504
|
|
|
|
18.93
|
%
|
United States
|
|
|
32
|
|
|
|
16,653,033
|
|
|
|
80.21
|
%
|
Other
|
|
|
322
|
|
|
|
178,837
|
|
|
|
0.86
|
%
|
Total
|
|
|
360
|
|
|
|
20,762,374
|
|
|
|
100
|
%
|
The Company is not aware that it is directly
owned or controlled by another corporation, any foreign government or any other natural or legal person(s) severally or jointly.
The Company is not aware of any arrangement, the operation of which may result in a change of control of the Company.
|
B.
|
Related Party Transactions
|
In addition to the compensation arrangements
discussed under Item 6.B “Compensation”, the following is a description of the material terms of those transactions
with related parties to which ESSA is a party and which it is required to disclose pursuant to the disclosure rules of the SEC
and the British Columbia Securities Commission.
Agreements with Directors and Officers
Indemnity Agreements
ESSA has entered into indemnity agreements
with its directors and certain officers which provide, among other things, that it will indemnify him or her to the fullest extent
permitted by law from and against all liabilities, costs, charges and expenses incurred as a result of his or her actions in the
exercise of his or her duties as a director or officer.
Employment Agreements
ESSA has entered into employment agreements
with Dr. David Parkinson, President and Chief Executive Officer, David Wood, Chief Financial Officer, and Peter Virsik, Executive
Vice President and Chief Operating Officer. For more information regarding certain of these agreements, see “Compensation”
in Item 6.B of this Annual Report.
Consulting Agreements
ESSA has entered into consulting agreements
with founding scientists Dr. Marianne Sadar (Former CSO) and Dr. Raymond Andersen (Former CTO). The specific provisions of each
consulting agreement include:
For Dr. Marianne Sadar:
|
·
|
The term of this consulting agreement expires on February 1, 2022 and may be extended for additional periods of one year each by mutual written agreement between the parties.
|
|
·
|
An annual fee to the consultant of C$180,000 (C$15,000 monthly) for the first and second year of the term and an annual consulting fee of C$120,000 (C$10,000 monthly) for the third and fourth year of the term.
|
|
·
|
In connection with consulting services performed, on February 21, 2018 Dr. Sadar received options to purchase 80,000 Common Shares at an exercise price of C$4.90 per share. Such options vest monthly in 48 equal installments of 1,666 Common Shares and vested options shall be exercisable any time and from time to time until February 21, 2028.
|
|
·
|
Dr. Sadar may receive an annual bonus of up to 25% of the annual fee upon accomplishment of objectives as determined by the Company and agreed to by Dr. Sadar.
|
|
·
|
At all times during the term of the consulting agreement, and for a period of 3 months thereafter, Dr. Sadar will be restricted from competing against us.
|
For Dr. Raymond Andersen:
|
·
|
The term of this consulting agreement expires on February 1, 2022 and may be extended for additional periods of one year each by mutual written agreement between the parties.
|
|
·
|
An annual fee to the consultant of C$180,000 (C$15,000 monthly) for the first and second year of the term and an annual consulting fee of C$120,000 (C$10,000 monthly) for the third and fourth year of the term.
|
|
·
|
In connection with consulting services performed, on February 21, 2018 Dr. Andersen received options to purchase 80,000 Common Shares at an exercise price of C$4.90 per share. Such options vest monthly in 48 equal installments of 1,666 Common Shares and vested options shall be exercisable any time and from time to time until February 21, 2028.
|
|
·
|
Dr. Andersen may receive an annual bonus of up to 25% of the annual fee upon accomplishment of objectives as determined by the Company and agreed to by Dr. Andersen.
|
|
·
|
At all times during the term of the consulting agreement, and for a period of 3 months thereafter, Dr. Andersen will be restricted from competing against us.
|
Equity Awards
Since ESSA's inception, it has granted
equity awards to certain of its directors and officers. ESSA describes its equity plans under “Executive Compensation”
in Item 6 of this Annual Report.
Included in accounts payable and accrued
liabilities at September 30, 2019 is $93,033 (compared to $128,035 on September 30, 2018 and $219,031 on September 30, 2017)
due to related parties with respect to the transactions described under “Executive Compensation” in Item 6 of
this Annual Report and expense reimbursements. Amounts due to related parties are non-interest bearing, with no fixed terms of
repayment.
Indebtedness of Directors, Executive
Officers and Employees
None of ESSA's directors, executive officers,
employees, former directors, former executive officers or former employees, and none of their associates, is indebted to ESSA or
another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement
or understanding provided by ESSA, except for routine indebtedness as defined under applicable securities legislation.
Significant Influence
The Company previously completed the January
2016 Financing for gross proceeds of approximately $15,000,000. For greater detail see Item 4.A “History and development
of the Company.”
As a result of the January 2016 Financing,
Scott Requadt, then Managing Director of Clarus, was appointed to the Board of the Company. Pursuant to the terms of a subscription
agreement between the Company and Clarus in connection with the January 2016 Financing, Clarus is entitled to nominate two directors
to the board of directors of the Company, one of which must be an independent director and pre-approved by the Company. Dr. Ari
Brettman, Principal of Blackstone Life Sciences, which owns Clarus, was appointed to the Board on October 18, 2019. 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. As of the date of this Annual Report, Clarus has significant influence on the Company beneficially owning 3,373,054
Common Shares, representing 16.25% of the issued and outstanding Common Shares.
|
C.
|
Interests of Experts and Counsel
|
Not applicable.
|
ITEM 8.
|
FINANCIAL INFORMATION
|
|
A.
|
Consolidated Statements and Other Financial Information
|
The Company’s audited consolidated
financial statements as at and for the years ended September 30, 2019, 2018, and 2017, as required under this Item 8, are
attached hereto and found immediately following the text of this Annual Report. The audit report of Davidson & Company
LLP is included herein immediately preceding the consolidated financial statements and schedules.
Legal Proceedings
From time to time, ESSA may become involved
in legal or regulatory proceedings arising in the ordinary course of business. ESSA is not currently a party to any material litigation
or regulatory proceeding and it is not aware of any pending or threatened litigation or regulatory proceeding against it that could
have a material adverse effect on its business, operating results, financial condition or cash flows.
Dividend Policy
ESSA has never declared or paid any dividends
on its securities. ESSA does not have any present intention to pay cash dividends on its Common Shares and it does not anticipate
paying any cash dividends on its Common Shares in the foreseeable future. ESSA currently intends to invest its future earnings,
if any, to fund its growth. However, any future determination as to the declaration and payment of dividends will be at the discretion
of ESSA's board of directors and will depend on its financial condition, operating results, contractual restrictions, capital requirements,
business prospects and other factors its board of directors may deem relevant.
There have been no significant changes
in the Company’s financial condition since the most recent consolidated financial statements for the fiscal year ended September
30, 2019. See “Summary Corporate History and Intercorporate Relationships” in Item 4 of this Annual Report.
|
ITEM 9.
|
THE OFFER AND LISTING
|
|
A.
|
Offer and Listing Details
|
As at the date of this Annual Report, the
Company had 6,311,098 Common Shares outstanding. On January 27, 2015, the Common Shares began trading on the TSX-V under the
symbol “EPI”. On July 28, 2015, ESSA delisted from the TSX-V and began trading its Common Shares on the TSX under the
same symbol, “EPI”. On July 9, 2015, the Common Shares began trading on the Nasdaq under the symbol “EPIX”.
On November 27, 2017, ESSA delisted from the TSX and began trading its Common Shares on the TSX-V under the same symbol, “EPI”.
Not applicable.
