Achieve Life Sciences, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Achieve is a clinical-stage pharmaceutical company developing cytisinicline for smoking cessation; it has no approved products and has not generated product-sales revenue. Amounts below are in U.S. dollars unless noted. The 2017 comparison is not fully comparable because the reverse merger with OncoGenex closed August 1, 2017.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $1.54 million | $0.83 million | $3.79 million | $0.95 million |
| General and administrative expense | $1.75 million | $1.55 million | $5.32 million | $1.90 million |
| Net loss | $3.24 million | $6.47 million | $9.05 million | $6.84 million |
| Basic and diluted loss per share | $0.71 | $8.96 | $3.70 | $28.10 |
| Net cash used in operating activities | Not separately provided for the quarter | $7.08 million | $5.48 million |
No meaningful product gross margin is reported because the company has no product sales. Operating expenses were $3.29 million in Q3 and $9.10 million for the first nine months.
- Liquidity at September 30: Cash and cash equivalents of $11.76 million and short-term investments of $1.39 million, totaling $13.20 million; positive working capital of $10.6 million.
- Balance sheet: Total assets $17.14 million; total liabilities $2.98 million; stockholders’ equity $14.16 million. Long-term obligations were $15,000, with $11,000 current. Lease commitments totaled $384,000.
- Cash flows, nine months: $14.75 million provided by financing activities and $1.42 million used in investing activities. Cash, cash equivalents and restricted cash increased by $6.25 million to $11.81 million.
Material changes versus prior period
- Q3 R&D expense increased 87% year over year; nine-month R&D increased substantially as cytisinicline trials and related studies advanced. Management attributed the increase to clinical activity, personnel and facilities costs.
- G&A expense rose to $5.32 million for the nine months, from $1.90 million, reflecting increased headcount, consulting, legal and professional costs following the merger.
- Nine-month net loss increased to $9.05 million from $6.84 million, despite lower Q3 loss. Comparisons are affected by 2017 unusual items, including an $8.61 million loss on disposition of apatorsen intangible assets and a $3.05 million deferred tax recovery, as well as a $1.27 million bargain-purchase gain and other items.
- Operating cash use rose by $1.60 million year over year, primarily due to higher R&D spending and personnel and facilities costs.
- Assets and equity increased from December 31, 2017, primarily reflecting 2018 equity financing and warrant exercises. The company effected a one-for-ten reverse stock split in May 2018.
Outlook, risks and unusual items
- Funding and going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern and that September 30 resources were insufficient to fund planned operations for the next 12 months. It expects substantial additional capital will be needed; failure to obtain funding could force delays or reductions in development activities.
- Financing after quarter-end: An October 3 registered direct offering raised $5.6 million gross and approximately $5.0 million net, with warrants issued alongside the shares. The filing does not state that this financing resolves the company’s funding needs.
- Development outlook: ORCA-1, a Phase 2b cytisinicline study in about 250 U.S. smokers, began in October 2018; results were expected in mid-2019. Final results from the repeat-dose pharmacokinetics/pharmacodynamics study were expected in Q1 2019. These are management expectations, not guarantees.
- Clinical and commercial risks: Cytisinicline remains investigational in the U.S.; clinical success, regulatory approval, market acceptance and future revenue are uncertain. The company depends on Sopharma as its exclusive supplier, with risks related to manufacturing, supply, natural-resource availability and geography.
- Other exposures: The company cites dilution and stock-price volatility risks from equity and warrant issuances, licensing milestone and royalty obligations, and potential clinical, regulatory, intellectual-property and product-liability risks. It reported no material off-balance-sheet financing arrangements.
Key facts for investors to verify
- Whether available cash, including the October offering proceeds, is sufficient for the company’s updated operating and clinical-development plans, and when further financing may be required.
- ORCA-1 enrollment, execution and results timing, and the final results of the repeat-dose study.
- The terms and potential dilution from outstanding warrants, convertible preferred stock, and future equity-line sales; common shares outstanding were 6,721,103 as of November 7, 2018.
- Whether Sopharma can maintain adequate, compliant cytisinicline supply and meet anticipated clinical and potential commercial needs.
- The effect of the 2017 merger-related unusual items on comparisons, and the company’s ability to control rising R&D and administrative costs.