Grace Therapeutics, Inc. quarterly report, Q2 FY2022

Business context and reporting period

The supplied filing is Acasti Pharma Inc.’s unaudited Form 10-Q for the quarter and six months ended September 30, 2021—not a filing by Grace Therapeutics, Inc. Grace became Acasti’s wholly owned subsidiary, renamed Acasti Pharma U.S. Inc., following the August 27, 2021 merger. Amounts below are in U.S. dollars, thousands, except per-share data.

Acasti shifted its focus from CaPre, after its Phase 3 TRILOGY studies failed to meet primary endpoints, to Grace’s rare-disease pipeline. The company reported no product revenue and expects no product-sales revenue until candidates are developed and approved.

Financial results and position

Quarterly net income reflected $4,548 of financial income, mainly gains from remeasurement of warrant liabilities and foreign exchange; this was not operating profit. Six-month financial income was $4,575. Gross margin is not applicable because no product revenue was reported.

At September 30, cash and cash equivalents were $36,929 and short-term investments were $13,861, totaling $50,790. Current assets were $54,545, current liabilities $4,476, and working capital $50,069. Total assets were $119,796; total liabilities were $5,592, including $1,116 of derivative warrant liabilities. The filing reports no conventional borrowings. Shareholders’ equity was $114,204.

Material changes versus the prior comparable periods

• Merger consideration included 18,241,233 Acasti shares valued at approximately $60,824; the acquisition added $65,208 of preliminary in-process R&D intangible assets. Purchase accounting remained preliminary.
• Quarterly G&A rose to $2,957 from $1,324, primarily due to merger-related professional fees; acquisition expenses were $2,500 for the quarter and $3,200 for the six months.
• R&D and sales and marketing expense declined as CaPre development and commercialization activity wound down. The acquired Grace pipeline contributed only from the merger closing date.
• Cash and cash equivalents declined by $14,013 from March 31, 2021; six-month operating cash use was $9,505, with investment activity also affecting the cash balance. No shares were sold under the ATM program during the six-month period.
• Acasti issued shares for the merger and completed an 8-for-1 reverse split effective August 31, 2021. It regained Nasdaq minimum-bid-price compliance on September 22, 2021.

Outlook, commentary, risks and contingencies

• GTX-104: A pharmacokinetic bridging study began in September 2021. Results were expected in the first half of 2022; subject to study results and FDA review, Acasti expected to begin a Phase 3 safety study in the second half of 2022. These are forward-looking expectations, not guarantees.
• GTX-102 and GTX-101: Further bridging and clinical studies were planned, but the filing does not provide firm completion dates. Acasti expects to pursue a 505(b)(2) pathway, subject to FDA agreement and applicable requirements.
• Management expects significant expenses and continuing operating losses while advancing the pipeline and says additional financing will be needed. The company had an ATM facility allowing sales of up to $75 million; a prospectus supplement was filed November 10, 2021 to restore the available capacity.
• Acasti had a $2,800 remaining take-or-pay commitment for CaPre krill oil, due for delivery by October 31, 2021. No product had been delivered and no remaining payment made as of November 10. Management anticipated a possible near-term loss absent an amended arrangement.
• Four shareholder suits challenged merger disclosures. Two were dismissed without prejudice; the other two were consolidated and amended as a class action. No legal reserves were accrued at September 30; management said it considered the allegations meritless, while acknowledging an unfavorable outcome could be material.
• Key risks include clinical, regulatory and 505(b)(2) pathway uncertainty; reliance on the three lead candidates; integration and financing needs; third-party manufacturing and trial execution; intellectual-property disputes; foreign-exchange exposure; and possible COVID-19 disruption. Management reported no significant COVID-related disruption to date.

Important facts for investors to verify

• Confirm the issuer and reporting period: this is Acasti Pharma Inc.’s quarter ended September 30, 2021, despite the request identifying Grace Therapeutics.
• Track GTX-104 study results, FDA feedback, and whether the planned Phase 3 study proceeds on schedule; assess the evidence and timing for GTX-101 and GTX-102 separately.
• Review the final purchase-price allocation for Grace and the assumptions supporting the $65.2 million acquired IPR&D valuation and future impairment assessments.
• Determine the outcome of the $2.8 million krill-oil commitment and merger-related litigation, including any resulting cash costs or liabilities.
• Monitor cash burn, financing runway, ATM share sales and dilution, and distinguish recurring operating results from noncash warrant remeasurement and foreign-exchange gains.