Edesa Biotech; It Puts the Lotion on The SkinDISCLAIMER
This is in no way, shape or form, fluid and function, an analytical, qualitative or intelligent compte rendu. There is absolutely no financial advice here because the only financial advice I can give is to research, research, and research. The purpose of this analysis is to serve as an example of an investigation into a company's background, fundamentals, and assets through various lenses to determine if it is a good potential investment for you. The function of this write up is to serve as an educational resource for investors looking to understand how to find good investments. So read and learn some things about a company that might just revolutionize dermatological, and non-, inflammatory diseases.
Thesis
How much is a biological mechanism worth? What is the market potentiation of a treatment for a disease with none? How much can a company charge for a drug that can do something none else can? Well, if any of y'all have that answer, please let me know.
The stock market has two primary functions, capital allotment, and price discovery. Edesa Biotech takes advantage of capital allotment in a limited fashion, all share dilutions coming from private deals with Seed investors who ended up coming back for more. Price discovery is the name of this game, and this game could take the next couple of years. Edesa Biotech has the golden eggs, it has 2 major drugs that have excelled in every sense through Phase 2 clinical trials; the first being inflammation of the skin in the context of Allergic Contact Dermatitis. The second being inflammation in the lungs post-COVID leading to Acute Respiratory Distress Syndrome. Both of these drugs working in unique ways over anything else in the market, and both showing multitudes of effectiveness in inflammation-pathway control over steroids, aspirin, or anything else medicine has thrown at these diseases.
While a team of clinical pricing specialists with infinite tables of hypothetical values surmising the inherent value of a life on any given day will be pricing these drugs, they don't price the company. As much as fundamentals like Forward P/E exist, they pale in comparison to the pure chaos of the unknowns in any drug's future. It is the market's role to decide how much Edesa is worth, a vote by democracy of money. Just as the missing variables linger over the heads of the wary investor, the weight of the known drives forward the directive. Let the market look upon Edesa Biotech for what it is, what it can be, and all the iterations betwixt.
Edesa Biotech as it is: Clinical phase biotechnology focusing on the inflammation cascade. While "Innovation" has been captured by CRISPR and every new-age program promising to find the cure to every disease without error, Biotechs with small pipelines focusing on using current standard therapeutic systems are making better tomorrows for patients, today. While Edesa's most pertinent program may be it's TLR4 antibody for the treatment of ARDS in COVID-pathologies, and in turn any form of ARDS or major inflammatory disease in the lungs, they have so much more. EB-01, the sPLA2 program, has the potential to be the first big breakthrough in the treatment of a disease that hundreds of thousands of people deal with every year in America. Should any reader have a nickel, latex, or acrylate allergy, they may know the pain and dreadful scarring that stays for weeks and months, with no hope but some steroid cream, or worse, that never seem to work. sPLA2 may not be the $10k/dose magic that every investor wants, and it may not be the end-all be-all cure that offers market complacency, but it will help a lot of people. It also will have significant number of prescriptions through a possible 5 year exclusivity period, 7 if it gets the Orphan Drug Exclusivity label. While Dermatitis might be the first step, sPLA2 has the potential to be used in any number of positive-feedback loop inflammation disorders that prevent full wound-healing, like Hemorrhoids. Questions remain on sPLA2-inhibition on a more systemic approach, as Edesa has stuck to topical application thus far, but with no serious adverse reactions yet, Edesa will be pressing to find out.