The Company’s Common Shares are listed
on the Nasdaq under the symbol “EPIX”. The Company’s Common Shares commenced trading on the TSX under the symbol
“EPI” on July 28, 2015, while the Company’s Common Shares were concurrently delisted from the TSX-V. On November
27, 2017, the Company down-listed from the TSX and began trading its Common Shares on the TSX-V under the same symbol “EPI”.
The Company’s Common Shares trade in U.S. dollars on the Nasdaq and in Canadian dollars on the TSX-V.
Not applicable.
Not applicable.
Not applicable.
|
ITEM 10.
|
ADDITIONAL INFORMATION
|
Not applicable.
|
B.
|
Memorandum and Articles of Association
|
The Company incorporates by reference into
this Annual Report the information contained in the Company’s registration statement on Form 20-F (File No. 377-00939) originally
filed with the SEC on February 24, 2015, as amended.
Except for contracts entered into in the
ordinary course of business, the only contracts entered into by ESSA within two years immediately preceding this Annual Report
that are still in effect, which may be regarded as material, are as follows:
|
1.
|
Employment Agreement for Dr. Alessandra Cesano
|
|
2.
|
Consulting agreement for Dr. Marianne Sadar dated February 1, 2018.
|
|
3.
|
Consulting agreement for Dr. Raymond Andersen dated February 1, 2018.
|
|
4.
|
Lease for 400 Oyster Point Boulevard, South San Francisco, California, United States dated March 5, 2018.
|
The Company is not aware of any Canadian
federal or provincial laws, decrees, or regulations that restrict the export or import of capital, including foreign exchange controls,
or that affect the remittance of dividends, interest or other payments to non-Canadian holders of the Common Shares. There
are no limitations under the laws of Canada or by the charter or other constituent documents of the Company, except the Investment
Canada Act which may require review and approval by the Minister of Industry (Canada) of certain acquisition of control of
the Company by non-Canadians. The threshold for acquisitions of control is generally defined as being one-third or more of
ESSA’s voting shares. If the investment is potentially injurious to national security it may be subject to review under the
Investment Canada Act notwithstanding the percentage interest acquired or amount of the investment. “Non-Canadian”
generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately
controlled by non-Canadians.
U.S. Federal Income Tax Considerations
The following is a summary of the anticipated
U.S. federal income tax consequences generally applicable to U.S. Holders (as defined below) of the ownership and disposition of
Common Shares. This summary addresses only holders who acquire and hold Common Shares as “capital assets” (generally,
assets held for investment purposes).
The following summary does not purport
to address all U.S. federal income tax consequences that may be relevant to a U.S. Holder (as defined below) as a result of the
ownership and disposition of Common Shares, nor does it take into account the specific circumstances of any particular holder,
some of which may be subject to special tax rules (including, but not limited to, brokers, dealers in securities or currencies,
traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax-exempt organizations,
insurance companies, banks, thrifts and other financial institutions, persons liable for alternative minimum tax, persons that
hold an interest in an entity that holds Common Shares, persons that will own, or will have owned, directly, indirectly or constructively
10% or more (by vote or value) of our stock, persons that hold Common Shares as part of a hedging, integration, conversion or constructive
sale transaction or a straddle, former citizens or permanent residents of the United States, or persons whose functional currency
is not the U.S. dollar).
This summary is based on the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative pronouncements and
rulings of the United States Internal Revenue Service (the “IRS”), and judicial decisions and the Canada-United
States Income Tax Convention (1980), as amended, all as in effect on the date hereof, and all of which are subject to change (possibly
with retroactive effect) and to differing interpretations. Except as specifically set forth below, this summary does not discuss
applicable income tax reporting requirements. This summary does not describe any state, local or foreign tax law considerations,
or any aspect of U.S. federal tax law other than income taxation (e.g., estate or gift tax or the Medicare contribution tax). U.S.
Holders (as defined below) should consult their own tax advisers regarding such matters.
No legal opinion from U.S. legal counsel
or ruling from the IRS has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the ownership
or disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that
is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary
is based are subject to different interpretations, the IRS and U.S. courts could disagree with one or more of the positions taken
in this summary.
As used in this summary, a “U.S.
Holder” is a beneficial owner of Common Shares who, for U.S. federal income tax purposes, is (i) a citizen or individual
resident of the United States, (ii) a corporation (or other entity that is classified as a corporation for U.S. federal income
tax purposes) that is created or organized in or under the laws of the United States, any State thereof or the District of Columbia,
(iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if (A) a
U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust, or (B) the trust has a valid election in effect to be treated as a U.S. person
for U.S. federal income tax purposes.
The tax treatment of a partner in a partnership
(or other entity or arrangement classified as a partnership for U.S. federal income tax purposes) that holds Common Shares may
depend on both the partnership’s and the partner’s status and the activities of the partnership. Partnerships (or other
entities or arrangements classified as a partnership for U.S. federal income tax purposes) that are beneficial owners of Common
Shares, and their partners and other owners, should consult their own tax advisers regarding the tax consequences of the ownership
and disposition of Common Shares.
Taxation of Common Shares
Passive Foreign Investment Company Rules
A foreign corporation will be considered
a passive foreign investment company (“PFIC”) for any taxable year in which (1) 75% or more of its gross
income is “passive income” under the PFIC rules or (2) 50% or more of the average quarterly value of its assets
produce (or are held for the production of) “passive income.” For this purpose, “passive income” generally
includes interest, dividends, certain rents and royalties, and certain gains. Moreover, for purposes of determining if the foreign
corporation is a PFIC, if the foreign corporation owns, directly or indirectly, at least 25%, by value, of the shares of another
corporation, it will be treated as if it holds directly its proportionate share of the assets and receives directly its proportionate
share of the income of such other corporation. If a corporation is treated as a PFIC with respect to a U.S. Holder for any taxable
year, the corporation will continue to be treated as a PFIC with respect to that U.S. Holder in all succeeding taxable years, regardless
of whether the corporation continues to meet the PFIC requirements in such years, unless certain elections are made.
The determination as to whether a foreign
corporation is a PFIC is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations,
and the determination will depend on the composition of the income, expenses and assets of the foreign corporation from time to
time and the nature of the activities performed by its officers and employees. ESSA believes that it was classified as a PFIC for
the taxable year ending September 30, 2019, and ESSA believes it may be classified as a PFIC for the current taxable year and in
future taxable years. However, our actual PFIC status for the current or any future taxable year is uncertain and cannot be determined
until after the end of such taxable year.
If we are classified as a PFIC, a U.S.
Holder that does not make any of the elections described below would be required to report any gain on the disposition of Common
Shares as ordinary income, rather than as capital gain, and to compute the tax liability on the gain and any “Excess Distribution”
(as defined below) received in respect of Common Shares as if such items had been earned ratably over each day in the U.S. Holder’s
holding period (or a portion thereof) for Common Shares. The amounts allocated to the taxable year during which the gain is realized
or distribution is made, and to any taxable years in such U.S. Holder’s holding period that are before the first taxable
year in which we are treated as a PFIC with respect to the U.S. Holder, would be included in the U.S. Holder’s gross income
as ordinary income for the taxable year of the gain or distribution. The amount allocated to each other taxable year would be taxed
as ordinary income in the taxable year during which the gain is realized or distribution is made at the highest tax rate in effect
for the U.S. Holder in that other taxable year and would be subject to an interest charge as if the income tax liabilities had
been due with respect to each such prior year. For purposes of these rules, gifts, exchanges pursuant to corporate reorganizations
and use of Common Shares as security for a loan may be treated as a taxable disposition of Common Shares. An “Excess Distribution”
is the amount by which distributions during a taxable year in respect of a Common Share exceed 125% of the average amount of distributions
in respect thereof during the three preceding taxable years (or, if shorter, the U.S. Holder’s holding period for Common
Shares).
