UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

or

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

For the transition period fromto

Commission file number: 001-37410

ESSA Pharma Inc.

(Exact name of registrant as specified in its charter)

British Columbia, Canada	47-2569713
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
Suite 720, 999 West Broadway
Vancouver, BC V5Z 1K5
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (778) 331-0962
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	EPIX	Nasdaq Capital Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of outstanding common shares of the registrant, no par value per share, as of May 6, 2021 was 40,455,622.

ESSA PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2021

Table of Contents

	PART I. FINANCIAL INFORMATION	7
Item 1.	Financial Statements and Supplementary Data	7
	Condensed Consolidated Interim Balance Sheets as of March 31, 2021 and September 30, 2020	8
	Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three and six months ended March 31, 2021 and 2020	9
	Condensed Consolidated Interim Statements of Cash Flows for the six months ended March 31, 2021 and 2020	10
	Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity for the three and six months ended March 31, 2021 and 2020	11
	Notes to Condensed Consolidated Interim Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	25
Item 3.	Controls and Procedures	47
	PART II. OTHER INFORMATION	48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits, Financial Statement Schedules	49
	SIGNATURES	50

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of Canadian securities laws, or collectively, forward-looking statements. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to”, “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “would,” “could,” “hope,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. 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 statements related to:

● our ability to maintain operations, development programs, preclinical studies, clinical trials and raise capital as a result of the recent coronavirus disease 2019 outbreak (“COVID 19”);

● our ability to advance our product candidate and potential future product candidates through, and successfully complete, clinical trials;

● our ability to recruit sufficient numbers of patients for future clinical trials, and the benefits expected therefrom;

● our ability to obtain funding for operations, including research funding, and the timing and potential sources of such funding;

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

● the therapeutic benefits, properties, effectiveness, pharmacokinetic profile and safety of our product candidate and potential future product candidates, if any, including the expected benefits, properties, effectiveness, pharmacokinetic profile and safety of our next-generation aniten compounds;

● our ability to achieve profitability;

● the grant (“CPRIT Grant”) under the Cancer Prevention and Research Institute of Texas (“CPRIT”) and payments thereunder, including any residual obligations;

● our use of proceeds from funding and financings;

● our ability to assume the obligations related to the acquisition of Realm Therapeutics plc (“Realm”);

● our intended use of proceeds from the acquisition of Realm and the past and future offerings of our securities;

● our ability to establish and maintain relationships with collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;

● the implementation of our business model and strategic plans, including strategic plans with respect to patent applications and strategic collaborations and partnerships;

● our ability to identify, develop and commercialize product candidates;

● our commercialization, marketing and manufacturing capabilities and strategy;

● our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

● our expectations regarding federal, state, provincial and foreign regulatory requirements, including our plans with respect to anticipated regulatory filings;

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

● the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product candidate and potential future product candidates, if any;

3

● the rate and degree of market acceptance and clinical utility of our potential future product candidates, if any;

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

● our expectations regarding market risk, including interest rate changes and foreign currency fluctuations;

● our ability to engage and retain the employees required to grow our business;

● the compensation that is expected to be paid to our employees;

● our future financial performance and projected expenditures;

● developments relating to our competitors and our industry, including the success of competing therapies that are or may become available; and

● estimates of our financial condition, expenses, future revenue, capital requirements and our need for additional financing and potential sources of capital and funding.

Such statements reflect our 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 our 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, including those described under “Risk Factors” in our Annual Report on Form 10-K. In making the forward-looking statements included in this Quarterly Report on Form 10-Q, we have made various material assumptions, including but not limited to:

● our ability to maintain operations as a result of the recent COVID-19 outbreak;

● our ability to conduct a clinical study involving our product candidate and to identify any future product candidates;

● the availability of financing on reasonable terms;

● our ability to obtain regulatory and other approvals to commence a clinical trial involving any future product candidates;

● our ability to obtain positive results from research and development activities, including clinical trials;

● our ability to obtain required regulatory approvals;

● our ability to protect patents and proprietary rights;

● our ability to successfully out-license or sell future products, if any, and in-license and develop new products;

● favorable general business and economic conditions;

● our ability to attract and retain skilled staff;

● market competition; and

● the products and technology offered by our competitors.

