Filing summary
Entity and period: The supplied filing identifies the registrant as Acasti Pharma Inc. (NASDAQ: ACST), not Grace Therapeutics, Inc. It is an unaudited Form 10-Q for the quarter and nine months ended December 31, 2020; amounts below are in U.S. dollars unless stated otherwise. Investors should verify the entity and filing match their intended review.
Business context
Acasti had historically focused on CaPre, its krill-oil-derived drug candidate. After both Phase 3 TRILOGY studies failed to meet their primary triglyceride-lowering endpoints, the company decided not to submit an FDA application or conduct further CaPre trials. It substantially reduced commercial and R&D operations and made evaluation of strategic alternatives its primary focus.
Financial performance and position
- Revenue: $81,000 in the quarter and nine-month period, from sales of viral transport medium tubes for COVID-19 testing; none in the comparable 2019 periods. Product cost was $36,000.
- Quarter results: Operating loss was $1.964 million and net loss was $3.220 million, or $0.03 per share, versus a $12.123 million net loss, or $0.14 per share, in the prior-year quarter. The MD&A comparative table separately reports the current-quarter loss as $3.244 million; the filing does not reconcile this difference.
- Nine-month results: Operating loss was $14.119 million and net loss was $14.032 million, or $0.15 per share, versus a $42.128 million net loss, or $0.51 per share, in the prior-year period.
- Expenses and margins: R&D expense was $678,000 for the quarter and $3.720 million for nine months, down from $3.912 million and $14.056 million, respectively, as clinical work wound down. G&A was $1.105 million and $4.078 million; sales and marketing was $226,000 and $1.076 million. No conventional operating margin is meaningful given the very limited product revenue and ongoing losses.
- Cash flow: Operating cash use was $4.214 million for the quarter and $12.559 million for nine months, compared with $7.104 million and $20.049 million in 2019. Financing provided $19.745 million and $24.812 million, respectively, primarily through the ATM program.
- Liquidity: At December 31, cash and equivalents were $26.546 million and short-term investments were $1.372 million. Current assets were $30.198 million against current liabilities of $2.248 million, or working capital of $27.950 million. The company reported total assets of $30.303 million and shareholders’ equity of $25.715 million.
- Debt and obligations: The filing reports no outstanding convertible debenture balance; liabilities included $2.340 million of derivative warrant liabilities and $105,000 of current lease obligations. Separately, contractual obligations included $2.143 million of payables and a $2.8 million remaining take-or-pay krill-oil supply commitment, due within one year.
Material changes and unusual items
- Lower R&D and sales and marketing costs reflected the discontinuation of CaPre development and commercialization activities. The nine-month results included $3.706 million of intangible-asset impairment and $1.584 million of equipment impairment following the trial failures.
- Quarterly and year-to-date losses improved substantially from 2019, in significant part because of lower R&D spending and less adverse fair-value changes in warrant liabilities. Nine-month financial income was $87,000, compared with $21.721 million of financial expense in 2019; warrant remeasurement is a major source of volatility.
- The company sold 65.9 million shares under its ATM program during the nine months, raising approximately $24.8 million net at an average price of about $0.39 per share. In January 2021 it sold another 23.4 million shares for approximately $7.9 million net. The filing reports 156.1 million shares outstanding at December 31 and 179.5 million at February 9, 2021.
- Management stated that substantial doubt about going concern no longer existed given liquidity and reduced operating activity, but continuing as a going concern remains dependent on a successful strategic outcome and the company’s ability to meet obligations.
Outlook, risks and contingencies
No revenue, earnings, or cash-flow guidance is provided. The company had engaged Oppenheimer to advise on strategic alternatives, but gave no assurance a transaction would occur and said it would not provide further process updates absent an approved course of action. If no transaction is completed, the board could consider dissolution and liquidation.
- The $2.8 million krill-oil commitment has no termination provision; management was assessing recoverability, and the filing warns of a possible near-term loss. The company was also marketing krill oil and equipment for sale, with uncertainty around recovery of the krill-oil carrying value.
- COVID-19 had not significantly disrupted operations to date, but market volatility or further pandemic effects could impair the strategic review.
- Other highlighted risks include dependence on remaining personnel, limited value a buyer may assign to CaPre or intellectual property, foreign-exchange exposure, share dilution, and potential Nasdaq delisting. The company had until May 10, 2021 to regain the $1 minimum bid-price requirement.
- Retention arrangements included a $100,000 incentive for the CEO subject to specified timing or transaction conditions, and payments of up to $125,000 each to the CEO and COO tied to asset-monetization milestones. The financial advisor’s agreement also included success-based fees.
Investor verification priorities
- Confirm that this Acasti Pharma filing, rather than a Grace Therapeutics filing, is the intended company and reporting period.
- Reconcile the conflicting quarterly net-loss figures ($3.220 million in the financial statements versus $3.244 million in an MD&A table).
- Check subsequent share issuance, ATM capacity and resulting dilution, including the February 2021 share count.
- Assess the status and terms of any strategic transaction, and the implications if the process fails or liquidation is pursued.
- Verify recovery prospects for assets held for sale and the potential cost of the krill-oil take-or-pay commitment.
- Monitor Nasdaq bid-price compliance and the company’s liquidity relative to cash burn and commitments.