Certain additional adverse tax rules will
apply to a U.S. Holder for any taxable year in which we are treated as a PFIC with respect to such U.S. Holder and any of our subsidiaries
is also treated as a PFIC (a “Subsidiary PFIC”). In such a case, the U.S. Holder will generally be deemed to
own its proportionate interest (by value) in any Subsidiary PFIC and be subject to the PFIC rules described above with respect
to the Subsidiary PFIC regardless of such U.S. Holder’s percentage ownership in us.
The adverse tax consequences described
above may be mitigated if a U.S. Holder makes a timely “qualified electing fund” election (a “QEF election”)
with respect to its interest in the PFIC. Consequently, if we are classified as a PFIC, it may be advantageous for a U.S. Holder
to elect to treat us as a “qualified electing fund” with respect to such U.S. Holder in the first year in which it
holds Common Shares. If a U.S. Holder makes a timely QEF election with respect to ESSA, the electing U.S. Holder would be required
in each taxable year that we are considered a PFIC to include in gross income (i) as ordinary income, the U.S. Holder’s
pro rata share of the ordinary earnings of ESSA and (ii) as capital gain, the U.S. Holder’s pro rata share of the net
capital gain (if any) of ESSA, whether or not the ordinary earnings or net capital gain are distributed. An electing U.S. Holder’s
basis in Common Shares will be increased to reflect the amount of any taxed but undistributed income. Distributions of income that
had previously been taxed will result in a corresponding reduction of basis in Common Shares and will not be taxed again as distributions
to the U.S. Holder.
A QEF election made with respect to ESSA
will not apply to any Subsidiary PFIC; a QEF election must be made separately for each Subsidiary PFIC (in which case the treatment
described above would apply to such Subsidiary PFIC). If a U.S. Holder makes a timely QEF election with respect to a Subsidiary
PFIC, it would be required in each taxable year to include in gross income its pro rata share of the ordinary earnings and net
capital gain of such Subsidiary PFIC, but may not receive a distribution of such income. Such a U.S. Holder may, subject to certain
limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge (which would
not be deductible for U.S. federal income tax purposes if the U.S. Holder were an individual).
If we determines that we, and any subsidiary
in which we own, directly or indirectly, more than 50% of such subsidiary’s total aggregate voting power, is likely a PFIC
in any taxable year, we intend to make available to U.S. Holders, upon request and in accordance with applicable procedures, a
“PFIC Annual Information Statement” with respect to ESSA and any such subsidiary for such taxable year. The “PFIC
Annual Information Statement” may be used by U.S. Holders for purposes of complying with the reporting requirements applicable
to a QEF election with respect to ESSA and any Subsidiary PFIC.
The U.S. federal income tax on any gain
from the disposition of Common Shares or from the receipt of Excess Distributions may be greater than the tax if a timely QEF election
is made.
Alternatively, if we were to be classified
as a PFIC, a U.S. Holder could also avoid certain of the rules described above by making a mark-to-market election (instead of
a QEF election), provided Common Shares are treated as regularly traded on a qualified exchange or other market within the meaning
of the applicable U.S. Treasury Regulations. However, a U.S. Holder will not be permitted to make a mark-to-market election with
respect to a Subsidiary PFIC. U.S. Holders should consult their own tax advisers regarding the potential availability and consequences
of a mark-to-market election, as well as the advisability of making a protective QEF election in case we are classified as a PFIC
in any taxable year.
During any taxable year in which we or
any Subsidiary PFIC is treated as a PFIC with respect to a U.S. Holder, that U.S. Holder generally must file IRS Form 8621. U.S.
Holders should consult their own tax advisers concerning annual filing requirements.
Distributions on Common Shares
In general, subject to the passive foreign
investment company rules discussed above, the gross amount of any distribution received by a U.S. Holder with respect to the Common
Shares (including amounts withheld to pay Canadian withholding taxes) will be included in the gross income of the U.S. Holder as
a dividend to the extent attributable to the Company’s current and accumulated earnings and profits, as determined under
U.S. federal income tax principles. We may not calculate our earnings and profits each year under U.S. federal income tax rules.
Accordingly, U.S. Holders should expect that a distribution generally will be treated as a dividend for U.S. federal income tax
purposes. Subject to the passive foreign investment company rules discussed above, distributions on Common Shares to certain non-corporate
U.S. Holders that are treated as dividends may be taxed at preferential rates provided we are not treated as a PFIC for the taxable
year of the distribution or the preceding taxable year. Such dividends will not be eligible for the “dividends received”
deduction ordinarily allowed to corporate shareholders with respect to dividends received from U.S. corporations.
The amount of any dividend paid in Canadian
dollars (including amounts withheld to pay Canadian withholding taxes) will equal the U.S. dollar value of the Canadian dollars
calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. Holder, regardless of whether
the Canadian dollars are converted into U.S. dollars. A U.S. Holder will have a tax basis in the Canadian dollars equal to their
U.S. dollar value on the date of receipt. If the Canadian dollars received are converted into U.S. dollars on the date of receipt,
the U.S. Holder should generally not be required to recognize foreign currency gain or loss in respect of the distribution. If
the Canadian dollars received are not converted into U.S. dollars on the date of receipt, a U.S. Holder may recognize foreign currency
gain or loss on a subsequent conversion or other disposition of the Canadian dollars. Such gain or loss will be treated as U.S.
source ordinary income or loss.
Distributions on Common Shares that are
treated as dividends generally will constitute income from sources outside the United States and generally will be categorized
for U.S. foreign tax credit purposes as “passive category income.” A U.S. Holder may be eligible to elect to claim
a U.S. foreign tax credit against its U.S. federal income tax liability, subject to applicable limitations and holding period requirements,
for Canadian tax withheld, if any, from distributions received in respect of Common Shares. A U.S. Holder that does not elect to
claim a U.S. foreign tax credit may instead claim a deduction for Canadian tax withheld, but only for a taxable year in which the
U.S. Holder elects to do so with respect to all foreign income taxes paid or accrued in such taxable year. The rules relating to
U.S. foreign tax credits are complex, and each U.S. Holder should consult its own tax adviser regarding the application of such
rules.
Sale, Exchange or Other Taxable Disposition
of Common Shares
A U.S. Holder generally will recognize
gain or loss on the sale, exchange or other taxable disposition of Common Shares in an amount equal to the difference, if any,
between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis in
the Common Shares exchanged therefor. Subject to the passive foreign investment company rules discussed above, such gain or loss
will be capital gain or loss and will be long-term capital gain (currently taxable at a reduced rate for non-corporate U.S. Holders)
or loss if, on the date of the sale, exchange or other taxable disposition, Common Shares have been held by such U.S. Holder for
more than one year. The deductibility of capital losses is subject to limitations. Such gain or loss generally will be sourced
within the United States for U.S. foreign tax credit purposes.
Required Disclosure with Respect to
Foreign Financial Assets
Certain U.S. Holders are required to report
information relating to an interest in Common Shares, subject to certain exceptions (including an exception for Common Shares held
in accounts maintained by certain financial institutions), by attaching a completed IRS Form 8938, Statement of Specified Foreign
Financial Assets, with their tax return for each year in which they hold an interest in Common Shares. U.S. Holders should consult
their own tax advisers regarding information reporting requirements relating to their ownership of the Common Shares.