In evaluating forward-looking statements, current and prospective shareholders should specifically consider various factors, including the risks outlined under the heading “Risk Factors” in our Annual Report on Form 10-K. Some of these risks and assumptions include, among others.

● risks related to our ability to maintain operations and execute on our business plan as a result of the recent COVID-19 outbreak or other health epidemics;

● risks related to clinical trial development and our ability to conduct the clinical trial of our product candidate and the predictive value of our current or planned clinical trials;

● risks related to clinical trials being conducted by third parties under collaboration and clinical supply agreements, using the Company’s product candidate;

● risks related to our future success being dependent primarily on identification through preclinical studies, clinical studies, regulatory approval for commercialization of a single product candidate;

● risks related to our license agreement with third parties;

● uncertainty related to our ability to obtain required regulatory approvals for our proposed products;

4

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

● risks related to our future ability to raise capital to fund the development program on favorable terms and the impact of dilution from incremental financing;

● risks related to our ability to successfully commercialize future product candidates;

● risks related to the possibility that our product candidate and potential future product candidates, if any, may have undesirable side effects;

● risks related to our ability to enroll subjects in clinical trials;

● risks that the FDA may not accept data from trials conducted in locations outside the United States;

● risks related to our ongoing obligations and continued regulatory review;

● risks related to potential administrative or judicial sanctions;

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

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

● risks related to the possibility that our relationships with clinical research organizations or academic institutions may terminate;

● risks related to our lack of experience manufacturing product candidates on a large clinical or commercial scale and our lack of manufacturing facility;

● risks related to our failure to obtain regulatory approval in international jurisdictions;

● risks related to recently enacted and future legislation in the United States that may increase the difficulty and cost for us to obtain marketing approval of, and commercialize, our product candidate and potential future products, if any, and affect the prices our may obtain;

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

● risks related to the acquisition of Realm and the assumption of related obligations;

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

● risks related to our incurrence of significant losses in every quarter since inception and our anticipation that it will continue to incur significant losses in the future;

● risks related to our limited operating history;

● risks related to our reliance on proprietary technology;

● risks related to our ability to protect our intellectual property rights throughout the world;

● risks related to claims by third parties asserting that we, or our employees or consultants have misappropriated their intellectual property, or claiming ownership of what we regard as our intellectual property;

● risks related to our ability to comply with governmental patent agency requirements in order to maintain patent protection;

● risks related to computer system failures or security breaches;

● risks related to business disruptions that could seriously harm our future revenues and financial condition and increase our costs and expenses;

● risks related to our dependence on the use of information technologies;

● risks related to our ability to attract and maintain highly-qualified personnel;

● risks relating to the possibility that third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues;

● risks related to potential conflicts of interest between us and our directors and officers;

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

● risks related to movements in foreign currency exchange rates;

● risks related to our ability to convince public payors and hospitals to include our product candidate and potential future products, if any, on their approved formulary lists;

● risks related to our ability to establish an effective sales force and marketing infrastructure, or enter into acceptable third-party sales and marketing or licensing arrangements;

● risks related to our ability to manage growth;

5

● risks related to our ability to achieve or maintain expected levels of market acceptance for our products;

● risks related to our ability to realize benefits from acquired businesses or products or form strategic alliances in the future;

● risks related to collaborations with third parties;

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

● risks related to product liability lawsuits;

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

● risks inherent in foreign operations;

● risks related to the possibility that laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and Canada and require us to develop and implement costly compliance programs;

● risks related to laws that govern fraud and abuse and patients’ rights;

● risks related to our ability to comply with environmental, health and safety laws and regulations;

● risks related to us being a “passive foreign investment company”;

● risks related to the Company’s status as an emerging growth company and in the future as an accelerated filer;

● risks related to United States investors’ ability to effect service of process or enforcement of actions against us;

● risks related to our ability to maintain compliance with Nasdaq listing requirements;

● risks related to market price and trading volume volatility;

● risks related to our dividend policy;

● risks associated with future sales of our securities;

● risks related to our ability to implement and maintain effective internal controls;

● risks related to share price volatility in the event there is low liquidity for the trading of the Company’s common shares; and

● risks related to analyst coverage.

