Achieve Life Sciences, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Amounts below are in U.S. dollars; financial-statement amounts are generally in millions unless stated otherwise.
Business context and reporting period
Achieve is a clinical-stage pharmaceutical company developing cytisine for smoking cessation. It has no approved products and has not generated product-sales revenue. On August 1, 2017, the company completed its combination with OncoGenex, accounted for as a reverse merger with Achieve as the accounting acquirer. The 2017 results include Achieve for the full period and OncoGenex only after the transaction; 2016 reported results include Achieve only, so reported year-over-year comparisons are not like-for-like.
Key financial metrics
| Metric | Q3 2017 / September 30, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Revenue | No product revenue | No product revenue reported |
| Operating expenses | $2.375 million for Q3; $2.850 million for nine months | $0.398 million for Q3 2016; $1.105 million for nine months 2016 |
| Net loss | $6.472 million for Q3; $6.843 million for nine months | $0.268 million for Q3 2016; $0.748 million for nine months 2016 |
| Cash and cash equivalents | $8.021 million | $0.015 million |
| Restricted cash | $0.272 million | None reported |
| Working capital | $6.3 million positive | Not stated in the filing text |
| Total assets / liabilities | $13.029 million / $2.347 million | $3.807 million / $3.197 million |
| Accumulated deficit | $8.915 million | $2.062 million |
Operating cash use was $5.484 million for the nine months, versus $0.140 million in 2016. Financing provided $1.107 million, principally from the Lincoln Park Capital (LPC) purchase agreement; investing provided $12.376 million from cash received in the OncoGenex transaction. No material conventional debt balance was reported: long-term obligations were $47,000 in total, and related-party stockholder loans were converted into shares before quarter-end.
Margins are not meaningful because the company reported no product revenue. No product sales or profitability guidance was provided.
Material changes and unusual items
- Research and development expense rose to $0.948 million for the first nine months from $0.206 million. Management attributed the increase to cytisine development, including the IND filing and food-effect study, as well as personnel and facility costs following the combination.
- General and administrative expense increased to $1.902 million from $0.899 million for the nine-month periods, reflecting added headcount, consulting, legal and professional costs related to the transaction and integration.
- The Q3 and nine-month net losses include an $8.610 million loss on disposition of apatorsen-related intangible assets after Achieve discontinued that program. The results also include a $2.928 million deferred-tax recovery, a $1.272 million bargain-purchase gain, a $0.200 million contingent-value-rights recovery, and a $0.111 million warrant revaluation gain. These items materially affect period comparisons.
- The company reported total stockholders’ equity of $10.682 million at September 30, up from $0.610 million at year-end, largely reflecting the transaction and equity financing.
Outlook, risks and contingencies
- Funding and going concern: Management stated that current capital resources are insufficient for planned operations over the next 12 months and that substantial doubt exists about the company’s ability to continue as a going concern. Additional financing is required; failure to obtain it could force delays, reductions or cancellations of development activities.
- Financing and dilution: Under a 30-month LPC agreement, the company may sell up to $11 million of stock, subject to conditions. Through September 30, sales generated approximately $1.2 million gross, with about $9.8 million remaining available. From October 1 through November 9, an additional 464,831 shares generated approximately $0.9 million gross; about $8.9 million remained available. These sales may dilute existing holders.
- Cytisine development: The FDA accepted the cytisine IND in August 2017. The food-effect study had recently completed, with data expected by year-end 2017; a repeat-dose study in smokers began in October, with results expected in Q1 2018. Management planned an FDA pre-Phase 3 meeting in Q1 2018 and intended to start Phase 3 in mid-2018, subject to FDA guidance and available capital. These are expectations, not assurances.
- Operational and development risks: Cytisine is the company’s sole product candidate, remains unapproved, and depends on Sopharma as its exclusive supplier. Clinical, regulatory, manufacturing, financing, competition and commercialization risks could delay or prevent approval or commercial success.
- Apatorsen and CVRs: Apatorsen development was discontinued in August 2017. Related contingent value rights expired after no qualifying third-party agreement was reached; the company recorded a $0.2 million recovery. The filing also describes remaining patent-cost and indemnification obligations related to apatorsen.
- Other exposures: Contractual lease and equipment obligations totaled $0.278 million, all due within one year. The company reported unhedged Canadian-dollar exposure and estimated a hypothetical 10% currency movement could affect Q3 results by about $0.1 million.
Important facts for investors to verify
- Available cash, subsequent LPC proceeds, actual cash burn and whether financing can support operations and planned clinical trials.
- FDA feedback, timing and results for the pharmacokinetic studies, and whether the planned Phase 3 start remains feasible.
- The dilution and market impact of further LPC sales; the filing reported 11,947,676 common shares outstanding as of November 9, 2017.
- The assumptions and nonrecurring accounting effects behind the apatorsen write-off, deferred-tax recovery and bargain-purchase gain.
- Continuity and adequacy of Sopharma’s cytisine supply, and the status of any remaining apatorsen-related obligations.