Certain Material Canadian Federal Income
Tax Considerations
The following is a summary, as of today’s
date, of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (“Tax Act”)
that generally apply to an investor who acquires Common Shares, who, for the purposes of the Tax Act and at all relevant times,
deals at arm’s length, and is not affiliated with ESSA and who acquires and holds Common Shares, as capital property (a “Holder”).
Generally, Common Shares will be considered to be capital property to a Holder provided that the Holder does not use Common Shares
in the course of carrying on a business of trading or dealing in securities and such Holder has not acquired them or been deemed
to have acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.
This summary is based upon the current
provisions of the Canada-United States Income Tax Convention (1980) (“Treaty”), the Tax Act and its regulations
and the current published administrative policies and assessing practices of the Canada Revenue Agency (“CRA”).
This summary takes into account all specific proposals to amend the Tax Act and its regulations publicly announced by or on behalf
of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that the Tax
Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their
current form or at all. This summary does not otherwise take into account any changes in law or in the administrative policies
or assessing practices of the CRA, whether by legislative, governmental or judicial decision or action, nor does it take into account
or consider any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from
the Canadian federal income tax considerations discussed in this summary.
This summary only applies to Holders who
(i) for the purposes of the Tax Act, have not and will not be resident in Canada at any time, (ii) do not use or hold
the common shares in carrying on a business in Canada, and (iii) are resident in the United States for income tax purposes
and entitled to benefits under the Treaty. Special rules, which are not discussed in this summary, may apply to such a Holder that
is an insurer that carries on business in Canada and elsewhere.
This summary is of a general nature only,
is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed
to be, legal or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular
circumstances.
Currency
For purposes of the Tax Act, all amounts
relating to the acquisition, holding or disposition of Common Shares must be expressed in Canadian dollars. Amounts denominated
in any other currency must be converted into Canadian dollars using the rate of exchange quoted by the Bank of Canada on the day
the amount first arose, or such other rate of exchange as is acceptable to the CRA.
Dividends
Dividends paid or credited or deemed to
be paid or credited to a Holder by ESSA are subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend
unless such rate is reduced by the terms of the Treaty. The rate of withholding tax on dividends paid or credited to a Holder who
is resident in the U.S. for purposes of the Treaty, entitled to benefits under the Treaty, and is the beneficial owner of the dividend
is generally limited to 15% of the gross amount of the dividend (or 5% in the case of such a Holder that is a company beneficially
owning at least 10% of ESSA’s voting shares). Holders should consult their own tax advisors regarding the application of
the Treaty to dividends based on their particular circumstances.
Dispositions of Common Shares
A Holder generally will not be subject
to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of Common Shares, nor will
capital losses arising therefrom be recognized under the Tax Act, unless Common Shares constitute “taxable Canadian property”
to the Holder for purposes of the Tax Act, and the gain is not exempt from tax pursuant to the terms of the Treaty.
Provided Common Shares are listed on a
“designated stock exchange”, as defined in the Tax Act (which currently includes the TSX-V and the Nasdaq), at the
time of disposition, the Common Shares generally will not constitute taxable Canadian property of a Holder at that time, unless
at any time during the 60 month period immediately preceding the disposition the following two conditions are met concurrently:
(i) the Holder, persons with
whom the Holder did not deal at arm’s length, and partnerships in which the Holder or such non-arm’s length person
holds a membership interest (either directly or indirectly through one or more partnerships), or the Holder together with all such
persons, owned 25% or more of the issued shares of any class or series of ESSA’s shares; and
(ii) more than 50% of the fair
market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property
situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties”
(as defined in the Tax Act) or an option, an interest or right in such property, whether or not such property exists.
Notwithstanding the foregoing, a Common
Share may otherwise be deemed to be taxable Canadian property to a Holder for purposes of the Tax Act in particular circumstances.
Holders whose Common Shares are taxable
Canadian property should consult their own tax advisors.
|
F.
|
Dividends and Paying Agents
|
Not applicable.
Not applicable.
This Annual Report and the related exhibits
are available for viewing at the offices of ESSA, 999 West Broadway, Suite 720, Vancouver, BC V5Z 1K5, telephone: (778) 331-0962.
Copies of ESSA’s financial statements and other continuous disclosure documents required under the Securities Act (Ontario)
are available for viewing on SEDAR at www.sedar.com. All of the documents referred to are in English.
|
I.
|
Subsidiary Information
|
Not applicable.
|
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company is exposed to various market
risks associated with its underlying assets, liabilities and anticipated transactions. Refer to Item 18, ‘‘Financial
Statements—Note 16 Financial Instruments and Risk’’ of the Company’s audited consolidated financial statements
for the year ended September 30, 2019, for a qualitative and quantitative discussion of the Company’s exposure to these market
risks.
|
ITEM 12.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
ESSA Pharma Inc. (the “Company”)
was incorporated under the laws of the Province of British Columbia on January 6, 2009. The Company’s head office address
is Suite 720 – 999 West Broadway, Vancouver, BC, V5Z 1K5. The registered and records office address is the 26th
Floor at 595 Burrard Street, Three Bentall Centre, Vancouver, BC, V7X 1L3. The Company is listed on the NASDAQ Capital Market (“NASDAQ”)
under the symbol “EPIX”, and on the Toronto Venture Exchange (“TSX-V”) under the symbol “EPI”.
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 patents
(the “NTD Technology”) which were the joint property of the British Columbia Cancer Agency and the University of British
Columbia. As at September 30, 2019, no products are in commercial production or use. Since September 2017, the Company has been
focused on preclinical development of its next-generation compounds, and in March 2019 announced the selection of EPI-7386 as a
final Investigational New Drug candidate. Prior to that, the Company’s primary activity was the Phase I clinical development
of clinical candidate EPI-506, which was discontinued on September 11, 2017.
On July 31, 2019, the Company
acquired all of the issued and outstanding shares of Realm Therapeutics plc (“Realm”) pursuant to a Scheme of Arrangement
as sanctioned on July 29, 2019 by the High Court of Justice in England and Wales (the “Realm Acquisition”) (Note 4).
Effective April 25, 2018, the
Company consolidated its issued and outstanding common shares on the basis of one post-consolidation share for 20 pre-consolidation
shares. Unless otherwise stated, all share and per share amounts have been restated retrospectively to reflect this share consolidation.
These financial statements have
been prepared in accordance with International Financial Reporting Standards (“IFRS”) assuming the Company will continue
on a going-concern basis. The Company has incurred losses and negative operating cash flows since inception. The Company incurred
a net loss of $10,441,865 during the year ended September 30, 2019 and has an accumulated deficit of $54,810,951. The ability of
the Company to continue as a going concern in the long-term depends upon its ability to develop profitable operations and to continue
to obtain adequate financing. As at September 30, 2019, the Company has not advanced its research into a commercially viable
product. The Company’s continuation as a going concern is dependent upon the successful development of its NTD Technology
to a commercial standard. During the year ended September 30, 2019, the Company completed a financing and acquired capital resources
in the Realm Acquisition which are anticipated to provide funds to deliver on an operating plan through the next fiscal year and
beyond.
The consolidated financial statements
do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company
be unable to continue operations. The Company’s operations and research programs are dependent on the Company’s ability
to receive financial support once the current resources have been depleted.
These consolidated financial
statements, including comparatives, have been prepared using accounting policies consistent with IFRS issued by the International
Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee
(“IFRIC”).
The consolidated financial statements
have been prepared on a historical cost basis except for certain financial assets measured at fair value. In addition, these consolidated
financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
All amounts expressed in these
consolidated financial statements and the accompanying notes are expressed in United States dollars, except per share data and
where otherwise indicated. References to “$” are to United States dollars and references to “C$” are to
Canadian dollars.