If one or more of these risks or uncertainties or a risk that is not currently known to us, materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from those expressed or implied by forward-looking statements. The forward-looking statements represent our views as of the date of this document. While we may elect to update these forward-looking statements in the future, we have no current intention to do so except as to the extent required by applicable securities law. 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. We advise you that these cautionary remarks expressly qualify in their entirely all forward-looking statements attributable to us or persons acting on our behalf.

In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States, Canada, and all European countries. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a broad adverse impact on the global economy across many industries and has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions and business shutdowns, as well as significant volatility in global financial markets. Although COVID-19 has not yet had any material impact on our business, operations or financial condition, there can be no assurances that it will not have an impact on our business, operations or financial condition going forward. See “Risk Factors - Risks Relating to COVID-19” in our Annual Report on Form 10-K.

We express all amounts in this Quarterly Report on Form 10-Q in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.

Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “ESSA,” “the Company,” “we,” “us” and “our” refer to ESSA Pharma Inc. and its subsidiaries.

6

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements and Supplementary Data

ESSA Pharma Inc.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021

7

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited)

(Expressed in United States dollars)

AS OF

		March 31,		September 30,
	2021		2020
ASSETS
Current
Cash and cash equivalents	$	151,562,303	$	56,320,763
Short-term investments (Note 4)		57,034,921		22,011,337
Receivables		293,106		309,538
Prepaids (Note 5)		491,962		1,600,128
Operating lease right-of-use assets (Note 7)		—		55,162
		209,382,292		80,296,928
Deposits		277,637		277,637
Operating lease right-of-use assets (Note 7)		341,125		—
Total assets	$	210,001,054	$	80,574,565
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities (Note 6)	$	3,085,397	$	1,144,230
Current portion of operating lease liability (Note 7)		94,294		59,094
		3,179,691		1,203,324
Derivative liabilities (Note 9)		1,166,462		127,376
Operating lease liability (Note 7)		246,830		—
Total liabilities		4,592,983		1,330,700
Shareholders’ equity
Authorized
Unlimited common shares, without par value
Unlimited preferred shares, without par value
Common shares 40,417,857 issued and outstanding (September 30, 2020 – 32,064,411) (Note 10)		276,740,509		131,086,364
Additional paid-in capital (Note 10)		31,208,296		31,204,284
Accumulated other comprehensive loss		(2,076,479)		(2,076,479)
Accumulated deficit		(100,464,255)		(80,970,304)
		205,408,071		79,243,865
Total liabilities and shareholders’ equity	$	210,001,054	$	80,574,565

Subsequent events (Note 14)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

8

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Expressed in United States dollars)

	For the three months ended				For the six months ended
	March 31,				March 31,
	2021		2020		2021		2020
OPERATING EXPENSES
Research and development	$	7,268,257	$	4,618,436	$	11,754,029	$	7,205,584
Financing costs (Notes 7 and 8)		299		88,369		1,480		303,870
General and administration		4,615,332		4,863,608		6,824,249		7,002,773
Total operating expenses		(11,883,888)		(9,570,413)		(18,579,758)		(14,512,227)
Foreign exchange		7,649		(17,831)		14,845		(11,622)
Interest income		39,208		205,641		74,899		306,606
Derivative liability gain (loss) (Note 9)		(1,128,216)		32,676		(1,039,086)		(23,957)
Loss for the period before taxes		(12,965,247)		(9,349,927)		(19,529,100)		(14,241,200)
Income tax recovery		—		(4,000)		35,149		274,000
Loss and comprehensive loss for the period	$	(12,965,247)	$	(9,353,927)	$	(19,493,951)	$	(13,967,200)
Basic and diluted loss per common share	$	(0.36)	$	(0.45)	$	(0.56)	$	(0.67)
Weighted average number of common shares outstanding – basic and diluted		36,484,041		20,821,956		34,896,509		20,790,817

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

9

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited)

