Achieve Life Sciences, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing was signed March 10, 2022. Figures below are in U.S. dollars; financial statement amounts are presented in millions unless noted.
Business context
Achieve is a clinical-stage pharmaceutical company with no approved products and no product-sales revenue. Its principal and sole product candidate is cytisinicline, being developed for smoking cessation and nicotine addiction. The company is also exploring its use for e-cigarette cessation. It relies on Sopharma for cytisinicline supply and manufacturing.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue from product sales | None | None |
| Research and development expense | $23.966 | $6.882 |
| General and administrative expense | $9.128 | $7.868 |
| Total operating expenses | $33.094 | $14.750 |
| Net loss | $33.152 | $14.730 |
| Net loss per share | $4.08 | $5.42 |
| Net cash used in operating activities | $29.440 | $13.474 |
- At year-end, cash and cash equivalents were $43.022 million, working capital was positive $40.0 million, and total assets were $47.516 million. Accumulated deficit was $93.586 million.
- The company reported that existing cash, cash equivalents and restricted cash were expected to fund current operating expenses and capital expenditures into 2023. Management also said ongoing operations and clinical programs would require further financing.
- Financing cash flow was $36.610 million, mainly from the May 2021 public offering and December 2021 convertible debt financing. Investing cash flow was nil.
- Year-end convertible debt had $15.0 million principal and $14.920 million carrying value. It matures in December 2023, potentially extendable to December 2024 with lender approval. Interest includes a floating cash-pay component and 7% monthly-compounding paid-in-kind interest. The agreement permits up to $10 million in additional non-convertible loans subject to conditions.
- The debt is convertible at $9.34 per share under specified terms, has a mandatory conversion trigger tied to a $24 share price for 30 consecutive trading days, and is secured by substantially all company assets, including intellectual property.
Margins are not meaningful because the company had no product revenue. The filing does not provide a clear revenue-based margin measure.
Material changes versus the prior year
- Net loss increased to $33.152 million from $14.730 million, primarily reflecting higher R&D spending as Phase 3 ORCA-2 enrollment and activity ramped up.
- R&D expense rose to $23.966 million from $6.882 million; G&A increased to $9.128 million from $7.868 million.
- Operating cash use increased to $29.440 million from $13.474 million.
- Cash and cash equivalents increased to $43.022 million from $35.853 million, supported by financing, while total liabilities increased to $19.474 million from $3.012 million, principally due to the new convertible debt.
- Common shares outstanding increased to 9.454 million from 6.112 million, largely following the May 2021 offering.
Outlook, commentary and key risks
- ORCA-2, a U.S. Phase 3 trial, randomized 810 adult smokers; the last follow-up visit was completed in December 2021. Topline results were expected in Q2 2022. ORCA-3, a confirmatory Phase 3 trial planned for 750 participants, began in January 2022.
- The company expected to begin the Phase 2 ORCA-V1 e-cigarette cessation study in Q2 2022, subject to NIH review, milestone completion and grant funding. The $2.8 million grant was expected to cover about half of study costs; only the initial $320,000 award was described as commenced.
- Two chronic toxicology studies were completed and submitted to FDA; one of two carcinogenicity studies was complete and the second was in progress. The company identified continued clinical, regulatory and study costs as significant funding needs.
- Historical investigator-sponsored trials were described as supportive: RAUORA found cytisinicline non-inferior to varenicline for six-month abstinence, with reported abstinence rates of 12.1% versus 7.9%. These results do not establish success in Achieve’s U.S. registrational trials.
- Key risks include clinical-trial failure or delay, regulatory rejection, continued losses and financing needs, dilution, and dependence on Sopharma as the sole supplier. Supply is plant-derived and concentrated in Bulgaria; the filing cites potential disruption from political or economic instability, including the Russia-Ukraine conflict, and from weather or other supply constraints.
- Other risks include competition, reimbursement and pricing uncertainty, limited U.S. patent protection for the naturally occurring compound, and the possibility that third parties sell competing or counterfeit cytisinicline products. The company stated that COVID-19’s impact on financial performance had been minimal to the filing date, while warning that future disruption remained possible.
- No formal financial guidance was provided. Management’s stated liquidity horizon was into 2023, subject to assumptions about spending and clinical development.
Investor verification points
- Confirm subsequent ORCA-2 results, ORCA-3 progress and whether the FDA’s evidence requirements or development timetable changed.
- Reassess cash burn, financing needs and runway against trial spending; verify availability and terms of any additional debt, grant funding or ATM issuance.
- Review the convertible debt’s interest, security, conversion and repayment provisions, including potential dilution and the effect of the collateral package.
- Check Sopharma’s manufacturing capacity, supply continuity, quality controls and any alternative-supplier plans, particularly given geopolitical and plant-supply risks.
- Verify two apparent filing inconsistencies: the disclosure-controls section refers to management’s conclusion as of December 31, 2020, although the internal-control assessment is stated as of December 31, 2021; and the ATM is described in one passage as entered into on December 21, 2022, while other filing details identify December 21, 2021.
PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements. The auditor did not opine on internal-control effectiveness; management reported that internal control over financial reporting was effective as of December 31, 2021.