Subsidiaries are all entities
over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee
to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered
when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control
is transferred to the Company until the date on which control ceases.
The accounts of subsidiaries
are prepared for the same reporting period as the parent company, using consistent accounting policies. Inter-company transactions,
balances and unrealized gains or losses on transactions are eliminated upon consolidation.
The consolidated financial statements
comprise the accounts of ESSA Pharma Inc., the parent company, and its wholly owned subsidiaries.
The functional
currency of an entity is the currency of the primary economic environment in which the entity operates.
The functional
currency of the Company and its subsidiaries have been determined as follows:
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 results 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, relate to the following key estimates:
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.
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.
Pursuant to the terms of the
Company’s grant from the Cancer Prevention Research Institute of Texas (“CPRIT”), the Company has met certain
terms and conditions as detailed in Note 18 to qualify for the grant funding. The Company has therefore recognized in profit or
loss, as recoveries of research and development expenditures, 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.
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 (Note 8).
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.
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.
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).
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 Company has made reference to prices quoted on the TSX-V and NASDAQ.
The assumptions and models used for estimating fair value for share-based payment transactions are discussed in Note 11.
The functional
currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency
determinations were conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes
in Foreign Exchange Rates.
Transactions
in currencies other than the United States dollar are recorded at exchange rates prevailing on the dates of the transactions. At
the end of each reporting period, monetary assets and liabilities of the Company that are denominated in foreign currencies are
translated at the period end exchange rate while non-monetary assets and liabilities are translated at historical rates. Revenues
and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains
and losses arising on translation are included in comprehensive loss.
On translation
of the entities whose functional currency is other than the United States dollar, revenues and expenses are translated at the exchange
rates approximating those in effect on the date of the transactions. Assets and liabilities are translated at the rate of exchange
at the reporting date. Exchange gains and losses, including results of re-translation, are recorded in the foreign currency translation
reserve.
The Company acquired office and
computer equipment for use in its research and business activities.
Depreciation has been recognized
using the straight-line method at the rate of 30% per annum for computer equipment and 20% for office equipment.
The Company owns intangible assets
consisting of patent licences. Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Subsequent
expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they
relate. All other expenditures are recognized in profit or loss as incurred.
Intangible assets with finite
lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible
asset may be impaired. The amortization method and amortization period of an intangible asset with a finite life is reviewed at
least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied
in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting
estimates. The amortization expense on intangible assets with finite lives is recognized in general and administrative expenses.
Amortization is recognized in
profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for
use to September 15, 2030.
The Company’s long-lived
assets are reviewed for indications of impairment at the date of preparing each statement of financial position. If indication
of impairment exists, the asset’s recoverable amount is estimated.
An impairment loss is recognized
when the carrying value of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the
smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets
or group of assets. For the purpose of impairment testing, the Company determined it has one cash-generating unit.
The recoverable amount is the
greater of the asset’s fair value less cost to sell and value in use. In assessing fair value less cost to sell for the cash-generating
unit, the Company’s market capitalization is considered.
Provisions are recorded when
a present legal, statutory or constructive obligation exists as a result of past events where it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation
can be made.
The amount recognized as a provision
is the best estimate of the consideration required to settle the present obligation at the statement of financial position date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, if the effect is material, its carrying amount is the present value of those cash flows.
Government grants, including
grants from similar bodies, consisting of investment tax credits are recorded as a reduction of the related expense or cost of
the asset acquired. Government grants are recognized when there is reasonable assurance that the Company has met the requirements
of the approved grant program and there is reasonable assurance that the grant will be received.
Research grants that compensate
the Company for expenses incurred are recognized in profit or loss in reduction thereof on a systematic basis in the same years
in which the expenses are recognized. Grants that compensate the Company for the cost of an asset are recognized in profit or loss
on a systematic basis over the useful life of the asset.
Expenditures on research and
development activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized
in profit or loss as incurred. Investment tax credits related to current expenditures are included in the determination of net
income as the expenditures are incurred when there is reasonable assurance they will be realized.
Development activities involve
a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized
only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.
These criteria will be deemed by the Company to have been met when revenue is received by the Company and a determination that
it has sufficient resources to market and sell its product offerings. Upon a determination that the criteria to capitalize development
expenditures have been met, the expenditures capitalized will include the cost of materials, direct labour, and overhead costs
that are directly attributable to preparing the asset for its intended use. Other development expenditures will be expensed as
incurred.
Capitalized development expenditures
will be measured at cost less accumulated amortization and accumulated impairment losses. No development costs have been capitalized
to date.
The Company classifies its financial
assets in the following categories: fair value through profit or loss, amortized cost or fair value through other comprehensive
income. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification
of financial assets at initial recognition.
Financial assets at fair value
through profit or loss are initially recognized at fair value with changes in fair value recorded in profit or loss.
Financial assets are classified
at amortized cost if both of the following criteria are met and the financial assets are not classified or designated as at fair
value through profit and loss: 1) the Company’s objective for these financial assets is to collect their contractual cash
flows and 2) the asset’s contractual cash flows represent ‘solely payments of principal and interest’. The Company’s
cash and receivables are recorded at amortized cost as they meet the required criteria.
For financial assets that are
not held for trading, the Company can make an irrevocable election at initial recognition to classify the instruments at fair value
through other comprehensive income ("FVOCI"), with all subsequent changes in fair value being recognized in other comprehensive
income. This election is available for each separate investment. Under this new FVOCI category, fair value changes are recognized
in OCI while dividends are recognized in profit or loss. On disposal of the investment the cumulative change in fair value is not
recycled to profit or loss, rather transferred to deficit. The Company does not have any financial assets designated as FVOCI.
The Company classifies its financial
liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Company's accounting
policy for each category is as follows:
The Company’s accounts
payable and accrued liabilities and long-term debt are classified as amortized cost. The derivative liabilities are classified
as fair value through profit or loss.
The Company provides disclosures
that enable users to evaluate (a) the significance of financial instruments for the entity’s financial position and performance;
and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and
at the date of the statement of financial position, and how the entity manages these risks.
The Company provides information
about its financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs
used to estimate the fair value:
Level 1 – quoted prices
(unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other
than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
Level 3 – inputs for the
asset or liability that are not based on observable market data (unobservable inputs).
Share based payment arrangements
in which the Company receives goods or services as consideration for its own equity instruments granted to non-employees are accounted
for as equity settled share-based payment transactions and measured at the fair value of goods and services received. If the fair
value of the goods or services received cannot be estimated reliably, the share-based payment transaction is measured at the fair
value of the equity instruments granted at the date the Company receives the goods or services.
The Company grants stock options
to acquire common shares of the Company to directors, officers, employees and consultants. An individual is classified as an employee
when the individual is an employee for legal or tax purposes, or provides services similar to those performed by an employee.
The fair value of stock options
is measured on the date of grant, using the Black-Scholes option pricing model, and is recognized over the vesting period. Consideration
paid for the shares on the exercise of stock options is credited to share capital.
In situations where equity instruments
are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically
identified, they are measured at the fair value of the share-based payment. Otherwise, share-based payments are measured at the
fair value of goods or services received.
Basic loss per share is computed
by dividing the loss available to common shareholders by the weighted average number of common shares outstanding during the year.
The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such
conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities
is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding
options and warrants and their equivalents is reflected in diluted earnings per share by application of the weighted-average method.
Since the Company has losses, the exercise of outstanding options and warrants has not been included in this calculation as it
would be anti-dilutive.
Income tax
is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is
recognized in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax
is recognized in respect of temporary differences, between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible
for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable loss; and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount
of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the financial position reporting date.