(Expressed in United States dollars)

FOR THE SIX MONTHS ENDED MARCH 31,

	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period	$	(19,493,951)	$	(13,967,200)
Items not affecting cash and cash equivalents:
Amortization of right-of-use asset		55,162		55,162
Accretion of lease liability		1,480		8,058
Derivative liability loss		1,039,086		23,957
Interest income		(20,106)		—
Finance expense		—		211,079
Unrealized foreign exchange		23,300		22,101
Share-based payments		3,868,671		4,838,238
Income tax recovery		—		(278,000)
Changes in non-cash working capital items:
Receivables		19,246		12,535
Prepaids		1,108,166		(340,406)
Accounts payable and accrued liabilities		1,883,888		92,058
Income tax payable		—		(22,000)
Net cash used in operating activities		(11,515,058)		(9,344,418)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments		(55,017,103)		—
Proceeds from short-term investments sold		20,000,000		—
Interest from short-term investments		13,625		—
Net cash used in investing activities		(35,003,478)		—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on issuance of common shares		149,999,985		—
Share issuance costs		(9,109,462)		(314,603)
Options exercised		930,686		—
Warrants exercised		249		247,864
Shares purchased through employee share purchase plan		27,369		—
Lease payments		(60,575)		(58,809)
Loan principal repaid		—		(3,199,799)
Loan final payment paid		—		(688,000)
Interest and financing costs paid		—		(32,235)
Net cash provided by (used in) financing activities		141,788,252		(4,045,582)
Effect of foreign exchange on cash and cash equivalents		(28,176)		(19,154)
Change in cash and cash equivalents for the period		95,241,540		(13,409,154)
Cash and cash equivalents, beginning of period		56,320,763		53,322,723
Cash and cash equivalents, end of period	$	151,562,303	$	39,913,569

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

10

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2021 and 2020

								Accumulated
				Obligation		Additional		other
	Number	Common		to issue		paid-in		comprehensive
	of shares	shares		shares		capital		loss		Deficit		Total
Balance, September 30, 2019	20,762,374	$	78,545,108	$	—	$	30,038,134	$	(2,076,479)	$	(57,524,934)	$	48,981,829
Share issuance costs	—		(3,598)		—		(7,054)		—		—		(10,652)
Warrants exercised	—		—		227,864		—		—		—		227,864
Share-based payments	—		—		—		1,253,621		—		—		1,253,621
Loss for the period	—		—		—		—		—		(4,613,273)		(4,613,273)
Balance, December 31, 2019	20,762,374	$	78,541,510	$	227,864	$	31,284,701	$	(2,076,479)	$	(62,138,207)	$	45,839,389
Warrants exercised	61,965		422,195		(227,864)		(174,331)		—		—		20,000
Share-based payments	—		—		—		3,584,617		—		—		3,584,617
Loss for the period	—		—		—		—		—		(9,353,927)		(9,353,927)
Balance, March 31, 2020	20,824,339	$	78,963,705	$	—	$	34,694,987	$	(2,076,479)	$	(71,492,134)	$	40,090,079
								Accumulated
				Obligation		Additional		other
	Number	Common		to issue		paid-in		comprehensive
	of shares	shares		shares		capital		loss		Deficit		Total
Balance, September 30, 2020	32,064,411	$	131,086,364	$	—	$	31,204,284	$	(2,076,479)	$	(80,970,304)	$	79,243,865
Warrants exercised	1,493,504		2,987,158		—		(2,987,009)		—		—		149
Options exercised	42,207		274,365		—		(120,664)		—		—		153,701
Shares issued through employee share purchase plan	5,261		39,638		—		(12,269)		—		—		27,369
Share-based payments	—		—		—		1,204,985		—		—		1,204,985
Loss for the period	—		—		—		—		—		(6,528,704)		(6,528,704)
Balance, December 31, 2020	33,605,383	$	134,387,525	$	—	$	29,289,327	$	(2,076,479)	$	(87,499,008)	$	74,101,365
Financing	5,555,555		149,999,985		—		—		—		—		149,999,985
Share issuance costs	—		(9,168,801)		—		—		—		—		(9,168,801)
Warrants exercised	1,043,538		143,853		—		(143,753)		—		—		100
Options exercised	213,381		1,377,947		—		(600,962)		—		—		776,985
Share-based payments	—		—		—		2,663,686		—		—		2,663,686
Loss for the period	—		—		—		—		—		(12,965,247)		(12,965,247)
Balance, March 31, 2021	40,417,857	$	276,740,509	$	—	$	31,208,296	$	(2,076,479)	$	(100,464,255)	$	205,408,071

