Achieve Life Sciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 14, 2023. The unaudited consolidated statements are prepared under U.S. GAAP.
Business context
Achieve is a clinical-stage pharmaceutical company developing cytisinicline for smoking cessation and nicotine addiction. It has no approved products and has generated no product-sales revenue. Cytisinicline is its sole product candidate.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $4.6 million | $7.2 million | $10.1 million | $11.6 million |
| General and administrative expense | $3.1 million | $2.9 million | $6.2 million | $5.7 million |
| Net loss | $8.2 million | $10.5 million | $17.2 million | $18.0 million |
| Net loss per share | $0.43 | $1.08 | $0.93 | $1.89 |
There is no meaningful gross margin measure because the company reports no product revenue. Lower R&D expense mainly reflected the timing of the Phase 3 ORCA-3 trial; higher G&A reflected employee-related stock compensation and legal costs. Interest expense increased, partly offset by higher interest income.
- Cash and cash equivalents: $25.1 million at June 30, 2023, versus $24.8 million at December 31, 2022. Cash, cash equivalents and restricted cash totaled $25.1 million.
- Working capital: Positive $22.9 million. Total assets were $28.9 million and total liabilities were $19.2 million.
- Operating cash flow: $15.0 million used in the first half of 2023, compared with $15.1 million used in the prior-year period.
- Financing cash flow: $15.3 million provided in the first half, primarily from the May 2023 registered direct offering. Cash increased by $0.3 million over the period.
- Debt: The May 2023 refinancing resulted in a convertible term loan with $16.6 million original principal; the balance-sheet carrying amount was $15.7 million at quarter-end. The debt is secured by substantially all assets other than intellectual property.
- Equity financing: The May offering sold 3.0 million shares at $5.50 per share, generating approximately $15.3 million net proceeds. Shares outstanding rose from 17.9 million at year-end 2022 to 21.1 million at June 30, 2023.
Material changes and business developments
- Achieve reported positive topline results in the Phase 3 ORCA-3 smoking-cessation trial in May 2023, following positive ORCA-2 results. ORCA-3’s weeks 9–12 cessation rate was 30.3% for 12-week cytisinicline versus 9.4% for placebo; the 6-week rates were 14.8% versus 6.0%.
- In ORCA-2, the corresponding cessation rates were 32.6% versus 7.0% for 12-week treatment and 25.3% versus 4.4% for 6-week treatment. Both trials reported no treatment-related serious adverse events in the reported topline results.
- Achieve reported positive topline Phase 2 ORCA-V1 results for vaping cessation in April 2023: weeks 9–12 cessation was 31.8% with cytisinicline versus 15.1% with placebo. The trial was supported in part by a NIDA/NIH grant.
- The May debt refinancing replaced the earlier convertible debt arrangements. The new loan bears a floating cash rate (the greater of 2.25% or prime minus 1%) plus 7% annual interest compounded monthly. Lenders may convert at $9.34 per share; mandatory conversion applies if the stock closes at or above $24 for 30 consecutive trading days.
Outlook, risks and contingencies
- Going concern: Management states substantial doubt exists about the company’s ability to continue as a going concern and says substantial additional capital is required. The filing also says current resources are insufficient for planned operations for the next 12 months. Elsewhere, management says existing cash is expected to fund current operating expenses and capital expenditures into the second half of 2024; these statements create a runway disclosure investors should reconcile.
- Regulatory plans: The company plans to submit an NDA to the FDA for smoking cessation, based largely on ORCA-2 and ORCA-3. Three additional studies—two pharmacokinetic studies and a cardiac safety study—were ongoing, with results anticipated by year-end 2023. The filing does not provide a guarantee of NDA acceptance or approval; the FDA may require additional studies.
- Debt and liquidity risk: The loan generally matures December 22, 2024, but can mature earlier if FDA filing-acceptance conditions are not met in 2024. Cash interest is floating-rate, and the agreement requires substantially all cash and investments to be held with SVB or its successor. Debt covenants restrict certain financing and corporate actions.
- Financing and dilution: The company may need further equity, debt, partnering or other financing. The ATM program had approximately $23.5 million of capacity remaining at June 30, 2023. Warrants, equity awards and possible debt conversion could further dilute shareholders.
- Supply and development risks: Cytisinicline supply depends on Sopharma in Bulgaria, a single supplier, and on plant-derived raw material. The company cites potential disruption from geopolitical conflict, sanctions, manufacturing or regulatory issues, and natural-resource availability.
- Other risks: Cytisinicline is unapproved and remains subject to efficacy, safety, impurity, regulatory, reimbursement, competition and commercialization risks. The company expects significant expenses and losses for the foreseeable future. It paid no dividends and does not expect to do so in the foreseeable future.
- Controls: Management concluded disclosure controls and procedures were effective at quarter-end; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Reconcile the filing’s conflicting cash-runway statements with the stated need for financing and going-concern uncertainty.
- Track cash burn, future financing needs, ATM usage and potential dilution from warrants, awards and convertible debt.
- Verify completion and results of the three remaining NDA-related studies, NDA submission timing and FDA filing acceptance; confirm any additional FDA requirements.
- Assess the loan’s accelerated maturity provisions, floating-rate interest burden, collateral and conversion terms.
- Monitor Sopharma’s supply capacity, manufacturing compliance and geopolitical exposure, alongside the company’s ability to establish any alternative or commercial-scale supply.