A deferred
tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable
that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax
assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets
and liabilities on a net basis.
On July 31, 2019, the Company
acquired all of the issued and outstanding shares of Realm. Realm shareholders received a total of 6,718,150 common shares of the
Company (“New ESSA Shares”) at a ratio of 0.05763 of a New ESSA Share per share of Realm (or 1.4409 New ESSA Shares
for every one Realm ADS, representing 25 Realm shares). The fair value of the New ESSA Shares issued on July 31, 2019 was $15,989,197.
Included in accounts payable
and accrued liabilities is $246,906 in costs associated with the termination of Realm’s office lease, which was completed
in September 2019, and $300,000 in taxes payable.
Amortization expense has been
recorded in “general and administrative expenses” in the statement of loss and comprehensive loss (Note 19). In the
year ended September 30, 2018, the Company disposed of all equipment for $nil proceeds due to office restructuring and recorded
a loss on disposal of $83,692.
Amortization expense has been
recorded in “general and administrative expenses” in the statement of loss and comprehensive loss (Note 19).
The NTD Technology is held under
a license agreement signed in fiscal 2010 (the “License Agreement”). As consideration for the License Agreement, the
Company issued common shares of the Company. The License Agreement contains an annual royalty as a percentage of annual net revenue
and a percentage of any annual sublicensing revenue earned with respect to the NTD Technology. The License Agreement stipulates
annual minimum advance royalty payments of C$85,000. In addition, there are certain milestone payments for the first compound,
to be paid in stages as to C$50,000 at the start of a Phase II clinical trial, C$900,000 at the start of a Phase III clinical trial,
C$1,450,000 at application for marketing approval, and with further milestone payments on the second and additional compounds.
On November 18, 2016, Silicon
Valley Bank (“SVB”) entered into a $10,000,000 capital term loan facility agreement (“SVB Term Loan”) with
the Company. The Company has drawn down $8,000,000 from the SVB Term Loan. The option to draw an additional $2,000,000 lapsed on
July 31, 2017.
The SVB Term Loan bears an interest
rate of the Wall Street Journal Prime Rate (“WSJ Prime Rate”) plus 3% per annum and will mature on September 1, 2020.
The SVB Term Loan requires a final payment of 8.6% of the amount advanced (“Final Payment”), due upon the earlier of
the maturity or termination of the SVB Term Loan. The Company was required to make interest only payments until December 31, 2017.
The SVB Term Loan contains a voluntary prepayment option whereby the principal amount can be prepaid in whole, or in part, for
a fixed fee if a prepayment is made on or before the second anniversary of the SVB Term Loan.
The SVB Term Loan is secured
by a perfected first priority lien on all of the Company’s assets, with a negative pledge on the Company’s intellectual
property. The SVB Term Loan is subject to standard events of default, including default in the event of a material adverse change.
SVB may declare the Company to be in breach of the agreement in the event of a material adverse change, which has been defined
to include a material impairment in the Company’s assets acting as collateral under the SVB Term Loan, a material adverse
change in the business, operations, or condition (financial or otherwise) of the Company, or a material impairment of the prospect
of repayment of any portion of its debt obligations. There are no financial covenants under the SVB Term Loan.
In connection with the $8,000,000
draw, the Company granted an aggregate of 7,477 warrants to SVB (the “SVB Warrants”), exercisable at a price of $42.80
per share for a period of seven years until November 18, 2023, with an initial fair value of $167,022, which has been recognized
as a derivative liability (Note 9). The Company incurred total additional transaction costs of $220,898 related to the SVB Term
Loan and First Amendment. The transaction costs and Final Payment are being amortized into profit and loss over the estimated term
of the facility, being the legal term, at an effective interest rate of 12.19% (2018 - 12.07%).
The SVB Term Loan was paid off in full subsequent
to September 30, 2019 (Note 20).
In accordance with IFRS, an obligation
to issue shares for a price that is not fixed in the Company’s functional currency, and that does not qualify as a rights
offering, must be classified as a derivative liability and measured at fair value with changes recognized in the statement of loss
and comprehensive loss as they arise. The derivative liability was designated as a financial liability carried at fair value through
profit and loss.
In April 2014, in connection
with the issuance of a convertible debenture for $1,000,000, the Company issued 1,250 broker warrants valued at $14,935 (C$16,394),
each exercisable into one common share at a price of C$40.00 for a period of five years. As at September 30, 2019, the derivative
liability had a fair value of $nil (2018 - $nil). The Company has recorded the resulting change in fair value of $nil (2018 - $206)
in the statement of loss and comprehensive loss. These warrants expired unexercised during the year ended September 30, 2019.
In January 2016, the Company
completed a private placement of 227,273 units of the Company at $66.00 per unit (“Unit”) for gross proceeds of $14,999,992.
Each Unit consisted of one common share of the Company, one 7-year cash and cashless exercise warrant (the “7-Year Warrants”),
and one half of one 2-year cash exercise warrant (the “2-Year Warrants”). The 7-Year Warrants and 2-Year Warrants have
an exercise price of $66.00 per common share (collectively, the “2016 Warrants”). The holders of the 7-Year Warrants
may elect, in lieu of exercising the 7-Year Warrants for cash, a cashless exercise option, in whole or in part, to receive common
shares equal to the fair value of the 7-Year Warrants based on the number of 7-Year Warrants to be exercised multiplied by a ten-day
weighted average market price less the exercise price with the difference divided by the weighted average market price. If a warrant
holder exercises this option, there will be variability in the number of shares issued per 7-Year Warrant.
Additionally, the 2016 Warrants
contain provisions which may require the Company to redeem the 2016 Warrants, at the option of the holder, in the event of a major
transaction, such as a change of control or sale of the Company’s assets (“Major Transaction”). The redemption
value would be subject to a Black-Scholes valuation at the time of exercise. In the event the consideration for a Major Transaction
payable to the common shareholders is in cash, in whole or in part, the redemption of the 2016 Warrants would be made in cash pro-rata
to the composition of the consideration. The potential for a cash settlement for the 2016 Warrants, in accordance with IFRS, requires
the 2016 Warrants to be treated as financial liabilities measured at fair value through profit or loss.
The 2016 Warrants are not traded
in an active market. A liquidity discount of 20% has been applied to the per warrant fair value to account for the lack of marketability
of the instruments. On January 13, 2018, the 2-Year Warrants expired unexercised. As at September 30, 2019, the 7-Year Warrants
derivative liability had a fair value of $16,521 (2018 - $17,679). The Company has recorded the resulting change in fair value
of $1,159 (2018 - $142,583) in the statement of loss and comprehensive loss.
In connection with the $8,000,000
draw on the SVB Term Loan (Note 8), the Company granted an aggregate of 7,477 warrants to SVB (the “SVB Warrants”),
exercisable at a price of $42.80 per share for a period of seven years until November 18, 2023. The holders of the SVB Warrants
may elect, in lieu of exercising the SVB Warrants for cash, a cashless exercise option, in whole or in part, to receive common
shares equal to the fair value of the SVB Warrants based on the number of SVB Warrants to be exercised multiplied by a five-day
weighted average market price less the exercise price with the difference divided by the weighted average market price. If a warrant
holder exercises this option, there will be variability in the number of shares issued per SVB Warrant.
Additionally, the SVB Warrants
contain provisions which require the Company to redeem the SVB Warrants, on a cashless basis, at the option of the holder, in the
event of a major transaction, such as a change of control or sale of the Company’s assets (“Acquisition”) where
the Company’s shareholders receive cash or shares or a combination thereof, and the five-day weighted average market price
is greater than the exercise price.