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

11

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE SIX MONTHS ENDED MARCH 31, 2021

1.     NATURE OF OPERATIONS

Nature of Operations

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 26^th 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”. On October 30, 2020 the Company’s common shares delisted in Canada from the TSX Venture Exchange.

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 (“NTD”) which were the joint property of the British Columbia Cancer Agency and the University of British Columbia. As of March 31, 2021, no products are in commercial production or use.

2.     BASIS OF PRESENTATION

Basis of Presentation

These accompanying unaudited condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with United States’ Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these condensed consolidated interim financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended September 30, 2020 and included in the Company’s 2020 Annual Report on Form 10-K filed with the SEC and with the securities commissions in Alberta and Ontario on December 15, 2020.
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These unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the six months ended March 31, 2021 and 2020 are not necessarily indicative of results that can be expected for a full year. These unaudited condensed consolidated interim financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2020 Annual Report on Form 10-K for the year ended September 30, 2020, with the exception of the policies described in Note 3.

These accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiaries. Inter-company transactions, balances and unrealized gains or losses on transactions are eliminated upon consolidation.

The accompanying condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial assets measured at fair value.

All amounts expressed in these accompanying condensed consolidated interim 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.

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Use of Estimates

The preparation of the accompanying condensed consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, expenses, contingent assets and contingent liabilities as of the end of, or during, the reporting period. Actual results could significantly differ from those estimates. Significant areas requiring management to make estimates include the derivative liabilities, the valuation of equity instruments issued for services, income taxes and the product development and relocation grant. Further details of the nature of these assumptions and conditions may be found in the relevant notes to these condensed consolidated interim financial statements.

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. Estimates and assumptions are reviewed quarterly.

3.     RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements adopted

ASU 2018-18 – Collaborative Arrangements (Topic 808)

In November 2018, the FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606”. This ASU: (i) clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer, (ii) provides guidance specifying that a distinct good or service is the unit of account for evaluating whether a transaction is with a customer, and (iii) precludes a company from presenting transactions with a collaborative arrangement participant that are not in the scope of ASC 606 together with revenue from contracts with customers. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this accounting standard as of October 1, 2020. The Company will present collaboration revenue separate from product revenues. The adoption of this new accounting standard did not have a significant impact on the Company’s consolidated financial statements.

ASU 2018-15 – Intangibles – Goodwill and Other (Subtopic 350-40)

In August 2018, the FASB issued ASU 2018–15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350–40). This ASU addresses the accounting for implementation costs incurred by a customer in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this accounting standard as of October 1, 2020 and has applied it prospectively to all implementation costs incurred after October 1, 2020. The adoption of this new accounting standard did not have a significant impact on the Company’s consolidated financial statements.

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ASU 2018-13 – Fair Value Measurement (Topic 820-10)

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820-10): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurements and Disclosures. Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended or added. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The Company has adopted this standard as of October 1, 2020. The adoption of the standard had no impact on the Company’s consolidated financial statements and disclosures.

ASU 2019-12 – Income Taxes (Topic 740)

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The Company has adopted this standard as of October 1, 2020. The adoption of the standard had no impact on the Company’s condensed consolidated interim financial statements and disclosures.

ASU 2016-13 – Financial Instruments-Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company has adopted this standard as of October 1, 2020. The adoption of the standard had no impact on the Company’s condensed consolidated interim financial statements and disclosures.

Recent accounting pronouncements not yet adopted

ASU 2020-06 – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting.

