Achieve Life Sciences, Inc. — FY 2017 Form 10-K
Reporting period: Year ended December 31, 2017; filed March 1, 2018. The filing is an annual report, not a standalone fourth-quarter filing. Unless otherwise noted, amounts are in U.S. dollars.
Business context and reporting period
Achieve is a clinical-stage pharmaceutical company developing cytisine for smoking cessation. It had no products approved for commercial sale and generated no product revenue. On August 1, 2017, the company completed its reverse merger with OncoGenex, changed its name to Achieve Life Sciences, and effected a 1-for-11 reverse stock split. For accounting purposes, 2017 results include Achieve for January 1 through August 1 and the combined company thereafter; 2016 and 2015 results reflect Achieve alone, so year-over-year comparisons are not like-for-like.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $3.1 million | $0.3 million |
| General and administrative expense | $3.5 million | $1.4 million |
| Total operating expenses | $6.6 million | $1.7 million |
| Net loss | $10.6 million | $1.2 million |
| Net loss per share | $2.21 | $58.13 |
| Cash and cash equivalents at year-end | $5.3 million | $15,000 |
| Working capital at year-end | $3.7 million | Not clearly stated as a comparable figure |
There were no meaningful revenue margins to assess. Net loss included an $8.6 million loss on disposition of apatorsen-related intangible assets, partly offset by a $3.1 million deferred tax recovery, a $1.3 million bargain-purchase gain, a $0.2 million contingent-value-rights recovery, and a $0.15 million warrant gain.
Net cash used in operating activities was $9.1 million, compared with $0.2 million in 2016. Financing provided $2.0 million and the reverse merger provided $12.6 million of investing cash flow. Year-end cash, cash equivalents and restricted cash totaled $5.6 million, including $0.3 million restricted. Total liabilities were $2.0 million; the company reported no outstanding stockholder loans at year-end and no material conventional debt balance. Contractual obligations were $0.6 million, primarily leases.
Management stated that existing capital was insufficient to fund planned operations for the next 12 months. The independent auditor’s opinion was unmodified, but highlighted substantial doubt about the company’s ability to continue as a going concern. The balance sheet and statements were prepared on a going-concern basis without adjustments that might be required if the company cannot continue.
Material changes versus the prior comparable period
- Operating expenses rose substantially, driven by cytisine development, increased staffing and public-company costs following the merger.
- Research and development expense increased to $3.1 million from $0.3 million, including costs for the FDA IND, food-effect and repeat-dose studies, and toxicology work.
- Reported net loss widened, but the comparison is affected by the merger, the apatorsen write-off, tax recovery and other unusual items.
- Cash increased from $15,000 to $5.3 million, principally reflecting cash acquired in the merger and equity financing; operating cash use also rose considerably.
- In August 2017, Achieve discontinued apatorsen development and terminated related licenses. It focused its development efforts on cytisine.
Outlook, commentary, risks and unusual items
- Achieve intended to start a Phase 3 cytisine program in mid-2018, subject to FDA guidance and available capital. It had requested a pre-Phase 3 FDA meeting, scheduled for the second quarter of 2018, and expected additional supportive clinical and nonclinical studies.
- Preliminary results announced in February 2018 from 24 smokers in a repeat-dose study showed 58% achieved biochemically verified abstinence by day 26; reported adverse events were mostly mild, with no serious events observed. The study was small and was not a pivotal efficacy trial.
- Two investigator-conducted Phase 3 trials cited in the filing reported favorable cessation outcomes versus placebo or nicotine-replacement therapy. Achieve had not yet conducted a large-scale company-sponsored trial.
- Funding is the immediate risk: the company expected increasing losses and required additional capital through securities sales, partnerships or other financing. Failure to raise funds could delay, reduce or halt development. LPC sales had generated about $3.4 million gross proceeds through March 1, 2018, with approximately $7.6 million of capacity remaining; further issuance could dilute shareholders.
- Cytisine was the sole active product candidate and relied on Sopharma as its exclusive supplier. Supply depends on a plant-based raw material and carries manufacturing, geographic, weather and export risks.
- Cytisine itself is naturally occurring and not patentable in the United States, according to the filing. Achieve relied on licensing, supply arrangements, regulatory exclusivity and potential patents for formulations, uses and derivatives.
- For the fourth quarter, net loss was $3.7 million, including $2.2 million of R&D and $1.6 million of G&A expense.
Important facts for investors to verify
- Whether financing was secured in time to fund at least 12 months of operations and the planned Phase 3 program, and the resulting dilution and runway.
- FDA feedback on the Phase 3 design, required supportive studies, and actual trial start timing and cost.
- Whether larger, company-sponsored trials confirm cytisine’s efficacy and safety, including the relevance of earlier third-party studies.
- Sopharma’s ability to supply compliant clinical and commercial quantities, and the status of any alternative supply plans.
- The final accounting and comparability of merger-related results, including the apatorsen disposition and associated tax effects.