Their second major program has a Nobel-winning origin story, starring Toll Receptor 4 -TLR4. While other's TLR4 programs are on cancer, Edesa hypothesized it'd work extremely well for the Inflammation in the lungs caused by COVID. This worked so well, it was unblinded pre-study close because of such a significant observable difference in patient mortality rates in the ICU. Clinical trial managers noticed patients were dying less to the extreme point that they were willing to ruin the double-blinded study just to find out. This is huge. The best part is that this is COVID-strain immune. Alpha, Beta, Nu, Xi, Omicron, Phi Upsilon Kappa, it doesn't matter. EB-05 cuts the inflammation COVID causes at the inflammation response pathway. If the patient will die from lung inflammation, this drug will say nope. 68.5% decrease in mortality of ICU patients for COVID related ARDS. As WOW as their sPLA2 program is to this biochemist, this is the life saving wow every investor dreams of. While it is only ~6 months out of the mid-term of the Phase 2 from this date of publication, long term symptoms are the major concern. At a certain point it'll be the COVID drugs that will need to play nice with EB-05, not the other way around. And with a guaranteed rotating door of Molnupiravir et al., clinicians are going to want to use the drug they can put consistent faith in.
Follow ups are questionable in scope, but Edesa have promised an entry into Vitiligo. While absolutely nothing is known about Edesa's Vitiligo program, this analyst believes it is the same as the other stealthy program; CXCL10 or EB-06. CXCL10 is suggested to be above TLR4 in it's "inflammation" pathway, but both are much broader than just their direct interplay. Edesa is testing CXCL10 aside TLR4 for their ARDS program, where TLR4 is clearly acing it, nothing has come out on CXCL10. Furthermore, numerous publications have stressed the IFN-gamma receptor/CXCL10 pathway in Vitiligo. No matter the true identity, a possible therapy for Vitiligo would be amazing for people with absolutely nothing else.
The biggest problem with Edesa Biotech is the stock market. If Edesa were a tech company, they would have no problem raising outsized investments from any number of firms from a16z to Goldman Sachs. However, they are a Biotech in Canada with absolutely no big Ivy Tower or big Pharma connection. Where others would have trouble raising capital, Edesa has managed to wow their early seed investors into coming back for bigger and bigger bites. The most recent offering, as of November 22nd 2021, will be public up to $15 million. Depending on this public offering outcome, Edesa could find an easy way raising future capital from the public, or could be forced into more private offerings at lower valuations. The worst part of finding a great biotech at an early stage is time, and dilution. Where some companies might be forced into uncomfortable partnerships with big pharma for drug rights early on, Edesa's small pool of owners are seeing an independent way forward. This analyst believes this will continue, making Edesa more than just the latest in a line of acquisitions for Wall Street, but the shining jewel of Inflammation biotechnology in Canada. Which seems really silly given what Edesa's building and neighbourhood look like, but given the real majority owners of Edesa Biotech is Pharmascience Inc., it makes a lot more sense. Either way, with the size of the pipeline and the cost of clinical trials, Edesa is going to be looking for a lot more funding in the future. This analyst believes this is the ideology current market forces are working on, dragging the price down knowing dilution is going to happen again and again and again, so lowering the price means increasing the total dilution, offering more room for play. This can work it's way out pleasantly and unpleasantly, but Pharmascience always has the ability to buy more than 100% of total available shares, offer to take the company private for 10x asking, and sell their extra-stake for more than the entire company cost. Karma can be a righteous bitch.
Edesa Biotech looks like one of the best biotechs on the market, micro-cap, Canadian, any market period. sPLA2 looks like a total hit from Phase 2 data, and with no significant adverse reactions, could fly right through Phase 3s as patient recruitment should be a breeze with limited to no other treatments available. TLR4 is a total hit out of the park, reducing deaths from COVID-related ARDS more than anything big Pharma has now or in the works. CXCL10 has promise to be it's own star, but little is known and shown. Edesa Biotech's scientific staff have clearly got a knack for targets, and could be a source of a long line of breakthroughs given the chance. Capital allotment is the name of the game, and stock price manipulation is the villain. With upcoming advancements in the DTCC's settling schema with a blockchain-lite exchange coming, and the possibility of alternative public capital markets via Computershare & Partners, this analyst is hopeful the day may shine bright yet for Edesa. Patients are the biggest beneficent of Edesa's work, but hopefully not the only.