The SVB Warrants are not traded
in an active market. A liquidity discount of 20% has been applied to the per warrant fair value to account for the lack of marketability
of the instruments. As at September 30, 2019, the SVB Warrants derivative liability had a fair value of $1,659 (2018 - $1,969).
The Company has recorded the resulting change in fair value of $310 (2018 - $8,306) in the statement of loss and comprehensive
loss.
The derivative warrants are a
recurring Level 3 fair value measurement. The key level 3 inputs used by management to determine the fair value are the market
price and expected volatility. If the market price were to increase by a factor of 10% this would increase the obligation by approximately
$4,945 as at September 30, 2019. If the market price were to decrease by a factor of 10% this would decrease the obligation by
approximately $4,316 as at September 30, 2019. If the volatility were to increase by 10%, this would increase the obligation by
approximately $14,343 as at September 30, 2019. If the volatility were to decrease by 10%, this would decrease the obligation by
approximately $9,569 as at September 30, 2019.
The following table is a continuity
schedule of changes to the Company’s derivative liabilities:
Effective April 25, 2018, the
Company consolidated its issued and outstanding common shares on a basis of one post-consolidation share for 20 pre-consolidation
shares. Unless otherwise stated, all share and per share amounts have been restated respectively to reflect this share consolidation.
On August 27, 2019, the Company
closed a public offering of equity securities of the Company in Canada and a concurrent private placement of equity securities
in the United States (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 cash commissions of $1,978,770 and incurred
other financing costs of $687,510.
On July 31, 2019, the Company
issued 6,718,150 shares in relation to the Realm Acquisition (Note 4).
On January 9, 2018, the Company
closed the first tranche of a brokered equity offering (“January 2018 Financing”), issuing 3,427,250 common
shares and 1,654,000 pre-funded warrants at a price of $4.00 each, for total gross proceeds of $20,325,000. Each warrant is exercisable,
for a nominal exercise price, into one common share of the Company for a period of five years. In connection with the first tranche
of the January 2018 Financing, the Company paid a cash commission of $1,204,000, incurred other financing costs of $810,500 including
$211,073 of deferred financing costs as at September 30, 2017, and issued 175,937 broker warrants each exercisable into one common
share of the Company at a price of $4.00 per share for a period of five years. The broker warrants were valued at $495,033 using
the Black-Scholes model with a risk-free interest rate of 2.33%, term of 5 years, volatility of 82.00%, and dividend rate of 0%.
Concurrently, the Company completed
a non-brokered private placement of 168,750 common shares at $4.00 per share as purchased by certain directors of the Company for
total gross proceeds of $675,000.
On January 16, 2018, the Company
closed the second tranche of the January 2018 Financing, issuing 465,000 common shares and 535,000 pre-funded warrants at a price
of $4.00 each, for total gross proceeds of $4,000,000. Each warrant is exercisable, for a nominal exercise price, into one common
share of the Company for a period of five years. In connection with the second tranche of the January 2018 Financing, the Company
paid a cash commission of $352,800, incurred other financing costs of $18,599, and issued 63,000 broker warrants each exercisable
into one common share of the Company at a price of $4.00 per share for a period of five years. The broker warrants were valued
at $177,188 using the Black-Scholes model with a risk-free interest rate of 2.36%, term of 5 years, volatility of 81.90%, and dividend
rate of 0%. Furthermore, on January 16, 2018, the Company’s agent partially exercised its over-allotment option for 260,000
additional common shares for additional proceeds to the Company of approximately $1,040,000.
In connection with a January
2016 private placement of 227,273 Units, a Unit consisting of one common share, one 7-year warrant and one-half of one 2-year warrant,
of the Company, Clarus Lifesciences III, L.P. (“Clarus”) acquired 106,061 common shares. Clarus is entitled
to nominate two directors to the board of directors of the Company, one of which must be an independent director and preapproved
by the Company. These 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.
In connection with the January
2018 Financing, Omega Fund IV, L.P. (“Omega”) acquired 465,000 common shares and 535,000 pre-funded warrants
(exercised during the year). Pursuant to the terms of a nomination rights agreement between the Company and Omega, Omega was entitled
to nominate one director to the board of directors of the Company, so long as Omega held at least 9.99% of the issued and outstanding
common shares; these nomination rights expired during the year ended September 30, 2019.
The Company has adopted a Stock
Option Plan consistent with the policies and rules of the TSX-V and NASDAQ. Pursuant to the Stock Option Plan, options may be granted
with expiry terms of up to 10 years, and vesting criteria and periods are approved by the Board of Directors at its discretion.
The options issued under the Stock Option Plan are accounted for as equity-settled share-based payments.
The Company has adopted a Restricted
Share Unit Plan (“RSU Plan”) consistent with the policies and rules of the TSX-V and NASDAQ. Pursuant to the RSU Plan,
RSUs may be granted with vesting criteria and periods are approved by the Board of Directors at its discretion. The RSUs issued
under the RSU Plan may be accounted for as either equity-settled or cash-settled share-based payments. At September 30, 2019, there
are no RSUs outstanding.
As at September 30, 2019 the
Stock Option Plan and RSU Plan have a combined maximum of 2,563,991 common shares which may be reserved for issuance.
The Company has adopted an Employee
Share Purchase Plan (“ESPP”) under which qualifying employees may be granted purchase rights (“Purchase Rights”)
to the Company’s common shares at not less of 85% of the market price at the lesser of the date the Purchase Right is granted
or exercisable. A Purchase Right will have a purchase period of between three and 24 months. Purchase Rights are administered by
the Board of Directors within the terms and limitations of employee participation. As at September 30, 2019, there are no Purchase
Rights outstanding.
As at September 30, 2019, the
ESPP has a maximum of 284,447 common shares reserved for issuance.
*Options exercisable in Canadian
dollars as at September 30, 2019 are translated at current rates to reflect the current weighted average exercise price in US dollars
for all outstanding options.
At September 30, 2019, options
were outstanding enabling holders to acquire common shares as follows:
During the year ended September
30, 2019, the Company granted a total of 255,000 (2018 – 803,400; 2017 - Nil) stock options with a weighted average fair
value of $3.00 per option (2018 – $3.08; 2017 - $Nil).
During the year ended September
30, 2018, the Company amended the exercise prices and expiry dates of 83,350 outstanding stock options to exercise prices of either
C$4.90 or $4.00 and expiry dates ranging from October 1, 2023 to August 9, 2026. This resulted in additional share-based payments
expense of $78,747 for the year ended September 30, 2018. The weighted average assumptions used for the Black-Scholes valuation
of the modified options were annualized volatility of 77.80%, risk-free interest rate of 2.66%, expected life of 7.28 years and
a dividend rate of nil%.
The Company
recognized share-based payments expense for options granted and vesting, net of recoveries on cancellations of unvested options,
during the years ended September 30, 2019 and 2018 with allocations to its functional expense as follows:
The following weighted average
assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted:
At September 30, 2019, warrants
were outstanding enabling holders to acquire common shares as follows:
During the year ended September
30, 2018, the Company issued broker warrants valued at $672,221 in connection with the January 2018 Financing (Note 10).
Key management personnel of the
Company include the President and Chief Executive Officer (“CEO”), Executive VP and Chief Operating Officer (“COO”),
Chief Financial Officer (“CFO”), Chief Technical Officer, Chief Scientific Officer, Chief Medical Officer (“CMO”),
former Executive VP of Research and Development, and Directors of the Company. Compensation paid to key management personnel is
as follows:
During the year ended September
30, 2019, the Company modified nil (2018 – 73,000; 2017 – Nil) options held by and granted 202,000 (2018 – 682,000;
2017 - Nil) options to key management personnel. The vesting of these options and options granted to key management personnel in
prior periods were recorded as share-based payments expense in the statement of loss and comprehensive loss at a value of $1,006,143
(2018 - $1,429,053; 2017 - $770,222).
