Achieve Life Sciences, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Achieve is a clinical-stage pharmaceutical company developing cytisinicline for smoking cessation and nicotine addiction. It had no approved products and generated no product revenue.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Revenue | None from product sales | None |
| Research and development expense | $1.541 million | $4.055 million |
| General and administrative expense | $1.816 million | $1.885 million |
| Total operating expenses | $3.357 million | $5.940 million |
| Net loss | $3.320 million | $5.904 million |
| Basic and diluted loss per share | $0.11 | $0.88 |
| Cash used in operating activities | $4.461 million | $4.889 million |
| Cash and cash equivalents, March 31 | $12.156 million | — |
| Working capital, March 31 | $11.4 million | — |
All amounts are in U.S. dollars; financial statement amounts are generally in thousands. Lower R&D expense primarily reflected completion of the ORCA-1 Phase 2b trial in June 2019. G&A expense declined modestly, in part due to lower travel during the COVID-19 pandemic. With no product revenue, a revenue margin is not applicable.
At March 31, total assets were $16.647 million, total liabilities $1.662 million, and stockholders’ equity $14.985 million. Cash and cash equivalents fell from $16.664 million at December 31, 2019; cash, cash equivalents and restricted cash together were $12.206 million at quarter-end. Reported obligations include operating lease liabilities; the filing does not identify material conventional borrowings. Accumulated deficit was $49.024 million.
Material changes and financing
- Net loss improved by $2.584 million year over year, primarily because R&D spending was lower following ORCA-1 completion.
- Common shares outstanding increased from 29.485 million at December 31 to 31.353 million at March 31, in part as 1.868 million common shares were issued upon conversion of Series B preferred shares. The preferred shares were fully converted by quarter-end.
- In March, Achieve amended its Lincoln Park Capital purchase agreement, extending the term to 54 months and increasing the limit for regular purchases to 150,000 shares per purchase. No shares were sold under it in Q1. An at-the-market agreement for up to $6.0 million was also available, but no shares had been sold under it through the dates reported.
- After quarter-end, a private placement announced in April raised approximately $1.9 million gross and $1.6 million net, issuing about 5.616 million units, each with one common share and a warrant for 0.75 shares. Warrants are exercisable beginning October 2020. The filing reports 37,515,408 common shares outstanding as of May 14, 2020.
- As of March 31, 27.116 million warrants were outstanding, including 23.0 million issued in the December 2019 financing at a $0.60 exercise price. These and other potential shares may substantially dilute existing holders if exercised.
Outlook, risks and unusual items
- Going concern: Management states that current resources are insufficient to fund planned operations for the next 12 months and that substantial doubt exists about Achieve’s ability to continue as a going concern. It expects to need substantial additional capital through securities sales, partnerships or other financing. Failure to raise funds could force delays, reductions or elimination of development activities.
- Clinical outlook: Management planned to initiate the Phase 3 cytisinicline program in the second half of 2020, subject to COVID-19 conditions and available capital. The planned program evaluates 3 mg three times daily against placebo, with treatment periods of six and 12 weeks. Timing and completion were uncertain.
- COVID-19: The pandemic could disrupt trial initiation, enrollment, research, regulatory interactions and supply, and could make financing more difficult or costly. The filing also identifies potential volatility and dilution from future capital raises.
- Development and supply risks: Cytisinicline is Achieve’s sole product candidate; it has not been approved by the FDA. Clinical efficacy and safety, regulatory approval, commercialization and profitability are uncertain. Achieve relies exclusively on Sopharma for cytisinicline supply, with risks related to manufacturing, agricultural supply, geography and continuity.
- Other financing and listing risks: The filing warns of potential dilution from equity facilities and warrants, and reports a Nasdaq minimum-bid-price deficiency notice. Achieve had until October 5, 2020 to regain compliance by meeting the required closing bid price for at least 10 consecutive trading days.
- Management reported effective disclosure controls at quarter-end and no material change in internal control over financial reporting during the quarter. The filing reports no off-balance-sheet financing arrangements.
Important facts for investors to verify
- Cash runway and the timing, amount and terms of additional financing; the going-concern disclosure is a central risk.
- Whether the April private placement proceeds were received as described, and the resulting share count and dilution from warrants and other equity facilities.
- Phase 3 start, enrollment and execution timelines, including the effect of COVID-19 and required toxicology work.
- Nasdaq bid-price compliance status and any subsequent listing actions.
- Sopharma’s ability to supply adequate, compliant cytisinicline for trials and any future commercial use.