Science
Their major programs:
sPLA2
The clinical trial effects lead me to form the general hypothesis that during these auto-immune reactions, sPLA2 is leading to an increase in prostaglandin, in conjunction with other pro-inflammation cascade members such as TNFalpha, which serves as a signal to induce site-directed wound healing, or more specifically the destruction step. If sPLA2 keeps the cycle of prostaglandin secretion and the destructive phase activated, wound healing is going to be stuck as cells try to keep healing while leukocytes just keep tearing away. Studying the pathway, and reading some publications on PLA2, targeting sPLA2 is not alleviating the intracellular pathways leading to the stress response, but is clearing the toxic waste excreted, preventing continued reaction. It is extremely likely, should a drug be developed in the future that targets the intracellular pathway for ACD, and other skin irritation diseases involving sPLA2, that this drug would become outmoded. However, this is going to be difficult, abrogation of the inflammation pathway that starts this cycle is going to have effects in other ways, the inflammatory pathway is a critical safeguard against pre-cancerous cells, etc. The drug should have a safe clinical hold for quite some time, should it be approved.
"EB01 contains a non-steroidal anti-inflammatory compound known as an sPLA2 (secretory phospholipase-2) inhibitor. When activated, sPLA2 enzymes have been shown to initiate a cascade of inflammatory lipid mediators along a well-known pathway that is currently the target of steroids and other anti-inflammatory drugs such as ibuprofen. By targeting sPLA2 with enzyme inhibitors - at the inception of inflammation rather than after inflammation has occurred - Edesa believes that drugs based on this technology could provide a powerful anti-inflammatory therapeutic strategy for treating diverse inflammatory/allergic conditions." - see press release id 4665126 below.
Edesa's sPLA2 inhibitor comes from a Dr. Saul Yedgar, which is quite funny because the guy has only one published work with PLA2, which was a chapter in a textbook. This author has also sold un-published work, so this is not surprising, but makes it difficult to follow the drugs origin story the same way as with others.
If the reader had the intuitive question of, how does the topical cream with EB-01 compare to just using topical cream, there was a 32% increase in mean improvement over baseline with the drug over placebo at 21 days of treatment. What is excellent to see, is this benefit was maintained and strengthened over a following 21 days of no treatment, where the difference between placebo and drug was increased to 3x mean percent improvement.
Overall, this analyst agrees with Edesa's stance that this is just as promising as TLR4. While Edesa's TLR4 program and drug are unique, they would have a few years of clinical lead time at max in these. Furthermore, where Edesa had a big step ahead of the mass market on lung disease therapies, COVID has kicked off more programs than can be counted. Still, a bigger pharmaceutical company should pay close attention to all the programs, as all of them look therapeutically and clinically sound. There are no current clinical treatments for allergic contact dermatitis, aside from lotion and steroids. Recovery is extremely slow, taking months, or longer, to heal. Overall, a "minor" market that isn't so minor. While they won't get Keytruda prices, it is an unmet medical need and will bear major effects on the patient population actively suffering with ACD, with room to advance the program in any related-dermatologic-inflammatory disease. How sPLA2 fares inside the body will be an interesting question to hold onto over the next few years as Edesa continues building onto it's pipeline with EB-01.
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medicine.ekmd.huji.ac.il
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clinicaltrials.gov
pubmed.ncbi.nlm.nih.gov
en.wikipedia.org
www.ncbi.nlm.nih.gov
www.ncbi.nlm.nih.gov (sPLA2 in ciliated airway epithelial cells - note from analyst, there are several different differentiation protocols for bronchial epithelial cells, especially ciliated)
TLR4 & CXCL10
TLR4 is a hyper-critical target for many diseases, ranging from cancer, immune diseases, Age-related macular degeneration, etc., etc., etc. The Gene is so important that Drs. Beutler and Hoffman won the Nobel Prize in 2011 for their work on the pathway. While plenty of biotechs have drugs in the works for TLR4, CXCL10 is part of a slightly smaller club, but still full of contenders with programs far ahead of theirs. The pathway for TLR4 and CXCL10 are fairly complex, and still have a lot to be elucidated, but the general outline is that CXCL10 is cytosolically released and eventually binds to a receptor on the cell surface (commonly TLR4), activating 3 critical pathways that regulate cellular programs for proliferation, migration, inflammation, survival, etc. TLR4 is one of the downstream targets of CXCL10, but is still heavily upstream from separating all the various pathways. This makes targeting CXCL10 over TLR4 carry just a little extra-weight in skewing normal cellular processes, but has an advantage of doing it's job extracellularly, rather than internally. This makes targeting easier as drug penetration of cytoplasm isn't an issue, where this also reduces the possible side effects and off-targeting.
