Achieve Life Sciences, Inc. — Q2 2020 Form 10-Q
Business context and reporting period
Clinical-stage pharmaceutical company developing cytisinicline for smoking cessation and nicotine addiction. This unaudited filing covers the three and six months ended June 30, 2020. The company had no approved products and reported no product-sales revenue.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue |
| Research and development | $1.103 million | $2.032 million | $2.644 million | $6.087 million |
| General and administrative | $1.815 million | $1.630 million | $3.631 million | $3.515 million |
| Total operating expenses | $2.918 million | $3.662 million | $6.275 million | $9.602 million |
| Net loss | $2.922 million | $3.624 million | $6.242 million | $9.528 million |
| Net loss per share | $1.68 | $10.08 | $3.79 | $27.39 |
| Cash used in operating activities | Not reported by quarter | Not reported by quarter | $6.659 million | $8.730 million |
Amounts are in U.S. dollars; financial statement amounts are in thousands unless noted. The company reported no profit or operating margin; gross margin is not applicable because it had no product revenue. At June 30, 2020, cash and cash equivalents were $12.111 million, restricted cash was $0.050 million, working capital was positive $10.8 million, total assets were $16.458 million, and total liabilities were $1.920 million. Long-term obligations, including current portions, totaled $0.275 million; the filing reports no material conventional debt balance.
Material changes versus comparable periods
- Q2 net loss narrowed to $2.922 million from $3.624 million; six-month net loss narrowed to $6.242 million from $9.528 million.
- R&D expense declined year over year, primarily because the ORCA-1 Phase 2b trial was completed in June 2019. Management expects R&D costs to rise as clinical development advances.
- G&A expense increased, mainly from market research and public-relations activity, partly offset by lower travel costs during COVID-19 restrictions.
- Cash and cash equivalents fell from $16.664 million at December 31, 2019 to $12.111 million at June 30, 2020. Six-month operating cash use was lower than in 2019, primarily due to reduced R&D spending.
- Common shares outstanding increased during the first half through preferred-share conversions, warrant exercises, and the April private placement. Share counts and per-share figures in the filing were retrospectively adjusted for a subsequent 1-for-20 reverse split.
Outlook, management commentary, and risks
- Going concern: Management states substantial doubt exists about the company’s ability to continue as a going concern and that available resources are insufficient for planned operations over the next 12 months. Additional capital is required; failure to obtain it could force delays, reductions, or suspension of development. COVID-19 may make financing more difficult or less favorable.
- Clinical development: Management aimed to begin the U.S. Phase 3 ORCA-2 trial in the second half of 2020, testing 3 mg cytisinicline three times daily against placebo, with behavioral support. COVID-19-related site feasibility and public-health measures could affect timing and conduct.
- Trial update: The company reported topline results from the investigator-sponsored RAUORA Phase 3 trial in June 2020: cytisinicline plus behavioral support was statistically non-inferior to varenicline at six months and had fewer reported adverse events. Final results were expected to be submitted for publication and presented in September 2020.
- Subsequent financings: A July 1 registered direct offering raised $6.0 million gross and approximately $5.5 million net. An August 2020 public offering was expected to raise approximately $7.5 million gross and $6.8 million net, subject to customary closing conditions. These transactions occurred after June 30 and should not be treated as period-end cash.
- Other risks: Cytisinicline is the sole product candidate and is not FDA-approved. Clinical, regulatory, manufacturing, and commercialization outcomes are uncertain. The company relies on Sopharma as its exclusive cytisinicline supplier, with supply ultimately dependent on a plant-derived ingredient. Further risks include dilution from equity and warrant financings, competition, intellectual-property limitations, and Nasdaq’s minimum-bid-price listing requirement.
- A 1-for-20 reverse stock split took effect July 31, 2020 to seek compliance with Nasdaq’s minimum bid-price rule; the company stated that Nasdaq confirmation of regained compliance was not assured.
Most important facts for investors to verify
- Whether subsequent offerings closed as expected, their net proceeds, and the resulting cash runway and dilution.
- Whether Nasdaq confirmed compliance following the reverse split.
- Whether ORCA-2 began on schedule and how COVID-19 affected enrollment, sites, and timelines.
- The full RAUORA results and how they compare with the topline announcement.
- Whether additional financing or partnering is needed, given management’s stated 12-month funding shortfall and going-concern uncertainty.
- Continuity and adequacy of Sopharma’s supply for planned clinical and potential commercial needs.