Achieve Life Sciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. 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 performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $1.824 million | $1.541 million | $7.911 million | $3.787 million |
| General and administrative expense | $1.893 million | $1.753 million | $5.408 million | $5.317 million |
| Total operating expenses | $3.717 million | $3.294 million | $13.319 million | $9.104 million |
| Net loss | $3.673 million | $3.240 million | $13.201 million | $9.050 million |
| Net loss per share | $0.45 | $0.71 | $1.80 | $3.70 |
| Cash used in operating activities | Not separately reported | Not separately reported | $11.802 million | $7.082 million |
Gross profit and operating margins are not meaningful because the company had no product revenue. Interest income was $40,000 for Q3 and $143,000 for the nine-month period.
At September 30, 2019, cash and cash equivalents were $7.375 million, with no short-term investments, versus cash and short-term investments totaling $14.604 million at December 31, 2018. Working capital was positive at $4.5 million. Total assets were $11.492 million, total liabilities $3.351 million, and stockholders’ equity $8.141 million. Long-term obligations, principally lease-related, were $410,000 in total, including current and noncurrent portions. The filing reports no off-balance-sheet financing arrangements.
Cash, cash equivalents and restricted cash declined by $2.140 million over the first nine months. Financing provided $4.622 million, mainly from warrant exercises and the Lincoln Park Capital (LPC) purchase agreement; investing provided $5.037 million, primarily from investment maturities.
Changes versus comparable periods
- Q3 operating expenses rose about 13% and net loss rose about 13% year over year. Nine-month operating expenses increased about 46% and net loss about 46%.
- Nine-month R&D expense more than doubled, primarily reflecting the ORCA-1 Phase 2b trial. G&A expense increased modestly; management attributed the increase mainly to market research, partly offset by lower rent and facilities costs.
- Nine-month operating cash use increased to $11.8 million from $7.1 million, primarily due to higher R&D spending. Financing cash inflows fell to $4.6 million from $14.7 million, while investment maturities contributed $5.1 million of 2019 investing cash inflow.
- Cash and short-term investments were substantially lower than at year-end as funds were used to support operations. The company reported an accumulated deficit of $42.5 million.
Development outlook, risks and unusual items
- Management reported positive top-line ORCA-1 Phase 2b results and selected 3.0 mg cytisinicline three times daily for Phase 3. In that arm, four-week abstinence at week 4 was 54% versus 16% for placebo; continuous abstinence during weeks 5–8 was 30% versus 8%. The company reported no serious adverse events in the trial.
- Management planned to discuss ORCA-1 and finalize Phase 3 protocol details with the FDA in Q4 2019, and aimed to begin a U.S. Phase 3 trial in the first half of 2020, subject to available capital. Potential studies for e-cigarette or vaping nicotine addiction were being explored, including non-dilutive funding sources.
- Going concern: The filing states substantial doubt exists about the company’s ability to continue as a going concern and that current resources are insufficient to fund planned operations for the next 12 months. Additional capital is required; absent financing, clinical development or other operations may be delayed, reduced or suspended. Management expects operating losses and R&D expenses to increase.
- Financing and dilution: In May 2019, warrant exercises raised approximately $4.2 million. As an inducement, the company issued a six-year warrant for up to 1.2 million shares at $4.50 per share. It recorded the warrant’s $3.9 million fair value in accumulated deficit. LPC sales raised approximately $0.4 million during the first nine months; an additional 250,000 shares sold after quarter-end through November 6 raised approximately $0.4 million. The company also had an unused $6 million at-the-market offering authorization.
- Key business risks: Cytisinicline is the company’s sole product candidate and remains subject to clinical and regulatory uncertainty. The company relies exclusively on Sopharma for supply and manufacturing; its plant-derived source, geographic concentration, and supplier performance create supply risks. Cytisinicline is naturally occurring and not patentable in the United States, increasing competitive and intellectual-property uncertainty.
- The adoption of lease accounting in 2019 materially affected the balance sheet through recognition of right-of-use assets and lease liabilities, but management said it did not affect the statement of loss. Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Available cash, subsequent financing, and expected cash runway, given the stated inability to fund planned operations for 12 months.
- FDA feedback and final Phase 3 protocol, timing, cost, and financing required to start and complete the planned trial.
- Full ORCA-1 results, including safety, abstinence endpoints, and whether outcomes are reproducible in Phase 3.
- Potential dilution from LPC and ATM share sales and outstanding warrants, including the 1.2 million-share inducement warrant.
- Sopharma’s ability to supply cytisinicline in adequate quantities and meet clinical, commercial, and regulatory requirements.