On September 20th, Edesa was informed that EB-05, their TLR4 antibody, had a significant effect in reducing mortality in their Phase 2b, and that the study custodians unblinded this data because there was a significant observable effect. First off, for them to say "hey, there is a serious difference in survival between patients in this trial and we don't know why" is huge, and for them to un-blind and find that it is from the drug, is incredible. The big takeaways from the data provided was a massive decrease in death rates for serious COVID cases, 68.5%. A quick note on this is that this was in combination with current Standard of Care, meaning this is additive. EB-05 is a TLR4 antibody, going after the inflammation cascade, where current antibody therapies are against the virus itself. Steroids are part of the Standard of Care as well, something that reduces the inflammation. Without more mechanistic data or biological data indicating lung inflammation with and without the drug, this analyst is left with the hypothesis that EB-05 is really knocking down inflammation, far and above whatever the steroids are doing.
Where COVID continues to mutate, while early reports indicating a reduction in clinical effects of the Omicron variant, there are countless other variants circulating with infinite possibilities, always with the potential to be catastrophic. It is Science and Medicine's job to combat this possibility, and companies like Edesa are doing that by creating therapeutics that are COVID-strain-independent. Where Merck certainly looks like they got caught cherry-picking data, its possible they had a swap in dominant strain during the study. EB-05 is strain immune, it cuts down at the biological mechanism COVID activates rather than trying to cut down the virus itself. It is difficult to say if the FDA would give a biologics patent on EB-05 for lung disease, especially given the incredible need for therapies in treating lung inflammation in severe COVID cases, but it would put Edesa on the map and give them capital to continue their pipeline. Unsurprisingly, all these clinical trials is costing them a lot of money, and while they are finding grants for their COVID trials, the others are going to cost more and more as they enter Phase 3s. Edesa needs a serious influx of cash, something they will need to get through a partnership or dilution, which is exactly what they've done over the last 2 years, diluting ~60%. To be continued in shareholders section…
Shirey et al., 2016: In this study, an anti-TLR4 antibody protected mice from lethal influenza
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Board & Fundamental Members
The CEO, Par Nijhawan has a long history in biotechs, serves as the Founder/CEO/Chairman of the Digestive Health Clinic, Exzell Pharma -a small OTC and generics company by the looks, and Edesa, all at the same time. It's doubtful he is getting pulled in too many directions for now, but as Edesa becomes a bigger and bigger deal, he might get drawn in or get pushed out. Where the current majority shareholders (him among them) have allowed Edesa to do it's thing thus far, as more dilutions happen and bigger Wall Street names get included, they could demand more time from him, or demand someone else to helm the company as it continues forward, particularly someone with more experience taking drugs through later clinical trials and into marketing. This would be a mistake. While it is difficult to suggest Par is critical to the company, Edesa is doing everything too well to consider drastic changes at this point in time.
Sean MacDonald is the chair, serves as CBO for other pharmaceuticals. Lorin Johnson looks like the CSO, which is reasonable given his experience and specialty. Frank Oakes was CEO of Stellar Biotechnologies, which was the company Edesa merged with to become publicly listed. Stellar Biotech made a protein, keyhole limpet hemocyanin, which was a target for a range of immunotherapy's from Alzheimer's, Lupus, to cancer. Stellar merging with Edesa was the best move possible, and saved shareholders, perhaps Savara should pay attention. Paul William Pay looks like a classic legacy board member, likely serving as mentor, consultant and positive model for the others, with more than 40 years in business development of biotechs and pharma companies. Carlo Sistilli looks to be as close to their CFO as they have, but expect someone to be officially brought in to take the load. Peter van der Velden is a big investor and shareholder, likely serving on the board just to make sure everything is moving in the appropriate directions. His place on the board offers this analyst comfort, he is probably one of the most financially invested people in Edesa, with the ability to pump in as much capital as needed. As long as he is happy and ensuring the company moves forward appropriately, expect Edesa to run like a well-oiled machine.