Included in accounts payable
and accrued liabilities at September 30, 2019 is $108,331 (2018 - $128,035) due to related parties with respect to key management
personnel compensation and expense reimbursements. Amounts due to related parties are non-interest bearing, with no fixed terms
of repayment.
The CEO is entitled to a payment
of one year of base salary upon termination without cause. Additionally, the CEO is entitled to 18 months of salary if 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. The CFO, COO and CMO are entitled to a payment of one year of base salary upon
termination without cause. Additionally, the CFO, COO and CMO are entitled to 18 months of salary if termination without cause
occurs within 18 months after a change of control event.
Stock options held by the CEO,
CFO, COO, and CMO vest immediately upon a change of control.
The significant components of
the Company’s unrecognized temporary tax differences are as follows:
In September 2017, the British
Columbia (BC) Government proposed changes to the general corporate income tax rate to increase the rate from 11% to 12% effective
January 1, 2018 and onwards. This change in tax rate was substantively enacted on October 26, 2017. The relevant deferred tax balances
have been remeasured to reflect the increase in the Company's combined Federal and Provincial (BC) general corporate income
tax rate from 26% to 27%.
In December 2017, the United
States Government proposed changes to the Federal corporate income tax rate to reduce the rate from 34% to 21% effective January
1, 2018 and onwards. This change in tax rate was substantively enacted on December 22, 2017. The relevant deferred tax balances
have been remeasured to reflect the decrease in the Company's Federal income tax rate from 34% to 21% applicable to the Company's
US subsidiary. Operating losses carried forward as at September 30, 2019 expire from 2031 – 2039. Financing costs expire
from 2040 to 2044. Investment tax credits expire in 2035.
Tax attributes are
subject to review, and potential adjustment, by tax authorities.
The Company has recorded an income
tax expense of $37,920 for the year ended September 30, 2019 (2018 - $27,029 2017 - $116,391) in relation to taxable income generated
by its US subsidiary.
The Company works in one industry
being the development of small molecule drugs for prostate cancer. The Company’s equipment was located in the USA.
The Company considers its capital
to include working capital, long-term debt and the components of shareholders’ equity. The Company monitors its capital structure
and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain
or adjust the capital structure, the Company may issue new equity if available on favorable terms. Future financings are dependent
on market conditions and the ability to identify sources of investment. There can be no assurance the Company will be able to raise
funds in the future.
There were no changes to the
Company’s approach to capital management during the year ended September 30, 2019. As at September 30, 2019, the Company
is not subject to externally imposed capital requirements. Subsequent to September 30, 2019, the Company repaid the SVB Term Loan
in full (Note 20).
The Company’s financial
instruments consist of cash, receivables, accounts payable and accrued liabilities, long-term debt and derivative liabilities.
The fair value of cash, receivables and accounts payable and accrued liabilities approximates their carrying values due to their
short term to maturity. The fair value of the SVB Term Loan is approximately $3,926,075 which includes the principal and financing
costs assessed on settlement as at September 30, 2019. The derivative liabilities are measured using level 3 inputs (Note 9).
Fair value estimates of financial
instruments are made at a specific point in time, based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving uncertainties and matters of judgement, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair values.
The Company’s risk exposures
and the impact on the Company’s financial instruments are summarized below:
Financial instruments that potentially
subject the Company to a significant concentration of credit risk consist primarily of cash and receivables. The Company’s
receivables are primarily due to refundable GST and investment tax credits. The Company limits its exposure to credit loss by placing
its cash with major financial institutions. Credit risk with respect to investment tax credits and GST is minimal as the amounts
are due from government agencies.
The Company’s
approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at September
30, 2019, the Company had a working capital of $48,724,264. The SVB Term Loan is repayable over a 33-month period ending September
1, 2020. The Company does not generate revenue and will be reliant on external financing to fund operations and repay the SVB Term
Loan. Debt and equity financing are dependent on market conditions and may not be available on favorable terms.
Market risk
is the risk of loss that may arise from changes in market factors such as interest rates, and foreign exchange rates.
As at September
30, 2019, the Company has cash balances which are interest bearing. Interest income is not significant to the Company’s projected
operational budget and related interest rate fluctuations are not significant to the Company’s risk assessment.
The Company’s
SVB Term Loan is interest-bearing debt at a variable rate. A 10% change in the WSJ Prime Rate would result in an increase of $11,371
or decrease of $40,146 in the net loss realized for the year.
The Company’s
foreign currency risk exposure relates to net monetary assets denominated in Canadian dollars. The Company maintains its cash in
US dollars and converts on an as needed basis to discharge Canadian denominated expenditures. A 10% change in the foreign exchange
rate between the Canadian and U.S. dollar would result in a fluctuation of $21,465 in the net loss realized for the period. The
Company does not currently engage in hedging activities.
The Company is exposed to price risk with respect
to equity prices. The Company closely monitors individual equity movements, and the stock market to determine the appropriate course
of action to be taken by the Company.
In February 2014 the Company
received notice that it had been awarded a product development and relocation grant by CPRIT whereby the Company is eligible to
receive up to $12,000,000 on eligible expenditures over a three-year period related to the development of the Company’s androgen
receptor n-terminus blocker program for prostate cancer. The funding under CPRIT is subject to a number of conditions including
negotiation and execution of an award contract which details the milestones that must be met to release the tranched CPRIT funding,
proof the Company has raised the 50% matching funds to release CPRIT monies, and relocation of the project to the State of Texas
such that the substantial functions of the Company related to the project grant are in Texas and the Company uses Texas-based subcontractor
and collaborators wherever possible.
As at September 30, 2016, the
Company had received the first two tranches of the CPRIT Grant, totalling $6,578,000, which have been recognized as research and
development recoveries in the statements of loss and comprehensive loss over fiscal years 2014, 2015, and 2016. During the year
ended September 30, 2017, the Company received $5,192,799, representing a partial payment of the third and final tranche of the
grant of $5,422,000. The remaining balance of $229,201 has been recorded as a receivable as at September 30, 2018 and 2019.
If the Company is found to have
used any grant proceeds for purposes other than intended, is in violation of the terms of the grant, or fails to maintain the required
level of operations in the State of Texas for three years following the final payment of grant funds, then the Company could be
required to repay any grant proceeds received.
Under the terms of the grant,
the Company is also required to pay a royalty to CPRIT, comprised of 4% of revenues the Company receives from sale of commercial
product or commercial service, until aggregate royalty payments equal $24,000,000, and 2% of revenues thereafter. The Company has
the option to terminate the grant agreement by paying a one-time, non-refundable buyout fee, based on certain factors including
the grant proceeds, and the number of months between the termination date and the buyout fee payment date.
In April 2019 the Company executed
an Engagement Letter with Oppenheimer & Co. Inc. (“Oppenheimer”), an investment bank, to retain their services
to act as its lead financial advisor for which it obtained a percentage of funds raised on successful completion of the financing
in August 2019. Oppenheimer would receive compensation on certain capital transactions while the Engagement Letter is in effect.
The Company may terminate the agreement on 30 days’ written notice. Oppenheimer retains a right of first refusal as lead
agent on all future financings occurring up to 12 months following the termination of the agreement.
Subsequent to September 30, 2019,
the Company repaid the SVB Term Loan (Note 8) 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 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 of directors 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 17, 2019, the Company
amended 42,000 stock options held by a former director such that they were immediately vested, and the expiry date was extended
for a period of one year from date of resignation.
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.