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ASU 2020-10 – Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The guidance contains improvements to the Codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the Disclosure Section of the Codification. The guidance also contains Codifications that are varied in nature and may affect the application of the guidance in cases in which the original guidance may have been unclear. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. We do not expect the adoption of ASU 2020-10 to have a material impact on our condensed consolidated financial statements.

Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

4.     SHORT-TERM INVESTMENTS

Short-term investments consist of guaranteed investment certificates (“GICs”) held at financial institutions purchased in accordance with the Company’s treasury policy. These GICs and term deposits bear interest at 0.22%-0.45% per annum and have maturities of up to 12 months.

5.     PREPAIDS

		March 31,		September 30,
	2021		2020
Prepaid insurance	$	374,457	$	825,014
Prepaid CMC and clinical expenses and deposits		2,375		650,586
Other deposits and prepaid expenses		115,130		124,528
Balance, end of period	$	491,962	$	1,600,128

6.     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

		March 31,		September 30,
	2021		2020
Accounts payable	$	1,690,676	$	678,643
Accrued expenses		1,351,833		310,604
Accrued vacation		42,888		154,983
Balance, end of period	$	3,085,397	$	1,144,230

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7.     OPERATING LEASE

The Company has one operating lease for the South San Francisco office extended from April 1, 2021 to May 31, 2024. The Company’s operating leases included on the balance sheet are as follows:

Operating lease right-of-use asset
Balance, September 30, 2019	$	—
Adoption of ASC 842		165,486
Amortization		(55,162)
Balance, March 31, 2020	$	110,324
Balance, September 30, 2020	$	55,162
Addition		341,125
Amortization		(55,162)
Balance, March 31, 2021	$	341,125
Operating lease liabilities
Balance, September 30, 2019	$	—
Adoption of ASC 842		165,486
Accretion		8,058
Lease payments		(58,809)
Balance, March 31, 2020	$	114,735
Balance, September 30, 2020	$	59,094
Addition		341,125
Accretion		1,480
Lease payments		(60,574)
Balance, March 31, 2021	$	341,125

The Company recognizes a right-of-use asset for the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments over the lease term. The present value of the lease payments is calculated using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. At March 31, 2021, the Company’s incremental borrowing rate was 5.0% and the lease term was extended by 38 months.

Operating lease costs of $60,574 (2020 - $58,809) and accretion expense of $1,480 (2020 - $8,058) have been recorded in “general and administrative expenses” and “financing costs” in the condensed consolidated interim statements of operations and comprehensive loss respectively.

8.     LONG-TERM DEBT

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 drew down $8,000,000 from the SVB Term Loan. The option to draw an additional $2,000,000 lapsed on July 31, 2017. In the year ended September 30, 2020, the Company repaid the balance owing for $3,708,955, comprising $3,199,799 in principal, $32,235 in accrued interest, $211,079 in financing costs and the Final Payment of $688,000.

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9.     DERIVATIVE LIABILITIES

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 outside the control of the Company, in accordance with U.S. GAAP, 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.

Valuation

The Company uses the Black-Scholes option pricing model to estimate fair value. The following weighted average assumptions were used to estimate the fair value of the derivative warrant liabilities on March 31, 2021 and 2020:

		March 31,		March 31,
	2021			2020
Risk-free interest rate		0.29	%	0.46	%
Expected life		1.79	years	2.79	years
Expected annualized volatility		85.9	%	88.7	%
Dividend		—		—
Liquidity discount		20	%	20	%

Sensitivity

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, expected volatility and liquidity discount. If the market price were to increase by a factor of 10% this would increase the obligation by approximately $244,273 as of March 31, 2021. If the market price were to decrease by a factor of 10% this would decrease the obligation by approximately $226,083 as of March 31, 2021. If the volatility were to increase by 10%, this would increase the obligation by approximately $241,066 as of March 31, 2021. If the volatility were to decrease by 10%, this would decrease the obligation by approximately $236,776 as of March 31, 2021.

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The following table is a continuity schedule of changes to the Company’s derivative liabilities:

	Total
Balance, September 30, 2019	$	16,520
Change in fair value		110,856
Balance, September 30, 2020	$	127,376
Change in fair value		1,039,086
Balance, March 31, 2021	$	1,166,462
Derivatives with expected life of less than one year	$	—
Derivatives with expected life greater than one year	$	1,166,462

10.     SHAREHOLDERS’ EQUITY

Authorized

Unlimited common shares, without par value.