The changes to make are to recruit some more dedicated directors, preferably younger and diverse. The company needs a dedicated CFO, Chief of Investor Relations, and CMO. Personally, I cannot stand it when companies don't run their own investor relations, but with the entirety of the float- and more, locked behind the first 4 investors, investor relations is a joke. As the company continues forward, and needs to raise more and more capital, and is doing so via public dilutions, they should take notes from other biotechs who have engaged with the public.
Where other companies might be more transparent with the scientific team, very little is known here. Some of this transparency should increase over time as the company responds to more and more media, interviews, investor questions, and direct investigations into how they are making strategic scientific decisions.
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Ownership
Every once in a while there is a company with an extremely interesting shareholder list that does nothing but excite. Edesa is one of those companies. First off, this analyst loves a good old fashioned thread, and the largest shareholder of Edesa is just that. The thread ends up to Pharmascience, a generics manufacturer in Canada that is privately held. The second major shareholder is the CEO. For a company that is supposed to have only 13 million shares, it is quite interesting to see a much larger amount be publicly listed in 13-Fs/13-Ds. The most recent share offering was for $10 million, and went to Lumira Capital Investments. What is odd is that it looks like Lumira was an early venture investor in Edesa and exited, but bought back in. Edesa is their only filed holding, so it is extremely difficult to tell, but Edesa's current investor presentation does have those shares listed under Lumira II. We do see the big funds start to come in with Vanguard and State Street buying in, but it is hard to tell if they are willing or even able to buy big stakes if Pharmascience and Lumira don't sell, without more dilution. Edesa is sitting at a 121k 10-day moving average, which is extremely low, but not as low as it should be given there doesn't appear to be any share liquidity. IF this analyst had to make a hypothesis, it would be that Virtu is creating the phantom pool for Edesa given they are the only big market maker listed on the shareholder list.
There are market restrictions by the exchanges to ensure available liquidity in listed stocks, as well as a minimum volume exchanged over a period of time. It is impossible to tell how much of the volume traded is real and how much is fake just to keep the minimum, but based off the Level 2 orderbook for this stock, Edesa falls into the category of completely illiquid stocks. The orderbook is nothing but batches of 100 with classic market maker hallmarks. While Virtu is the most likely candidate for being short the stock, it doesn't look like anyone is actively shorting or trading most days. Monitored price action looks to be mostly shares trading back and forth on the moving averages to maintain ~equilibrium.
Curiously, Edesa is going the route of public offering for the latest batch of share dilution. There are many reasons, ranging from SEC-directives to looking for massive public interest, to book-keepers looking to fill their own deficits from phantom shorting. History and market mechanics dictate this could be trouble, as market makers and general market scumbags look to take advantage of an easy situation to overload natural demand with large quantities of shares on top of already existing phantom pools. With given clinical trial news, and potential catalysts, expect a major announcement with a significant pump and dump as shares, real or synthetic, are dropped into the market.
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Bear Theory
Bear theory for biotechs is relatively simple: the drugs perform well in these smaller clinical trials where patients are "pruned" to get the best results. Phase 1s and 2s are notorious for letting every drug through, just to fail in a bigger Phase 3 where patients are more diverse and disease phenotypes are less controlled. sPLA2 showed amazing promise in proliferating wound healing in the small subset of patients with no significant adverse reactions, but it's possible the drug causes significant side effects in specific population groups such as the young or the old, such that the drug gets benched. It is fully possible that TLR4 in COVID-related ARDS helps in the small batch of ICU patients, but initiates a long term phenotype of problem as the inflammation pathway is cut off in the lung, allowing promulgation of natural carcinogenesis that the immune pathway deals with through inflammation. It is fully possible that CXCL10 is a dead-end, and it doesn't help with Vitiligo or any other disease. This is what the bear hopes for, a complete and total change of success to failure as the drugs continue on their pipeline.