Unlimited preferred shares, without par value.

February 2021 Financing

On February 22, 2021, the Company completed an underwritten public offering for aggregate gross proceeds of $149,999,985 (the “February 2021 Financing”). The Company issued a total of 5,555,555 common shares of the Company at a public offering price of $27.00 per share, which includes the underwriters having exercised their 30-day option to purchase an additional 724,637 common shares. In connection with the February 2021 Financing, the Company paid cash commissions of $8,999,999 and incurred other transaction costs of $150,498.

July 2020 Financing

On July 31, 2020, the Company completed an underwritten public offering for aggregate gross proceeds of $48,990,000 (the “July 2020 Financing”). The Company issued a total of 7,100,000 common shares of the Company at a public offering price of $6.00 per share. Additionally, the underwriters exercised a 30-day option to purchase up to an additional 1,065,000 common shares. In connection with the July 2020 Financing, the Company paid cash commissions of $2,939,400 and incurred other transaction costs of $212,256.

August 2019 Financing

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 transaction costs of $698,162.

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Nomination Rights

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.

Equity incentive plans

Restricted share units plan

The Company has adopted a Restricted Share Unit Plan (“RSU Plan”) consistent with the policies and rules of the 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 March 31, 2021, there are no RSUs outstanding.

As of March 31, 2021 the Stock Option Plan and RSU Plan have a combined maximum of 7,342,788 common shares which may be reserved for issuance.

Employee Share Purchase Plan

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. The Company currently holds offerings consisting of six-month periods commencing on January 1 and July 1 and ending on June 30 and December 31 of each calendar year. As of March 31, 2021, the ESPP has a maximum of 263,120 (2020 – 284,887) common shares reserved for issuance.

Eligible employees are able to contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions. Purchase of shares under the ESPP are limited for each employee at $25,000 worth of the Company’s common shares (determined using the lesser of (i) the market price of a common share on the first day of an applicable purchase period and (ii) the market price of a common share on the purchase date) for each calendar year in which a purchase right is outstanding.

During the six months ended March 31, 2021, the Company issued 5,261 shares (2020 – Nil) upon the exercise of Purchase Rights. The Company recognizes compensation expense for purchase rights on a straight-line basis over the service period.

	For the three months				For the six months
	ended March 31,				ended March 31,
	2021			2020	2021			2020
Research and development expense	$	9,123	$	—	$	14,693	$	—
General and administrative		17,381		—		17,946		—
	$	26,504	$	—	$	32,639	$	—

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The Company measures the purchase rights based on their estimated grant date fair value using the Black-Scholes option pricing model and the estimated number of shares that can be purchased. The following weighted average assumptions were used for the valuation of purchase rights:

	2021			2020
Risk-free interest rate		0.19	%	—
Expected life of share purchase rights		6 months		—
Expected annualized volatility		61.26	%	—
Dividend		—		—

Stock options

The Company has adopted a Stock Option Plan consistent with the policies and rules of the 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.

Stock option transactions are summarized as follows:

		Weighted
	Number	Average
	of Options	Exercise Price*
Balance, September 30, 2019	1,122,461	$	4.59
Options granted	4,218,000		3.31
Options exercised	(416)		(2.20)
Options expired/forfeited	(30,461)		(28.46)
Balance, September 30, 2020	5,309,584	$	3.42
Options granted	1,714,646		7.77
Options exercised	(255,588)		(3.63)
Options expired/forfeited	(42,000)		(3.40)
Balance outstanding, March 31, 2021	6,726,642	$	4.53
Balance exercisable, March 31, 2021	2,232,820	$	3.51

* Options exercisable in Canadian dollars as of March 31, 2021 are translated at current rates to reflect the current weighted average exercise price in US dollars for all outstanding options.

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At March 31, 2021, options were outstanding enabling holders to acquire common shares as follows:

		Weighted average remaining
Exercise price	Number of options