This was also the most frequent outcome 10+ years ago. In fact, there used to be Phase 4 clinical trials, something that is almost unheard of these days, and often left out of an analysts' coverage. The difference in technology between now and those ten plus years ago is ridiculous; now a company can easily monitor the direct and indirect effects of their drug by running massive metabolics, DNA, RNA, protein screening on trial participants to ensure the drug is doing exactly as they intend. While the FDA makes it difficult to do as thorough testing as needs to be done, and not every company is willing to go through the work to do it, companies like Edesa are put into a position where they know they are right, and are just waiting for the rest of the world to catch up.
The base bear case is that Edesa Biotech is to continue on it's own, privately and publicly funded through more and more dilutions into existing shareholders like Pharmascience or Lumira, making the price per share drop, and with few mechanisms to prevent phantom shorting in the stock market until Q1 2022, the price per share could continue to drop despite overwhelming catalysts providing the opposite. On top of this is the near-certain outcome of a major financial crisis on the horizon, something even the biggest bull on Wall Street is starting to recognize.
This author believes funds and institutions partaking in the massive market-wide phantom shorting will be among the first to be burned during this next event, but it is no guarantee who or how those abusing biotech stocks will fare. The continual drag on the price could and will likely continue until the system is fixed, with market makers and maleficent funds torching the price as dilution is expected, but if the market decides against, and the catalyst strong enough, shares sold short become shares bought back without control given an appropriate liquidation event.
Bull Theory
Bull theory should be limited to the future; EB-01 through -06+ will lead to massive innovations in treating ACD, ARDS, Vitiligo, Hemorrhoids, and every inflammatory cascade-disease under the skin. While these drugs are flying through Phase 2s, Phase 3 is a long process, and even if opened up to more wide-scale clinical use, getting these drugs to catch onto the market is a laborious process that only the major pharmaceuticals have perfected and controlled, and for good reason as it allows them to wield their outsized power without concern or justice. There are many dream scenarios where those shorting the stock would get burned, and it is unlikely for Edesa to retain a low market capitalization given the overwhelming positive pressure internally, but they also need a substantial amount of capital to keep working. On top of this, there are brilliant scientists working extremely hard inside the company who are going to need and deserve a payout commensurate with progress, inflationary pressures are mounting on the work force, and COVID is a continuous drain and challenge on clinical trials.
There will be swing trading opportunities abound, and as the market maker algorithms continue their mathematical work, there will be plenty of trend lines to abuse; but the composite investor should be prepared for a longer term investment for best effects, both for themselves and the company. Day trading continues to be an issue for market mechanics in price discovery and capital allotment - many investors are happy when companies do well, but not enough are happy to buy shares during a dilution event to support said company.
Look for continued catalysts along the lines of Phase 3 initiation for EB-01, Phase 1/2 initiation for EB-02, Phase 3 for EB-05 into a more open label use under breakthrough status by the Canadian FDA, establishment of their EB-07?/Vitiligo project, and the big - Blackrock, Vanguard, Fidelity, State Street, to build up their holdings.
Disclaimer
Thank you for your time, I truly value it, and hope that this brings value to it. This analysis is not to serve as primary financial advice, rhyme or reason. This work is to serve as an editorialized overview of the parts and pieces of the company, as well as the different ways this author analyzes them. As of the date of publication, 11/12/2021, this author has no investment in $EDSA Edesa Biotech. It can be expected that future investment strategies will contain sizable Edesa positions, this author has theirs in other things currently.
As the primary purpose of this article is to be informative of the company, the stock market, and relevant market mechanics, please feel free to ask any questions.
Thank you.
Final Note for Potential Investors
www.edesabiotech.com
Really cool chart with their press releases flagged so any investor can keep track easily!
